Learning Objective 5-7
1) In which case were auditors prosecuted for filing false financial statements for a
client with the government?
A) United States v. Natelli
B) United States v. Simon
C) Escott et al. v. Bar Chris
D) ESM Government Securities v. Al
Learning Objective 5-5
1) A financial institution sues the audit firm for failure to discover that a borrower's
financial statements are materially misstated. This is an example of which of the
following legal liability concepts?
A) Liability to clients
Learning Objective 4-4
1) Which of the following is(are) true concerning the Ethical Principles of the Code of
I. They identify ideal conduct.
II. They are general ideals and are not enforceable.
A) I only
B) II only
C) I and II
Learning Objective 1-6
1) One objective of an operational audit is to:
A) determine whether the financial statements fairly present the entity's operations.
B) determine if the auditee is in compliance with GAAP.
C) make recommendations for improving perf
Learning Objective 5-3
1) In the performance of an audit, a CPA:
A) is legally liable for detecting an immaterial client fraud.
B) must strictly follow GAAP for privately held clients.
C) must exercise constructive professional care in the performance of
Learning Objective 3-4
1) Examples of unqualified opinions which contain modified wording (without adding
an explanatory paragraph) include:
A) the use of other auditors.
B) material uncertainties.
C) substantial doubt about the audited company (or the en
Learning Objective 2-6
1) Historically auditing standards have been organized into three categories,
A) Standards of field work.
B) Purpose of an audit.
C) Responsibilities of the auditor.
D) Proper planning and supervision.
Learning Objective 3-1
1) An audit of historical financial statements most commonly includes the:
A) balance sheet, statement of retained earnings, and the statement of cash flows.
B) income statement, the statement of cash flows, and the statement of net
Learning Objective 3-8
1) When accounting principles are not consistently applied, and the materiality level
is immaterial, the auditor will issue a(n):
A) unqualified opinion.
B) unqualified opinion with an explanatory paragraph.
C) adverse opinion.
Learning Objective 4-1
1) Ethics are:
A) needed in the professions, but is not needed for society in general.
B) a set of moral principles or values.
C) not formed by life experiences.
D) always incorporated in laws.
Terms: Ethical Principles
Learning Objective 3-7
1) The explanatory paragraph for a qualified opinion would:
A) precede the scope paragraph.
B) follow the scope paragraph.
C) follow the opinion paragraph.
D) either precede or follow the opinion paragraph depending on the materiali
Learning Objective 4-3
1) The underlying reason for a code of professional conduct for any profession is:
A) the need for public confidence in the quality of service of the profession.
B) it provides a safeguard to keep unscrupulous people out.
C) it is r
Learning Objective 4-2
1) A six-step approach is often used to resolve an ethical dilemma. The first step in
this process is to:
A) identify the alternative actions available.
B) identify the ethical issues from the facts.
C) determine who will be affecte
Learning Objective 4-5
1) For which of the following professional services must CPAs be independent?
A) Management advisory services
B) Audits of financial statements
C) Preparation of tax returns
D) All three of the above
Learning Objective 4-6
1) Interpretations of Independence Rule 101 prohibit covered members from owning
any stock or other direct investment in audit clients. Covered members would include
which of the following?
All partners in the
engagement office e
Learning Objective 5-1
1) Discuss three major factors that have contributed to the recent increase in the
number of lawsuits against auditors and the size of awards to plaintiffs.
Answer: Major factors include:
The growing awareness of the responsibiliti
Learning Objective 4-7
1) The CPA must not subordinate his or her professional judgment to that of others in
B) audit engagement.
C) engagement excluding tax services.
D) engagement where the opinion of a specialist is used.
Learning Objective 5-2
1) A(n) _ failure occurs when an auditor issues an erroneous opinion because
it failed to comply with requirements of auditing standards.
Terms: Failure which occurs when an audito
Learning Objective 5-4
1) The principal issue in cases involving alleged negligence is usually:
A) if an an engagement letter was issued.
B) the level of care required.
C) if fraud was committed by upper-level management.
D) whether the auditor is liable
Learning Objective 5-6
1) An adequate system of internal control for SEC registrants was originally required
A) Sarbanes-Oxley Act of 2002.
B) Securities Act of 1933.
C) Foreign Corrupt Practices Act of 1977.
D) Securities Act of 1934.
Learning Objective 3-6
1) A misstatement in the financial statements can be considered material if knowledge
of the misstatement will affect a decision of:
A) the PCAOB.
B) a reasonable user of the financial statements.
C) an accountant.
D) the SEC.
Learning Objective 3-5
1) As a result of management's refusal to permit the auditor to physically examine
inventory, the auditor must depart from the unqualified audit report because:
A) the financial statements have not been prepared in accordance with G
Learning Objective 1-1
1) The Sarbanes-Oxley Act applies to which of the following companies?
A) All companies
B) Privately held companies
C) Public companies
D) All public companies and privately held companies with assets greater than $500
Learning Objective 1-2
1) Recording, classifying, and summarizing economic events in a logical manner for
the purpose of providing financial information for decision making is commonly