Quiz Answer Key

AUDITING THEORY

QUIZ - CHAPTER 7

Multiple Choice.

1. The first first general general standard standard requires requires that that the audit audit of financial financial statemen statements ts be performed performed by a person or persons having adequate technical training and a. Independence Independence with with respect respect to the financi financial al statements statements and and supplementa supplementary ry disclosur disclosures. es.  b. Exercising professional care as judged by peer reviewers. c. Proficiency as an auditor which li!ely has been acquired from previous experience. d. "bjectivity "bjectivity as an auditor auditor as verified verified by proper proper supervis supervision. ion. #. $ %P$ %P$ is is most li!ely li!ely to refer refer to one or more of the three three general general auditing auditing standar standards ds in determining a. The nature nature of the the %P$ %P$&s auditin auditing g qualificati qualification. on.  b. The scope of the %P$& %P$&s auditing procedures. c. 'equir 'equireme ements nts for for the revie review w of intern internal al contro control. l. d. (hether the %P$ should underta!e an audit engagement. ). (hich of the the following following quality quality control control procedure proceduress is a monitori monitoring ng activity* activity* a. Evaluates Evaluates the firm& firm&ss independence independence and and its ability ability to serve serve the the prospective prospective client client  b. 'eviews and tests compliance with the firm&s general quality control policies and  procedures. c. +esignates +esignates individu individuals als as specialis specialists ts to serve as authorit authoritative ative sources sources and define define their  authority in consultative situations. d. ,oni ,onito tors rs cont contin inui uing ng prof profes essi sion onal al educa educati tion on prog progra rams ms and and main mainta tain in appr approp opri riat atee records both on a firm and an individual audit engagement basis. -. (hich of the the following following isare/ isare/ quality quality control control polici policies es on an audit audit firm level* level* a.  b. c. d.

%onsultation 0es o 0es 0es

$ssignment o o o 0es

+irection 0es 0es 0es 0es o

2. (ithi (ithin n the context context of quality quality control control the primary primary purpose purpose of continui continuing ng professio professional nal education and training activities is to enable a %P$ firm to provide personnel within the firm with3 a. Technica Technicall training training that assur assures es proficie proficiency ncy as an auditor auditor..  b. Professional education that is required in order to perform with with due professional care. c. 4nowledge required to fulfill assigned responsibilities and to progress within the firm. d. 4nowledge 4nowledge require required d in order to perform perform a peer peer review review.. 5. $ %P$ %P$ firm firm&&s pers person onne nell part partne nerr peri period odic ical ally ly stud studie iess the the %P$ %P$ firm firm&&s pers person onne nell advancem advancement ent experie experience nce to ascert ascertain ain whether whether indivi individual dualss meetin meeting g stated stated criter criteria ia are Page 1

AUDITING THEORY

QUIZ - CHAPTER 7

assigned increased degrees of responsibility. This is evidence of the %P$ firm&s adherence to prescribed standards of  a. 6uality control. c. 7upervision and review.  b. +ue professional care. d. 8ieldwor!. e. 9. (hich of the following practices will promote the objectives of assignment of personnel* I. Evaluates partners periodically by means of senior partner or fellow partner  evaluation and counseling as to whether they continue to have the qualifications to fulfill their responsibilities. II. Identifies on a timely basis the staffing requirements of specific audits III. Periodically counsels personnel as to their progress and career opportunities I:. Prepares time budget for audit to determine manpower requirements and to schedule audit wor!. a. I c. II ; I:  b. I ; III d. $ll of the above

