NAME: ________________________________________

SCORE: ________________________________________

WRITE THE CAPITAL LETTERS OF YOUR ANSWER ON YELLOW PAPER.

1. The single feature that most clearly distinguishes auditing,

attestation, and assurance is
a. Type of service.
b. Training required to perform the service.
c. Scope of services.
d. CPA’s approach to the service.

2. The primary goal of the CPA in performing the attest function

is to
a. Detect fraud.
b. Examine individual transactions so that the auditor may
certify as to their validity.
c. Determine whether the client's assertions are fairly stated.
d. Assure the consistent application of correct accounting
procedures.

3. Internal auditing often extends beyond examinations

leading to the expression of an opinion on the fairness of
financial presentation and includes audits of efficiency,
effectiveness, and
a. Internal control.
b. Evaluation.
c. Accuracy.
d. Compliance.

4. Which of the following best describes the operational audit?

a. It requires the constant review by internal auditors of the
administrative controls as they relate to operations of the
company.
b. It concentrates on implementing financial and accounting
control in a newly organized company.
c. It attempts and is designed to verify the fair presentation of
a company's results of operations.
d. It concentrates on seeking out aspects of operations in which
waste would be reduced by the introduction of controls.

5. The auditor's judgment concerning the overall fairness of the

presentation of financial position, results of operations, and
changes in financial position is applied within the framework of
a. Generally accepted accounting principles.
b. Generally accepted auditing standards.
c. Internal control.
d. Information systems control.

6. Which of the following is not a distinguishing feature of

risk-based auditing?
a. Identifying areas posing the highest risk of financial
statement errors.
b. Analysis of internal control.
c. Collecting and evaluating evidence.
d. Concentrating audit resources in those areas presenting the
highest risk of financial statement errors.
7. To maximize independence, the director of internal auditing
should report to the
a. Audit committee.
b. Controller.
c. Chief financial officer.
d. Director of information systems.

8. The auditor communicates the results of his or her work

through the medium of the
a. Engagement letter.
b. Management letter.
c. Audit report.
d. Financial statements.

9. The best description of the scope of internal auditing is that

it encompasses
a. Primarily operational auditing.
b. Both financial and operational auditing.
c. Primarily the safeguarding of assets and verifying the
existence of such assets.
d. Primarily financial auditing.

10. A typical objective of an operational audit is to determine

whether an entity's
a. Financial statements fairly present financial position and
cash flows.
b. Financial statements present fairly the results of operations.
c. Financial statements fairly present financial position,
results of operations, and cash flows.
d. Specific operating units are functioning efficiently and
effectively.

11. The scope and nature of an auditor's contractual obligation

to a client is ordinarily set forth in the
a. Scope paragraph of the auditor’s report.
b. Opinion paragraph of the auditor’s report.
c. Management letter.
d. Engagement letter.

12. The four major steps in conducting an audit are:

a. Testing internal controls
b. Audit report
c. Planning
d. Testing transactions and balances

The proper sequence in applying the above steps is:

a. cadb
b. cdab
c. bcda
d. adcb

13. Which of the following statements is not true regarding the

competence of audit evidence?
a. Relevance is enhanced by an effective information system.
b. To be competent, evidence must be both valid and relevant.
c. Validity is related to the quality of the client’s information
system.
d. Relevance must always relate to audit objectives.
14. In assessing audit risk, the CPA needs to do all of the
following except
a. Gather audit evidence in support of recorded transactions.
b. Obtain an understanding of the client's system of internal
control.
c. Understand the economic substance of significant transactions
completed by the client.
d. Understand the entity and the industry in which it operates.

15. Competence as a certified public accountant includes all of

the following except
a. Having the technical qualifications to perform an
engagement.
b. Possessing the ability to supervise and evaluate the quality
of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information is
needed.

16. Which of the following is mandatory if the auditor is to

comply with generally accepted auditing standards?
a. Possession by the auditor of adequate technical training.
b. Use of analytical review on audit engagements.
c. Use of statistical sampling whenever feasible on an audit
engagement.
d. Confirmation by the auditor of material accounts receivable
balances.

