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ACC/562 Midterm Exam Chapter 1-3
TRUE/FALSE
1. The need for assurance services arises
because the interests of the users of information may be different from that of
the interests of those responsible for providing information.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
2. An audit of financial statements is a form of
attestation service.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
3. Independence is an attribute necessary to
perform assurance services.
ANS: PTS: 1 OBJ: Scope
of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
4. A bank using Milton Company's financial
statements to determine the creditworthiness of a potential loan to Milton is a
good example of the need for unbiased reporting.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
5. Independence is only required for assurance
service providers.
ANS: PTS: 1 OBJ: Scope
of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
6. A CPA automatically qualifies as an assurance
provider in all areas of business.
ANS: PTS: 1 OBJ: Scope
of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
7. Attestation services are a subset of
assurance services and always involve a report that goes to a third party.
ANS: PTS: 1 OBJ: Scope
of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
8. The American Institute of Certified Public
Accountants has the primary authority to set auditing standards for public
companies.
ANS: PTS: 1 OBJ: Public
Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
9. The audit function is unique because it
exists to perform services on a "client" on behalf of shareholders,
directors and other parties.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
10. Auditing is the process of attesting to
assertions about economic actions and events.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
11. Auditing is the process of verifying the
accuracy of the financial statements.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
12. Internal auditing only provides assurance
services to clients.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
13. Auditing primarily exists because users need
unbiased information on which to assess management performance and make
economic decisions.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
14. The degree of confidence that users place on
management's financial statements is higher than that placed on audited
financial statements because few users have direct knowledge of the company's
operations and management is the most knowledgeable about operations.
ANS: PTS: 1 OBJ: Public
Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
15. U.S. nonpublic companies will have an audit
performed in accordance with generally accepted auditing standards that have
been promulgated by the PCAOB.
ANS: PTS: 1 OBJ: Public
Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
16. An assertion is a statement about an action,
event, condition, or performance over a specified time period.
ANS: PTS: 1 OBJ: Opinion
Formation Process
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
17. Management is required to comment on
the fairness of the company's financial presentation. This reduces the
auditor's legal responsibility for the opinion rendered on the financial
statements.
ANS: PTS: 1 OBJ: Auditing
Defined
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
18. Audited financial statements should be free
from all errors and fraud.
ANS: PTS: 1 OBJ: Public
Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
19. Audited financial statements should be
presented fairly according to the substance of GAAP.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
20. Audited financial statements should be
presented fairly according to the substance of GAAS.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
21. A plan to converge the U.S. generally
accepted auditing standards (GAAS) with the International Standards on Auditing
(ISAs) was developed by the .AICPA’s Auditing Standards Board (ASB).
ANS: PTS: 1 OBJ: Public
Company Auditing Standards
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
22. Attestation is confined to an audit of client
financial statements.
ANS: PTS: 1 OBJ: Scope
of Services
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
23. An auditor must have a good understanding of
the risks associated with a client's industry in order to ensure that the
financial statements reflect the underlying substance of accounting
transactions and the economic effects of such transactions.
ANS: PTS: 1 OBJ: Types
of Service Providers
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
24. Public Company Accounting Oversight Board
provides the criteria against which the auditor measures the fairness of
financial statement presentation for public companies.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
25. Generally accepted accounting principles
provide the criteria against which the auditor measures the fairness of
financial statement presentation.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
26. Businesses that use independent auditors do
not need the use of internal auditors.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
27. CPA certificates for auditors are issued by
state boards of accountancy.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
28. Internal auditing is an objective evaluation
function established within an organization.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
29. Operational audits are designed to determine
if the company’s financial statements are prepared in compliance with GAAP.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
30. Governmental auditors perform operational and
financial statement audits.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
31. The internal audit profession adheres
exclusively to standards set by the Public Company Accounting Oversight Board.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
32. The execution of solutions to issues brought
to light by internal auditors are the responsibility of management of the
organization.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
33. Governmental audit standards are developed by
the Public Company Accounting Oversight Board.
ANS: PTS: 1 OBJ: Internal
and Governmental Auditors
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
34. The American Institute of CPAs sets auditing
standards for non-publicly traded companies.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
35. Though often relying on the FASB, the SEC has
authority to establish GAAP for publicly traded companies.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
36. The SEC has authority to establish GAAP for
all business enterprises.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
37. The Public Company Accounting Oversight Board
was established by the AICPA in response to Securities law.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
38. Auditors of public companies need not adhere
to the requirements of statutory or regulatory organizations.
ANS: PTS: 1 OBJ: Professional
and Regulatory Organizations
NAT: AACSB-Analytical skills | AICPA BB-Critical thinking
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