Audit Exam 1 Review UPDATED ACTUAL
Exam Questions and CORRECT Answers
1) Ethics are
A) needed in the professions, but is not needed for society in general.
B) a set of moral principles or values.
C) not formed by life experiences.
D) always incorporated in laws. - CORRECT ANSWER -:B
Terms: Ethical Principles
Diff: Easy
Objective: LO 4-1
;
2) ________ means that a person acts according to conscience, regardless of the situation.
A) Caring
B) Fairness
C) Integrity
D) Respect - CORRECT ANSWER -:C
Terms: Ethical principles and integrity
Diff: Moderate
Objective: LO 4-1
;
3) Which of the following is a prescribed set of moral principles or values?
A) codes of business ethics for professional groups
B) laws and regulations
,C) codes of conduct within an organization
D) all of the above - CORRECT ANSWER -:D
Terms: Ethical Principles
Diff: Easy
Objective: LO 4-1
;
1) A six-step approach is often used to resolve an ethical dilemma. The first step in this process
is to
A) identify the alternative actions available.
B) identify the ethical issues from the facts.
C) determine who will be affected by the outcome of the dilemma.
D) obtain the relevant facts. - CORRECT ANSWER -:D
Terms: Ethical dilemma
Diff: Moderate
Objective: LO 4-2
;
2) Describe an ethical dilemma that an auditor or an accountant might face in his or her business
career, then illustrate how the auditor or accountant might use the six-step approach presented in
the text to resolve that dilemma. Be specific. - CORRECT ANSWER - : An ethical
dilemma is a situation a person faces in which a decision must be made about an appropriate
behavior. Although students' answers will vary depending on the dilemma, their answer should
list the following six steps, along with a discussion of how each step relates to their particular
dilemma:
1. Obtain the relevant facts. Students should list the key facts from their dilemma.
2. Identify the ethical issues from the facts. Students should identify the key ethical issue(s) in
their dilemma.
,3. Determine who is affected by the outcome of the dilemma and how each person or group is
affected. Students should identify who is involved and how each person is affected by the
dilemma.
4. Identify the alternatives available to the person who must resolve the dilemma. Students
should list the alternatives available to the auditor or accountant.
5. Identify the likely consequence of each alternative. Students should identify both the short-
term and long-term effects of each alternative.
6. Decide the appropriate action.
Terms: Ethical dilemma
Diff: Challenging
Objective: LO 4-2
;
1) The underlying reason for a code of professional conduct for any profession is
A) the need for public confidence in the quality of service of the profession.
B) it provides a safeguard to keep unscrupulous people out.
C) it is required by federal legislation.
D) it allows licensing agencies to have a yardstick to measure deficient behavior. - CORRECT
ANSWER -:A
Terms: Reason for code of professional conduct
Diff: Easy
Objective: LO 4-3
;
2) Which of the following statements is true when the CPA has been engaged to perform an audit
of financial statements?
, A) The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility
to be an advocate for the client.
B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are
those who rely on the financial statements.
C) Should a situation arise where there is no convincing authoritative standard available, and
there is a choice of actions which could impact a client's financial statements, the CPA is free to
endorse the choice which is in the investors' interests.
D) The CPA firm has primary responsibility to the FASB. - CORRECT ANSWER -:B
Terms: CPA engaged to perform audit of financial statements
Diff: Moderate
Objective: LO 4-3
;
3) The ________ is a standard of conduct for all members of the AICPA.
A) IESBA Code of Conduct
B) SEC Code of Conduct
C) PCAOB Code of Professional Conduct
D) AICPA Code of Professional Conduct - CORRECT ANSWER -:D
Terms: Code of Professional Conduct
Diff: Easy
Objective: LO 4-3
;
4) Explain why there is a special need for ethical conduct in the auditing profession. -
CORRECT ANSWER - : The reason for an expectation of a high level of professional
conduct by any profession is the need for public confidence in the quality of service by the
profession, regardless of the individual providing it. It is not practical for most customers to
evaluate the quality of the performance of professional services because of their complexity.
Therefore, since the users (e.g., the general public) of services provided by an auditor generally
cannot evaluate the quality of the auditor's performance, it is critical to the auditing profession
that the public have a high degree of confidence in the quality of the services provided by the
Exam Questions and CORRECT Answers
1) Ethics are
A) needed in the professions, but is not needed for society in general.
