LSUS MBA 701 EXAM 1 CERTIFICATION
PREPARATION GUIDE
◉ In auditing a publicly held company, an auditor must follow the
professional standards established by all of the following except:
a. The SEC Independence Rules.
b. The AICPA's Auditing Standards Board.
c. The AICPA's Code of Professional Conduct.
d. The PCAOB Auditing Standards.
Answer: b. The AICPA's Auditing Standards Board.
◉ In auditing a publicly held company, an auditor must follow the
professional standards established by all of the following except:
a. The AICPA's Auditing Standards Board.
b. The PCAOB Auditing Standards.
c. The SEC Independence Rules.
d. The AICPA's Code of Professional Conduct..
Answer: a. The AICPA's Auditing Standards Board.
,◉ In the context of agency theory, information asymmetry refers to
the idea that:
a. management likely will not act in the best interests of the
absentee owners.
b. information can vary in its reliability.
c. information can vary in its relevance.
d. management has more information about the entity's true
financial results and position than do the absentee owners (i.e.
stockholders)..
Answer: d. management has more information about the entity's
true financial results and position than do the absentee owners (i.e.
stockholders).
◉ In which of the following instances would the independence of the
CPA not be considered to be impaired? The CPA has been retained as
the auditor of a:
a. charitable organization in which an employee of the CPA serves as
treasurer.
b. municipality in which the CPA owns $25,000 of the $2,500,000
indebtedness of the municipality.
c. restaurant where the CPA dines frequently.
d. company in which the CPA's private investment club owns a one-
tenth interest..
,Answer: c. restaurant where the CPA dines frequently.
◉ Information Risk is defined as:
a. the risk that information conveyed by a company's management
will be false, inaccurate, or misleading.
b. the risk that the internal controls will not prevent or detect a
misstatement in the financial statements.
c. the risk that an assertion contains a misstatement, before
considering internal controls.
d. the risk that the auditor has followed appropriate auditing
standards and issued a standard unqualified opinion, and the
financial statements contain a material misstatement..
Answer: a. the risk that information conveyed by a company's
management will be false, inaccurate, or misleading.
◉ The basic definition of auditing essentially indicates that, overall,
auditing is a process to:
a. examine individual transactions so that the auditor may certify as
to their validity.
b. assure the consistent application of correct accounting
procedures.
c. detect fraud.
, d. objectively obtain and evaluate evidence regarding assertions
made by another party..
Answer: d. objectively obtain and evaluate evidence regarding
assertions made by another party.
◉ Which of the following best describes the fundamental,
underlying reason for why there is demand for an independent
auditor to report on financial statements?
a. A misstatement of account balances may exist and it is the
independent auditor's responsibility to ensure that financial
statements are not misstated.
b. Different interests may exist between the company preparing the
statements and the parties using the statements.
c. A management fraud may exist and it is more likely to be detected
by auditors if they are independent.
d. A poorly designed internal control system may be in place..
Answer: b. Different interests may exist between the company
preparing the statements and the parties using the statements.
◉ Which of the following statements best describes why the
profession of certified public accountants has deemed it essential to
promulgate a code of conduct and to establish a mechanism for
enforcing observance of the code?
PREPARATION GUIDE
◉ In auditing a publicly held company, an auditor must follow the
professional standards established by all of the following except:
a. The SEC Independence Rules.
b. The AICPA's Auditing Standards Board.
c. The AICPA's Code of Professional Conduct.
d. The PCAOB Auditing Standards.
Answer: b. The AICPA's Auditing Standards Board.
◉ In auditing a publicly held company, an auditor must follow the
professional standards established by all of the following except:
a. The AICPA's Auditing Standards Board.
b. The PCAOB Auditing Standards.
c. The SEC Independence Rules.
d. The AICPA's Code of Professional Conduct..
Answer: a. The AICPA's Auditing Standards Board.
,◉ In the context of agency theory, information asymmetry refers to
the idea that:
a. management likely will not act in the best interests of the
absentee owners.
b. information can vary in its reliability.
c. information can vary in its relevance.
d. management has more information about the entity's true
financial results and position than do the absentee owners (i.e.
stockholders)..
Answer: d. management has more information about the entity's
true financial results and position than do the absentee owners (i.e.
stockholders).
◉ In which of the following instances would the independence of the
CPA not be considered to be impaired? The CPA has been retained as
the auditor of a:
a. charitable organization in which an employee of the CPA serves as
treasurer.
b. municipality in which the CPA owns $25,000 of the $2,500,000
indebtedness of the municipality.
c. restaurant where the CPA dines frequently.
d. company in which the CPA's private investment club owns a one-
tenth interest..
,Answer: c. restaurant where the CPA dines frequently.
◉ Information Risk is defined as:
a. the risk that information conveyed by a company's management
will be false, inaccurate, or misleading.
b. the risk that the internal controls will not prevent or detect a
misstatement in the financial statements.
c. the risk that an assertion contains a misstatement, before
considering internal controls.
d. the risk that the auditor has followed appropriate auditing
standards and issued a standard unqualified opinion, and the
financial statements contain a material misstatement..
Answer: a. the risk that information conveyed by a company's
management will be false, inaccurate, or misleading.
◉ The basic definition of auditing essentially indicates that, overall,
auditing is a process to:
a. examine individual transactions so that the auditor may certify as
to their validity.
b. assure the consistent application of correct accounting
procedures.
c. detect fraud.
, d. objectively obtain and evaluate evidence regarding assertions
made by another party..
Answer: d. objectively obtain and evaluate evidence regarding
assertions made by another party.
◉ Which of the following best describes the fundamental,
underlying reason for why there is demand for an independent
auditor to report on financial statements?
a. A misstatement of account balances may exist and it is the
independent auditor's responsibility to ensure that financial
statements are not misstated.
b. Different interests may exist between the company preparing the
statements and the parties using the statements.
c. A management fraud may exist and it is more likely to be detected
by auditors if they are independent.
d. A poorly designed internal control system may be in place..
Answer: b. Different interests may exist between the company
preparing the statements and the parties using the statements.
◉ Which of the following statements best describes why the
profession of certified public accountants has deemed it essential to
promulgate a code of conduct and to establish a mechanism for
enforcing observance of the code?
