2025 Complete Advanced Accounting
Study Manual: In-Depth Test Bank, Step-
by-Step Solutions, and Concept Review
for Professionals
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 Board
d) Securities and Exchange Commission
Rationale: The SEC enforces federal securities laws and ensures transparency in financial
reporting. Other boards establish accounting or auditing standards but do not regulate disclosures
to investors.
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
Rationale: Business risk is associated with the company’s ability to achieve its objectives and
meet obligations. Inherent risk relates to financial statement assertions, not solvency.
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
Rationale: Agreed-upon procedures reports describe factual findings only—no assurance is
provided.
International Standards on Auditing are issued by:
a) International Standards Board
,b) International Auditing and Assurance Standards Board
c) Public Company Accounting Oversight Board
d) International Auditing Education Standards Board
Rationale: The IAASB develops ISAs, while the PCAOB governs U.S. public company audits.
Which of the following is not correct relating to the Sarbanes-Oxley Act?
a) It toughens penalties for corporate fraud
b) It restricts consulting services by CPAs for audit clients
c) It applies to both public and nonpublic audit clients
d) It eliminates a significant portion of the profession’s self-regulation
Rationale: SOX applies only to publicly traded companies, not private entities.
A peer review in which reviewers study and appraise a CPA firm's system of quality control is
referred to as a:
a) Engagement review
b) Inspection review
c) Supervision review
d) System review
Rationale: A system review evaluates a firm’s overall quality control processes rather than
individual engagements.
Which of the following is not a type of auditors' opinion?
a) Adverse
b) Conventional
c) Qualified
d) Unmodified
Rationale: “Conventional” is not an official audit opinion; recognized opinions include
unmodified, qualified, and adverse.
A set of criteria used to determine measurement, recognition, and disclosure in financial
statements is referred to as a(n):
a) Financial reporting framework
b) PCAOB criteria
c) Quality control presentation standard
d) Special purpose audit standard
Rationale: Frameworks like GAAP or IFRS guide how transactions are recognized and
presented.
,An audit opinion stating that the financial statements are not fairly presented is a(n):
a) Adverse opinion
b) Limited assurance opinion
c) Negative opinion
d) Unqualified opinion
Rationale: An adverse opinion indicates material and pervasive misstatements that render
financial statements unreliable.
Primary responsibility for the financial statements lies with:
a) Auditors only
b) Both auditors and management
c) Management only
d) Neither auditors nor management
Rationale: Management prepares the statements; auditors only provide assurance.
When auditors express an opinion on financial statements, their responsibility extends to:
a) The underlying wisdom of management decisions
b) Whether the results of operations are fairly presented
c) Participation in implementing advice
d) Client solvency
Rationale: Auditors assess fairness of presentation, not management judgment or solvency.
Which of the following is least likely to be directly examined in a PCAOB inspection?
a) Audit engagements
b) Review engagements
c) Compilation engagements
d) CPA firm quality control system
Rationale: PCAOB focuses on audits of public companies, not compilations.
Which of the following principles underlies an audit conducted under GAAS?
a) The audit ensures the client will remain in business
b) The audit ensures no immaterial misstatements exist
c) The auditor’s opinion enhances user confidence in the statements
d) Auditors guarantee accuracy of every transaction
Rationale: The goal of an audit is reasonable assurance to enhance trust, not absolute certainty.
, A CPA firm establishes quality control policies for client acceptance primarily to:
a) Enable the auditor to attest to reliability
b) Comply with standards only
c) Avoid association with clients lacking integrity
d) Reduce exposure to litigation
Rationale: Accepting ethical clients reduces professional risk and protects credibility.
Ordinarily, a public company audit report must be addressed to:
a) Board of Directors only
b) Shareholders only
c) Both Board of Directors and Shareholders
d) Management
Rationale: The report is directed to those charged with governance—typically both board and
shareholders.
A requirement to design recruitment processes to help select qualified individuals relates to
quality control in:
a) Acceptance and continuance
b) Engagement performance
c) Human resources
d) Ethical requirements
Rationale: The human resources element ensures the firm hires and trains competent personnel.
Independence is required of a CPA performing:
a) Audits only
b) Attestation services, but not other services
c) All professional services
d) Tax services only
Rationale: Independence is mandatory for attestation work like audits and reviews to ensure
objectivity.
