Chapter 02 The Financial Statement Auditing Environment True / False Questions 1. A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002). True False 2. The primary audit context with which an auditor is concerned is the client's industry or business. True False 3. The audit committee generally includes senior executives of the organization. True False 4. A financial statement audit is generally organized based on the five basic business processes or cycles. True False 5. One of the five basic business processes is the warehousing cycle. True False 6. Audit procedures are designed to test management assertions. True False 7. PCAOB auditing standards must be followed on all financial statement audits performed in the U.S. True False
8. A financial statement audit must be conducted based on GAAP. True False 9. Generally, the financial statements of U.S. companies must be prepared based on GAAP. True False 10. PCAOB auditing standards must be followed on all audits of public Companies' financial statements. True False Multiple Choice Questions 11. The Audit committee consists of: A. Members of management B. A subcommittee of the AICPA who establish the SAS C. Members of the Board of Directors D. Appointed government overseers 12. What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.? A. AICPA B. FASB C. GASB D. PCAOB 13. The Public Company Accounting Oversight Board's role is to A. Conduct the final review of auditors' work before the auditor's opinion is issued B. Oversee the auditors of public companies in order to protect the interests of investors C. Conduct audits of governmental entities D. Sanction auditors who fail to follow GAAS
14. The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the A. Financial Accounting Standards Board B. General Accounting Office C. Public Companies Accounting Oversight Board D. Auditing Standards Board 15. The auditor must be independent of the audit client unless: A. The lack of independence does not influence his or her professional judgment. B. Both parties agree that the independence issue is not a problem. C. The lack of independence is insignificant. D. None of the above--the auditor cannot lack independence. 16. Which of the following describes the generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision? A. Proficiency B. Audit risk C. Inspection D. Due care 17. Which of the following best describes the general character of the three generally accepted auditing standards that are classified as standards of fieldwork? A. The competence, independence, and professional care of persons performing the audit
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