Principles of Auditing & Other Assurance Services, 21e (Whittington)
Chapter 1 The Role of the Public Accountant in the American Economy
1) Independent audits of today place more emphasis on sampling than did the audits of
the 19th century.
2) The American Institute of Certified Public Accountants creates the CPA Exam, while
individual states issue CPA certificates and permits CPAs to practice.
3) The GAO is limited by statute to performing only compliance audits.
4) The SEC does not pass on the merits of the securities that are registered with the
agency.
5) The American Institute of Certified Public Accountants has the primary authority to
establish accounting standards.
6) When a CPA firm enrolls in the AICPA Peer Review Program, it agrees to comply
with the AICPA's Quality Control Standards and to have a peer review of its accounting
and auditing practice every seven years.
7) Despite the high cost, most small companies have their financial statements audited by
a CPA firm, so they can obtain a loan.
8) Senior auditors in CPA firms may be responsible for planning and coordinating audits
on smaller engagements.
9) The Sarbanes-Oxley Act requires that auditors of certain publicly traded companies in
the United States perform an integrated audit that includes providing assurance on both
the financial statements and on compliance with laws and regulations.
10) Auditing is frequently only a small part of the practice of local CPA firms.
11) A summary of findings rather than assurance is most likely to be included in a(n):
A) Agreed-upon procedures report.
B) Compilation report.
C) Examination report.
D) Review report.
12) The Statements on Auditing Standards have been issued by the:
A) Auditing Standards Board.
B) Financial Accounting Standards Board.
C) Securities and Exchange Commission.
D) Federal Bureau of Investigation.
,13) The risk that a company's financial statements will materially depart from generally
accepted accounting principles is referred to as:
A) Business Risk.
B) Information Risk.
C) Detection Risk.
D) Control Risk.
14) Historically, which of the following has the AICPA been most concerned with
providing?
A) Professional standards for CPAs.
B) Professional guidance for regulating financial markets.
C) Standards guiding the conduct of internal auditors.
D) Staff support to Congress.
15) The organization charged with protecting investors and the public by requiring full
disclosure of financial information by companies offering securities to the public is the:
A) Auditing Standards Board.
B) Financial Accounting Standards Board.
C) Government Accounting Standards Boards.
D) Securities and Exchange Commission.
16) An engagement in which a CPA firm arranges for a critical review of its practices by
another CPA firm is referred to as a(n):
A) Peer Review Engagement.
B) Quality Control Engagement.
C) Quality Assurance Engagement.
D) Attestation Engagement.
17) The sequentially-numbered pronouncements issued by the Auditing Standards Board
over a period of years are known as:
A) Auditing Statements of Position (ASPs).
B) Accounting Series Releases (ASRs).
C) Statements on Auditing Standards (SASs).
D) Statements on Auditing Principles (SAPs).
18) The Government Accountability Office (GAO):
A) is primarily concerned with rapid processing of all accounts payable incurred by the
federal government.
B) Responsibilities include conducting operational audits to ensure spending meets
Congress's requirements.
C) is a multinational organization of professional accountants.
D) is primarily concerned with budgets and forecasts approved by the SEC.
,19) The risk associated with survivability and profitability is referred to as
A) Information risk.
B) Inherent risk.
C) Relative risk.
D) Business risk.
20) The risk that a company will not be able to meet its obligations when they become
due is an aspect of:
A) Information risk.
B) Inherent risk.
C) Relative risk.
D) Business risk.
21) Which of the following attributes is more essential for an auditor than of
management?
A) Integrity.
B) Competence.
C) Independence.
D) Keeping informed on current professional developments.
22) The attest function:
A) Is an essential part of every engagement by the CPA, whether performing auditing, tax
work, or other services.
B) Includes the preparation of a report of the CPA's findings.
C) Requires a consideration of internal control.
D) Requires a complete review of all transactions during the period under examination.
23) Attestation risk is limited to a low level in which of the following engagement(s)?
A) Both examinations and reviews.
B) Examinations, but not reviews.
C) Reviews, but not examinations.
D) Neither examinations nor reviews.
24) When compared to an audit performed prior to 1900, an audit today:
A) Is more likely to use sampling.
B) Is less likely to include consideration of the effectiveness of internal control.
C) Has bank loan officers as the primary financial statement user group.
