PRINCIPLES OF AUDITING AND OTHER
ASSURANCE SERVICES 2026 FULL
PREPARATION EXAM
◉ Under the Securities Act of 1933, the auditor's responsibility for
making sure the financial statements were fairly stated extends to:
A) the date of the financial statements.
B) the date the registration statement becomes effective.
C) the date of the audit report.
D) one year beyond the date of the financial statements. Answer: B
◉ Under the Securities Exchange Act of 1934, which type of
organization is required to submit audited financial statements to
the SEC?
A) Every company with securities traded on national and over-the-
counter exchanges.
B) Every corporation.
C) Every company issuing new securities.
D) Every corporation which is chartered by a state government.
Answer: A
◉ The Securities and Exchange Commission can impose all but
which of the following sanctions?
,A) Suspend a CPA from auditing SEC clients.
B) Prohibit a CPA from accepting new SEC clients for a period of
time.
C) Require a CPA to participate in continuing-education programs
and make changes in their practice.
D) Revoke a CPA license. Answer: D
◉ The Foreign Corrupt Practices Act (FCPA) of 1977:
A) requires auditors to review and evaluate systems of internal
control as a part of an audit.
B) requires SEC registrants to maintain a reasonably complete and
accurate set of records and an adequate system of internal control.
C) requires auditors to review client's internal control system in a
manner which is thorough enough to judge whether client meets the
requirements of the FCPA.
D) requires auditors to file a report with the SEC if client's internal
control system is inadequate. Answer: B
◉ While the Foreign Corrupt Practices Act of 1977 remains in effect,
its internal control provisions have been largely superseded by
which of the following?
A) The Sarbanes-Oxley Act of 2002
B) The Racketeer Influenced and Corrupt Organization Act
C) The Federal False Statements Statute
,D) The Federal Mail Fraud Statute Answer: A
◉ Which of the following is not likely a factor in the increase in the
number of lawsuits and sizes of awards to plaintiffs related to
auditor behavior?
A) Increased awareness of auditor responsibilities by users of
financial statements.
B) CPA firms are more willing to settle lawsuits.
C) Difficulty judges and jurors have in understanding legal matters.
D) Increased consciousness on the part of the SEC for its
responsibility to protect investors. Answer: C
◉ A major purpose of federal securities regulations is to:
A) provide sufficient reliable information to the investing public who
purchase securities in the marketplace.
B) establish the qualifications for accountants who are members of
the profession.
C) eliminate incompetent attorneys and accountants who participate
in the registration of securities to be offered to the public.
D) provide a set of uniform standards and tests for accountants,
attorneys, and others who practice before the Securities and
Exchange Commission. Answer: A
, ◉ ) The leading precedent-setting auditing case in third-party
liability is:
A) Escott et al. v. Bar Chris Construction Corp.
B) Hochfelder v. Ernst & Ernst.
C) Ultramares Corporation v. Touche.
D) United States v. Simon. Answer: C
◉ Which of the following statements about the Securities Act of
1933 is not true?
A) A third-party that purchased securities described in the
registration statement may sue the auditor for material
misrepresentations or omissions in the audited financial statements.
B) A third-party user does not have the burden of proof that he/she
relied on the financial statements.
C) A third-party user has the burden of proof that the auditor was
either negligent or fraudulent in doing the audit.
D) A third-party user does not have the burden of proof that the loss
was caused by the misleading statements. Answer: C
◉ The most significant audit issue that came as a result of the court
decision in the Escott et al. v. Bar Chris Construction Corporation
case in 1968 was:
A) the court's reaffirmation that the burden of proof was on the
plaintiff to prove the auditor was negligent.
ASSURANCE SERVICES 2026 FULL
PREPARATION EXAM
◉ Under the Securities Act of 1933, the auditor's responsibility for
making sure the financial statements were fairly stated extends to:
A) the date of the financial statements.
B) the date the registration statement becomes effective.
C) the date of the audit report.
D) one year beyond the date of the financial statements. Answer: B
◉ Under the Securities Exchange Act of 1934, which type of
organization is required to submit audited financial statements to
the SEC?
A) Every company with securities traded on national and over-the-
counter exchanges.
B) Every corporation.
C) Every company issuing new securities.
D) Every corporation which is chartered by a state government.
Answer: A
◉ The Securities and Exchange Commission can impose all but
which of the following sanctions?
,A) Suspend a CPA from auditing SEC clients.
B) Prohibit a CPA from accepting new SEC clients for a period of
time.
C) Require a CPA to participate in continuing-education programs
and make changes in their practice.
D) Revoke a CPA license. Answer: D
◉ The Foreign Corrupt Practices Act (FCPA) of 1977:
A) requires auditors to review and evaluate systems of internal
control as a part of an audit.
B) requires SEC registrants to maintain a reasonably complete and
accurate set of records and an adequate system of internal control.
C) requires auditors to review client's internal control system in a
manner which is thorough enough to judge whether client meets the
requirements of the FCPA.
D) requires auditors to file a report with the SEC if client's internal
control system is inadequate. Answer: B
◉ While the Foreign Corrupt Practices Act of 1977 remains in effect,
its internal control provisions have been largely superseded by
which of the following?
A) The Sarbanes-Oxley Act of 2002
B) The Racketeer Influenced and Corrupt Organization Act
C) The Federal False Statements Statute
,D) The Federal Mail Fraud Statute Answer: A
◉ Which of the following is not likely a factor in the increase in the
number of lawsuits and sizes of awards to plaintiffs related to
auditor behavior?
A) Increased awareness of auditor responsibilities by users of
financial statements.
B) CPA firms are more willing to settle lawsuits.
C) Difficulty judges and jurors have in understanding legal matters.
D) Increased consciousness on the part of the SEC for its
responsibility to protect investors. Answer: C
◉ A major purpose of federal securities regulations is to:
A) provide sufficient reliable information to the investing public who
purchase securities in the marketplace.
B) establish the qualifications for accountants who are members of
the profession.
C) eliminate incompetent attorneys and accountants who participate
in the registration of securities to be offered to the public.
D) provide a set of uniform standards and tests for accountants,
attorneys, and others who practice before the Securities and
Exchange Commission. Answer: A
, ◉ ) The leading precedent-setting auditing case in third-party
liability is:
A) Escott et al. v. Bar Chris Construction Corp.
B) Hochfelder v. Ernst & Ernst.
C) Ultramares Corporation v. Touche.
D) United States v. Simon. Answer: C
◉ Which of the following statements about the Securities Act of
1933 is not true?
A) A third-party that purchased securities described in the
registration statement may sue the auditor for material
misrepresentations or omissions in the audited financial statements.
B) A third-party user does not have the burden of proof that he/she
relied on the financial statements.
C) A third-party user has the burden of proof that the auditor was
either negligent or fraudulent in doing the audit.
D) A third-party user does not have the burden of proof that the loss
was caused by the misleading statements. Answer: C
◉ The most significant audit issue that came as a result of the court
decision in the Escott et al. v. Bar Chris Construction Corporation
case in 1968 was:
A) the court's reaffirmation that the burden of proof was on the
plaintiff to prove the auditor was negligent.