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e. <. In pursuing its quality control objectives with respect to assigning personnel to engagements a public accounting firm may use policies and procedures such as3 a. 'otating employees from assignment to assignment on a random basis to aid in the staff training effort.  b. 'equiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available. c. $llowing staff to select the assignments of their choice to promote better client relationships. d. $ssigning a number of employees to each engagement in excess of the number  required so as not to overburden the staff and interfere with the quality of the audit wor! performed. f. =. $n audit should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with P7$s or relevant national standards or   practices. These policies and procedures should be implemented a. $t the audit level only.  b. "n individual audits only. c. Either at the audit firm level or on individual audits. d. >oth at the audit firm level and on individual audits. g. 1?. The engagement partner should ta!e responsibility for the direction supervision and  performance of the audit engagement in compliance with professional standards and regulatory and legal requirements and for the auditor&s report that is issued to be appropriate in the circumstances. 7upervision includes the following except a. Trac!ing the progress of the audit engagement.  b. $ddressing significant issues arising during the audit engagement considering their  significance and modifying the planned approach appropriately. c. Informing the members of the engagement team of their responsibilities. d. Identifying matters for consultation or consideration by more experienced engagement team members during the audit engagement. h. 11. The fourth standard of reporting requires the auditor&s report to contain either an expression of opinion regarding the financial statements ta!en as a whole or an assertion to the effectthat an opinion cannot be expressed. The objective of the fourth standard is to  prevent i. a. $n auditor from expressing different opinions on each of the basic financial statements  j. b. 'estrictions on the scope of the examination whether imposed by the client or  by the !. Inability to obtain evidence.

l. c. ,isinterpretations regarding the degree of responsibility the auditor is assuming m. d. $n auditor from reporting on one basic financial statement and not the others. n. o. 1#. (ith respect to the auditor&s planning of a year@end audit which of the following statements is always true*  p. a. $n engagement should not be accepted after the fiscal year@end. q. b. $n inventory count must be observed at the balance sheet date. r. c. The client&s audit committee should not be told of the specific audit procedures that were performed. s. d. It is an acceptable practice to carry out part of the audit at interim dates. t. 1). The third general standard states due care is to be exercised in the performance of an audit. This standard is generally interpreted to require u. firm v.

a. "bjective review of the adequacy of the technical training and proficiency of Personnel  b. %ritical review of wor! done at every level of supervision c. Thorough review of the existing internal control structure d. Periodic review of a %P$ firm&s quality control procedures.

w. x. y. A. aa. 1-. The standard of due audit care requires the auditor to ab. a. $pply judgment in a conscientious manner carefully weighing the relevant factors before reaching a decision. ac. b. Ensure that the financial statements are free from error. ad. c. ,a!e perfect judgment decisions in all cases. ae. d. Possess s!ills clearly above the average for the profession. af. 12. The third general standards states that due care is to be exercised in the performance of the examination. This standard should be interpreted to mean that a %P$ who underta!es an engagement assumes a duty to perform. ag. ah. error of  ai. aj. a!. in the al.  

a. (ith reasonable diligence and without fault or error. b. $s a professional who will assume responsibility for losses consequent upon Budgment. c. To the satisfaction of the client and third parties who may rely upon it. d. $s a professional possessing the degree of s!ill commonly possessed by others

field. am. 15. %ompetence as a certified public accountant includes all of the following except an. ao.

a. Caving the technical qualifications to perform an engagement. b. Possessing the ability to supervise and evaluate the quality of staff wor!.

ap. aq.

c. (arranting the infallibility of the wor! performed. d. %onsulting others if additional technical information is needed.

ar. 19. $n auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should as. a. Engage financial experts familiar with the nature of the business entity. at.  b. "btain a !nowledge of matters that relate to the nature of the entityDs business. au. c. 'efer a substantial portion of the audit to another %P$ who will act as the  principal av. auditor. aw. d. 8irst inform management that an unqualified opinion cannot be issued. ax. 1<. In any case in which the %P$ or the %P$&s assistants are not qualified to perform the wor! a professional obligation exists to ay. aA.  ba.  bb.

a. $cquire the requisite !nowledge and s!ills b. 7uggest someone else who is qualified to perform the wor!  c. +ecline the engagement d. $ny of the above

 bc.  bd. 1=. $ %P$ while performing an audit strives to achieve independence in appearance in order to  be.  bf.  bg.  bh.

a. 'educe ris! and liability. b. %omply with the generally accepted standards of field wor!  c. >ecome independent in fact. d. ,aintain public confidence in the profession.

 bi. #?. The first general standard requires that the audit of financial statements be performed by a person or persons having adequate technical training and  bj. a. Independence with respect to the financial statements and supplementary disclosures.  b!. b. Exercising professional care as judged by peer reviewers.  bl. c. Proficiency as an auditor which li!ely has been acquired from previous experience.  bm. d. "bjectivity as an auditor as verified by proper supervision.  bn.  bo.  bp. bq.