Acct 208 Fall 17 Exam
AUDITING ACCT 208/718FALL 2017EXAMINATION #1OCTOBER 9, 2017The test consists of multiple choice questions; please circle your answer. The test is due in class on October 16, 2017. If you are unable to attend class on that date, you can submit your test to the information below.Contact information is as follows:Karl G. Fassnacht [email protected] 610-862-2500NAME___________________________GRADE_____________ Any service requiring the CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n)accounting and bookkeeping serviceattestation serviceassurance servicetax service2. The organization responsible for providing oversight for auditors of public companies is called theAuditing Standards BoardAmerican institute of Certified Public AccountantsPublic Oversight BoardPublic Company Accounting Oversight Board3. An audit of historical financial statements most commonly includes thebalance sheet, income statement and the statement of cash flowsincome statement, statement of cash flows and the footnotesstatement of cash flows, balance sheet and statement of stockholders’ equity4. An audit of historical financial statements is most often performed to determine whether theorganization is operating effectively and efficientlyentity is following specific procedures or rules set by a higher authoritymanagement team is fulfilling its fidicuiary responsibilities to shareholdersnone of the above5. Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?complex business transactionslarge amounts of datalack of firsthand knowledge of the businesseach of the above is a common reason or unreliable information6. The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of service to that company?reviews of quarterly financial statementspreparation of corporate tax returnsmost consulting servicesall of the above are prohibited services7. In any case in which the CPA or the CPA’s assistants are not qualified to perform the work, a professional obligation exists to acquire the perquisite skills and experiencesuggest someone else who is qualified to do the workdecline the engagementany of the above8. The third general standard states that due care is to be exercised in the performance of an audit. This standard is generally interpreted to requireobjective review of the adequacy of the technical training of firm personnelthorough review of the existing internal control structurecritical review of work done at every level of supervisionperiodic review of a CPA firm’s quality control procedure9. The purpose of the introductory paragraph in the standard unqualified report isto identify the entity that was auditedto identify the financial statements that were audited and the dates and time periods covered by the reportto communicate the responsibilities of management in preparing the financial statements and to clarify the respective roles of management and the auditorall of the above10. The audit report date on a standard unqualified report indicatesthe last day of the fiscal periodthe date on which the financial statements were filed with the Securities and Exchange Commissionthe last date on which users may institute a lawsuit against the client or the auditor the last day of the auditor’s responsibility for the review of significant events that occurred subsequent to the date of the financial statements11. Whenever an auditor issues a standard unqualified audit report, the implication is the auditordoes not know if the financial statements are presented in conformity with GAAPdoes not believe the financial statements are presented in conformity with GAAPbelieve the financial statements to be presented fairly in accordance with GAAP except for a specific aspect of thembelieve the financial statements are presented fairly in accordance with GAAP12. If the balance sheet of a company is dated December 31, 2015, the audit report is dated February 8, 2016, and both are released on February 15, 2016, this indicates that the auditor has searched for subsequent events that occurred up to
December 31, 2015February 8, 2016February 15, 2016None of these13. The least severe type of audit report for disclosing departures from GAAP is the adverse opiniondisclaimer of opinionqualified opinionreport on unaudited financial statements14. Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includesnet incometotal assetsworking capitalall of the above15. Whenever there is a scope restriction, the appropriate response is to issue a (n)disclaimer of opinionadverse opinionqualified opinionunqualified report, a qualification of scope and opinion, or a disclaimer, depending on materiality16. The primary concern(s) in assessing materiality when a client has failed to follow GAAP include(s)the total dollar error in the accounts involved compared with some basethe nature of the itemthe qualitative nature of the itemall of the above17. Brown Co.’s financial statements adequately disclose uncertainties that concern future events, the outcome of which are not reasonably estimable. The auditor’s report should include a (n)unqualified opinion“subject to” qualified opinion“except for” qualified opinionAdverse opinion 18. The underlying reason for a code of professional conduct for any profession isthe need for public confidence in the quality of the service of the professionthat it provides a safeguard to keep unscrupulous people outthat it is required by federal legislationthat it allows licensing agencies to have a yardstick to measure deficient behavior 19.”Independence” in auditing meansremaining aloof from the clientnot being financially dependent on the clienttaking an unbiased and objective viewpointbeing an advocate for the client 20. To emphasize auditor independence from management, many corporationsappoint a partner of the firm conducting the audit to the corporation’s audit committeeestablish a policy of discouraging social contact between employees of the corporation and staff of the independent auditorhave the independent auditor report to the audit committee of outside members of the board of directorsrequest that a representative of the independent auditor be on hand at the annual stockholders’ meeting 21. The members of the company’s auditor committee should bemembers of managementdirectors who are not part of company managementnon-directors and non-membersdirectors and managers22. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information about a client?the CPA is issued a summons enforceable by a court order which orders the CPA to present confidential informationa major stockholder of the company seeks accounting information from the CPA after management has declined to disclose the requested informationconfidential client information is made available as part of a quality review of the CPA’s practice by a review team authorized by the AICPAan inquiry by a disciplinary body of a state CPAS society requests confidential information23. The standard of due care to which the auditor is expected to adhere is referred to as the