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AUDIT THEORY.doc

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  AT 1.Auditing standards differ from auditing procedures in that procedures relate toa) Measure of performance. c) Acts to be performed.b) Audit principles. d) Audit judgments. 2.The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons haing ade!uate technical training, re!uires that an auditor haea) ducation and experience in the field of auditing. b) Ability in the planning and superision of the audit wor#. c) $roficiency in business and financial matters. d) %nowledge in the areas of financial accounting. &.The first standard of field wor#, which states that the wor# is to be ade!uately planned, and assistants, if any, are to be properly superised, recogni'es thata) arly appointment of the auditor is adantageous to the auditor and the client. b) Acceptance of an audit engagement after the close of the client(s fiscal year is generally not permissible. c) Appointment of the auditor subse!uent to the physical count of inentories re!uires a disclaimer of opinion. d) $erformance of substantial parts of the examination is necessary at interim dates. .*hich of the following best describes the reason why an independent auditor reports on financial statements+ a) A management fraud may exist and is more li#ely to be detected by independent auditors. b) ifferent interests may exist between the company preparing the statements and the persons using the statements. c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor(s wor#. d) $oorly designed internal control may exist. -.A $A, while performing an audit, stries to achiee independence in appearance in order toa) /educe ris# and liability. b) omply with the generally accepted standards of field wor#. c) 0ecome independent in fact. d) Maintain public confidence in the profession. .The generally accepted auditing standards are standards whicha) Are sufficiently established so that independent auditors generally agree on their existence. b) Are generally accepted based upon a pronouncement of the 3inancial Accounting 4tandards 0oard. c) Are generally accepted in response to the changing needs of the business community. d) Are generally accepted as a conse!uence of approal of the A5$A membership. 6.The primary responsibility for the ade!uacy of disclosure in the financial statements of a publicly held company rests with thea) $artner assigned to the engagement. b) Auditor in charge of field wor#. c) Management of the company. d) 4ecurities 7 xchange ommission. 8.A $A should comply with applicable 9AA4 on eery engagementa) *ithout exception. b) xcept in examinations that result in a !ualified report. c) xcept in engagements where the $A is associated with unaudited 3:4. d) xcept in examinations of interim financial statements. ;.The first general standard recogni'es that regardless of how capable an indiidual may be in other fields, the indiidual can not meet the re!uirements of the auditing standards without the propera) 0usiness and finance course. b) <uality control and peer reiew. c) ducation 7 experience in auditing. d) 4uperision and reiew s#ills. 1=.ue professional care re!uiresa) A critical reiew of the wor# done at eery leel of superision.  1  b) The examination of all corroborating eidence aailable. c) The exercise of error free judgment. d) A study and reiew of the 5:(s that include tests of controls11.The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a $A who underta#es an engagement assumes a duty toperform each audita) As a professional possessing the degree of s#ill commonly possessed by others in the field. b) 5n conformity with generally accepted accounting principles. c) *ith reasonable diligence and without fault or error. d) To the satisfaction of goernmental agencies and inestors who rely upon the audit. 12.*hich of the following best describes the reason why an independent auditor reports on financial statements+ a) A management fraud may exist and is more li#ely to be detected by independent auditors. b) ifferent interests may exist between the company preparing the statements and the persons using the statements. c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor(s wor#. d) $oorly designed internal control may exist. 1&.5ndependent auditing can best be described asa) A branch of accounting. b) A discipline that attests to the results of accounting and other functional operations and data. c) A professional actiity that measures and communicates financial and business data. d) A regulatory function that preents the issuance of improper financial information. 1.The primary purpose of a management adisory serices engagement is to help the clienta) 0ecome more profitable by relying upon the $A(s existing personal #nowledge about the client(s business. b) 5mproe the use of its capabilities and resources to achiee its objecties. c) ocument and !uantify its future plans without impairing the $A(s objectiity or allowing the $A to assume the role of management. d) >btain benefits that are guaranteed implicitly by the $A. 1-.