Audit Study Guide

Topics: Auditing, Financial audit, Audit Pages: 7 (1400 words) Published: February 17, 2014
Exam 1
Spring 2014
In-Class Exam Review

Name __________________________________.

Multiple Choice (5 points total, 30 minutes). Read each question carefully. Choose the one best available answer. Unless otherwise indicated, questions relate to external financial statement audits.

1. What is the purpose of a financial statement audit?
a. To confirm the accuracy of management’s financial statements. b. To provide assurance that the audited entity is financially sound. c. To express an opinion on the fairness of the financial statements. d. To provide assurance that fraudulent activities have not occurred.

2. Information risk arises from which of the following situations? a. Adverse selection threats.
b. Audit risk, inherent risk, control risk, and detection risk. c. Potential for a company to fail to meet its business objectives. d. Potential conflict of interest between financial statement providers and users

3. Which of the following educational achievements best describes the minimum education required to satisfy the educational requirements to sit for the CPA examination in Montana? a. A graduate degree in accounting

b. A bachelor’s degree in accounting
c. 24 hours each of upper level accounting and business courses d. 150 hours of education, subject to accounting course requirements

4. Which of the following entities prepares and administers the CPA exam? a. State Boards of Accountancy.
b. Auditing Standards Board of the AICPA.
c. Public Company Accounting Oversight Board.
d. American Institute of Certified Public Accountants.

5. Which of the following types of engagements would provide assurance about various sorts of financial information (projections, pro forma financial statements, etc.)? a. Audit.
b. Attestation.
c. Assurance.
d. Compilation.

6. An auditor determines that a client purposefully did not record several legitimate accounts payable as of year end so that the balance sheet would show lower liabilities. Which management assertion has most likely been violated? a. Valuation.

b. Existence.
c. Completeness.
d. Presentation & Disclosure

7. An auditor gathers evidence to test whether inventory is being reported using the lower of cost or market method required by GAAP. Which management assertion is the auditor most likely testing? a. Valuation.

b. Existence
c. Completeness.
d. Presentation and disclosure.

8. Public accounting firms have to register with which entity before performing audits of issuers? a. SEC.

9. The PCAOB’s auditing standards must be followed by which of the following types of auditors? a. Only auditors of issuers.
b. Only auditors of nonissuers.
c. Auditors of both issuers and nonissuers.
d. Auditors of foreign issuers traded on non-U.S. Exchanges.

10. Which of the following best describes professional skepticism as it relates to auditors? a. An attitude of doubt toward management’s honesty and integrity. b. A tendency not to accept management assertions without corroboration. c. A professional demeanor, including being honest and candid with the client. d. An assumption that management has attempted to manipulate the financial statements

9. An auditor has been engaged to perform the audit of the financial statements of a large, multinational public corporation. The auditor should follow auditing standards issued by which organization? a. SEC


10. Which of the following is always a difference between external auditors and internal auditors? a. External auditors are CPAs; internal auditors are not.
b. External auditors examine financial statements; internal auditors do not. c. External auditors are independent of the client; internal auditors are not. d. External auditors are paid by the public; internal auditors are paid by the company.

11. Which of the following pieces of evidence gathered when auditing cash balances would an auditor...
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