17. As a guidance for measuring the quality of the performance of

an auditor, the auditor should refer to
a. Statements of the Financial Accounting Standards Board.
b. Generally Accepted Auditing Standards.
c. Interpretations of the Statements on Auditing Standards.
d. Statements on Quality Control Standards.

18. In addition to auditing, CPAs perform other services for

their clients. Standards governing the quality of these services
are covered in the attestation standards generally, and
performance requirements are more explicitly defined in sets of
statements relating to each type of service. Which of the
following is not such a set?
a. Statements on Standards for Consulting Services.
b. Statements on Responsibilities in University Audits.
c. Statements on Standards for Accounting and Review Services.
d. Statements on Responsibilities in Tax Practice.

19. Which of the following is a violation of Rule 301

(Confidential Client Information) of the Code of Professional
Conduct?
a. The CPA, in response to a court subpoena, submits auditor-
prepared workpapers as evidence of possible illegal acts
perpetrated by the client.
b. The CPA discloses to the board of directors a scheme concocted
by top management to intentionally inflate earnings.
c. The CPA warns Client B as to the inadvisability of acquiring
Client A. The CPA bases this warning on knowledge of Client A's
financial condition and a belief that the management of Client A
lacks integrity. This knowledge was obtained by the CPA as a
result of auditing Client A during the past several years.
d. The CPA, when questioned in court, admits to knowledge of
certain illegal acts perpetrated by the client.

20. Which of the following statements best describes why the

CPA profession has deemed it essential to promulgate ethical
standards and to establish means for ensuring their observance?
a. A requirement for a profession is the establishment of ethical
standards that stress primarily a responsibility to clients and
colleagues.
b. A requirement of most state laws calls for the profession to
establish a code of ethics.
c. An essential means of self-protection for the profession is
the establishment of flexible ethical standards by the
profession.
d. A distinguishing mark of a profession is its acceptance of
responsibility to the public.

21. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Audit objectives generally determined on audit engagements.
b. Acts to be performed by the auditor.
c. Measures of the quality of the auditor's performance.
d. Procedures to be used to gather evidence to support financial
statements.

22. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Pronouncements issued by the Auditing Standards Board.
b. Procedures to be used to gather evidence to support
financial statements.
c. Rules acknowledged by the accounting profession because of
their universal compliance.
d.. Measures of the quality of the auditor's performance.

23. Under which of the following circumstances may a CPA agree

with a departure from an accounting principle promulgated by that
body designated by AICPA Council to formulate such principles?
a. When the principle was one formulated by the Accounting
Principles Board inasmuch as the APB is no longer the body so
designated by Council.
b. When the CPA can demonstrate that application of the
principle in question would make the financial statements
materially misleading.
c. When the disputed principle is contrary to industry
practice.
d. When adoption of the principle would cause the financial
statements to be inconsistent with prior years.

24. The standard of due audit care requires the auditor to

a. Apply judgment in a conscientious manner, carefully weighing
the relevant factors before reaching a decision.
b. Ensure that the financial statements are free from error.
c. Make perfect judgment decisions in all cases.
d. Possess skills clearly above the average for the profession.
25. The exercise of due professional care requires that an
auditor
a. Examine all available corroborating evidence.
b. Critically review the judgment exercised at every level of
supervision.
c. Reduce control risk below the maximum.
d. Attain the proper balance of professional experience
and formal education.

26. The first general standard requires that a person or persons

have adequate technical training and proficiency as an auditor.
This standard is met by
a. An understanding of the field of business and finance.
b. Education and experience in the field of auditing.

c. Continuing professional education.

d. A thorough knowledge of the Statements on Auditing
Standards.

27. The first general standard recognizes that regardless of how

capable an individual may be in other fields, the individual
cannot meet the requirements of the auditing standards without
the proper
a. Business and finance courses.
b. Quality control and peer review.
c. Education and experience in auditing.
d. Supervision and review skills.

