TEST BANK for Auditing A Risk Based Approach 11th Edition Johnstone, Gramling, Rittenberg.

Chapter 01 1. The need for independent assurance arises because the interests of the users of information may be different from the interests of those responsible for providing information. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 2:50 AM DATE MODIFIED: 1/17/2018 7:42 AM 2. A financial statement audit is a systematic process of objectively obtaining and evaluating evidence. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 2:58 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 3. A bank using Milton Company's financial statements to evaluate Milton’s loan application is an example of a user’s need for unbiased reporting. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: User’s Need for Reliable Financial Reporting DATE CREATED: 1/17/2018 3:00 AM DATE MODIFIED: 1/17/2018 7:42 AM 4. An integrated audit requires the auditor to assess the effectiveness of internal controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Integrated Audit DATE CREATED: 1/17/2018 3:02 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 5. Auditors obtain and evaluate evidence regarding assertions about economic actions and events to verify the accuracy of those assertions. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 3:03 AM DATE MODIFIED: 1/17/2018 7:42 AM 6. Auditing is the process of verifying the accuracy of the financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 3:04 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 7. Management may have incentives to present biased financial information, but the various users of the statements are not likely to have conflicting interests in the financial information. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Users’ Needs for Reliable Financial Information DATE CREATED: 1/17/2018 3:06 AM DATE MODIFIED: 1/17/2018 7:42 AM 8. Auditing exists because users need unbiased information on which to assess management performance and make economic decisions. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 3:07 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 9. Users rely on the auditors' independent assessment of financial statement presentation because few users have direct knowledge of the company's operations. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 3:08 AM DATE MODIFIED: 1/17/2018 7:42 AM 10. If the auditor has no reservations about management’s financial statements, then the auditor will issue a qualified opinion. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Opinion DATE CREATED: 1/17/2018 3:09 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 11. Independence is often referred to as the cornerstone of the auditing profession. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Auditor Independence DATE CREATED: 1/17/2018 3:09 AM DATE MODIFIED: 1/17/2018 7:42 AM 12. Auditors generally need quantitative and mathematical skills more than they need communication and leadership skills. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Skills and Knowledge Needed by Professionals DATE CREATED: 1/17/2018 3:10 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 13. The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Overview of the External Auditing Profession DATE CREATED: 1/17/2018 3:12 AM DATE MODIFIED: 1/17/2018 7:42 AM 14. The foundation for the audit opinion formulation process relies on obtaining evidence to support the auditor’s opinion. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Opinion Formulation Process DATE CREATED: 1/17/2018 3:12 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 15. Complex transactions, information, and processing systems provide an opportunity for management to mislead users of financial statements. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 3:13 AM DATE MODIFIED: 1/17/2018 7:42 AM 16. Users of audited financial statements include a company’s bondholders but not its stockholders, who are the owners of the company. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Users of Audited Financial Statements DATE CREATED: 1/17/2018 3:14 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 17. A key responsibility of the internal audit function is to provide assurance on the reliability of financial information reported to external users of audited financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Parties Involved in Preparing and Auditing Financial Statements DATE CREATED: 1/17/2018 3:16 AM DATE MODIFIED: 1/17/2018 7:42 AM 18. The audit committee oversees both the internal and external auditors. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Role of the Audit Committee DATE CREATED: 1/17/2018 3:17 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 19. A CPA is a certified public accountant who is licensed by a state board of accountancy. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:18 AM DATE MODIFIED: 1/17/2018 7:42 AM 20. Internal controls are the responsibility of management. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Parties Involved in Financial Reporting DATE CREATED: 1/17/2018 3:19 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 21. Audit staff performing audit work must be appropriately supervised by partners and managers. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Engagement Team DATE CREATED: 1/17/2018 3:21 AM DATE MODIFIED: 1/17/2018 7:42 AM 22. An auditor who has reservations about the effectiveness of a client company’s internal controls would issue an adverse opinion on internal controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Report on Internal Controls DATE CREATED: 1/17/2018 3:22 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 23. Audit firm culture is one of the primary drivers of audit quality. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Drivers of Audit Quality DATE CREATED: 1/17/2018 3:23 AM DATE MODIFIED: 1/17/2018 7:42 AM 24. Effective audit processes, by themselves, are sufficient to achieve audit quality. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Achieving Audit Quality DATE CREATED: 1/17/2018 3:23 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 25. A quality audit is one performed “in accordance with generally accepted auditing standards (GAAS) to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with generally accepted accounting principles (GAAP) and (2) are not materially misstated whether due to errors or fraud.” a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Quality Audit Defined DATE CREATED: 1/17/2018 3:25 AM DATE MODIFIED: 1/17/2018 7:42 AM 26. Audit quality is driven, in part, by the skills and personal qualities of audit partners and staff. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Drivers of Audit Quality DATE CREATED: 1/17/2018 3:26 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 27. The Financial Reporting Council’s Audit Quality Framework is the only framework for audit quality recognized by audit professionals worldwide. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Frameworks of Audit Quality DATE CREATED: 1/17/2018 3:27 AM DATE MODIFIED: 1/17/2018 7:42 AM 28. Some factors affecting audit quality are outside the direct control of the auditor, such as the amount of time allotted for completion of the audit. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Frameworks of Audit Quality DATE CREATED: 1/17/2018 3:28 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 29. Auditors should conduct their work with an attitude of professional skepticism. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Frameworks of Audit Quality DATE CREATED: 1/17/2018 3:29 AM DATE MODIFIED: 1/17/2018 7:42 AM 30. In the United States, auditors form conclusions about whether the financial statements are presented fairly in accordance with generally accepted auditing standards (GAAS). a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Frameworks of Audit Quality DATE CREATED: 1/17/2018 3:30 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 31. The International Auditing and Assurance Standards Board sets international standards on auditing and has developed a framework for audit quality. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:31 AM DATE MODIFIED: 1/17/2018 7:42 AM 32. To ensure audit quality, audits of public companies must be performed by multinational accounting firms. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Quality DATE CREATED: 1/17/2018 3:32 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 33. The PCAOB requires disclosure of the names of engagement partners for all public company audits. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:33 AM DATE MODIFIED: 1/17/2018 7:42 AM 34. The PCAOB is a public board, appointed by Congress, to provide oversight of the firms that audit public companies registered with the SEC. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:34 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 35. The SEC is the governmental body with oversight responsibility for the efficient operation of capital markets in the United States. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:35 AM DATE MODIFIED: 1/17/2018 7:42 AM 36. The PCAOB provides the criteria against which the auditor measures the fairness of financial statement presentation. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:36 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 37. The AICPA sets auditing standards for nonpublic companies. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:37 AM DATE MODIFIED: 1/17/2018 7:42 AM 38. Though often relying on the FASB, the SEC has authority to establish GAAP for public companies. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:38 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 39. The SEC has authority to establish GAAP for all business enterprises. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:39 AM DATE MODIFIED: 1/17/2018 7:42 AM 40. The Center for Audit Quality is responsible for the oversight of the peer review process for registered audit firms. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:40 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 41. The SEC and PCAOB independence rules for auditors are identical to those of the AICPA. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 3:41 AM DATE MODIFIED: 1/17/2018 7:42 AM 42. Compliance with the AICPA Code of Professional Conduct depends primarily on the threat of disciplinary actions for violating the Code. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:42 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 43. The AICPA’s conceptual framework of “threats and safeguards” included in the Code of Professional Conduct applies only to AICPA members in public practice. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:45 AM DATE MODIFIED: 1/17/2018 7:42 AM 44. Threats to an auditor’s independence may occur when the auditor has a long-standing relationship with an important person associated with the client. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:46 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 45. A safeguard is an action or other measure that may eliminate a threat or reduce the threat to an acceptable level. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:47 AM DATE MODIFIED: 1/17/2018 7:42 AM 46. Safeguards implemented by the audit client include mandatory audit partner rotation requirements for public companies. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:48 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 47. An AICPA member who is not in public practice is not subject to any of the Principles of Professional Conduct. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:50 AM DATE MODIFIED: 1/17/2018 7:42 AM 48. Specific rules of conduct contained in the AICPA Code of Professional Conduct and related interpretations of those rules cover many, but not all, relationships and circumstances that an auditor may encounter. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:51 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 49. An individual does not need to agree to uphold the AICPA’s Code of Professional Conduct in order to become licensed as a CPA. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:52 AM DATE MODIFIED: 1/17/2018 7:42 AM 50. A covered member’s investment in a mutual fund that owns stock in a firm being audited by the covered member is a direct financial interest resulting in the impairment of independence. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:53 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 51. When an auditor identifies threats to compliance with the rules of conduct, the auditor must demonstrate that safeguards were applied that totally eliminated the threat. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:54 AM DATE MODIFIED: 1/17/2018 7:42 AM 52. A covered member may not have a direct financial interest in an audit client if the interest is material. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:56 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 53. The AICPA's Code of Professional Conduct defines an indirect financial interest as an investment of one percent or less of a client's organization, and because the amount is so small it is considered immaterial. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:56 AM DATE MODIFIED: 1/17/2018 7:42 AM 54. Auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:58 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 55. An auditor may not disclose any confidential client information unless the auditor determines that disclosure is in the public interest. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 3:59 AM DATE MODIFIED: 1/17/2018 7:42 AM 56. Contingent fees are prohibited for tax professionals when preparing tax returns for clients. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:00 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 57. Contingent fees are prohibited for any client for which the auditor performs audit services, but are otherwise permitted. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:01 AM DATE MODIFIED: 1/17/2018 7:42 AM 58. Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:02 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 59. A CPA firm may include the name of only one past owner in the firm name. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:03 AM DATE MODIFIED: 1/17/2018 7:42 AM 60. A covered member under the AICPA’s rules includes individuals on the engagement team, any individual in a position to influence the engagement team, and a partner or manager who provides more than 10 hours of nonattest services to the audit client within a fiscal year. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:04 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 61. Rule 102 on integrity and objectivity applies only to covered members as defined by the AICPA. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:05 AM DATE MODIFIED: 1/17/2018 7:42 AM 62. The AICPA may revoke a member’s CPA license for violating its Code of Professional Conduct. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:06 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 63. A new staff member on an audit engagement may own stock in that client until the audit report is issued. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:07 AM DATE MODIFIED: 1/17/2018 7:42 AM 64. A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:08 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 65. Rule 102, Integrity and Objectivity, of the AICPA Professional Code of Conduct, does not apply to a CPA who is a corporate CFO. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Professional Code of Conduct DATE CREATED: 1/17/2018 4:09 AM DATE MODIFIED: 1/17/2018 7:42 AM 66. Loans between the auditor and the client are permitted in some circumstances. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:11 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 67. The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:12 AM DATE MODIFIED: 1/17/2018 7:42 AM 68. A covered member’s independence would be impaired if an immediate family member was employed by the client company in any position. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:13 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 69. The AICPA Code of Professional Conduct prohibits an auditor from providing any non-audit services to audit clients because of the threat posed to the auditor’s independence. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 4:14 AM DATE MODIFIED: 1/17/2018 7:42 AM 70. The SEC and PCOAB have independence requirements that apply only to auditors of public companies. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: SEC and PCOAB Independence Requirements DATE CREATED: 1/17/2018 4:15 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 71. According to the framework for professional decision making, the first step in decision-making is to structure the audit problem. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: General Decision-Making Framework DATE CREATED: 1/17/2018 4:16 AM DATE MODIFIED: 1/17/2018 7:42 AM 72. According to Rights Theory, the highest-order rights include rights granted by the government, such as civil rights, legal rights, rights to own property, and license privileges. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Ethical Decision Making DATE CREATED: 1/17/2018 4:17 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 73. An ethical dilemma occurs in a situation in which moral duties or obligations conflict. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Ethical Decision Making DATE CREATED: 1/17/2018 4:18 AM DATE MODIFIED: 1/17/2018 7:42 AM 74. An ethical dilemma occurs when an ethically correct action may conflict with an individual’s immediate self-interest. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Ethical Decision Making DATE CREATED: 1/17/2018 4:19 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 75. Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Ethical Decision Making DATE CREATED: 1/17/2018 4:21 AM DATE MODIFIED: 1/17/2018 7:42 AM 76. There is a hierarchy of rights to consider when applying rights theory. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: An Ethical Decision-Making Framework DATE CREATED: 1/17/2018 4:22 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 77. Utilitarian theory is an approach for addressing ethical problems by identifying a hierarchy of rights that should be considered in solving ethical dilemmas. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Ethical Theories DATE CREATED: 1/17/2018 5:35 AM DATE MODIFIED: 1/17/2018 7:42 AM 78. Professional judgment is an attitude that includes a questioning mind and a critical evaluation of audit evidence. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Professional Decision Making DATE CREATED: 1/17/2018 5:36 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 79. Without professional skepticism, auditors are susceptible to accepting weak or inaccurate audit evidence. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Framework for Professional Decision Making DATE CREATED: 1/17/2018 5:37 AM DATE MODIFIED: 1/17/2018 7:42 AM 80. Both client acceptance decisions and client continuance decisions are based on an evaluation of relative risk and audit fees. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance DATE CREATED: 1/17/2018 5:37 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 81. Auditors consider both quantitative and qualitative risk factors when making client acceptance or continuance decisions. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance DATE CREATED: 1/17/2018 5:38 AM DATE MODIFIED: 1/17/2018 7:42 AM 82. An auditor is not permitted to contact the predecessor auditor when considering a prospective new client. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance DATE CREATED: 1/17/2018 5:39 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 83. Engagement letters issued to new clients do not specify the amount of audit fees to be charged because fees cannot be determined until the audit has been completed. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance DATE CREATED: 1/17/2018 5:40 AM DATE MODIFIED: 1/17/2018 7:42 AM 84. Which of the following is not a reason for audits of financial statements of public companies? a. Potential bias in providing information. b. Greater likelihood of fraud in large public companies. c. Complexity of the processing systems. d. Remoteness between a user and the organization.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 5:41 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 85. What is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users? a. Internal audit. b. Financial statement audit. c. External audit. d. Program audit ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 5:42 AM DATE MODIFIED: 1/17/2018 7:42 AM 86. An Integrated Audit Report provides opinion(s) on which of the following? a. The financial statements. b. Internal controls. c. Both financial statements and internal controls. d. Neither financial statements nor internal controls.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Integrated Audit Defined DATE CREATED: 1/17/2018 5:43 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 87. Who are the users of the financial statements? a. Management. b. Auditors. c. Taxing Authorities. d. Both A and C. ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 5:45 AM DATE MODIFIED: 1/17/2018 7:42 AM 88. Which of the following is a factor that creates a need for an independent auditor's assessment of the financial statement presentation? a. Complexity of transactions affecting the financial statements. b. Lack of criteria on which to base information. c. Remoteness of the user from the organization. d. Both A and C. ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Need for Independent Assurance DATE CREATED: 1/17/2018 5:46 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 89. What can users of the audit report reasonably expect from the audited financial statements? a. The financial statements are complete and contain many of the important financial disclosures. b. The financial statements are presented fairly according to the substance of GAAP. c. The financial statements are free from all errors. d. All of the above.