Chapter 2 Professional Standards 1 Section I: Multiple Choice Questions 1. Control risk is A. The probability that a material misstatement could not be prevented or detected by the entity’s internal control policies and procedures. B. The probability that a material misstatement could occur and not be detected by auditors’ procedures. C. The risk that auditors will not be able to complete the audit on a timely basis. D. The risk that auditors will not properly control the staff on the audit engagement. Answer: A LO: 02-03 Performance Principle Topic: Control Risk Source: Original Difficulty: 1 Easy Bloom’s: Remember AACSB: Analytic AICPA BB: Industry AICPA FN: Risk Analysis 2. The responsibilities principle under generally accepted auditing standards does not include which of the following? A. Competence and capabilities. B. Independent attitude. C. Due care. D. Planning and supervision. Answer: D LO: 02-02 Responsibilities Principle Topic: Responsibilities Principle Source: Original Difficulty: 1 Easy Bloom’s: Remember AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 3. Which of the following types of auditors’ reports does not require an additional paragraph to support the opinion? A. Unmodified opinion. B. Adverse opinion. C. Qualified opinion. D. Disclaimer of opinion.Chapter 2 Professional Standards 2 Answer: A LO: 02-04 Reporting Principle Topic: Auditors’ Reports Source: Original Difficulty: 1 Easy Bloom’s: Remember AACSB: Communication AICPA BB: Industry AICPA FN: Reporting 4. Which of the following is an element of a system of quality control that should be considered by a public accounting firm in establishing its quality control policies and procedures? A. Lending credibility to a client's financial statements. B. Using statistical sampling techniques. C. Acceptance and continuance of client relationships and specific engagements. D. Membership in the Center for Public Company Audit Firms. Answer: C LO: 02-05 Quality Control Topic: Quality Control Source: Original Difficulty: 2 Medium Bloom’s: Understand AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 5. Which of the following presumptions does not relate to the reliability of audit evidence? A. The more effective the client’s internal control, the more assurance it provides about the accounting data and financial statements. B. The auditors’ opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost. C. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. D. The independent auditors’ direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly. Answer: B LO: 02-03 Performance Principle Topic: EvidenceChapter 2 Professional Standards 3 Source: AICPA Difficulty: 3 Hard Bloom’s: Evaluate AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 6. An important role of the Public Company Accounting Oversight Board is to oversee the A. Issuance of statements by the Financial Accounting Standards Board. B. Preparation and grading of the Uniform CPA Examination. C. Peer review of member firms of the Private Companies Practice Section. D. Regulation of firms that audit public entities. Answer: D LO: 02-01 Generally Accepted Auditing Standards Topic: PCAOB Source: Original Difficulty: 2 Medium Bloom’s: Understand AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 7. Audit evidence is usually considered sufficient when A. It is reliable. B. There is enough quantity to afford a reasonable basis for an opinion on financial statements. C. It has the qualities of being relevant, objective, and free from unknown bias. D. It has been obtained through random selection methods. Answer: B LO: 02-03 Performance Principle Topic: Evidence Source: AICPA Difficulty: 2 Medium Bloom’s: Understand AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 8. Which of the following is not considered a type of audit evidence? A. The entity’s trial balance. B. Auditors’ calculations.Chapter 2 Professional Standards 4 C. Physical observation. D. Verbal statements made by client personnel. Answer: A LO: 02-03 Performance Principle Topic: Evidence Source: Original Difficulty: 2 Medium Bloom’s: Understand AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 9. An audit of the financial statements of Camden Corporation is being conducted by external auditors. The external auditors are expected to: A. Certify the correctness of Camden’s financial statements. B. Make a complete examination of Camden’s records and verify all of Camden’s transactions. C. Give an opinion on the fair presentation of Camden’s financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS). D. Give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions. Answer: C LO: 02-04 Reporting Principle Topic: Reporting Principle Source: Original Difficulty: 2 Medium Bloom’s: Understand AACSB: Communication AICPA BB: Industry AICPA FN: Reporting 10. Auditors try to achieve independence in appearance in order to: A. Maintain public confidence in the profession. B. Become independent in fact. C. Comply with the responsibilities principle. D. Maintain an unbiased mental attitude. Answer: A LO: 02-02 Topic: Independence Source: Original Difficulty: 2 MediumChapter 2 Professional Standards 5 Bloom’s: Understand AACSB: Ethics AICPA BB: Industry AICPA FN: Decision Making 11. The preparation of an audit plan prior to the beginning of field work is appropriately considered documentation of A. Planning. B. Supervision. C. Information evaluation. D. Quality assurance. Answer: A LO: 02-03 Performance Principle Topic: Audit Plan Source: Original Difficulty: 1 Easy Bloom’s: Remember AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making 12. Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the client’s accounting staff held in private. B. Inspection of pre-numbered client shipping documents. C. Inspection of bank statements obtained directly from