28. In determining estimates of fees, an auditor may take into

account each of the following, except the
a. Value of the service to the client.
b. Degree of responsibility assumed by undertaking the
engagement.
c. Skills required to perform the service.
d. Attainment of specific findings.

29. A CPA, while performing an audit, strives to achieve

independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of field work.
c. Become independent in fact.
d. Maintain public confidence in the profession.

30. Which of the following is not required by the generally

accepted auditing standard that states that due professional
care is to be exercised in the performance of the examination?
a. Observance of the standards of field work and
reporting.
b. Critical review of the audit work performed at every
level of supervision.
c. Degree of skill commonly possessed by others in the
profession.
d. Responsibility for losses because of errors
of judgment.

31. The third general standard states that due care is to be

exercised in the performance of the examination. This standard
means that a CPA who undertakes an engagement assumes a
duty to perform each audit
a. As a professional possessing the degree of skill
commonly possessed by others in the field.
b. In conformity with generally accepted accounting
principles.
c. With reasonable diligence and without fault or error.
d. To the satisfaction of governmental agencies and investors
who rely upon the audit.

32. The primary purpose of an independent financial statement

audit is to
a. Provide a basis for assessing management's performance.
b. Comply with state and federal regulatory requirements.
c. Assure management that the financial statements are unbiased
and free from material error.
d. Provide users with an unbiased opinion about the fairness of
information reported in the financial statements.

33. Independent auditing can best be described as a

a. Branch of accounting.
b. Discipline that attests to the results of accounting and
other operations and data.
c. Professional activity that measures and communicates
financial and business data.
d. Regulatory function that prevents the issuance of improper
financial information.
(AICPA
ADAPTED)
34. An independent audit aids in the communication of economic
data because the audit
a. Confirms the accuracy of management's financial
representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any
fraudulent activity has been corrected.
(AICPA ADAPTED)

35. Which of the following types of audits are most similar?

a. Operational audits and compliance audits.
b. Independent financial statement audits and operational
audits.
c. Compliance audits and independent financial statement
audits.
d. Internal audits and independent financial statement audits.

36. The Auditing Standards Board

a. Sets rules and regulations that govern public accounting
firms.
b. Is an arm of the Financial Accounting Standard Board.
c. Is a senior technical body of the AICPA designated to issue
authoritative auditing pronouncements.
d. Reports directly to the Securities and Exchange Commission.

37. The essence of the attest function is to

a. Detect fraud.
b. Examine individual transactions so that the auditor can
certify as to their validity.
c. Determine whether the client's financial statements are
fairly stated.
d. Ensure the consistent application of correct accounting
procedures.
(AICPA ADAPTED)

38. Which of the following criteria is unique to the independent

auditor's attest function?
a. General competence.
b. Familiarity with the particular industry of each client.
c. Due professional care.
d. Independence. (AICPA
ADAPTED)

39 An operational audit is designed to

a. Assess the efficiency and effectiveness of management's
operating procedures.
b. Assess the presentation of management's financial statements
in accordance with generally accepted accounting principles.
c. Determine whether management has complied with applicable
laws and regulations.
d. Determine whether the audit committee of the board of
directors is effectively discharging its responsibility to
oversee management's operations.

40. Independent auditing can best be described as

a. A subset of accounting.
b. A professional activity that attests to the fair
presentation of financial statements.
c. A professional activity that measures and communicates
financial accounting data.
d. A regulatory activity that prevents the issuance of improper
financial information.