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 5:47 AM DATE MODIFIED: 1/17/2018 7:42 AM 90. To conduct an audit, what must an auditor do? a. Comply with relevant ethical standards. b. Exercise perfect judgment. c. Obtain sufficient appropriate evidence to provide absolute assurance. d. All of the above.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:00 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 91. What is the first phase in an audit? a. Client acceptance or client continuance. b. Understanding the client. c. Understanding internal controls. d. Testing of account balances.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:02 AM DATE MODIFIED: 1/17/2018 7:42 AM 92. How is the audit report referred to when the auditor has no reservations about management’s financial statements? a. An unqualified report. b. A qualified report. c. An adverse report. d. An integrated report.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Overview of the External Auditing Profession DATE CREATED: 1/17/2018 6:03 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 93. Why is auditing important in a free market society? a. The public requires auditors to function as divisions of regulatory bodies. b. Auditors detect all errors and fraud perpetrated by company employees. c. Audits provide reliable information upon which to judge economic performance. d. The auditor is a form of insurance policy for investors.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:05 AM DATE MODIFIED: 1/17/2018 7:42 AM 94. What must an auditor do in an audit? a. Consider how the economic activity is portrayed in the financial statements. b. Force management to make operational decisions that will improve the company’s financial performance. c. Disregard independence in order to find the underlying truth of the evidence. d. Establish new criteria by which financial statements may be compared.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:08 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 95. What document communicates the conclusions of the financial statement audit? a. The financial statements. b. Written management assertions. c. The audit report. d. None of the above.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:09 AM DATE MODIFIED: 1/17/2018 7:42 AM 96. Who is responsible for internal controls within an organization? a. The internal auditor. b. The external auditor. c. Management. d. The PCAOB. ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:12 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 97. What is the primary objective of the independent auditor’s report on financial statements? a. To report on all instances of fraud. b. To assist the board in evaluating management’s effectiveness. c. To attest to the credit-worthiness of the client. d. To give credibility to management’s prepared financial statements.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:16 AM DATE MODIFIED: 1/17/2018 7:42 AM 98. Which of the following is not part of the systematic process called auditing? a. Communicating results of the audit to users. b. Procuring and evaluating evidence. c. Assisting management in designing internal controls. d. Comparing evidence regarding assertions to certain established criteria.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 6:18 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 99. Which of the following is not a primary driver of audit quality? a. Skills and personal qualities of audit staff. b. Size of the audit firm. c. Effective audit processes. d. Audit firm culture.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Quality DATE CREATED: 1/17/2018 6:19 AM DATE MODIFIED: 1/17/2018 7:42 AM 100. According to the Financial Reporting Council (FRC), which of the following attributes contributes to the reliability and usefulness of audit reporting? a. The audit methodology is well structured. b. Quality technical support is available when auditors require guidance. c. Auditors appropriately conclude as to the truth and fairness of the financial statements. d. The audit work is effectively reviewed.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Quality DATE CREATED: 1/17/2018 6:20 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 101. According to the Financial Reporting Council (FRC), when is the culture of an audit firm likely to provide a positive contribution to audit quality? a. When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise. b. When the leadership of the audit firm ensures robust systems for client acceptance and continuation based on the likelihood of increased audit fees. c. When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded. d. When the leadership of the audit firm ensures financial considerations drive actions.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Quality DATE CREATED: 1/17/2018 6:21 AM DATE MODIFIED: 1/17/2018 7:42 AM 102. Which of the following is a driver of audit quality? a. Audit firm culture. b. Engagement team skills and attributes. c. Factors outside control of auditors. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Drivers of Audit Quality DATE CREATED: 1/17/2018 6:22 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 103. Which of the following items should an auditor communicate to an audit committee? a. Any meaningful threats to auditor objectivity. b. The scope of the audit. c. The qualitative aspects of the entity’s accounting and reporting and potential ways of improving financial reporting. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Quality DATE CREATED: 1/17/2018 6:24 AM DATE MODIFIED: 1/17/2018 7:42 AM 104. The Center for Audit Quality is dedicated to enhancing investor confidence in what? a. The global capital markets. b. Management. c. Auditors. d. All of the above.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 6:25 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 105. International Standards on Auditing (ISAs) are set by which of the following organizations? a. International Center for Audit Quality. b. International Auditing and Assurance Standards Board. c. American Institute of Certified Public Accountants d. All of the above organizations participate in setting ISAs. ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 6:26 AM DATE MODIFIED: 1/17/2018 7:42 AM 106. What must audit firms do to perform financial statement audits for public companies? a. Register with the American Institute of Certified Public Accountants. b. Register with the Institute of Internal Auditors. c. Register with the U.S. General Accounting Office. d. Register with the Public Company Accounting Oversight Board.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 6:27 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 107. Which term describes the type of threat that occurs when top management threatens to replace the audit firm because of a disagreement over an accounting issue? a. Management participation threat. b. Undue influence threat. c. Adverse interest threat. d. Financial self-interest threat.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA’s Conceptual Framework DATE CREATED: 1/17/2018 6:28 AM DATE MODIFIED: 1/17/2018 7:42 AM 108. According to the AICPA, which of the following is not a safeguard to the auditing profession? a. Education. b. Professional standards. c. External reviews. d. Legislation concerning competency requirements.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA’s Conceptual Framework DATE CREATED: 1/17/2018 6:29 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 109. Which of the following is a correct statement regarding the Code of Ethics of the International Ethics Standards Board for Accountants (IESBA)? a. The IESBA Code applies only to members in public practice. b. The five fundamental principles of the IESBA Code are identical to the AICPA’s principles of professional conduct. c. The IESBA Code contains specific standards addressing many of the same issues addressed in the AICPA Code of Professional Conduct. d. All of the above statements are correct.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Organizations Affecting the External Auditing Profession DATE CREATED: 1/17/2018 6:30 AM DATE MODIFIED: 1/17/2018 7:42 AM 110. Which of the following is not a primary responsibility of the PCAOB regarding public companies in the U.S.? a. Issuing CPA licenses to auditors who perform audits of public companies. b. Registering audit firms that audit public companies. c. Periodically inspecting registered audit firms. d. Investigating and disciplining registered audit firms for violations of relevant laws and professional standards.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 6:32 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 111. Congress authorized which of the following organizations to establish generally accepted accounting principles? a. SEC. b. PCAOB. c. AICPA. d. FASB. ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 6:33 AM DATE MODIFIED: 1/17/2018 7:42 AM 112. Mark Pulley is an auditor at Pulley and Hurst, LLC. If Pulley's five-year-old daughter owns shares of stock in McBurgers Corporation, then what is Pulley considered to have? a. An immaterial indirect financial interest in cc. b. A material indirect financial interest in the McBurgers Corporation. c. A loophole for claiming independence from McBurgers Corporation. d. A direct financial interest in McBurgers Corporation.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:34 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 113. Which of the following employment positions could an auditor’s spouse hold in a client without violating the independence requirements? a. Controller. b. Treasurer. c. Order entry staff. d. Internal audit director.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:35 AM DATE MODIFIED: 1/17/2018 7:42 AM 114. Julie Webb, CPA, takes out an automobile loan with First National Bank of Wellville (FNBW) while attending the University of Wellville. Julie graduates one year later and is hired as an auditor by Best and Driftwood, LLP. Her first assigned audit engagement is with First National Bank of Wellville, a client of Best and Driftwood. As a new audit assistant, Julie continues to pay her automobile loan payments each month. Which of the following best describes Julie’s independence status? a. Impaired because Julie has a direct financial interest in FNBW. b. Impaired because Julie has a material indirect financial interest in FNBW. c. Not impaired because Julie has an immaterial indirect financial interest in FNBW. d. Not impaired because Julie is permitted to take normal loans from FNBW. ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:36 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 115. Julie Webb, CPA takes out an automobile loan with First National Bank of Wellville (FNBW) while attending the University of Wellville. Julie graduates one year later and is hired as an auditor by Best and Driftwood, LLP. Her first assigned audit engagement is with First National Bank of Wellville, a client of Best and Driftwood. As a new audit assistant, Julie continues to pay her automobile loan payments each month. According to the AICPA, why is Julie is considered a covered member for FNBW independence purposes? a. She will be working on the engagement. b. She has a direct financial interest in FNBW. c. She graduated in the same area as the client is operating. d. She has an immaterial direct financial interest in FNBW. ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:38 AM DATE MODIFIED: 1/17/2018 7:42 AM 116. Which of the following is a principle of the Code of Ethics of the International Ethics Standards Board for Accountants but not a principle found in the AICPA Code of Professional Conduct? a. Integrity b. Professional Behavior c. Confidentiality d. Objectivity ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:39 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 117. Which of the following represents a situation in which an auditor is independent of its client? a. The audit fee paid by the client represents 10% of the auditor’s annual gross revenue. b. The auditor takes a personal loan from the president of the company. c. The auditor’s dependent son holds 25 shares of the client’s common stock. d. The auditor has not received payment for the previous audit services.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Professional Code of Conduct DATE CREATED: 1/17/2018 6:41 AM DATE MODIFIED: 1/17/2018 7:42 AM 118. For which of the following engagements are members of the AICPA required to act with integrity and objectivity? a. Tax preparation. b. Financial statement review services. c. Financial statement audits. d. All engagements.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:46 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 119. Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct? a. A member must not take on an engagement that is beyond the member's professional competence. b. A member must exercise duties prudently and professionally. c. A member must adequately plan and supervise the performance of professional services. d. A member firm must not advertise services to competing clients.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:47 AM DATE MODIFIED: 1/17/2018 7:42 AM 120. A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients? a. To discuss information relating to inadequate disclosure in an audit report. b. To comply with a validly issued and enforceable subpoena or summons. c. To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority. d. To explain to shareholders the likelihood that the company will not meet its earnings projections.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:48 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 121. From whom should a CPA not accept a commission for recommending a product or service? a. A tax client. b. An audit client. c. A financial-planning client. d. Any of the above.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:49 AM DATE MODIFIED: 1/17/2018 7:42 AM 122. In which of the following situations would a CPA be considered independent? a. A CPA has obtained an auto loan from a banking client. b. A CPA has obtained a 90-day signature loan from a client. c. A CPA has obtained a loan for investment purposes from a client. d. A CPA has obtained an interest-free loan from a banking client.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:50 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 123. In which of the following situations would a CPA be considered independent? a. A CPA’s brother is the Vice-President of Sales at the CPA’s audit client. b. A CPA’s father was a salesman at the CPA’s audit client, and now a major portion of the father’s pension fund is invested in the audit client. c. A CPA’s cousin works as a web-site designer at the audit client. d. A CPA’s son works summers at the audit client and has earned 10 shares of stock in the audit client.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:51 AM DATE MODIFIED: 1/17/2018 7:42 AM 124. The auditor is normally not permitted to divulge confidential information obtained from a client. Which of the following situations would be a violation of this standard? a. To respond to the information request of a major shareholder. b. To respond to a quality review request of the state board of accountancy. c. To initiate a complaint with the AICPA’s ethics division. d. To ensure adequate disclosure in accordance with GAAP. ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:53 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 125. Under the AICPA definition, who among the following would not be considered a covered member? a. An individual on the audit engagement team. b. An individual in a position to influence the audit engagement. c. A partner in the office of the lead engagement partner. d. All would be considered covered members.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:55 AM DATE MODIFIED: 1/17/2018 7:42 AM 126. Rule 201 - General Standards of the AICPA Code of Professional Conduct does not include which of the following factors? a. Due professional care. b. Integrity and objectivity. c. Planning and supervision. d. Sufficient relevant data.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:56 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 127. Independence is required for which of the following types of services? a. Audit work. b. Tax work. c. Consulting. d. Independence is always required of the CPA. ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:57 AM DATE MODIFIED: 1/17/2018 7:42 AM 128. Independence in mental attitude is required of auditors on all audit engagements. Which statement best describes the highest goal for independence? a. To comply with the AICPA Code of Professional Conduct. b. To be independent in fact and appearance. c. To be an advocate for shareholders and other users of financial information. d. To comply with SEC regulations.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 6:58 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 129. Under Rule 201, what best describes how an AIPCA member should act? a. With professional competence. b. With due professional care. c. With adequate planning and with appropriate supervision. d. All of the above ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 7:00 AM DATE MODIFIED: 1/17/2018 7:42 AM 130. Commissions and referral fees are not permitted for which types of services? a. Tax services. b. Financial planning services. c. Audits. d. Both B and C. ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 7:01 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 131. Auditors of public companies have additional requirements that extend beyond those of the AICPA. Which of the following is not one of those additional requirements? a. Preapproval of audit services and permissible nonaudit services by the client’s audit committee. b. Disclosure by the client of all fees paid to its auditors for audit, audit-related, tax, and other services. c. Changing audit firms every seven years with a two-year cooling off period. d. Rotating lead audit partners every five years with a five-year cooling off period.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 7:02 AM DATE MODIFIED: 1/17/2018 7:42 AM 132. What does utilitarian theory hold? a. There is a decision that exists that is optimal for all people. b. What is ethical is the action that achieves the least bad for the greatest number of people. c. What is ethical is the action that achieves the greatest good for the greatest number of people. d. What is ethical is the action that achieves the greatest good for all people.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: An Ethical Framework DATE CREATED: 1/17/2018 7:04 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 133. An auditor who is professionally skeptical will do which of the following? a. Critically question contradictory audit evidence. b. Carefully evaluate the reliability of audit evidence, especially in situations in which fraud risk is high. c. Reasonably question the authenticity of documentation, while accepting that documents are to be considered genuine unless there is reason to believe the contrary. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional Skepticism DATE CREATED: 1/17/2018 7:05 AM DATE MODIFIED: 1/17/2018 7:42 AM 134. Which term best describes a situation in which an individual is morally or ethically required to do something that conflicts with his or her immediate self-interest? a. An ethical dilemma. b. An ethical problem. c. An ethical theory. d. None of the above.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: An Ethical Decision-Making Framework DATE CREATED: 1/17/2018 7:06 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 135. Which of following is not part of the ethical framework derived from utilitarianism and rights theories? a. Determination of relevant legal issues. b. Determination of affected parties and their rights. c. Determination of the most important rights. d. Development of alternative courses of action.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: An Ethical Framework DATE CREATED: 1/17/2018 7:08 AM DATE MODIFIED: 1/17/2018 7:42 AM 136. What is the purpose of an ethical framework? a. To provide a defined methodology to solve the ethical problem. b. To provide a defined methodology to aid the user in making complex ethical decisions. c. To provide a defined program to solve ethical dilemmas. d. All of the above.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: An Ethical Framework DATE CREATED: 1/17/2018 7:09 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 137. According to the framework for ethical decision making, which of the following should the decision maker consider? a. All possible alternative courses of action. b. The consequences associated with possible actions. c. Whether the rights framework would cause any course of action to be added. d. All of the above.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: AICPA Code of Professional Conduct DATE CREATED: 1/17/2018 7:10 AM DATE MODIFIED: 1/17/2018 7:42 AM 138. Which of the following is not an action required by utilitarian theory? a. Identify the potential problem. b. Identify the potential impact of actions on each affected party. c. Identify the rights of the affected parties. d. Identify the desirability of each action.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension United States - BUSPROG: Ethics STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: A Framework for Ethical Decision Making DATE CREATED: 1/17/2018 7:12 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 139. As it relates to an audit, which of the following statements about professional skepticism is true? a. Professional skepticism is not taken into consideration. b. Professional skepticism relates only to the nature of procedures performed. c. Professional skepticism is an attitude. d. Professional skepticism is determined based upon the importance to a user of the financial statements.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional Skepticism DATE CREATED: 1/17/2018 7:13 AM DATE MODIFIED: 1/17/2018 7:42 AM 140. Which of the following is a reason an audit firm might decide not to accept a company as a client? a. The company is in a weak financial position. b. The company culture does not match the audit firm culture. c. The company is part of an industry that tends to have volatile stock prices. d. All of the above.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance Decisions DATE CREATED: 1/17/2018 7:14 AM DATE MODIFIED: 1/17/2018 7:42 AM

