Exam 1 CPA Questions
Generally accepted auditing standards are
a) required procedures to be used to gather evidence to support financial statements
b) policies and procedures designed to provide reasonable assurance that the CPA firm and its
personnel comply with professional standards.
c) pronouncements issued by the Auditing Standards Board
d) rules acknowledged by the accounting profession because of their universal application
✔✔C
Which of the following is MOST likely to be unique to the audit work of CPAs as compared to
work performed by practitioners of other professions?
a) due professional care
b) competence
c) independence
d) complex body of knowledge ✔✔C
The PCAOB's standards require that due care is to be exercised in the performance of an audit.
This standard 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 judgement exercised at every level of supervision ✔✔D
According to the standards of the profession, which of the following circumstances will prevent
a CPA performing audit engagements from being independent?
a) obtaining a collateralized automobile loan from a financial institution client
b) litigation with a client relating to billing for consulting for which the amount is immaterial
c) employment of the CPA's spouse as a client's director of internal audit
d) acting as an honorary trustee for a not-for-profit organization client ✔✔C
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
,a) issuing a modified report explaining a failure to follow a governmental regulatory agency's
standards when conducting an attest service for a client
b) revealing confidential client information during a quality review of a professional practice by
a team from the state CPA society
c) accepting a contingent fee for representing a client in an examination of the client's federal
tax return by an IRS agent
d) retaining client records after an engagement is terminated prior to completion and the client
had demanded their return. ✔✔D
According to the standards of the profession, which of the following activities would most likely
NOT impair a CPAs independence?
a) providing advisory services for a client
b) contracting with a client to supervise the client's office personnel
c) signing a client's checks in emergency situations
d) accepting a luxurious gift from a client ✔✔A
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
a) purchasing a product from a third party and reselling it to a client
b) writing a financial management newsletter promoted and sold by a publishing company
c) accepting a commission for recommending a product to an audit client
d) accepting engagements obtained through the efforts of third parties ✔✔C
To exercise due professional care an auditor should
a) critically review the judgement exercised by those assisting in the audit
b) examine all available corroborating evidence supporting managements assertions
c) design the audit to detect all instances of illegal acts
d) attain the proper balance of professional experience and formal education ✔✔A
Which of the following statements is correct regarding an accountant's working papers?
a) the accountant owns the working papers and generally may disclose them as the accountant
sees fit
b) the client owns the working papers but the accountant has custody of them until the
accountant's bill is paid in full
, c) the accountant owns the working papers but generally may not disclose them without the
client's consent or a court order
d) the client owns the working papers but, in the absence of the accountant's consent, may not
disclose them without a court order. ✔✔C
Financial statement assertions are established for account balances,
a) classes of transactions and disclosures
b) classes of transactions
c) disclosures
d) None ✔✔A
Which of the following is NOT a financial statement assertion relating to account balances?
a) completeness
b) existence
c) rights and obligations
d) valuation and completeness ✔✔D
As the acceptable level of detection risk decreases, an auditor may
a) reduce substantive testing by relying on the assessments of inherent risk and control risk
b) postpone the planned timing of substantive tests from interim dates to the year-end
c) eliminate the assessed level of inherent risk from consideration as a planning factor
d) lower the assessed level of control risk from the maximum level to below the maximum
✔✔B
The risk that an auditor will conclude, based on substantive tests, that a material misstatement
does NOT exist in an account balance when, in fact, such misstatement does exist is referred to
as
a) sampling risk
b) detection risk
c) non-sampling risk
d) inherent risk ✔✔B
As the acceptable level of detection risk decreases, the assurance directly provided from
a) substantive tests should increase
Generally accepted auditing standards are
a) required procedures to be used to gather evidence to support financial statements
b) policies and procedures designed to provide reasonable assurance that the CPA firm and its
personnel comply with professional standards.
c) pronouncements issued by the Auditing Standards Board
d) rules acknowledged by the accounting profession because of their universal application
✔✔C
Which of the following is MOST likely to be unique to the audit work of CPAs as compared to
work performed by practitioners of other professions?
a) due professional care
b) competence
c) independence
d) complex body of knowledge ✔✔C
The PCAOB's standards require that due care is to be exercised in the performance of an audit.
This standard 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 judgement exercised at every level of supervision ✔✔D
According to the standards of the profession, which of the following circumstances will prevent
a CPA performing audit engagements from being independent?
a) obtaining a collateralized automobile loan from a financial institution client
b) litigation with a client relating to billing for consulting for which the amount is immaterial
c) employment of the CPA's spouse as a client's director of internal audit
d) acting as an honorary trustee for a not-for-profit organization client ✔✔C
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
,a) issuing a modified report explaining a failure to follow a governmental regulatory agency's
standards when conducting an attest service for a client
b) revealing confidential client information during a quality review of a professional practice by
a team from the state CPA society
c) accepting a contingent fee for representing a client in an examination of the client's federal
tax return by an IRS agent
d) retaining client records after an engagement is terminated prior to completion and the client
had demanded their return. ✔✔D
According to the standards of the profession, which of the following activities would most likely
NOT impair a CPAs independence?
a) providing advisory services for a client
b) contracting with a client to supervise the client's office personnel
c) signing a client's checks in emergency situations
d) accepting a luxurious gift from a client ✔✔A
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
a) purchasing a product from a third party and reselling it to a client
b) writing a financial management newsletter promoted and sold by a publishing company
c) accepting a commission for recommending a product to an audit client
d) accepting engagements obtained through the efforts of third parties ✔✔C
To exercise due professional care an auditor should
a) critically review the judgement exercised by those assisting in the audit
b) examine all available corroborating evidence supporting managements assertions
c) design the audit to detect all instances of illegal acts
d) attain the proper balance of professional experience and formal education ✔✔A
Which of the following statements is correct regarding an accountant's working papers?
a) the accountant owns the working papers and generally may disclose them as the accountant
sees fit
b) the client owns the working papers but the accountant has custody of them until the
accountant's bill is paid in full
, c) the accountant owns the working papers but generally may not disclose them without the
client's consent or a court order
d) the client owns the working papers but, in the absence of the accountant's consent, may not
disclose them without a court order. ✔✔C
Financial statement assertions are established for account balances,
a) classes of transactions and disclosures
b) classes of transactions
c) disclosures
d) None ✔✔A
Which of the following is NOT a financial statement assertion relating to account balances?
a) completeness
b) existence
c) rights and obligations
d) valuation and completeness ✔✔D
As the acceptable level of detection risk decreases, an auditor may
a) reduce substantive testing by relying on the assessments of inherent risk and control risk
b) postpone the planned timing of substantive tests from interim dates to the year-end
c) eliminate the assessed level of inherent risk from consideration as a planning factor
d) lower the assessed level of control risk from the maximum level to below the maximum
✔✔B
The risk that an auditor will conclude, based on substantive tests, that a material misstatement
does NOT exist in an account balance when, in fact, such misstatement does exist is referred to
as
a) sampling risk
b) detection risk
c) non-sampling risk
d) inherent risk ✔✔B
As the acceptable level of detection risk decreases, the assurance directly provided from
a) substantive tests should increase