>perational auditing is primarily oriented towarda) 3uture improements to accomplish the goals of management. b) The accuracy of data reflected in management(s financial records. c) The erification that a company(s financial statements are fairly presented. d) $ast protection proided by existing internal control. 1.The exercise of due professional care re!uires that an auditora) ?se error@free judgment. b) onsider the internal control structure, including tests of controls. c) ritically reiew the wor# done at eery leel of superision. d) xamine all corroborating eidence aailable. 16.The least important eidence of a $A firm(s ealuation of its system of < would concern the$A firm(s policies and procedures fora) mployment hiring). b) onfidentiality of audit engagements. c) Assigning personnel to audit engagements. d) etermination of audit fees. 18.A $A establishes < policies and procedures for deciding whether to accept a new client or continue to perform serices for a current client. The primary purpose for establishing such policies is toa) nable the auditor to attest to the integrity or reliability of a client. b) omply with the !uality control standards established by regulatory bodies. c) Minimi'e the li#elihood of association with clients whose management lac#s integrity. d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements. 1;.5n pursuing its !uality control objecties with respect to acceptance of a client, a $A firm is not li#ely toa) Ma#e in!uiries of the proposed client(s legal counsel. b) /eiew financial statements of the proposed client. c) Ma#e in!uiries of preious auditors. d) /eiew the personnel practices of the proposed client.  2  2=.5n connection with the element of monitoring, a $A firm(s system of !uality control should ordinarily proide for the maintenance of a) A file of minutes of staff meetings. b) ?pdated personnel files. c) ocumentation to demonstrate compliance with its policies and procedures. d) ocumentation to demonstrate compliance with peer reiew directies. 21.>ne element of the personnel management !uality control standard is professional deelopment. The primary reason why a $A firm establishes policies and procedures for professional deelopment of staff accountants is toa) omply with the continuing educational re!uirements imposed by arious states for all staff accountants in $A firms. b) stablish, in fact as well as in appearance, that staff accountants are increasing their #nowledge of accounting and auditing matters. c) $roide a forum for staff accountants to exchange their experiences and iews concerning firmpolicies and procedures. d) $roide reasonable assurance that staff personnel will hae the #nowledge re!uired to enable them to fulfill responsibilities. 22.*hat is the responsibility of a successor auditor 4A) with respect to communicating with the predecessor auditor $A) in connection with a prospectie new client+ a. The 4A has no responsibility to contact the $A. b. The 4A should obtain permission from the prospectie client to contact the $A. c. The 4A should contact the $A regardless of whether the prospectie client authori'es contact. d. The 4A need not contact the $A if the successor is aware of all aailable releant facts. 2&.A prospectie client(s refusal to grant a $A permission to communicate with the predecessor auditor will bear directly on the $A(s ability toa) etermine appropriate pricing of the audit. b) etermine the integrity of management. c) etermine the beginning balances of the current year(s financial statements. d) stablish consistency in application of 9AA$ between years. 2.$rior to the acceptance of an audit engagement with a client who has terminated the sericesof the predecessor auditor, the $A shoulda. ontact the predecessor auditor without adising the prospectie client and re!uest a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be #ept confidential. b. Accept the engagement without contacting the predecessor auditor since the $A can include audit procedures to erify the reason gien by the client for the termination. c. Bot communicate with the predecessor auditor because this would, in effect, be as#ing the auditor to iolate the confidential relationship between auditor and client. d. Adise the client of the intention to contact the predecessor auditor and re!uest permission forthe contact. 2-.0efore accepting an audit engagement, a successor auditor should ma#e specific in!uiries of the predecessor auditor regarding the predecessor(sa. Awareness of the consistency in the application of 9AA$ between periods. b. aluation of all matters of continuing accounting significance. c. >pinion of any subse!uent eents occurring since the predecessor(s audit report was issued. d. ?nderstanding as to the reasons for the change of auditors.2.