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Chapter 01 141. Which of the following is an important consideration in client acceptance and continuance decisions? a. Integrity of the client company’s management. b. Effectiveness of the client company’s internal controls. c. The audit firm’s growth strategy. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Client Acceptance and Continuance Decisions DATE CREATED: 1/17/2018 7:15 AM DATE MODIFIED: 1/17/2018 7:43 AM 142. The scope of the work to be done by the auditor on the audit is described in which document? a. Contract letter. b. Engagement letter. c. Representation letter. d. Management letter.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Scope of the Audit Engagement DATE CREATED: 1/17/2018 7:19 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 143. Users of financial statements Identify at least three types of users of financial statements. Describe their primary use of the financial statements and how the misstatement of those statements might injure the user.

Users of audited financial statements may include: Management uses the audit report to determine whether the financial statements are presented in accordance with GAAP, whether the firm is availing itself of appropriate internal controls, and as a means of evaluating employee performance. Misstatement of the financial statements would cause the client to make erroneous decisions about financial position, internal controls and employee rewards and punishments.

ANSWER: A financial institution that is asked to make a loan uses the financial statements to judge the credit worthiness of the borrower. Misstatements in the financial statements lead to errors in lending that jeopardize the assets of the bank and depositors.

A vendor who is asked to grant credit uses the statements and faces injury in a manner similar to the financial institution.

