Audit Exam 1: CPA Multiple Choice
Questions Fully Solved.
To exercise due professional care an auditor should
A. Attain the proper balance of professional experience and formal education.
B. Design the audit to detect all instances of illegal acts.
C. Critically review the judgment exercised by those assisting in the audit.
D. Examine all available corroborating evidence supporting management's assertions. - Answer
C. Critically review the judgment exercised by those assisting in the audit.
The auditor is required by GAAS to exercise due care in the performance of the audit and the
preparation of the report. Due care encompasses the employment of reasonable care and
diligence as well as critical review at every level of supervision of the work done and the
judgment exercised by those assisting in the audit.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer
professional services that conform with professional standards by
A. Establishing an understanding with each client concerning individual responsibilities in a
signed engagement letter.
B. Assessing the risk that errors and fraud may cause the financial statements to contain
material misstatements.
C. Developing specific audit objectives to support management's assertions that are embodied
in the financial statements.
D. Maintaining a comprehensive system of quality control that is suitably designed in relation to
its organizational structure. - Answer D. Maintaining a comprehensive system of quality
control that is suitably designed in relation to its organizational structure.
The purpose of a firm's system of quality control is to provide the firm with reasonable
assurance that the firm (and its personnel) comply with professional standards and applicable
regulatory and legal requirements and issue reports that are appropriate in the circumstances.
,The GAAS requirement states that due care is to be exercised in the performance of an audit is
ordinarily interpreted to require
A. Thorough review of the existing safeguards over access to assets and records.
B. Limited review of the indications of employee fraud and illegal acts.
C. Objective review of the adequacy of the technical training and proficiency of firm personnel.
D. Critical review of the judgment exercised at every level of supervision. - Answer D. Critical
review of the judgment exercised at every level of supervision.
While due care imposes the general responsibility of following the applicable GAAS standards,
the professional standards specifically address the need for critical review. Exercising due care is
defined as requiring "critical review" of the work performed and the audit judgments made at
every level of supervision.
A CPA firm evaluates its personnel advancement experience to ascertain whether individuals
meeting stated criteria are assigned increased degrees of responsibility.
This is evidence of the firm's adherence to which of the following prescribed standards
A. Professional ethics.
B. Supervision and review.
C. Accounting and review services.
D. Quality control. - Answer D. Quality control.
Professional standards on quality control require that a firm establish policies and procedures to
ensure that personnel selected for advancement have the qualifications necessary for the work
they will be required to perform.
The audit work performed by each assistant should be reviewed to determine whether it was
adequately performed and to evaluate whether the
A. Auditor's system of quality control has been maintained at a high level.
,B. Results are consistent with the conclusions to be presented in the auditor's report.
C. Audit procedures performed are approved in the professional standards.
D. Audit has been performed by persons having adequate technical training and proficiency as
auditors. - Answer B. Results are consistent with the conclusions to be presented in the
auditor's report.
The audit work performed by each assistant should be reviewed for adequacy and to ensure
that it supports the conclusions reached.
The primary purpose of establishing quality control policies and procedures for deciding
whether to accept a new client is to
A. Enable the CPA firm to attest to the reliability of the client.
B. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients.
C. Minimize the likelihood of association with clients whose management lacks integrity.
D. Anticipate before performing any field work whether an unqualified opinion can be
expressed. - Answer C. Minimize the likelihood of association with clients whose management
lacks integrity.
Quality control policies and procedures governing new client acceptance are established to
minimize the likelihood of association with a client whose management lacks integrity. A firm
should be selective in determining its professional relationships.
After field work audit procedures are completed, a partner of the CPA firm who has not been
involved in the audit performs a second or wrap-up working paper review. This second review
usually focuses on
A. The fair presentation of the financial statements in conformity with GAAP.
B. Irregularities involving the client's management and its employees.
C. The materiality of the adjusting entries proposed by the audit staff.
, D. The communication of internal control weaknesses to the client's audit committee. - Answer
A. The fair presentation of the financial statements in conformity with GAAP.
The review by a second partner is part of a firm's quality control system. It is performed to
ensure the fair presentation of the financial statements in conformity with GAAP. While this
particular step was not specifically discussed in the Study Text, it is a common part of firm
quality control systems and thus important to know (as evidenced by its past inclusion in the
exam). If your knowledge of this area is a little hazy, consider looking it up in an auditing
textbook for more detailed coverage.
According to GAAS, which of the following terms identifies a requirement for audit evidence?
A. Appropriate.
B. Adequate.
C. Reasonable.
D. Disconfirming. - Answer A. Appropriate.
GAAS requires the auditor to obtain "sufficient appropriate audit evidence..."
A CPA firm would be reasonably assured of meeting its responsibility to provide services that
conform with professional standards by
A. Adhering to generally accepted auditing standards.
B. Having an appropriate system of quality control.
C. Joining professional societies that enforce ethical conduct.
D. Maintaining an attitude of independence in its engagements. - Answer B. Having an
appropriate system of quality control.
A firm is required to establish an appropriate system of qua
lity control to provide reasonable assurance of conforming with professional standards.