.41. Due professional care requires

a. A critical review of the work done at every level of
supervision.
b. The examination of all corroborating evidence available.
c. The exercise of error-free judgment.
d. A consideration of internal control structure that includes
tests of controls.
(AICPA ADAPTED)

42. The first general standard requires that the audit of

financial statements be performed by a person or persons having
adequate technical training and
a. Independence with respect to the financial statements and
supplementary disclosures.
b. Exercising professional care as judged by peer reviewers.
c. Proficiency as an auditor, which likely has been acquired
from previous experience.
d. Objectivity as an auditor, as verified by proper
supervision. (AICPA ADAPTED)

43. An auditor, while performing an audit, strives to achieve

the appearance of independence in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of fieldwork.
c. Become independent in fact.
d. Maintain public confidence in the profession.
(AICPA ADAPTED)

44. Adequate technical training and proficiency as an auditor

encompasses an ability to understand a computer system
sufficiently to identify and evaluate
a. The processing and imparting of information.
b. Essential accounting control features.
c. All control procedures.
d. The degree to which programming conforms to the application
of generally accepted accounting principles.
(AICPA ADAPTED)

45. Competence as a certified public accountant includes all of

the following except
a. Having the technical qualifications to perform an
engagement.
b. Possessing the ability to supervise and evaluate the quality
of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information is
needed. (AICPA ADAPTED)

46. Ultimately, the decision about whether or not an auditor is

independent must be made by the
a. Auditor.
b. Client.
c. Audit committee.
d. Public. (AICPA ADAPTED)

47. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Acts to be performed by the auditor.
b. Measures of the quality of an auditor's performance.
c. Procedures used to gather evidence to support financial
statements.
d. Audit objectives generally determined on audit engagements.
(AICPA ADAPTED)

48. Which of the following best describes the character of the

three generally accepted auditing standards classified as general
standards?
a. Criteria for competence, independence, and professional care
of individuals performing the audit.
b. Criteria for the content of the financial statements and
related footnote disclosures.
c. Criteria for the content of the auditor's report.
d. The requirements for planning and supervision.
(AICPA ADAPTED)

49. The generally accepted standards of fieldwork relate to

a. The competence, independence, and professional care of
persons performing the audit.
b. Criteria for the content of the auditor's report on
 financial statements.
c. Audit planning and evidence gathering.
d. The need to maintain independence in mental attitude.
(AICPA ADAPTED)

50. The generally accepted standards of reporting encompass all

of the following except
a. Consideration of an entity's internal control structure.
b. Consistent application of accounting principles.
c. Informative disclosures.
d. Conformity of financial statements with GAAP.
51. An objective of the fourth generally accepted standard of
reporting, relating to the expression of an opinion, is to
a. Prohibit the auditor from issuing a report that does not
include an opinion on the financial statements taken as a
whole.
b. Inform users that the financial statements and related notes
are the joint responsibility of the auditor and management.
c. Prevent users of financial statements from misinterpreting
the degree of responsibility assumed by the auditor.
d. Ensure adequate informative disclosures in the financial
statements.

52. The least important evidence of a public accounting firm's

evaluation of its system of quality controls would concern the
firm's policies and procedures with respect to
a. Employment (hiring).
b. Confidentiality of audit engagements.
c. Assigning personnel to audit engagements.
d. Determination of audit fees.

53. In a financial statement audit, audit risk represents the

probability that
a. Internal control fails and the failure is not detected by
the auditor's procedures.
b. The auditor unknowingly fails to modify an opinion on
materially misstated financial statements.
c. Inherent and control risk cause errors that could be
material to the financial statements.
d. The auditor is not retained to conduct a financial statement
audit in the succeeding year.

54. In a financial statement audit, inherent risk represents

a. The susceptibility of an account balance to error that could
be material.
b. The risk that error could occur and not be prevented or
detected by the internal control structure.
c. The risk that error could occur and not be detected by the
auditor's procedures.
d. The risk that the auditor fails to modify materially
misstated financial statements.

55. The auditor's judgment concerning the overall fairness of the

presentation of financial positions, results of operations, and
cash flows is applied within the framework of
a. Quality control.
b. Generally accepted auditing standards that include the
concept of materiality.
c. The auditor's evaluation of the audited company's internal
controls.
d. Generally accepted accounting principles.
(AICPA ADAPTED)