A third-party stockholder uses the financial statements to determine if the investment will provide the returns consistent with the needs of the investor.

Misstatements of the financial statements will lead to different results or possible loss of the investment.

Others: Potential stockholders, taxing authorities, regulatory agencies, labor unions, employees, bondholders, court system, retirement plans, or retired employees

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 7:21 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 144. Overview of Financial Statement Audit What is a financial statement audit, and what is the overall objective of the audit? What must the auditor do to accomplish this objective?

ANSWER:

A financial statement audit has been defined as a “systematic process of actively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.”

The overall objective of a financial statement audit is to obtain reasonable assurance about whether the financial statements are free from material misstatement and to report the auditor’s findings. To accomplish this objective the auditor: (1) complies with relevant ethical and professional conduct requirements; (2) conducts the audit in accordance with professional auditing standards; (3) exercises professional judgment, professional skepticism, and critical thinking; (4) obtains sufficient appropriate evidence, through a structured process, as a basis for the auditor’s opinion on the financial statements.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Defined DATE CREATED: 1/17/2018 7:22 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 145. The Need for Audited Financial Statements Why do financial statement users need independent assurance about information provided by management?

ANSWER:

The need for independent assurance arises from several factors: Potential bias—Management has incentives to bias financial information in order to convey a better impression of the financial data than real circumstances might merit.

For example, management ’s compensation may be tied to profitability or stock price, so managers may be tempted to “bend” GAAP to make the organization’s performance look better.

Remoteness—An organization and the users of its financial information are often remote from each other, both in terms of geographic distance and the extent of information available to the both parties. Most users cannot interview management, tour a company’s plant, or review its financial records firsthand; instead, they must rely on financial statements to communicate the results of management’s performance.

This can tempt management to keep information from users or bend GAAP so the organization looks better.

Complexity—Transactions, information, and processing systems are often very complex, so it can be difficult to determine their proper presentation. This provides an opportunity for management to deceive users.

Consequences—During the past decade, many financial statement users —pension funds, private investors, venture capitalists, and banks —lost billions of dollars because financial information had become unreliable. As an example, the factors leading up to, and the consequences of, unreliable information can be seen in the sub-prime mortgage crisis in the United States. Many borrowers did not provide correct information on their loan applications and lenders sometimes did not perform adequate due diligence in making lending decisions.

Consequently, various financial statement users and others suffered significant losses.

When financial information is not reliable, investors and other users lose a significant source of information that they need to make decisions that have important consequences.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.01 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Demand for Assurances DATE CREATED: 1/17/2018 7:31 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 146. Audit Quality What is audit quality?

ANSWER:

A definition published by the GAO (2003) states that a quality audit is one performed “in accordance with generally accepted auditing standards (GAAS) to (1) provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with generally accepted accounting principles (GAAP) and (2) are not materially misstated whether due to errors or fraud.”

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Quality Audit Defined DATE CREATED: 1/17/2018 7:33 AM DATE MODIFIED: 1/17/2018 7:43 AM 147. Audit Quality Drivers What are the primary drivers of audit quality according to the Financial Reporting Council’s (FRC) “The Audit Quality Framework?”

ANSWER:

There are five primary drivers of audit quality, including (1) audit firm culture, (2) the skills and personal qualities of audit partners and staff, (3) the effectiveness of the audit process, (4) the reliability and usefulness of audit reporting, and (5) factors outside the control of auditors that affect audit quality.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.02 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditing Quality Drivers DATE CREATED: 1/17/2018 7:35 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 148. Professional and regulatory organizations Identify at least four professional or regulatory organizations that affect the auditing profession. Explain how and why they assist and/or monitor the auditing profession.

ANSWER:

Public Company Accounting Oversight Board (PCOAB) is a private sector, nonprofit organization that oversees auditors of public companies. Its primary responsibilities include: setting auditing standards for audits of public companies, registering audit firms that audit public companies, periodically inspecting firms that audit public companies, and investigating and disciplining registered audit firms that violate relevant laws or standards.

American Institute of Certified Public Accountants (AICPA) With the establishment of the PCAOB, the role of the AICPA has diminished. The AICPA establishes standards for audits of nonpublic companies and for other attestation services, accounting and review services, consulting, and tax services. It oversees a peer review program, organizes continuing education programs, and administers the Uniform CPA Examination.

State Boards of Accountancy license CPAs and are charged with regulating the profession at the state level.

Securities and Exchange Commission (SEC) has been granted authority to establish GAAP for publicly traded companies. Its primary mission is to protect the investing public; it has oversight of the PCAOB. Financial Accounting Standards Board (FASB) is responsible for establishing generally accepted accounting principles (GAAP).

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.03 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional and Regulatory Organizations DATE CREATED: 1/17/2018 7:36 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 01 149. Professional Decision Making To achieve audit quality, auditors must make quality decisions throughout the audit process. What are the characteristics of quality audit decisions?

ANSWER:

Quality decisions by auditors are unbiased, meet the expectations of reasonable users, comply with professional standards, and incorporate sufficient appropriate evidence to support the auditor’s opinion.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.01.04 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Quality Decisions by Auditors DATE CREATED: 1/17/2018 7:38 AM DATE MODIFIED: 1/17/2018 7:43 AM

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Chapter 02 True / False 1. An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:00 AM DATE MODIFIED: 1/20/2018 6:38 AM 2. Asset misappropriations are the primary fraud scheme in small businesses, and the perpetrators are usually the owners. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:02 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 3. Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:04 AM DATE MODIFIED: 1/20/2018 6:38 AM 4. Fraud is an intentional act involving the use of deception that results in a misstatement of the financial statements. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Definition of Fraud DATE CREATED: 1/17/2018 3:06 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 5. An example of fraudulent financial reporting is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:07 AM DATE MODIFIED: 1/20/2018 6:38 AM 6. BruceCo. has accounted for the revenue of Jiffy Mac, Inc., one of its suppliers, as though it were its subsidiary.

BruceCo. has probably committed fraud because of its misapplication of consolidation principles. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:08 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 7. The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 3:09 AM DATE MODIFIED: 1/20/2018 6:38 AM 8. The fraud triangle requires the auditor to actively consider and assess the risk of fraud for clients and their financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Triangle DATE CREATED: 1/17/2018 3:10 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 9. Opportunity is one element of the fraud triangle. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:12 AM DATE MODIFIED: 1/20/2018 6:38 AM 10. Rationalization involves the mindset of the fraudster to justify committing the fraud. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:13 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 11. Related-party transactions provide management certain opportunities to manipulate financial statements. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:15 AM DATE MODIFIED: 1/20/2018 6:38 AM 12. Pressure upon management to manipulate financial information is a common characteristic in fraud cases. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:16 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 13. Management compensation that is tied to profits may create incentives to commit fraud. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:18 AM DATE MODIFIED: 1/20/2018 6:38 AM 14. Management may feel pressure to maintain debt covenants, which is a deterrent to fraud. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:19 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 15. The onslaught of fraud in financial statements over the past two decades has been the first of its kind in history. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 3:20 AM DATE MODIFIED: 1/20/2018 6:38 AM 16. The auditor should not consider that fraud is present in revenue accounts because revenue recognition does not typically play a role in fraudulent financial reporting. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 3:22 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 17. One fraud risk factor includes the presence of domineering members of management who seek the ultimate loyalty of subordinates. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 3:23 AM DATE MODIFIED: 1/20/2018 6:38 AM 18. During the time period 1998 to 2007, the median size of the public company perpetrating fraud rose tenfold to $100 million (as compared to the previous ten years). a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 3:24 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 19. According to COSO studies, the majority of the frauds took place at companies that were listed on the Over-TheCounter (OTC) market, rather than those listed on the NYSE or NASDAQ. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 3:26 AM DATE MODIFIED: 1/20/2018 6:38 AM 20. The landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related, unconsolidated entities. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 3:27 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 21. The auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:28 AM DATE MODIFIED: 1/20/2018 6:38 AM 22. The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: User Expectations of Auditor Responsibility DATE CREATED: 1/17/2018 3:29 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 23. Fraud detection procedures should only be performed for clients that have had fraud problems in the past. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:31 AM DATE MODIFIED: 1/20/2018 6:38 AM 24. If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:32 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 25. Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for all other engagements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:33 AM DATE MODIFIED: 1/20/2018 6:38 AM 26. According to professional audit standards, the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" meeting in order to determine the types of fraud that may occur with the client. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment DATE CREATED: 1/17/2018 3:34 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 27. Once the fraud risk assessment is complete in the planning stage, the auditor need not consider fraud further. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment and Detection Procedures DATE CREATED: 1/17/2018 3:35 AM DATE MODIFIED: 1/20/2018 6:38 AM 28. Audit procedures to detect fraud are generally an expansion of normal audit procedures. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:36 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 29. Auditing standards have historically reflected an expectation that auditors will detect and report every instance of material fraud. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:38 AM DATE MODIFIED: 1/20/2018 6:38 AM 30. Auditors must keep a questioning mind when analyzing management responses to inquiry, and auditors should strive to obtain corroborating evidence before accepting management’s responses. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:39 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 31. The auditor must perform a brainstorming session with client management in order to plan the procedures to be performed. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:41 AM DATE MODIFIED: 1/20/2018 6:38 AM 32. According to the PCAOB, the detection of material fraud is a reasonable expectation of users of audited financial statements. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:42 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 33. The audit team should develop its own ideas about how fraud may be performed by the client and then covered up. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:43 AM DATE MODIFIED: 1/20/2018 6:38 AM 34. Audit tests do not relate to fraud testing because testing for fraud is conducted in a separate engagement. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:44 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 35. When the risk of fraud is high in financial statements, the auditor should assign less experienced auditors to the engagement. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:45 AM DATE MODIFIED: 1/20/2018 6:38 AM 36. Various ways by which fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:47 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 37. When fraud risk is great in the organization under audit, procedures applied are likely to be more extensive. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:48 AM DATE MODIFIED: 1/20/2018 6:38 AM 38. Auditors are responsible to detect fraud even if it has an immaterial effect on the financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:49 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 39. The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 3:50 AM DATE MODIFIED: 1/20/2018 6:38 AM 40. The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 3:51 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 41. Professional skepticism involves such things as questioning and corroborating management responses to inquiries and determining the authenticity of documents. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Professional Skepticism DATE CREATED: 1/17/2018 3:52 AM DATE MODIFIED: 1/20/2018 6:38 AM 42. An audit must be performed by persons who can make sound judgments relating to complex accounting issues. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Generally Accepted Auditing Standards and IAASB Principles DATE CREATED: 1/17/2018 3:53 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 43. Consideration of fraud in financial statement audits is a relatively new concept derived originally from the SarbanesOxley Act. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: User Expectations of Auditor Responsibility DATE CREATED: 1/17/2018 3:54 AM DATE MODIFIED: 1/20/2018 6:38 AM 44. The Sarbanes-Oxley Act established the PCAOB, which is an agency of the U.S. government funded by taxpayers. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 3:55 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 45. According to the Sarbanes-Oxley Act, the audit committee must have at least 3 independent members who are financial experts. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 3:56 AM DATE MODIFIED: 1/20/2018 6:38 AM 46. The audit committee is a subcommittee of the board of directors comprised of independent outside directors. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 3:58 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 47. Any major disagreement the auditor has with management should be discussed with the audit committee. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Required Audit Firm Communication to the Audit Committee DATE CREATED: 1/17/2018 3:59 AM DATE MODIFIED: 1/20/2018 6:38 AM 48. The audit committee must be composed of outsiders such as the organization's attorney and audit partner. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 4:00 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 49. Audit committees of publicly traded companies must establish whistleblowing mechanisms within the company. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 4:01 AM DATE MODIFIED: 1/20/2018 6:38 AM 50. Management of companies should have the ability to hire and fire the external auditor. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 4:02 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 51. The audit committee should have the authority to hire and fire the external auditor. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 4:04 AM DATE MODIFIED: 1/20/2018 6:38 AM 52. A board of directors that is actively involved in monitoring management mitigates opportunities to commit fraud. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Effective Corporate Governance DATE CREATED: 1/17/2018 4:05 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 53. Effective corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Effective Corporate Governance DATE CREATED: 1/17/2018 4:07 AM DATE MODIFIED: 1/20/2018 6:38 AM 54. Transparency is a desirable, but not critical, element of effective corporate governance. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Effective Corporate Governance DATE CREATED: 1/17/2018 4:08 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 55. Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance Defined DATE CREATED: 1/17/2018 4:09 AM DATE MODIFIED: 1/20/2018 6:38 AM 56. Implementing an effective ethical environment is primarily the responsibility of the audit committee of the board of directors. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance Responsibilities DATE CREATED: 1/17/2018 4:11 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 57. Managers of organizations are hired by boards of directors to perform responsibilities such as the implementation of internal control. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Responsibility for Financial Reporting DATE CREATED: 1/17/2018 4:12 AM DATE MODIFIED: 1/20/2018 6:38 AM 58. Formulating corporate strategy and risk management policy is primarily the responsibility of the board of directors. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance DATE CREATED: 1/17/2018 4:14 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 Multiple Choice 59. Which of the following best represents fraud related to financial reporting? a. The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors. b. The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter. c. The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris. d. The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 4:15 AM DATE MODIFIED: 1/20/2018 6:38 AM 60. According to professional auditing standards, which of the following best represents a type of fraudulent financial reporting? a. Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter. b. Management reclassifies a negative cash balance by decreasing cash and increasing a current liability. c. Management discloses its failure to meet loan covenants but states that a waiver has been received. d. Management intentionally excludes from its consolidated results a subsidiary that it controls significantly.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 4:17 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 61. What type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors with no real investment happening? a. Ponzi Scheme. b. Skimming. c. Channel Stuffing. d. Off-Balance Sheet Fraud.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 4:18 AM DATE MODIFIED: 1/20/2018 6:38 AM 62. Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets? a. A high turnover of senior management. b. A lack of independent checks. c. A strained relationship between management and the predecessor auditor. d. An inability to generate cash flow from operations.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Factors DATE CREATED: 1/17/2018 4:20 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 63. Which of the following is an example of fraud? a. A mistake in processing accounting data. b. An incorrect accounting estimate arising from misinterpretation of facts. c. Misappropriation of an asset. d. A mistake in the application of accounting principles.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 4:22 AM DATE MODIFIED: 1/20/2018 6:38 AM 64. What is the primary determinant in the difference between fraud and errors in financial statement reporting? a. The materiality of the misstatement. b. The intent to deceive. c. The level of management involved. d. The type of transaction affected.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Difference Between Fraud and Errors in Financial DATE CREATED: 1/17/2018 4:24 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 65. Which of the following frauds is most common? a. Chief financial officer’s misappropriation of funds. b. Misapplication of revenue recognition principles. c. Management's theft of cash held in reserve accounts. d. Over-recording expenses related to stock options.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 4:25 AM DATE MODIFIED: 1/20/2018 6:38 AM 66. Which of the following statements about the Bernie Madoff Ponzi scheme is false? a. Madoff took advantage of his unique ties to the investment community (he was the former Chair of the NASDAQ) to create trust and encourage further investments. b. Madoff began perpetrating the fraud shortly before passage of the Sarbanes-Oxley Act, and the provisions of that Act ultimately led to discovery of the fraud. c. Madoff was sentenced to 150 years in prison. d. The estimated amount missing from client accounts, including fabricated gains, was almost $65 billion.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Madoff Ponzi Scheme DATE CREATED: 1/17/2018 4:44 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 67. The fraud triangle identifies three elements that are generally present in the client’s organization when fraud occurs.

