1. Which of the following best describes what is meant by U.S. auditing standards?

Measures of the quality of the auditor's performance

2. The Responsibilities principle underlying AICPA auditing standards includes a requirement that
professional judgment be exercised by the auditor.

3. What is the general character of the responsibilities characterized by the Performance

principles?
The criteria of audit planning and evidence gathering

4. Which of the following are elements of a CPA firm's quality control that should be considered in
establishing its quality control policies and procedures?

Human Resources Monitoring Engagement Performance

YES YES YES

5. The nature and extent of a CPA firm's quality control policies and procedures depend on

The CPA The Nature of the Cost-benefit

Firm's Size CPA Firm's Practice Considerations
YES YES YES

6. One of a CPA firm's basic objectives is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this objective is provided through:
A system of quality control.

7. Which of the following provides authoritative guidance for the auditor of a nonpublic company?
Statements on Auditing Standards

8. The Public Company Accounting Oversight Board (PCAOB) has the duty to:
Conduct investigations concerning registered public accounting firms

9. What is the main objective of the audit of an entity's financial statements?

The main objective of an audit of financial statements is to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, thereby enabling the auditor to express an opinion in a written report on
whether the financial statements are presented fairly, in all material respects, in accordance
with an applicable financial reporting framework.

10. The audit represents the CPA firm's guarantee about the accuracy of the financial statements,
right?
A - No. In an audit of the financial statements the auditor performs audit procedures to obtain
reasonable assurance about whether the financial statements contain material misstatements.
 B - No. In an audit, the auditor provides a high level of assurance. Reasonable assurance is less
than a guarantee, which implies absolute (100%) assurance.
C - No. In an audit, the auditor issues an opinion on whether the financial statements are
presented fairly, but the auditor is not guaranteeing that the financial statements are accurate
with certainty.

11. Isn't the auditor's primary responsibility to detect all kinds of fraud at the client?
No. Fraud is a broad legal concept that describes any intentional deceit meant to deprive
another person or party of their property or rights. The auditor does not take responsibility for
detecting all types of fraud, given many types of fraud do not impact the financial statements.
Instead, the auditor performs auditing procedures to obtain reasonable assurance that the
financial statements do not contain material misstatements, whether due to fraud or error.
Thus, the auditor is concerned with detecting fraud that leads to a material misstatement. The
auditor is not responsible for detecting fraud that does not lead to a material misstatement.

12. Given the CPA firm is auditing financial statements, why would they need to understand
anything about the client's business?
A - Each entity faces a number of risks unique to the nature of its business and industry. The
types of operations, the extent of regulation, how the organization obtains capital to fund its
business model, and the nature of accounts in the financial statements, among other factors,
each trigger different types of risks that could lead to material misstatements.
B - There are unique accounting standards for certain industries that impact how transactions,
accounts, and disclosures are reported in financial statements. Thus, a thorough understanding
of the client's business is critical to assessing the risk of material misstatements in the financial
statements when planning the audit.

13. What does the auditor do in an audit other than verify the mathematical accuracy of the
numbers in the financial statements?
A - The auditor is responsible for obtaining sufficient appropriate audit evidence about whether
the financial statements are free of material misstatements.
B - In addition to understanding whether the amounts reported in the financial statements are
mathematically accurate, the auditor obtains other types of information to determine that the
amounts reported represent valid transactions and accounts and that all valid transactions and
accounts are included in those statements.
C - Evidence is gathered to determine that the entity has the rights to assets and has the
obligation to repay liabilities reflected in those financial statements and whether the correct
disclosures are included in the financial statements as required by accounting standards.

14.