B) a set of moral principles or values.
C) not formed by life experiences.
D) always incorporated in laws. - CORRECT ANSWER -:B
Terms: Ethical Principles
Diff: Easy
Objective: LO 4-1
;
2) ________ means that a person acts according to conscience, regardless of the situation.
A) Caring
B) Fairness
C) Integrity
D) Respect - CORRECT ANSWER -:C
Terms: Ethical principles and integrity
Diff: Moderate
Objective: LO 4-1
;
3) Which of the following is a prescribed set of moral principles or values?
A) codes of business ethics for professional groups
B) laws and regulations
,C) codes of conduct within an organization
D) all of the above - CORRECT ANSWER -:D
Terms: Ethical Principles
Diff: Easy
Objective: LO 4-1
;
1) A six-step approach is often used to resolve an ethical dilemma. The first step in this process
is to
A) identify the alternative actions available.
B) identify the ethical issues from the facts.
C) determine who will be affected by the outcome of the dilemma.
D) obtain the relevant facts. - CORRECT ANSWER -:D
Terms: Ethical dilemma
Diff: Moderate
Objective: LO 4-2
;
2) Describe an ethical dilemma that an auditor or an accountant might face in his or her business
career, then illustrate how the auditor or accountant might use the six-step approach presented in
the text to resolve that dilemma. Be specific. - CORRECT ANSWER - : An ethical
dilemma is a situation a person faces in which a decision must be made about an appropriate
behavior. Although students' answers will vary depending on the dilemma, their answer should
list the following six steps, along with a discussion of how each step relates to their particular
dilemma:
1. Obtain the relevant facts. Students should list the key facts from their dilemma.
2. Identify the ethical issues from the facts. Students should identify the key ethical issue(s) in
their dilemma.
,3. Determine who is affected by the outcome of the dilemma and how each person or group is
affected. Students should identify who is involved and how each person is affected by the
dilemma.
4. Identify the alternatives available to the person who must resolve the dilemma. Students
should list the alternatives available to the auditor or accountant.
5. Identify the likely consequence of each alternative. Students should identify both the short-
term and long-term effects of each alternative.
6. Decide the appropriate action.
Terms: Ethical dilemma
Diff: Challenging
Objective: LO 4-2
;
1) The underlying reason for a code of professional conduct for any profession is
A) the need for public confidence in the quality of service of the profession.
B) it provides a safeguard to keep unscrupulous people out.
C) it is required by federal legislation.
D) it allows licensing agencies to have a yardstick to measure deficient behavior. - CORRECT
ANSWER -:A
Terms: Reason for code of professional conduct
Diff: Easy
Objective: LO 4-3
;
2) Which of the following statements is true when the CPA has been engaged to perform an audit
of financial statements?
, A) The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility
to be an advocate for the client.
B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are
those who rely on the financial statements.
C) Should a situation arise where there is no convincing authoritative standard available, and
there is a choice of actions which could impact a client's financial statements, the CPA is free to
endorse the choice which is in the investors' interests.
D) The CPA firm has primary responsibility to the FASB. - CORRECT ANSWER -:B
Terms: CPA engaged to perform audit of financial statements
Diff: Moderate
Objective: LO 4-3
;
3) The ________ is a standard of conduct for all members of the AICPA.
A) IESBA Code of Conduct
B) SEC Code of Conduct
C) PCAOB Code of Professional Conduct
D) AICPA Code of Professional Conduct - CORRECT ANSWER -:D
Terms: Code of Professional Conduct
Diff: Easy
Objective: LO 4-3
;
4) Explain why there is a special need for ethical conduct in the auditing profession. -
CORRECT ANSWER - : The reason for an expectation of a high level of professional
conduct by any profession is the need for public confidence in the quality of service by the
profession, regardless of the individual providing it. It is not practical for most customers to
evaluate the quality of the performance of professional services because of their complexity.
Therefore, since the users (e.g., the general public) of services provided by an auditor generally
cannot evaluate the quality of the auditor's performance, it is critical to the auditing profession
that the public have a high degree of confidence in the quality of the services provided by the
