BUS 409Auditing Theory_Test Bank_2020.

1. Providing quantitative information that management and others can use to make decisions is the function of A. Accounting B. Auditing C. Finance D. Management of information systems 2. The series of tasks and records of an entity by which transactions are processed as a means of maintaining financial records A. Accounting system B. Computer information system C. Control environment D. Internal control system 3. The expertise that distinguishes auditors from accountants is in the A. Ability to interpret accounting standards B. Accumulation and interpretation of evidence C. Ability to interpret generally accepted accounting principles D. Requirement to possess education beyond the bachelor’s degree 4. Comprises officers and others who also perform senior managerial functions A. Audit committee C. Governance B. Board of directors D. Management 5. An audit conducted to determine whether an entity is following specific procedures or rules set down by some higher authority A. Compliance audit C. Financial audit B. Detailed audit D. Operational audit 6. A review of any part of an organization’s and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n) A. Audit of financial statements B. Compliance audit C. Operational audit D. Production audit 7. Operational auditing is primarily oriented toward A. Past protection provided by existing internal control B. Future improvements to accomplish the goals of management C. The accuracy of data reflected in management’s financial records D. The verification that a company’s financial statements are fairly presented 8. A typical objective of an operational audit is A. Make recommendations for improving performance B. Evaluate the feasibility of attaining the entity’s operational objectives C. Report on the entity’s relative success in attaining profit maximization D. Determine whether the financial statements fairly present the entity’s operations 9. Under the law, the chief executive officer of the Commission on Audit is the A. Chairman C. Commissioner B. Commission Secretary D. Executive Director 10. One of the government auditing standards which is not observed by independent CPAs in the private sector is: A. An evaluation shall be made of the system of internal control B. A review shall be made of compliance with legal and statutory requirements C. The audit is to be adequately planned and assistants are to be properly supervised D. Sufficient competent evidential matter shall be obtained through inspection, observation, inquiries, and confirmations 11. Which of the following is more difficult to evaluate objectively? A. Compliance with government regulations B. Efficiency and effectiveness of operations C. Presentation of financial statements in accordance with generally accepted accounting principles D. All three of the above are equally difficult Professional Practice of Accounting 12. The Core Competencies of CPAs include: A. Assurance and information integrity B. Objectivity C. Pursuit of life-long learning and excellence D. Strategic and critical thinking skills 13. refers to the application of relevant, training, knowledge and experience, within the context provided by auditing, accounting and ethical standards in making informed decisions about the course of action that are appropriate in the circumstances of the audit engagement. A. Compliance C. Professional judgment B. Professional competence D. Reasonable assurance 14. While performing services for their clients, professionals have a duty to provide a level of care which is A. Free from judgment errors C. Reasonable B. Greater than average D. Superior 15. “Absence of reasonable care that can be expected of a person in a set of circumstances” is the definition of A. Constructive fraud C. Gross negligence B. Fraud D. Ordinary negligence Quality Control Standards 16. The policies and procedures adopted by a firm to provide reasonable assurance that all audits done by the firm are being carried out in accordance with the Objective and General Principles Governing an Audit of Financial Statements. A. General controls C. Peer review B. Internal controls D. Quality controls 17. The main purpose of implementing quality control policies and procedures is: A. To have a favorable peer review B. To comply with regulatory agency C. To standardize the policies and procedures of the audit firms D. To provide reasonable assurance that audit will be conducted in accordance with PSA 18. A firm should establish and maintain a system of quality control to provide it with reasonable assurance that: I. The firm and its personnel comply with professional standards and applicable legal and regulatory requirements II. Reports issued by the firm or engagement partners are appropriate in the circumstances A. I only C. Both I and II B. II only D. Neither I nor II 19. The firm shall establish policies and procedures designed to provide it with reasonable assurance that engagements are performed in accordance with professional standards and regulatory and legal requirements, and that the firm or the engagement partner issue report that are appropriate in the circumstance. Such policies and procedures shall include: A. Review responsibilities B. Supervision responsibilities C. Matters relevant to promoting consistency in the quality of engagement performance D. All of the choices 20. The objectives of the quality control policies to be adopted by the audit firm will ordinarily incorporate: A B C D Skills and competence Yes Yes Yes No Monitoring Yes No Yes Yes Professional requirements Yes Yes No Yes 21. The nature and extent of a CPA firm’s quality control policies and procedures depend on A B C D The CPA firm’s Yes Yes No Yes The nature of CPA firm’s practice Yes Yes Yes No Cost-benefit considerations Yes No Yes Yes 22. Quality control policies and procedures should be implemented at A B C D Level of the audit firm Yes Yes No No Individual audits Yes No Yes No 23. An audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with PSAs or relevant national standards or practices. These policies and procedures should be implemented A. On individual audits only B. At the audit form level only C. Either at the audit firm level or on individual audits D. Both at the audit firm level and on individual audits 24. Which of the following is not once of the major concerns of the auditor when establishing quality control policies and procedures? A. Billing arrangement C. Ethical requirements B. Engagement performance D. Independence 25. Which of the following quality control objectives would be least importance to the auditor? A. Determination of audit fee C. Professional advancement B. Hiring personnel D. Review and supervision 26. The firm’s system of quality control should include policies and procedures that address each of the following elements, except A. Control environment B. Human resources C. Relevant ethical requirements D. Relevant ethical requirements 27. In pursuing a firm’s quality control objectives, a firm should adopt policies and procedures to enable it to identify and evaluate circumstances and relationships that create threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the engagement. Which quality control element would be most likely to satisfy? A. Monitoring B. Human resources C. Ethical requirements D. Leadership responsibilities for quality within the firm 28. A firm of CPAs may use policies and procedures such as notifying professional personnel as to the names of audit clients having publicly held securities and confirming periodically with such personnel that prohibited relations do not exist. This is done to achieve effective quality control in which of the following areas? A. Human resources B. Ethical requirements C. Acceptance and continuance of clients D. Leadership responsibilities for quality within the firm 29. The primary purpose of establishing quality control policies and procedures for deciding whether to accept new client is to A. Enable the CPA firm to attest to the integrity of the client management 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 30. A CPA firm’s quality control procedure pertaining to the acceptance of a prospective audit client would most likely include A. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion B. Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the required substantive tests C. Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily D. Inquiry of third parties, such as the prospective client’s bankers and attorneys, about information regarding the prospective client and its management