A CPA’s retention of client records to enforce payment of overdue fees is:
a) Acceptable
b) Considered discreditable to the profession
c) Ill-advised but permissible
d) A GAAS violation
Study Manual: In-Depth Test Bank, Step-
by-Step Solutions, and Concept Review
for Professionals
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 Board
d) Securities and Exchange Commission
Rationale: The SEC enforces federal securities laws and ensures transparency in financial
reporting. Other boards establish accounting or auditing standards but do not regulate disclosures
to investors.
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
Rationale: Business risk is associated with the company’s ability to achieve its objectives and
meet obligations. Inherent risk relates to financial statement assertions, not solvency.
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
Rationale: Agreed-upon procedures reports describe factual findings only—no assurance is
provided.
International Standards on Auditing are issued by:
a) International Standards Board
,b) International Auditing and Assurance Standards Board
c) Public Company Accounting Oversight Board
d) International Auditing Education Standards Board
Rationale: The IAASB develops ISAs, while the PCAOB governs U.S. public company audits.
Which of the following is not correct relating to the Sarbanes-Oxley Act?
a) It toughens penalties for corporate fraud
b) It restricts consulting services by CPAs for audit clients
c) It applies to both public and nonpublic audit clients
d) It eliminates a significant portion of the profession’s self-regulation
Rationale: SOX applies only to publicly traded companies, not private entities.
A peer review in which reviewers study and appraise a CPA firm's system of quality control is
referred to as a:
a) Engagement review
b) Inspection review
c) Supervision review
d) System review
Rationale: A system review evaluates a firm’s overall quality control processes rather than
individual engagements.
Which of the following is not a type of auditors' opinion?
a) Adverse
b) Conventional
c) Qualified
d) Unmodified
Rationale: “Conventional” is not an official audit opinion; recognized opinions include
unmodified, qualified, and adverse.
A set of criteria used to determine measurement, recognition, and disclosure in financial
statements is referred to as a(n):
a) Financial reporting framework
b) PCAOB criteria
c) Quality control presentation standard
d) Special purpose audit standard
Rationale: Frameworks like GAAP or IFRS guide how transactions are recognized and
presented.
,An audit opinion stating that the financial statements are not fairly presented is a(n):
a) Adverse opinion
b) Limited assurance opinion
c) Negative opinion
d) Unqualified opinion
Rationale: An adverse opinion indicates material and pervasive misstatements that render
financial statements unreliable.
Primary responsibility for the financial statements lies with:
a) Auditors only
b) Both auditors and management
c) Management only
d) Neither auditors nor management
Rationale: Management prepares the statements; auditors only provide assurance.
When auditors express an opinion on financial statements, their responsibility extends to:
a) The underlying wisdom of management decisions
b) Whether the results of operations are fairly presented
c) Participation in implementing advice
d) Client solvency
Rationale: Auditors assess fairness of presentation, not management judgment or solvency.
Which of the following is least likely to be directly examined in a PCAOB inspection?
a) Audit engagements
b) Review engagements
c) Compilation engagements
d) CPA firm quality control system
Rationale: PCAOB focuses on audits of public companies, not compilations.
Which of the following principles underlies an audit conducted under GAAS?
a) The audit ensures the client will remain in business
b) The audit ensures no immaterial misstatements exist
c) The auditor’s opinion enhances user confidence in the statements
d) Auditors guarantee accuracy of every transaction
Rationale: The goal of an audit is reasonable assurance to enhance trust, not absolute certainty.
, A CPA firm establishes quality control policies for client acceptance primarily to:
a) Enable the auditor to attest to reliability
b) Comply with standards only
c) Avoid association with clients lacking integrity
d) Reduce exposure to litigation
Rationale: Accepting ethical clients reduces professional risk and protects credibility.
Ordinarily, a public company audit report must be addressed to:
a) Board of Directors only
b) Shareholders only
c) Both Board of Directors and Shareholders
d) Management
Rationale: The report is directed to those charged with governance—typically both board and
shareholders.
A requirement to design recruitment processes to help select qualified individuals relates to
quality control in:
a) Acceptance and continuance
b) Engagement performance
c) Human resources
d) Ethical requirements
Rationale: The human resources element ensures the firm hires and trains competent personnel.
Independence is required of a CPA performing:
a) Audits only
b) Attestation services, but not other services
c) All professional services
d) Tax services only
Rationale: Independence is mandatory for attestation work like audits and reviews to ensure
objectivity.
A CPA’s retention of client records to enforce payment of overdue fees is:
a) Acceptable
b) Considered discreditable to the profession
c) Ill-advised but permissible
d) A GAAS violation