Which of the following is not one of those elements? a. Professional skepticism. b. Incentives. c. Opportunity. d. Rationalization.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Fraud Triangle DATE CREATED: 1/17/2018 5:23 AM DATE MODIFIED: 1/20/2018 6:38 AM 68. Which of the following is a common incentive or condition that increases the likelihood for fraudulent financial reporting? a. Ineffective segregation of assets. b. Significant related party transactions. c. Management bonuses based on reported earnings. d. Access to undeposited cash.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Fraud Triangle DATE CREATED: 1/17/2018 5:24 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 69. Which of the following is not an element of the fraud triangle? a. Incentive. b. Rationalization. c. Deception. d. Opportunity ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Fraud Triangle DATE CREATED: 1/17/2018 5:26 AM DATE MODIFIED: 1/20/2018 6:38 AM 70. Management of Premium Discovery Company is compensated through large salaries, stock options, and bonuses tied to the company's working capital growth. The CEO is constantly holding meetings to ensure that management is on target for increased operating income each month. Based solely on the preceding information, which element of the fraud triangle exists at the Premium Discovery Company? a. Incentive. b. Opportunity. c. Rationalization. d. Expectation.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Indicators DATE CREATED: 1/17/2018 5:28 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 71. Sam Jones, controller of Mitnikco, spends three days researching the accounting standards to find loopholes in the "rules" and to make a case for recognizing revenue earlier, rather than in later years. In the end, Sam and the other members of management determine that they will reduce the company's deferred revenue accounts and begin accounting for all revenues as agreements are signed. Based solely on the preceding information, which element of fraud is represented by the actions of Mitnikco management? a. Pressures. b. Opportunity. c. Rationalization. d. Skepticism.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Indicators DATE CREATED: 1/17/2018 5:29 AM DATE MODIFIED: 1/20/2018 6:38 AM 72. Which of the following creates an opportunity for fraud to be committed in an organization? a. Management demands financial success. b. Poor internal control. c. Commitments tied to debt covenants. d. Management is aggressive in its application of accounting rules.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Indicators DATE CREATED: 1/17/2018 5:31 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 73. The fraud triangle has three elements. Which of the elements must be present for a fraud to occur? a. All elements must be present for fraud to occur. b. At least two of the three elements must be present for fraud to occur. c. Fraud can occur if any one of the elements is present. d. None of the above.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Elements of Fraud Triangle DATE CREATED: 1/17/2018 5:32 AM DATE MODIFIED: 1/20/2018 6:38 AM 74. Which of the following actions was a key element of the Enron audit fraud? a. Capitalizing line costs rather than expensing them. b. Misrepresenting bribes from suppliers as a reduction of operating costs. c. Shifting debt to off-balance sheet special entities. d. Concealing large losses related to securities investments.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 5:33 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 75. Who is most often involved in perpetrating fraudulent financial reporting? a. The auditors and the attorneys. b. The treasurer and the board of directors. c. The chief executive and chief financial officer. d. The shareholders and the chief operating officer.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Perpetrators of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 5:35 AM DATE MODIFIED: 1/20/2018 6:38 AM 76. Which of the following frauds involved primarily asset misappropriation? a. Enron. b. WorldCom. c. Dell. d. Koss.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 5:36 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 77. Which action was a key element in the WorldCom fraud case? a. Recording bartered exchange transactions as revenue. b. Overstating cash by falsely recording cash held at major banks. c. Recognizing revenue on the sale of impaired assets. d. Concealing large losses related to securities investments.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 5:37 AM DATE MODIFIED: 1/20/2018 6:38 AM 78. Which action was a key element in the Wells Fargo fraud case? a. Inflating assets by falsely overstating cash held in customers’ accounts. b. Creating fake customer accounts to boost employees’ bonuses. c. Employee theft from customers’ accounts. d. Top management’s recording of fictitious fees to increase reported revenues.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: History of Fraudulent Financial Reporting DATE CREATED: 1/17/2018 5:39 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 79. What is the best way an auditor can detect fraud in the financial statements? a. Actively search for errors in the financial statements. b. Understand Generally Accepted Accounting Standards. c. Brainstorm with the client to find the types of fraud occurring. d. Use professional skepticism.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 5:40 AM DATE MODIFIED: 1/20/2018 6:38 AM 80. Which of the following best describes professional skepticism? a. An intent to deceive. b. An attitude of intrusion and obstinacy. c. A firm commitment to auditing standards and ethics. d. A questioning mind.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment and Detection Procedures DATE CREATED: 1/17/2018 5:42 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 81. Why is fraud detection an important part of the audit? a. Auditors are required to seek out and find all fraud, regardless of its magnitude. b. Auditors expect that management will make them aware of any fraud in the financial statements. c. Society expects that financial statements have not been materially misstated due to fraud. d. Society realizes that some fraud was not intended to be discovered by auditors.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 5:58 AM DATE MODIFIED: 1/20/2018 6:38 AM 82. One of the primary goals of the PCAOB is to restore confidence in which group? a. The SEC. b. Boards of directors. c. Internal auditors. d. Independent auditors.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 5:59 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 83. Which of the following statements reflects an auditor’s responsibility for detecting fraud? a. An auditor is not responsible for discovering fraudulent acts involving employee collusion. b. The audit should be planned to detect only fraud caused by departures from GAAP. c. An auditor is only responsible for detecting fraudulent financial reporting. d. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 6:01 AM DATE MODIFIED: 1/20/2018 6:38 AM 84. How must an auditor address fraud in the planning stage? a. The auditor must test for fraud in the planning stage by sampling accounts. b. The auditor must consider the likelihood of fraud existing in the company in the planning stage. c. The auditor must realize that most people are honest and not automatically assume that fraud exists when planning the audit. d. The auditor must not be aggressive in its initial approach to fraud, as trust may be lost by the client.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 6:04 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 85. What should an audit team do when it discovers that fraud risk factors are present on an audit engagement? a. Withdraw from the engagement and inform regulatory bodies. b. Modify procedures to actively search for the existence of fraud. c. Reduce the amount of evidence required and resort to management inquiry. d. Turn the audit over to forensic accountants.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Responsibility to Detect Fraud DATE CREATED: 1/17/2018 6:05 AM DATE MODIFIED: 1/20/2018 6:38 AM 86. Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit? a. The company's management negotiates deals with vendors in such a manner as to pay lower prices. b. The company's management drives luxury vehicles and takes vacations to exotic places. c. The company's management takes an overly aggressive approach to revenue recognition. d. The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Indicators of Fraud DATE CREATED: 1/17/2018 6:07 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 87. According to professional audit standards, how might auditors gain an understanding of the nature of fraud that may occur in the client organization? a. Fraud training courses from actual corporate fraud ex-criminals. b. Conducting a brainstorming session with the members of the audit team. c. Circulating a survey to the client company employees for completion. d. Discussions with other audit firms.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment DATE CREATED: 1/17/2018 6:08 AM DATE MODIFIED: 1/20/2018 6:38 AM 88. What should auditors and others involved in the financial reporting process do to mitigate the risk of fraudulent financial reporting? a. Acknowledge that there needs to exist a strong, highly ethical tone at the top of an organization that permeates the corporate culture, including an effective fraud risk management program. b. Continually exercise professional skepticism. c. Remember that strong communication among those involved in the financial reporting process is critical. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment and Detection Procedures DATE CREATED: 1/17/2018 6:10 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 89. There are many important reasons for diligent audit planning. If an audit firm wrongly skips the planning stage of an audit, what will be the effect relative to fraud detection? a. The firm will not be able to apply GAAP to the financial statements. b. The firm will not adequately identify the types of fraud that may occur in the client company. c. The firm will not be able to perform direct tests of account balances. d. The firm will lack the competency and technical training necessary to complete the audit in accordance with GAAS. ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Indicators DATE CREATED: 1/17/2018 6:12 AM DATE MODIFIED: 1/20/2018 6:38 AM 90. Which of the following statements about fraud or fraud detection is true? a. Management may physically alter evidence to perpetrate and conceal the fraud. b. Fraudulent financial reporting is generally not material enough to consider. c. Journal entries will supply evidence necessary to detect fraud. d. The advent of new technology prevents fraud, thereby leading to less fraud over time.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Indicators DATE CREATED: 1/17/2018 6:13 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 91. Which of the following factors should an auditor consider in evaluating the effect of fraud upon the planned audit procedures? a. The type of fraud that may occur. b. The potential materiality of fraud. c. The likelihood of fraud occurring. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Linking Fraud Risk to Audit Procedures DATE CREATED: 1/17/2018 6:15 AM DATE MODIFIED: 1/20/2018 6:38 AM 92. Which of the following statements is true concerning the fraud risk model? a. Assessing incentive is the first phase of the model. b. The fraud risk model should be reviewed with the audit team. c. The fraud risk model should be modified based on a review of internal controls. d. Auditors do not use a fraud risk model.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Fraud-Related Responsibilities DATE CREATED: 1/17/2018 6:16 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 93. How did the Sarbanes-Oxley Act strengthen auditor independence? a. By requiring auditors to provide reports in accordance with the Foreign Corrupt Practices Act. b. By requiring auditors to report the nature of any auditor-client disagreements to the SEC. c. By requiring the lead partner to rotate off the audit engagement at least every five years. d. By requiring a different audit firm from the one that performs the audit to prepare the client’s tax return.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:18 AM DATE MODIFIED: 1/20/2018 6:38 AM 94. How frequently does the PCAOB inspect registered accounting firms that audit 100 or more issuers? a. Annually. b. Every two years. c. Every three years d. Every five years.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:19 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 95. The PCAOB has how many board members? a. Three b. Five c. Seven d. Nine ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:20 AM DATE MODIFIED: 1/20/2018 6:38 AM 96. Which of the following is a responsibility of the PCAOB? a. To set financial reporting standards for public companies. b. To set financial reporting standards for private companies. c. To set audit standards for public companies. d. To set audit standards for private companies.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:21 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 97. How often does the PCAOB inspect registered accounting firms that audit fewer than 100 issuers? a. Annually. b. Every two years. c. Every three years. d. Every five years.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:23 AM DATE MODIFIED: 1/20/2018 6:38 AM 98. According to the Sarbanes-Oxley Act, which of the following items is the independent auditor required to report to the audit committee? a. Materiality limits for audit testing. b. Critical accounting policies and practices. c. The extent of audit testing in high-risk accounts. d. A list of probable fraud errors identified in audit planning.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:24 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 99. Under the Sarbanes-Oxley Act, which of the following services performed by registered accounting firms for their audit clients would not impair their independence? a. Systems design. b. Tax services. c. Appraisal services. d. Internal audit services.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:26 AM DATE MODIFIED: 1/20/2018 6:38 AM 100. Which of the following items are registered audit firms not required to report to the audit committee? a. Critical accounting policies and practices. b. Alternative treatments of financial information within generally accepted accounting principles that have been considered by management, as well as the preferred treatment of the audit firm. c. A list of all audit procedures performed. d. Significant written communications between the audit firm and management.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:27 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 101. Which of the following are management responsibilities under the Sarbanes-Oxley Act of 2002? a. Certify in reports filed with the SEC that the report does not contain untrue statements of material facts. b. Disclose material deficiencies in controls to the audit committee. c. Design internal controls. d. Certify in reports filed with the SEC that the company’s internal controls are effective in preventing fraud.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: The Sarbanes-Oxley Act of 2002 DATE CREATED: 1/17/2018 6:29 AM DATE MODIFIED: 1/20/2018 6:38 AM 102. Which of the following is a stated principle of a NYSE report identifying key core governance principles? a. The board of directors should consist of an equal number of independent and non-independent directors. b. Effective corporate governance should be viewed as a compliance obligation. c. Effective corporate governance should be integrated with the company’s business strategy. d. The board of directors has the primary responsibility for creating a culture of integrity and ethical behavior.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Principles of Corporate Governance DATE CREATED: 1/17/2018 6:30 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 103. Which of the following is a specific corporate governance responsibility of executive management? a. Approving major changes, such as mergers. b. Approving non-audit work performed by the audit firm. c. Reviewing the budget of the internal audit function. d. Implementing an effective ethical environment.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Management’s Responsibility for Corporate Governance DATE CREATED: 1/17/2018 6:32 AM DATE MODIFIED: 1/20/2018 6:38 AM 104. Which of the following is a specific governance responsibility of the board of directors of a public corporation? a. Managing and reviewing operations. b. Approving corporate strategy. c. Implementing effective internal controls. d. Selecting the external audit firm.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance Responsibilities DATE CREATED: 1/17/2018 6:33 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 105. Protection Transparency, Inc. is being audited by Messer and Bromely, LLP. During the assessment of fraud, Messer and Bromely discover that the controller has been creating fictional sales and posting them to the general ledger. Who should the auditors make aware of this issue? a. The chairman of Protection Transparency’s audit committee. b. The local police. c. Protection Transparency's legal counsel. d. The predecessor auditor of Protection Transparency.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor’s Response to Fraud Detection DATE CREATED: 1/17/2018 6:35 AM DATE MODIFIED: 1/20/2018 6:38 AM 106. Which of the following is a NYSE mandated guideline for corporate governance? a. Boards need to consist entirely of independent directors. b. Boards must have an audit committee with a minimum of three independent directors. c. Boards must have a compensation committee with a minimum of three independent directors. d. CFOs must provide an annual certification of compliance with corporate governance standards.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Improved Corporate Governance DATE CREATED: 1/17/2018 6:37 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 107. Which of the following best describes how corporate governance influences an organization? a. By exerting control over management. b. By holding management accountable for its actions. c. By exerting control and requiring accountability for the resources entrusted to the organization. d. By exerting control over the internal control environment.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Improved Corporate Governance DATE CREATED: 1/17/2018 6:38 AM DATE MODIFIED: 1/20/2018 6:38 AM 108. Who is responsible for operating an enterprise? a. The auditor. b. The audit committee. c. Management. d. The board of directors.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance DATE CREATED: 1/17/2018 6:40 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 109. Which of the following is not a specific responsibility of an audit committee as mandated by the NYSE? a. Discussing the company’s financial statements with the external auditor. b. Setting hiring policies for former employees of the external auditor. c. Creating and implementing internal controls. d. Discussing financial information provided to analysts.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Improving Corporate Governance DATE CREATED: 1/17/2018 6:43 AM DATE MODIFIED: 1/20/2018 6:38 AM 110. Which of the following best describes the audit committee’s oversight responsibility? a. Provide oversight of reporting outside the organization. b. Provide oversight of internal auditing function. c. Provide oversight of the external audit. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Enhanced Role of Audit Committees DATE CREATED: 1/17/2018 6:44 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 111. Under the NYSE corporate governance guidelines, which of the following committees should a corporation’s board of directors establish? a. Nominating/corporate governance committee. b. Audit committee. c. Compensation committee d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Governance Guidelines DATE CREATED: 1/17/2018 6:48 AM DATE MODIFIED: 1/20/2018 6:38 AM 112. Which of the following is not one of management’s responsibilities? a. Developing financial and other reports that meet the needs of users. b. Engaging a qualified auditor. c. Implementing effective internal controls. d. Implementing an effective ethical environment.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Corporate Responsibility for Financial Reporting DATE CREATED: 1/17/2018 6:49 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 Essay 113. Fraudulent financial reporting What are three common ways in which fraudulent financial reporting takes place?