D) Includes a more detailed examination of all individual transactions.
25) Which of the following are issued by the Securities and Exchange Commission?
A) Accounting and Auditing Enforcement Releases.
B) Accounting Trends and Techniques.
C) Industry Audit Guides.
D) Statements of Position.
, 26) Which of the following is not correct relating to the Sarbanes-Oxley Act?
A) It toughens penalties for corporate fraud.
B) It restricts the types of consulting CPAs may perform for audit clients.
C) It applies to both public and nonpublic audit clients.
D) It eliminates a significant portion of the accounting profession's system of self-
regulation.
27) An operational audit differs in many ways from an audit of financial statements.
Which of the following is the best example of one of these differences?
A) The usual audit of financial statements covers the four basic statements, whereas the
operational audit is usually limited to either the balance sheet or the income statement.
B) Operational audits are more subjective and often involve evaluating efficiency and
effectiveness of operations.
C) Operational audits do not ordinarily result in the preparation of a report.
D) The operational audit deals with pre-tax income.
28) The review of a company's financial statements by a CPA firm:
A) Is substantially less in scope of procedures than an audit.
B) Requires detailed analysis of the major accounts.
C) Is of similar scope as an audit and adds similar credibility to the statements.
D) Culminates in issuance of a report expressing the CPA's opinion as to the fairness of
the statements.
29) Which statement is correct with respect to continuing professional education (CPE)
requirements of members of the AICPA?
A) Only members employed by the AICPA are required to take such courses.
B) Only members in public practice are required to take such courses.
C) Members, regardless of whether they are in public practice, are required to meet such
requirements.
D) There is no requirement for members to participate in CPE.
30) The FDIC Improvement Act requires that management of large financial institutions
engage auditors to attest to assertions by management about the effectiveness of the
institution's internal controls over:
A) Broker and dealer relationships.
B) Financial reporting.
C) Effectiveness of operations.
D) Efficiency of operations.
31) Passage of the Sarbanes-Oxley Act led to the establishment of the:
A) Auditing Standards Board.
B) Public Company Accounting Oversight Board.
C) Public Accountancy Review Board.
D) Securities and Exchange Commission.
Chapter 1 The Role of the Public Accountant in the American Economy
1) Independent audits of today place more emphasis on sampling than did the audits of
the 19th century.
2) The American Institute of Certified Public Accountants creates the CPA Exam, while
individual states issue CPA certificates and permits CPAs to practice.
3) The GAO is limited by statute to performing only compliance audits.
4) The SEC does not pass on the merits of the securities that are registered with the
agency.
5) The American Institute of Certified Public Accountants has the primary authority to
establish accounting standards.
6) When a CPA firm enrolls in the AICPA Peer Review Program, it agrees to comply
with the AICPA's Quality Control Standards and to have a peer review of its accounting
and auditing practice every seven years.
7) Despite the high cost, most small companies have their financial statements audited by
a CPA firm, so they can obtain a loan.
8) Senior auditors in CPA firms may be responsible for planning and coordinating audits
on smaller engagements.
9) The Sarbanes-Oxley Act requires that auditors of certain publicly traded companies in
the United States perform an integrated audit that includes providing assurance on both
the financial statements and on compliance with laws and regulations.
10) Auditing is frequently only a small part of the practice of local CPA firms.
11) A summary of findings rather than assurance is most likely to be included in a(n):
A) Agreed-upon procedures report.
B) Compilation report.
C) Examination report.
D) Review report.
12) The Statements on Auditing Standards have been issued by the:
A) Auditing Standards Board.
B) Financial Accounting Standards Board.
C) Securities and Exchange Commission.
D) Federal Bureau of Investigation.
,13) The risk that a company's financial statements will materially depart from generally
accepted accounting principles is referred to as:
A) Business Risk.
B) Information Risk.
C) Detection Risk.
D) Control Risk.
14) Historically, which of the following has the AICPA been most concerned with
providing?
A) Professional standards for CPAs.
B) Professional guidance for regulating financial markets.
C) Standards guiding the conduct of internal auditors.
D) Staff support to Congress.
15) The organization charged with protecting investors and the public by requiring full
disclosure of financial information by companies offering securities to the public is the:
A) Auditing Standards Board.
