2024 – Audit Risks Please respond to the following From the e Activity analyze whether or

“Audit Risks”Please respond to the following:

From the e-Activity, analyze whether or not investors who were misled by relying on financial statements could hold the audit firm liable for audit failure either by common or securities laws. Provide a rationale for your response.
According to an article in the CPA Journal, the accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two (2) alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use.

Week 3 Homework Submission

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Chapter 5: Problems 5-18, 5-20(a-d), and 5-22(a-e)
Chapter 6: Problems 6-23(a-b), 6-25, and 6-32(a-g)

quiz 2

Acct403 Quiz 2

Question 1

Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern?

Answer

The entity is suing a competitor for a minor patent infringement.

The entity has lost a major customer.

The entity has significant recurring operating losses.

The entity has working capital deficiencies.

Question 2

If most or all users’ decisions that are based on the financial statements are likely to be significantly affected, the materiality level is:

Answer

unrestricted.

material.

pervasive.

risky.
Question 3

The standard unqualified audit report for a non-public entity must:

Answer

have a report title that includes the word “CPA.”

be addressed to the company’s stockholders and creditors.

be dated.

include an explanatory paragraph.
Question 4

The audit report date on a standard unqualified report indicates:

Answer

the last day of the fiscal period.

the date on which the financial statements were filed with the Securities and Exchange Commission.

the last date on which users may institute a lawsuit against either client or auditor.

the last day of the auditor’s responsibility for the review of significant events that occurred after the date of the financial statements.
Question 5

The standard unqualified audit report for public entities includes the following three paragraphs:

Answer

introductory, scope and management’s responsibility.

materiality, scope and report.

introductory, scope and opinion.

scope, fieldwork and conclusion.
Question 6

The auditor’s responsibility section of the standard unqualified audit report states that the audit is designed to:

Answer

discover all errors and/or irregularities.

discover material errors and/or irregularities.

conform to generally accepted accounting principles.

obtain reasonable assurance whether the statements are free of material misstatement.
Question 7

Auditing standards for public companies are established by the:

Answer

SEC.

FASB.

PCAOB.

IRS.
Question 8

The auditor’s responsibility section of the standard audit report states that the auditor is:

Answer

responsible for the financial statements and the opinion on them.

responsible for the financial statements.

responsible for the opinion on the financial statements.

jointly responsible for the financial statements with management.
Question 9

The term “explanatory paragraph” was replaced in the AICPA auditing standards with:

Answer

going concern paragraph.

emphasis-of-matter paragraph.

departure from principles paragraph.

consistency paragraph.
Question 10

If the phrase “except for” is present in the opinion paragraph of the audit report, the auditor has issued a(n):

Answer

adverse opinion.

disclaimer of opinion.

unqualified opinion.

qualified opinion.
Question 11

The first step to be followed when deciding the appropriate audit report in a given set of circumstances is to:

Answer

decide the appropriate type of report for the condition.

write the report.

determine whether any conditions exists requiring a departure from a standard unqualified report.

decide the materiality for each condition.
Question 12

Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue:

Answer

a disclaimer.

an unqualified opinion.

a qualified opinion.

an adverse opinion.
Question 13

When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue:

Answer

an adverse opinion.

a disclaimer of opinion.

either a qualified opinion or an adverse opinion.

either a qualified opinion or an unqualified opinion with modified wording.
Question 14

A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of:

Answer

the PCAOB.

a reasonable user of the financial statements.

an accountant.

the SEC.
Question 15

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:

Answer

disclaimer of opinion in all cases.

qualification of both scope and opinion in all cases.

disclaimer of opinion whenever materiality is in question.

qualification of both scope and opinion whenever materiality is in question.
Question 16

The Sarbanes-Oxley Act ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client.

Answer

encourages

prohibits

allows

allows on a case-by-case basis
Question 17

When a member observes the profession’s technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising:

Answer

due care.

integrity.

independence.

objectivity.
Question 18

The CPA must not subordinate his or her professional judgment to that of others in any:

Answer

engagement.

audit engagement.

engagement excluding tax services.

engagement where the opinion of a specialist is used.
Question 19

Interpretations of the rules regarding independence allow an auditor to serve as:

Answer

a director or officer of an audit client.

an underwriter for the sale of a client’s securities.

a trustee of a client’s pension fund.

an honorary director for a not-for-profit charitable or religious organization.
Question 20

Rule 301 of the AICPA’s Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client’s consent as a result of a:

Answer

subpoena or summons.

peer review.

complaint filed with the trial board of the Institute.

request by a client’s largest stockholder.
Question 21

The financial interests of a CPA’s family members can affect the CPA’s independence. Which of the following parties wouldnotbe included as a “direct financial interest” of the CPA?

Answer

Spouse

Dependent child

Relative supported by the CPA

Sibling living in the same city as the CPA
Question 22

Ethics are:

Answer

needed in the professions, but is not needed for society in general.

a set of moral principles or values.

not formed by life experiences.

always incorporated in laws.
Question 23

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

Answer

Internal audit outsourcing

Legal services unrelated to the audit

Appraisal or valuation services

Services related to assessing the effectiveness of internal control over financial reporting
Question 24

A CPA firm:

Answer

can sell securities to a client for whom they perform an attestation service.

can receive a commission for a client that they are engaged to perform an attestation service for.

cannot receive a referral fee for recommending the services of another CPA.

can receive a commission from a nonattestation client as long as the situation is disclosed.
Question 25

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position?

Answer

One year

Eighteen months

Three years

Five years
Question 26

Of the four parts of the AICPA’s Code of Professional Conduct, which part is enforceable?

Answer

Ethical Rulings

Rules of Conduct

Principles

Interpretations

2 points
Question 27

Freedom from ________ means the absence of relationships that might interfere with objectivity or integrity.

Answer

independence.

acts discreditable.

impartiality.

conflicts of interest.
Question 28

Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead?

Answer

At least one of the partners must be a member of the AICPA.

All partners must be members of the AICPA.

The partners whose names appear in the firm name must be members of the AICPA.

A majority of the partners must be members of the AICPA.
Question 29

The AICPA’s Code of Professional Conduct requires independence for all:

Answer

attestation engagements.

services performed by accountants in public practice.

accounting and auditing services performed.

professional work performed by CPAs.
Question 30

The members of a client’s “audit committee” should be:

Answer

members of management.

directors who are not a part of company management.

non-directors and non-managers.

directors and managers.