ANSWER:

1. Manipulation, falsification, or alteration of accounting records or supporting documents.

2. Misrepresentation or omission of events, transactions, or other significant information.

3. Intentional misapplication of accounting principles.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud DATE CREATED: 1/17/2018 6:51 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 114. Fraud consideration by auditors John Beasley is interviewing with public audit firms to become an auditor. John does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest people." He believes that auditors are becoming too cynical.

Describe your response to John's attitude and discuss the major types of fraud that occur in companies.

ANSWER:

Audit firms have taken criticism for failing to discover material frauds. Auditors have a greater responsibility to plan the audit to consider and detect fraud. This is accomplished partially by the auditor's use of professional skepticism. Professional skepticism is not necessarily being cynical; rather, it is performing an audit with a questioning mind. It means that the auditors will obtain persuasive evidence to corroborate management responses to inquiries and to increase the sufficiency of substantive audit evidence. Professional skepticism is exhibited in the auditor's assumption that honesty in people is not a given. Auditors must not only go beyond the evidence in front of them, they must have the mindset of the possibility of fraud in all financial statement engagements.

It must also be mentioned that John’s perspective will likely not be acceptable to the audit firm because his attitude toward fraud is not rigorous enough for the profession.

John must realize that fraud in organizations usually takes place in one of two areas: (1) Asset misappropriation, such as theft and misuse of assets.

(2) Fraudulent financial reporting, such as the overstatement of certain assets and revenues and the understatement of certain liabilities and expenses.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.01 AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Fraud and Auditor’s Responsibility to Detect Fraud DATE CREATED: 1/17/2018 6:54 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 115. Elements of Fraud Research consistently shows that there are three elements associated with most frauds. List these elements and at least three indicators that the element may exist for a particular company.