*hich of the following statements best describes why the profession of public accounting has deemed it essential to promulgate a $ and to establish a mechanism for enforcing obserance of the code+a. A distinguishing mar# of a profession is its acceptance of responsibility to the public. b. A prere!uisite to success is the establishment of an ethical code that stresses primarily the professional(s responsibility to clients and colleagues. c. A re!uirement of most state laws calls for the profession to establish a code of ethics. d. An essential means of self@protection for the profession is the establishment of flexible ethical standards. 26.?pon discoering irregularities in a client(s tax return that the client would not correct, a $A withdraws from the engagement. Cow should the $A respond if as#ed by the successor $A whythe relationship was terminated+ a. 5t was a misunderstanding. b. 5 suggest you get the client(s permission for us to discuss all matters freely.  3  c. 5 suggest you as# the client. d. 5 found irregularities in the tax return which the client would not correct. 28.The ode of $rofessional onduct deries its authority from thea. 3inancial /eporting 4tandards ouncil. b. Auditing and Assurance 4tandards ouncil. c. 0ylaws of the American 5nstitute of $As. d. 4ecurities and xchange ommission. 2;.The ode of $rofessional onduct states that a $A shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule precludes responding toa. An inestigatie body of a $A. b. The ethics board of the $5$A. c. A $A@shareholder of the client corporation. d. An 0>A !uality reiew body. &=.$ursuant to the rules of conduct, if a partner in a two@member partnership dies, the suriingpartner may continue to practice as an indiidual under the existing firm title which includes the deceased partner(s namea. 3or a period of time not to exceed fie years. b. 3or a period of time not to exceed two years. c. 5ndefinitely. d. ?ntil the partnership pay@out to the deceased partner(s estate is terminated. &1.A $A accepts an engagement for a professional serice without iolating the ode of $rofessional onduct if the serice inolesa. The preparation of cost projections for submission to a goernmental agency as an application for a rate increase. b. Tax preparation, and the fee will be based on whether the $A signs the tax return prepared. c. A litigatory matter, and the fee is not #nown but is to be determined by a court. d. Tax return preparation, and the fee is to be based on the amount of taxes saed if any.&2.A $A(s retention of client records as a means of enforcing payment of an oerdue audit fee isan action that isa. onsidered acceptable by the A5$A ode of $rofessional onduct. b. 5ll@adised since it would impair the $A(s independence with respect to the client. c. onsidered discreditable to the profession. d. A iolation of generally accepted auditing standards. &&.A $A, who is a member of the $hilippine 5nstitute of ertified $ublic Accountants, wrote an article for publication in a professional journal. The ode of $rofessional onduct would be iolated if the $A allowed the article to state that the $A wasa. A member of the American 5nstitute of ertified $ublic Accountants. b. A professor at a school of professional accountancy. c. A partner in a national $A firm. d. none of these. &.uring the course of an audit, the client(s controller as#s you if you would li#e to spend the wee#end in Bew Dor# as the company(s guest. Cow should you respond+ a. 9o and enjoy yourself. b. xplain to the client that under the A5$A ode of $rofessional onduct you must maintain your independence so it will be necessary to schedule some appropriate business actiities. c. xplain that under the ode of $rofessional onduct you cannot accept anything of significant alue from a client. d. xplain that under the A5$A 4tatement of 3air $ractices that this type of actiity is prohibited.&-.*hen a $A is re!uested to perform a reiew engagement for a nonpublic entity in which the $A has an immaterial financial interest, the $A should inform management that the $Aa. *ill hae to disclose the lac# of independence in the reiew report. b. Eac#s independence and, therefore, may issue a reiew report, but can not issue an auditor(s opinion.c. Eac#s independence and, therefore, is precluded from issuing a reiew report. d. 5s considered independent because the financial interest is immaterial and, therefore, the $A can issue a reiew report. &.The use of fidelity bonds may indemnify a company from embe''lement losses. The use alsoa) /educes the company(s need to obtain expensie business interruption insurance. b) $rotects employees who ma#e unintentional errors from possible monetary damages resulting 4
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