B) Financial Accounting Standards Board.
C) Government Accounting Standards Boards.
D) Securities and Exchange Commission.
16) An engagement in which a CPA firm arranges for a critical review of its practices by
another CPA firm is referred to as a(n):
A) Peer Review Engagement.
B) Quality Control Engagement.
C) Quality Assurance Engagement.
D) Attestation Engagement.
17) The sequentially-numbered pronouncements issued by the Auditing Standards Board
over a period of years are known as:
A) Auditing Statements of Position (ASPs).
B) Accounting Series Releases (ASRs).
C) Statements on Auditing Standards (SASs).
D) Statements on Auditing Principles (SAPs).
18) The Government Accountability Office (GAO):
A) is primarily concerned with rapid processing of all accounts payable incurred by the
federal government.
B) Responsibilities include conducting operational audits to ensure spending meets
Congress's requirements.
C) is a multinational organization of professional accountants.
D) is primarily concerned with budgets and forecasts approved by the SEC.
,19) The risk associated with survivability and profitability is referred to as
A) Information risk.
B) Inherent risk.
C) Relative risk.
D) Business risk.
20) The risk that a company will not be able to meet its obligations when they become
due is an aspect of:
A) Information risk.
B) Inherent risk.
C) Relative risk.
D) Business risk.
21) Which of the following attributes is more essential for an auditor than of
management?
A) Integrity.
B) Competence.
C) Independence.
D) Keeping informed on current professional developments.
22) The attest function:
A) Is an essential part of every engagement by the CPA, whether performing auditing, tax
work, or other services.
B) Includes the preparation of a report of the CPA's findings.
C) Requires a consideration of internal control.
D) Requires a complete review of all transactions during the period under examination.
23) Attestation risk is limited to a low level in which of the following engagement(s)?
A) Both examinations and reviews.
B) Examinations, but not reviews.
C) Reviews, but not examinations.
D) Neither examinations nor reviews.
24) When compared to an audit performed prior to 1900, an audit today:
A) Is more likely to use sampling.
B) Is less likely to include consideration of the effectiveness of internal control.
C) Has bank loan officers as the primary financial statement user group.
D) Includes a more detailed examination of all individual transactions.
25) Which of the following are issued by the Securities and Exchange Commission?
A) Accounting and Auditing Enforcement Releases.
B) Accounting Trends and Techniques.
C) Industry Audit Guides.
D) Statements of Position.
, 26) Which of the following is not correct relating to the Sarbanes-Oxley Act?
A) It toughens penalties for corporate fraud.
B) It restricts the types of consulting CPAs may perform for audit clients.
C) It applies to both public and nonpublic audit clients.
D) It eliminates a significant portion of the accounting profession's system of self-
regulation.
27) An operational audit differs in many ways from an audit of financial statements.
Which of the following is the best example of one of these differences?
A) The usual audit of financial statements covers the four basic statements, whereas the
operational audit is usually limited to either the balance sheet or the income statement.
B) Operational audits are more subjective and often involve evaluating efficiency and
effectiveness of operations.
C) Operational audits do not ordinarily result in the preparation of a report.
D) The operational audit deals with pre-tax income.
28) The review of a company's financial statements by a CPA firm:
A) Is substantially less in scope of procedures than an audit.
B) Requires detailed analysis of the major accounts.
C) Is of similar scope as an audit and adds similar credibility to the statements.
D) Culminates in issuance of a report expressing the CPA's opinion as to the fairness of
the statements.
29) Which statement is correct with respect to continuing professional education (CPE)
requirements of members of the AICPA?
A) Only members employed by the AICPA are required to take such courses.
B) Only members in public practice are required to take such courses.
C) Members, regardless of whether they are in public practice, are required to meet such
requirements.
D) There is no requirement for members to participate in CPE.
30) The FDIC Improvement Act requires that management of large financial institutions
engage auditors to attest to assertions by management about the effectiveness of the
institution's internal controls over:
A) Broker and dealer relationships.
B) Financial reporting.
C) Effectiveness of operations.
D) Efficiency of operations.
31) Passage of the Sarbanes-Oxley Act led to the establishment of the:
A) Auditing Standards Board.
B) Public Company Accounting Oversight Board.
C) Public Accountancy Review Board.
D) Securities and Exchange Commission.