ANSWER:

The three elements of fraud, or the fraud triangle, are incentive, opportunity, and rationalization. Following are some examples of indicators that these elements may exist for a company.

Incentives: --Management compensation schemes --Pressure to improve earnings or to improve the balance sheet --Personal financial problems --Required compliance with debt covenants Opportunities: --Ineffective or nonexistent internal controls --Complex or difficult to understand transactions (including SPEs) --Ineffective monitoring by management --Significant related-party transactions --Company’s ability to dictate terms to suppliers or customers --Management’s inconsistency involving subject judgments regarding assets or accounting estimates --Management’s aggressiveness in applying accounting rules Rationalization: --This is necessary to save the company --This is a one-time thing to get us through the current crisis --Everybody cheats a little on the financial statements --We will violate our debt covenants unless we find a way to improve the financial statements --The company doesn’t pay me what I’m worth POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.02 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Identify Fraud Risk Factors DATE CREATED: 1/17/2018 7:01 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 116. Enron: A Fraud Example What were the failures that allowed the Enron fraud to occur?

ANSWER:

Weak Management Accountability. Management was virtually not accountable to anyone as long as the company showed dramatic stock increases justified by earnings growth.

Incompetent Corporate Governance. Although the board appeared to be independent, most of the board members had close ties to management of the company through philanthropic organizations.

Accounting Rules. Accounting became more rule-oriented and complex. Accounting allowed practitioners to take obscure pronouncements, such as those dealing with Special Purpose Entities that were designed for leasing transactions, and apply the pronouncement to other entities for which such accounting was never intended.

Enthusiastic Financial Analyst Community. Financial analysts that were riding the bubble of the dot-com economy concluded they did not have tools to appropriately value many of the emerging companies.

Biased Banking and Investment Banking. Many large financial institutions were willing participants in the process because they were rewarded with large underwriting fees for other Enron work.

Lack of an Independent External Auditor. At the time of Enron, the largest five external auditing firms referred to themselves as professional service firms with diverse lines of business. All of the firms had large consulting practices. Arthur Andersen performed internal audit work for Enron, in addition to performing the external audit. The consulting fees of many clients dramatically exceeded the audit fees. Partners were compensated on revenue and profitability. Worse yet, auditors were hired by management who sometimes succeeded in pressuring auditors to acquiesce to aggressive financial reporting preferences.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Major Frauds and Audit Procedures DATE CREATED: 1/17/2018 7:03 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 117. Consideration of fraud in an audit Auditors are required to actively conduct a financial statement audit with the mindset that fraud may exist. What is the general process that an auditor goes through to assess the risk of fraud and test accordingly?

1.

ANSWER:

2.

3.

4.

5.

6.

7.

8.

9.

10.

Understand the nature of fraud, the motivations to commit fraud, and the manner in which fraud may be perpetrated.

Exercise “professional skepticism” throughout the entire fraud risk assessment process.

“Brainstorm” and share knowledge with other audit team members.

Obtain information useful in identifying and assessing fraud risk.

Identify the specific fraud risks, including potential magnitude, and areas likely to be affected by a fraud.

Evaluate the quality of the company’s internal controls and potential effectiveness in mitigating the risk of fraud.

Respond, i.e. adjust audit procedures to assure that the audit adequately addresses the risk of fraud and provides evidence specifically related to the possibility of fraud.

Evaluate findings. If evidence signals that a fraud might exist, determine whether or not forensic or specialist auditors are needed to complete the investigation.

Communicate the possibility that fraud exists to management, or to the audit committee or the full board if the fraud is material and/or involves members of management.

Document the audit approach starting with the step 1 through the completion of all of the steps identified above.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Fraud Risk Assessment and Detection Procedures DATE CREATED: 1/17/2018 7:05 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 118. Auditor’s response to fraud risk factors The auditor assesses the identified fraud risks after taking into account an evaluation of the client’s programs and controls. How might the auditor respond to the results of the assessment of higher fraud risk?

ANSWER:

The auditor should consider: -Professional skepticism a) Obtain more reliable evidence b) Obtain additional corroborating evidence.

-Assignment of personnel and supervision--specialists or more experienced personnel -More careful consideration of management’s selection and application of accounting principles -Adding an element of unpredictability to auditing procedures The auditor may change the nature, timing and extent of the audit procedures to be performed by increasing the extent of procedures, making them more persuasive, and moving more of them to the balance sheet date or later.

The response may involve the performance of procedures to further consider the risk related to: a) Revenue recognition b) Inventory quantities c) Management estimates Responses to consider the risk of management override of controls may include: a) Examine journal entries and other adjustments made in preparation of financial statements b) Review accounting estimates for biases c) Evaluate business rationale for significant unusual transactions

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.04 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor's Response to Fraud Risk Factors DATE CREATED: 1/17/2018 7:08 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 119. Auditor independence under the Sarbanes-Oxley Act What are four requirements of the Sarbanes-Oxley Act that seek to protect auditor independence?

ANSWER:

Sarbanes-Oxley: Auditor Independence 201 Services outside the scope of practice of auditors. There exist a variety of services that registered audit firms may not perform for issuers, such as bookkeeping, systems design, appraisal services, and internal auditing, among others. Tax services may be performed, but only with preapproval by the audit committee.

202 Preapproval requirements. All audit and non-audit services (with certain exceptions based on size and practicality) must be approved by the audit committee of the issuer.

203 Audit partner rotation. The lead partner and reviewing partner must rotate off the issuer engagement at least every five years.

204 Auditor reports to audit committees. Registered audit firms must report to the audit committee issues concerning: • Critical accounting policies and practices • Alternative treatments of financial information within generally accepted accounting principles that have been considered by management, as well as the preferred treatment of the audit firm • Significant written communications between the audit firm and management 206 Conflicts of interest. Registered audit firms may not perform audits for an issuer whose CEO, CFO, controller, chief accounting officer, or other equivalent position was employed by the audit firm during the one-year period preceding the audit. This is known as a “cooling off period. ” POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit-Related Provisions of the Sarbanes-Oxley Act DATE CREATED: 1/17/2018 7:10 AM DATE MODIFIED: 1/20/2018 6:38 AM

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Chapter 02 120. Audit Committee Responsibilities Describe the responsibilities of audit committees, and list at least four responsibilities that the NYSE has mandated for audit committees.

ANSWER:

Section 301 of the Sarbanes-Oxley Act outlines the responsibilities of audit committee members for publicly traded companies, stating that audit committees are to be directly responsible for the appointment, compensation, and oversight of the work of registered accounting firms; they must be independent; they must establish “whistleblowing” mechanisms within the company; they must have the authority to engage their own independent counsel; and companies must provide adequate funding for audit committees.

In addition to these broad responsibilities, the NYSE has mandated certain specific responsibilities of audit committees, including: ∙ Obtaining each year a report by the external auditor that addresses the company’s internal control procedures, any quality control or regulatory problems, and any relationships that might threaten the independence of the external auditor ∙ Discussing the company’s financial statements with management and the external auditor ∙ Discussing in its meetings the company’s earnings press releases, as well as financial information and earnings guidance provided to analysts ∙ Discussing in its meetings policies with respect to risk assessment and risk management ∙ Meeting separately with management, internal auditors, and the external auditor on a periodic basis ∙ Reviewing with the external auditor any audit problems or difficulties that they have had with management ∙ Setting clear hiring policies for employees or former employees of the external auditors ∙ Reporting regularly to the board of directors In addition to these responsibilities, in many companies the audit committee also has the authority to hire and fire the head of the internal audit function, set the budget for the internal audit activity, review the internal audit plan, and discuss all significant internal audit results. Other responsibilities might include performing or supervising special investigations, reviewing policies on sensitive payments, and coordinating periodic reviews of compliance with company policies such as corporate governance policies.

POINTS: 1 QUESTION TYPE: Essay HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.02.05 AUDI.JOHN.18.02.06 NATIONAL STANDARDS: United States - BUSPROG: Communications United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Audit Committee Responsibilities DATE CREATED: 1/17/2018 7:12 AM DATE MODIFIED: 1/20/2018 6:38 AM Copyright Cengage Learning. Powered by Cognero.