Questions Fully Solved.
To exercise due professional care an auditor should
A. Attain the proper balance of professional experience and formal education.
B. Design the audit to detect all instances of illegal acts.
C. Critically review the judgment exercised by those assisting in the audit.
D. Examine all available corroborating evidence supporting management's assertions. - Answer
C. Critically review the judgment exercised by those assisting in the audit.
The auditor is required by GAAS to exercise due care in the performance of the audit and the
preparation of the report. Due care encompasses the employment of reasonable care and
diligence as well as critical review at every level of supervision of the work done and the
judgment exercised by those assisting in the audit.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer
professional services that conform with professional standards by
A. Establishing an understanding with each client concerning individual responsibilities in a
signed engagement letter.
B. Assessing the risk that errors and fraud may cause the financial statements to contain
material misstatements.
C. Developing specific audit objectives to support management's assertions that are embodied
in the financial statements.
D. Maintaining a comprehensive system of quality control that is suitably designed in relation to
its organizational structure. - Answer D. Maintaining a comprehensive system of quality
control that is suitably designed in relation to its organizational structure.
The purpose of a firm's system of quality control is to provide the firm with reasonable
assurance that the firm (and its personnel) comply with professional standards and applicable
regulatory and legal requirements and issue reports that are appropriate in the circumstances.
,The GAAS requirement states that due care is to be exercised in the performance of an audit is
ordinarily interpreted to require
A. Thorough review of the existing safeguards over access to assets and records.
B. Limited review of the indications of employee fraud and illegal acts.
C. Objective review of the adequacy of the technical training and proficiency of firm personnel.
D. Critical review of the judgment exercised at every level of supervision. - Answer D. Critical
review of the judgment exercised at every level of supervision.
While due care imposes the general responsibility of following the applicable GAAS standards,
the professional standards specifically address the need for critical review. Exercising due care is
defined as requiring "critical review" of the work performed and the audit judgments made at
every level of supervision.
A CPA firm evaluates its personnel advancement experience to ascertain whether individuals
meeting stated criteria are assigned increased degrees of responsibility.
This is evidence of the firm's adherence to which of the following prescribed standards
A. Professional ethics.
B. Supervision and review.
C. Accounting and review services.
D. Quality control. - Answer D. Quality control.
Professional standards on quality control require that a firm establish policies and procedures to
ensure that personnel selected for advancement have the qualifications necessary for the work
they will be required to perform.
The audit work performed by each assistant should be reviewed to determine whether it was
adequately performed and to evaluate whether the
A. Auditor's system of quality control has been maintained at a high level.
,B. Results are consistent with the conclusions to be presented in the auditor's report.
C. Audit procedures performed are approved in the professional standards.
D. Audit has been performed by persons having adequate technical training and proficiency as
auditors. - Answer B. Results are consistent with the conclusions to be presented in the
auditor's report.
The audit work performed by each assistant should be reviewed for adequacy and to ensure
that it supports the conclusions reached.
The primary purpose of establishing quality control policies and procedures for deciding
whether to accept a new client is to
A. Enable the CPA firm to attest to the reliability of the client.
B. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients.
C. Minimize the likelihood of association with clients whose management lacks integrity.
D. Anticipate before performing any field work whether an unqualified opinion can be
expressed. - Answer C. Minimize the likelihood of association with clients whose management
lacks integrity.
Quality control policies and procedures governing new client acceptance are established to
minimize the likelihood of association with a client whose management lacks integrity. A firm
should be selective in determining its professional relationships.
After field work audit procedures are completed, a partner of the CPA firm who has not been
involved in the audit performs a second or wrap-up working paper review. This second review
usually focuses on
A. The fair presentation of the financial statements in conformity with GAAP.
B. Irregularities involving the client's management and its employees.
C. The materiality of the adjusting entries proposed by the audit staff.
, D. The communication of internal control weaknesses to the client's audit committee. - Answer
A. The fair presentation of the financial statements in conformity with GAAP.
The review by a second partner is part of a firm's quality control system. It is performed to
ensure the fair presentation of the financial statements in conformity with GAAP. While this
particular step was not specifically discussed in the Study Text, it is a common part of firm
quality control systems and thus important to know (as evidenced by its past inclusion in the
exam). If your knowledge of this area is a little hazy, consider looking it up in an auditing
textbook for more detailed coverage.
According to GAAS, which of the following terms identifies a requirement for audit evidence?
A. Appropriate.
B. Adequate.
C. Reasonable.
D. Disconfirming. - Answer A. Appropriate.
GAAS requires the auditor to obtain "sufficient appropriate audit evidence..."
A CPA firm would be reasonably assured of meeting its responsibility to provide services that
conform with professional standards by
A. Adhering to generally accepted auditing standards.
B. Having an appropriate system of quality control.
C. Joining professional societies that enforce ethical conduct.
D. Maintaining an attitude of independence in its engagements. - Answer B. Having an
appropriate system of quality control.
A firm is required to establish an appropriate system of qua
lity control to provide reasonable assurance of conforming with professional standards.
