Midterm Exam

Select the Best Answer: Name (in Arabic): …………………………………….

1.

An audit of historical financial statements is most often performed to determine whether the:

a. organization is operating efficiently and effectively.

b. entity is following specific procedures or rules set down by some higher authority.

c. management team is fulfilling its fiduciary responsibilities to shareholders.

d. none of these choices.

2.

An examination of part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?

a. Operational audit.

b. Compliance audit.

c. Financial statement audit.

d. Production audit.

3.

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):

a. audit of financial statements.

b. compliance audit.

c. operational audit.

d. production audit.

4.

Which of the following is a type of audit evidence?

a. Oral responses to the auditor from employees of the company under audit.

b. Written communications from company employees or outsiders.

c. Observations made by an auditor.

d. Evidence may take any of the above forms.

5.

Which of the following services provides the lowest level of assurance on a financial statement?

a. A review.

b. An audit.

c. Neither service provides assurance on financial statements.

d. Each service provides the same level of assurance on financial statements.

6.

The three requirements for becoming a CPA include all but which of the following?

a. Uniform CPA examination requirement.

b. Educational requirements.

c. Character requirements.

d. Experience requirement.

7.

In “auditing” financial accounting data, the primary concern is with:

a. determining whether recorded information properly reflects the economic events that occurred during the accounting period.

b. determining if fraud has occurred.

c. determining if taxable income has been calculated correctly.

d. analyzing the financial information to be sure that it complies with government requirements.

8.

Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?

a. Complex business transactions.

b. Large amounts of data.

c. Lack of firsthand knowledge about the business.

d. Each of these choices is a common reason for unreliable financial information.

9.

Which of the following is not a Trust Services principle as defined by the AICPA or CICA?

a. Online privacy.

b. Availability.

c. Processing integrity.

d. Operational integrity.

10.

Which one of the following is more difficult to evaluate objectively?

a. Presentation of financial statements in accordance with generally accepted accounting principles.

b. Compliance with government regulations.

c. Efficiency and effectiveness of operations.

d. All three of the above are equally difficult.

11.

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?

a. Reviews of quarterly financial statements.

b. Preparation of corporate tax returns.

c. Most consulting services.

d. Tax services.

12.

Which of the following audits can be regarded as generally being a compliance audit?

a. IRS agents’ examinations of taxpayer returns.

b. GAO auditor’s evaluation of the computer operations of governmental units.

c. An internal auditor’s review of a company’s payroll authorization procedures.

d. A CPA firm’s audit of the local school district.

13.

Which of the following can be significantly affected by an audit?

a. Business risk.

b. Information risk.

c. The risk-free interest rate.

d. Inherent risk.

14.

The trait that distinguishes auditors from accountants is the:

a. auditor’s ability to interpret accounting principles generally accepted in the United States.

b. auditor’s education beyond the Bachelor’s degree.

c. auditor’s ability to interpret FASB Statements.

d. auditor’s accumulation and interpretation of evidence related to a company’s financial statements.

15.

Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services?

a. SysTrust services provide assurance on business processes, transaction integrity and information processes.

b. SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.

c. ysTrust services provide assurance on internal control over financial reporting.

d. SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.

16.

The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the:

a. Form S-1.

b. Form 8-K.

c. Form 10-K.

d. Form 10-Q.

17.

Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm.

a. The PCAOB may not enforce some disciplinary action against the accounting firm.

b. The PCAOB may not report the matter to the Securities and Exchange Commission.

c. The PCAOB may not report the matter to the appropriate state accountancy board

d. The PCAOB may not suspend the license to practice of the CPA guilty of the violation.

18.

Which of the following statements best describes the primary purpose of Statements on Auditing Standards?

a. They are guides intended to set forth auditing procedures that are applicable to a variety of situations.

b. They are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion.

c. They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment.

d. They are interpretations that are intended to clarify the meaning of “generally accepted auditing standards.”

19.

Statements on Standards for Accounting and Review Services are issued by the:

a. Accounting and Review Services Committee.

b. Professional Ethics Executive Committee.

c. Securities and Exchange Commission.

d. Financial Accounting Standards Board.

20.

Williams & Co., a member of the Private Companies Practice Section, is to have a “peer review.” The peer review can be performed by:

a. a CPA firm selected by Williams & Co.

b. a review team selected by the state society.

c. internal auditors.

d. either a or b.

21.

Hansen Corporation’s stock is listed on a national stock exchange and registered with the Securities and Exchange Commission. Hansen’s management hires a CPA to perform an independent audit of Hansen’s financial statements. The primary objective of this audit is to provide assurance to the:

a. investors in Hansen Corporation’s stock.

b. stock exchange.

c. Securities and Exchange Commission.

d. management of Hansen Corporation.

22.

Which of the following is not an essential component of quality control?

a. Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies.

b. Policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards.

c. Policies to ensure that personnel maintain their independence in fact and in appearance.

d. Policies that ensure that monitoring activities are effectively applied.

23.

Which of the following is true regarding the AICPA-approved practice monitoring programs?

a. The Center for Public Company Audit Firms does not offer a peer review program.

b. Firms registered with the PCAOB must not enroll in an AICPA-approved practice monitoring program.

c. Public accounting firms must be enrolled in an AICPA-approved practice monitoring program for members in the firm to be eligible for membership in the AICPA.

d. The AICPA peer review program is administered through the SEC.

24.

Which of the following statements is true as it relates to limited liability partnerships?

a. Only senior partners are liable for the partnership’s debts.

b. Partners have no liability in a limited liability partnership arrangement.

c. Partners are personally liable for the acts of those under their supervision.

d. All partners must be AICPA members.

25.

If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources?

a. Statements on Auditing Standards.

b. Statements on Standards for Accounting and Review Services.

c. Regulations issued by the Securities and Exchange Commission.

d. The AICPA Code of Professional Conduct.

26.

The SEC requirements of greatest interest to CPAs are set forth in the SEC’s:

a. Regulation S-X and Accounting Series Releases.

b. S-1 through S-16 forms.

c. Director’s newsletter.

d. Forms 8-K, 10-K, and 10-Q.

27.

The AICPA has authority to establish standards and rules in all but which of the following areas?

a. Auditing standards applicable to financial statements of private companies.

b. Compilation and review standards.

c. Professional conduct.

d. Auditing standards applicable to financial statements of private and public companies.

28.

Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as:

a. ideals to work towards, but which are not achievable.

b. maximum standards that denote excellent work.

c. minimum standards of performance that must be achieved on each audit engagement.

d. benchmarks to be used on all audits, reviews, and compilations.

29.

Which one of the following is not a requirement for belonging to the Private Companies Practice Section of the American Institute of Certified Public Accountants?

a. Adherence to quality control standards.

b. Mandatory peer review.

c. Partner rotation after a period of ten consecutive years.

d. Continuing education.

30.

Statements on Auditing Standards issued by the AICPA’s Auditing Standards Board are:

a. part of the generally accepted auditing standards under the AICPA Code of Professional Conduct.

b. interpretations of generally accepted auditing standards and departures from such statements must be justified.

c. interpretations of generally accepted auditing standards and such standards must be followed in every engagement.

d. generally accepted auditing procedures that are not covered by the AICPA Code of Professional Conduct.

Good Luck