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Chapter 03 1. Internal control helps an organization eliminate the risk of failing to provide users with reliable financial information. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control Over Financial Reporting DATE CREATED: 1/17/2018 7:22 AM DATE MODIFIED: 1/20/2018 6:46 AM 2. After identifying the risks of not achieving reliable financial reporting, management implements controls to provide reasonable assurance that material misstatements do not occur in the financial statements. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control Over Financial Reporting DATE CREATED: 1/17/2018 7:24 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 3. Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations, and operating efficiency. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Defined DATE CREATED: 1/17/2018 7:25 AM DATE MODIFIED: 1/20/2018 6:46 AM 4. Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Defined DATE CREATED: 1/17/2018 7:27 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 5. The organization’s risk assessment process is an example of an entity-wide control. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Controls DATE CREATED: 1/17/2018 7:29 AM DATE MODIFIED: 1/20/2018 6:46 AM 6. Controls to monitor results of operations are considered to be transaction controls. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Controls DATE CREATED: 1/17/2018 7:31 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 7. The five major components of an organization's internal control are: the control environment, risk assessment, control activities, information and communication, and monitoring. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/17/2018 7:33 AM DATE MODIFIED: 1/20/2018 6:46 AM 8. In addition to controls being specific, they may be broad, such as policies regarding a code of ethics. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/17/2018 7:34 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 9. A strong control environment can reduce all the financial reporting risks to zero. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/17/2018 7:36 AM DATE MODIFIED: 1/20/2018 6:46 AM 10. A company's internal auditing function should not be considered when assessing the effectiveness of internal controls. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Assessing Effectiveness of Internal Controls DATE CREATED: 1/17/2018 7:41 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 11. An organization's control environment is established and maintained by the internal auditing department. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component - Control Environment DATE CREATED: 1/17/2018 7:42 AM DATE MODIFIED: 1/20/2018 6:46 AM 12. Corporate policies designed to attract, train, and evaluate competent employees are considered part of the control environment in the COSO framework for internal controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component- Control Environment DATE CREATED: 1/17/2018 7:45 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 13. Effective internal control requires an organization to establish an appropriate structure and clearly defined lines of responsibility and authority where everyone in the organization has equal responsibility for the effective operation of internal control. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component- Control Environment DATE CREATED: 1/17/2018 7:47 AM DATE MODIFIED: 1/20/2018 6:46 AM 14. Management’s risk identification and analysis should include both internal and external risk factors. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component - Risk Assessment DATE CREATED: 1/17/2018 7:48 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 15. An organization’s risk assessment process should be performed only by senior-level management. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.04 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component - Risk Assessment DATE CREATED: 1/17/2018 7:49 AM DATE MODIFIED: 1/20/2018 6:46 AM 16. Control activities are the component of internal control that includes control actions that have been established by policies and procedures. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Control Activities DATE CREATED: 1/19/2018 6:41 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 17. Control activities implemented to mitigate transaction processing risks that typically affect only certain processes, transactions, accounts, and assertions are referred to as transaction or application controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Control Activities DATE CREATED: 1/19/2018 6:43 AM DATE MODIFIED: 1/20/2018 6:46 AM 18. Preventive controls are designed to prevent the occurrence of a misstatement. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Control Activities DATE CREATED: 1/19/2018 6:44 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 19. Generally, highly regulated entities have more complex control activities than less-regulated entities. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component - Control Activities DATE CREATED: 1/19/2018 6:44 AM DATE MODIFIED: 1/20/2018 6:46 AM 20. Physical controls are necessary to protect and safeguard assets from accidental or intentional destruction and theft. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Control Activities DATE CREATED: 1/19/2018 6:45 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 21. Segregation of duties is a control activity that is designed to protect against the risk that an individual could both perpetrate and cover up a fraud. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Examples of Control Activities DATE CREATED: 1/19/2018 6:47 AM DATE MODIFIED: 1/20/2018 6:46 AM 22. Physical controls to safeguard assets are not intended to include simple controls such as fences and locks. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Examples of Control Activities DATE CREATED: 1/19/2018 6:48 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 23. Self-checking digit algorithms have been developed to test for transposition errors associated with identification numbers. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Automated Control Activities DATE CREATED: 1/19/2018 6:49 AM DATE MODIFIED: 1/20/2018 6:46 AM 24. Preventive controls are generally more cost-efficient than detective controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Control Activities DATE CREATED: 1/19/2018 6:51 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 25. The payroll department should be responsible for signing payroll checks. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Control Activities DATE CREATED: 1/19/2018 6:52 AM DATE MODIFIED: 1/20/2018 6:46 AM 26. One of the advantages of a computerized accounting system is that the computerized system eliminates the need for internal controls. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Controls in an Automated Environment DATE CREATED: 1/19/2018 6:52 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 27. A transaction trail includes the documents and records that allow an auditor to trace a transaction from its origination through to its final disposition, or vice versa. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Auditor Evaluation of Internal Controls DATE CREATED: 1/19/2018 6:55 AM DATE MODIFIED: 1/20/2018 6:46 AM 28. Segregation of duties is considered a part of the monitoring component of the COSO framework for internal control structure. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Control Activities DATE CREATED: 1/19/2018 6:56 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 29. Transaction controls are designed to ensure that transactions are properly valued. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Control Activities DATE CREATED: 1/19/2018 6:58 AM DATE MODIFIED: 1/20/2018 6:46 AM 30. Preventive controls are designed to provide reasonable assurance that the correct program is used for processing, all transactions are processed, and the transactions update appropriate files. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Control Activities DATE CREATED: 1/19/2018 6:59 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 31. Control activities may be implemented at the organizational level and at the transactional level. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.05 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Control Activities DATE CREATED: 1/19/2018 7:00 AM DATE MODIFIED: 1/20/2018 6:46 AM 32. A whistleblower function within an organization should include a process for bringing important ethical and financial issues to the audit committee. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Information and Communication DATE CREATED: 1/19/2018 7:01 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 33. Within the COSO framework, external communication includes only information sent by the organization to external parties, such as stockholders, customers, and regulators. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.06 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component: Information and Communication DATE CREATED: 1/19/2018 7:03 AM DATE MODIFIED: 1/20/2018 6:46 AM 34. Monitoring internal controls involves assessment by appropriate personnel of the design and operation of controls on a timely basis and taking necessary actions. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.07 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Monitoring Internal Control DATE CREATED: 1/19/2018 7:04 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 35. Effective monitoring of internal controls not only identifies risks but also responds to these risks appropriately. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.07 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Monitoring Internal Control DATE CREATED: 1/19/2018 7:06 AM DATE MODIFIED: 1/20/2018 6:46 AM 36. All organizations should evaluate and communicate internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.07 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component – Monitoring Internal Control DATE CREATED: 1/19/2018 7:07 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 37. One of the components of internal control, monitoring, refers to the process of identifying, capturing, and exchanging information in a timely fashion to enable accomplishment of the organization’s objectives. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.07 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO Component - Monitoring Internal Control DATE CREATED: 1/19/2018 7:08 AM DATE MODIFIED: 1/20/2018 6:46 AM 38. A walkthrough involves following a transaction back from when it is reflected in the financial records to when it originated to determine if the controls are effectively designed and have been implemented. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.08 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Evaluation of Internal Controls DATE CREATED: 1/19/2018 7:09 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 39. Performing a walkthrough provides an understanding of the nature of processing in important accounting applications. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.08 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Evaluation of Internal Controls DATE CREATED: 1/19/2018 7:10 AM DATE MODIFIED: 1/20/2018 6:46 AM 40. Management is obligated to report significant deficiencies in the control structure in their annual report on internal control effectiveness required by the Sarbanes-Oxley Act. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.08 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Management's Responsibilities Related to Internal Control over Financial Reporting DATE CREATED: 1/19/2018 7:11 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 41. Management should test all internal controls for effectiveness when performing their annual evaluation of the internal control structure. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.08 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Management's Responsibilities Related to Internal Control over Financial Reporting DATE CREATED: 1/19/2018 7:12 AM DATE MODIFIED: 1/20/2018 6:46 AM 42. Walkthroughs and inquiries are often used to obtain an understanding of internal controls. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.08 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Evaluation of Internal Controls DATE CREATED: 1/19/2018 7:12 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 43. Several significant deficiencies in internal controls may constitute a material weakness. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.09 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Evaluation of Internal Controls DATE CREATED: 1/19/2018 7:13 AM DATE MODIFIED: 1/20/2018 6:46 AM 44. Managers must use professional judgment to determine whether identified control deficiencies rise to the level of a significant deficiency or material weakness. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.09 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Evaluation of Internal Controls DATE CREATED: 1/19/2018 7:14 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 45. A deficiency in design of internal controls exists when an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.09 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Design Deficiency DATE CREATED: 1/19/2018 7:15 AM DATE MODIFIED: 1/20/2018 6:46 AM 46. A significant deficiency should be reported to the audit committee and to external users of an organization’s financial statements. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.09 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Deficiencies DATE CREATED: 1/19/2018 7:16 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 47. A material weakness in internal control is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.09 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Deficiencies DATE CREATED: 1/19/2018 7:17 AM DATE MODIFIED: 1/20/2018 6:46 AM 48. The quality of an organization's internal control does not affect either the audit approach or the amount of testing required for an engagement. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.10 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control to Financial Statement Audits DATE CREATED: 1/19/2018 7:18 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 49. When auditing the financial statements of a public company, the auditor is required to express an opinion on the company’s internal controls whenever a material weakness in control is identified. a. True b. False ANSWER: False POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.10 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control to Financial Statement Audits DATE CREATED: 1/19/2018 7:20 AM DATE MODIFIED: 1/20/2018 6:46 AM 50. An auditor needs to understand a company’s internal controls in order to anticipate the types of material misstatements that may occur. a. True b. False ANSWER: True POINTS: 1 QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.10 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control to Financial Statement Audits DATE CREATED: 1/19/2018 7:21 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 51. What is the primary benefit of effective internal control in an organization? a. Achieving certain organizational goals. b. Completing a successful audit for the entity. c. Maximizing value for shareholders. d. Obtaining profitability and financial strength.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control DATE CREATED: 1/19/2018 7:22 AM DATE MODIFIED: 1/20/2018 6:46 AM 52. The quality of an organization's internal control affects which of the following? a. The reliability of financial data. b. The ability of management to make good decisions. c. The ability to remain in business. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.01 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Importance of Internal Control DATE CREATED: 1/19/2018 7:23 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 53. Internal control is a process designed to achieve objectives in which one of the following categories? a. Reliability of financial reporting. b. Compliance with applicable laws. c. Operational effectiveness. d. All of the above.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Internal Control Defined DATE CREATED: 1/19/2018 7:25 AM DATE MODIFIED: 1/20/2018 6:46 AM 54. Which of the following is considered to be an entity-wide control? a. Segregation of duties. b. Controls over management override. c. Authorization procedures for purchasing. d. Adequately documented transaction trails.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Types of Internal Controls DATE CREATED: 1/19/2018 7:26 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 55. Which of the following is not included as a component of an organization's internal control structure in the COSO framework? a. Control risk. b. The control environment. c. Risk assessment. d. Control activities.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:27 AM DATE MODIFIED: 1/20/2018 6:46 AM 56. Which of the following is considered to be a transaction control? a. Controls to monitor other controls. b. Policies that address significant business control practices. c. Centralized processing controls. d. Physical controls to safeguard assets.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: Defining Internal Control DATE CREATED: 1/19/2018 7:28 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 57. Internal control is a process effected by the organization’s board of directors, management, and other personnel to provide reasonable assurance of achieving certain objectives. Which of the following does not fit into one of these categories of objectives? a. Reliability of financial reporting. b. Compliance with laws and regulations. c. Continuing existence. d. Effectiveness and efficiency of operations.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:29 AM DATE MODIFIED: 1/20/2018 6:46 AM 58. Which of the following is not true of internal control as defined by COSO? a. It is narrower than internal control over financial reporting. b. It is a process that includes all elements of internal control working together. c. It includes all the people in the organization. d. It starts at the top of the organization in setting a tone.

ANSWER: a POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:30 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 59. Which of the following is not true of the concepts that are embodied in the COSO framework of internal controls? a. Internal controls relate to the organization’s objectives. b. The six components of internal control are logically and operationally intertwined. c. Internal controls apply across all activities of the organization. d. All of the above are true.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.02 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:31 AM DATE MODIFIED: 1/20/2018 6:46 AM 60. Which of the following is not part of the control environment of an organization? a. Management’s philosophy and operating style. b. Organizational structure. c. Organization’s commitment to ethical values. d. All of the above are part of the control environment.

ANSWER: d POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:32 AM DATE MODIFIED: 1/20/2018 6:46 AM

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Chapter 03 61. With whom does the tone of internal control typically originate? a. Auditors. b. Employees. c. Management. d. Stockholders.

ANSWER: c POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:34 AM DATE MODIFIED: 1/20/2018 6:46 AM 62. Which of the following COSO components is the foundation for all other components of internal control? a. Control risk assessment. b. Control environment. c. Information and communication. d. Monitoring.

ANSWER: b POINTS: 1 QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: AUDI.JOHN.18.03.03 NATIONAL STANDARDS: United States - BUSPROG: Comprehension STATE STANDARDS: United States - AK - AICPA BB - Critical thinking TOPICS: COSO: A Framework for Internal Control DATE CREATED: 1/19/2018 7:35 AM DATE MODIFIED: 1/20/2018 6:46 AM

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