QUESTION 1

The American Institute of Certified Public Accountants (AICPA), the Public Company Accounting Oversight Board (PCAOB), and the International Auditing and Assurance Standards Board (IAASB) have a common goal to:

Verify that the financial statements are free from material errors.
Verify that the financial statements are free from all errors.
Provide financial information to disinterested third parties.
Provide assurance to the public that audits are conducted in a professional manner.

QUESTION 2

How many countries rely on the standards issued by the International Auditing and Assurance Standards Board?

25
Over 100
Only the European countries.
The twelve countries in North America.

QUESTION 3

Which phase of the audit formulation process contains management's assertions of rights and obligations for their manufacturing facilities?

Phase I
Phase II
Phase III
Phase V

QUESTION 4

All of the following requirements became mandatory when Congress passed the Sarbanes-Oxley Act of 2002, except:

Companies are required to establish an independent audit committee.
Prohibition on consulting work that auditors can perform for their audit clients.
Mandatory rotation every five years of the partner in charge of the audit engagement.
Creation of the Committee of Sponsoring Organizations (COSO) to oversee companies who do business on the New York Stock exchange (NYSE).

QUESTION 5

The following individual is responsible for overseeing the day-to-day activities on a specific audit:

Partner
Senior
Manager
Supervisor

QUESTION 6

The second principle of performance developed by the AICPA requires the auditor to do all of the following during an audit except:

Obtain absolute assurance as to whether the financial statements are free from material misstatements.
Determine materiality levels.
Identify risks of material misstatement.
Implement appropriate audit responses to assessed risks.

QUESTION 7

The board of directors' primary objective for the shareholders is to:

Compile financial statements for submission to the Securities and Exchange Commission (SEC)
Supervise the activities of the internal auditors.
Build long-term sustainable growth in shareholder value.
Evaluate potential external auditing companies to select for the annual audit.

QUESTION 8

One of the most significant provisions of the Sarbanes/Oxley Act of 2002 was:

The mandatory requirement to compile financial statements in accordance with the standards provided by the Public Companies Accounting Oversight Board (PCAOB).
Establishment of the American Institute of Certified Public Accountants (AICPA) and their Code of Conduct.
Specifies the education and experience requirements for all members on the board of directors.
Requires the CEO and CFO to certify their company's financial statements.

QUESTION 9

Which of the following statements is not one of the roles of the audit committee?

Oversees the accounting and financial reporting process and the financial statement audits.
Establishes a whistleblower program.
Appoint, compensate, and oversees the external auditor.
Set the budget for the internal audit activities.

QUESTION 10

According to the AICPA's ethical standards, an auditor would be considered independent in which of the following instances?

The auditor has an automobile loan from a client bank.
The auditor is also an attorney who advises the client as its general counsel.
An employee of the auditor donates service as treasurer to a charitable organization that is a client.
The client owes the auditor fees for two consecutive annual audits.

QUESTION 11

Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to extablish means for ensuring their observance?

Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.
A distinguishing mark of a profession is its acceptance of responsibility to the public.
A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.

QUESTION 12

Which of the following is not a major threat to an auditor's independence?

Audit partner's compensation based on obtaining and retaining clients.
Becoming too friendly with client's management.
Significant time pressures to get the audit done quickly.
Auditing records maintained by the public accounting firm.
All the above are threats.

QUESTION 13

Professional skepticism includes being alert to the following:

Audit evidence that contradicts other audit evidence obtained.
Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence.
Conditions that may indicate possible fraud.
Circumstances that suggest the need for audit procedures in addition to those required by professional standards.
All the above.

(f.): Only (b.) and (d.).

QUESTION 14

Manny Talents is a CPA and a lawyer. In which of the following situations is Tallents violating the AICPA's Rules of Conduct?

He defends his audit client in a patent infringement suit.
He uses his legal training to help determine the accounting implications of a complicated contract of an audit client.
He uses his legal training to help determine the legality of an audit client's actions.
He researches a tax question to help the client make a management decision.

QUESTION 15

A violation of the profession's ethical standards would most likely have occurred when a CPA:

Whose name is Smith formed a partnership with two other CPAs and uses Smith and Co. as the firm name.
Issued an unqualified opinion on the 2010 financial statements when fees for the 2009 audit were unpaid.
Purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period.
Made arrangements with a bank to collect notes issued by a client in payment of fees due.

QUESTION 16

Which of the following nonaudit services does the SEC prohibit audit firms from providing to its publicly-traded clients?

Bookkeeping or other services related to the accounting records or financial statements of the audit client.
Financial information systems design and implementation.
Appraisal and valuation services, fairness opinions, or contribution-in-kind reports.
Actuarial services.
All the above.

QUESTION 17

Applying utilitarianism as a concept in addressing ethical situations requires the auditor to perform all of the following except:

Choose the alternative that provides either the greatest good for the greatest number or the lowest cost (from a social view) for the greatest number.
Examine the potential outcomes to see whether the results are inconsistent with the rights or justice theories
Determine the effect of the potential alternative courses of action on the affected parties.
Identify the potential stakeholders that will be affected by the alternative outcomes.

QUESTION 18

A CPA is permitted to disclose confidential client information without consent of the client to:

I. Another CPA who has purchased the CPA's tax service.
II. Another CPA firm if the information concerns suspected tax return irregularities.
III. A state CPA society's voluntary quality-control review board.

I and II
II
II and III
III.