SEC and IRS, Multiple Choices Questions, accounting homework help

42 Multiple Choices Questions – Please highlight the correct answer within an hour


Which of the following are independent private-sector standard-setting bodies?

  • SEC and IRS

  • National Association of State Boards of Accountancy and the American Accounting Association

  • AICPA and IIA

  • FASB and the Governmental Accounting Standards Board

    2. When providing audit services, the certified public accountant (CPA) is expected to be

  • an advocate for the general public.

  • independent of the client.

  • indifferent to the effect of the financial statements and the audit report.

  • an advocate for the client.

    3. Public Company Accounting Oversight Board (PCAOB) standards require the auditor to evaluate the effectiveness of the audit committee as part of understanding the control environment and monitoring. Which of the following is NOT a factor the auditor should consider in making this evaluation?

  • Compensation practices with respect to members of the audit committee

  • The audit committee’s responsiveness to issues raised by the auditor

  • The clarity with which the audit committee’s responsibilities are articulated

  • The independence of the audit committee from management

    4. What level of assurance does the reader of a private company financial statement receive on the company’s system of internal controls?

  • Negative

  • None

  • Reasonable

  • Positive

    5) Section 18 liability is relatively narrow in scope because it relates to a false or misleading statement in documents filed with the

  • Internal Revenue Service (IRS).

  • FASB.

  • American Institute of Certified Public Accountants (AICPA).

  • Securities and Exchanges Commission (SEC).

    6. The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is

  • audit risk.

  • control risk.

  • tests of details risk.

  • analytical procedures risk.

    7. Which of the following management responsibilities is NOT established under PCAOB standards?

  • To perform cost-benefit analysis with respect to internal controls relating to assertions having a material effect on the financial statements

  • To present a written assessment of the effectiveness of the company’s internal control over financial reporting as of the end of the company’s most recent fiscal year

  • To evaluate the effectiveness of the company’s internal control over financial reporting using suitable criteria

  • To accept responsibility for the effectiveness of the company’s internal control over financial reporting

    8. The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about the

  • integrity of management.

  • effectiveness of management.

  • effectiveness of the internal control structure and fairness of the financial statements.

  • effectiveness of the internal control structure.

    9. Which of the following assertions is NOT made by management in placing an item in the financial statements?

  • Rights and obligations

  • Presentation and disclosure

  • Direct controls

  • Existence or occurrence

    10. When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following EXCEPT

  • assessing inherent risk.

  • assessing detection risk.

  • evidence of effectiveness of computer control procedures and related follow-up.

  • procedures to understand the business and industry, and related completed analytical procedures.

  • evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls.

    11. Probability-proportional-to-size (PPS) sampling should NOT be used when

  • the number of units in the population is unknown at the start of sampling.

  • book values for sampling units are not available.

  • the variability of the population is unknown.

  • transactions and balances are tested for overstatement.

    12. Specific audit objectives are normally

  • derived from the categories of management’s financial statement assertions.

  • the same as the categories of management’s financial statement assertions.

  • developed for each item in the financial statements and derived from the categories of management’s financial statement assertions.

  • developed for each item in the financial statements.

    13. When setting the level of materiality on a particular engagement, the auditor must consider

  • both the unique circumstances pertaining to the entity and the users’ information needs.

  • the users’ information needs.

  • neither the unique circumstances pertaining to the entity nor the users’ information needs.

  • the unique circumstances pertaining to the entity.

    14. The completeness assertion would be violated if

  • unbilled shipments occurred during the period.

  • disclosure in the statements of pledged receivables was inadequate.

  • the allowance for doubtful accounts was understated.

  • fictitious sales transactions were included in accounts receivable.

    15. The risk that a material misstatement that could occur in an assertion will NOT be prevented or detected on a timely basis by the entity’s internal controls is

  • audit risk.

  • inherent risk.

  • control risk.

  • rejection risk.

    16. Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client’s auditability. Which of the following factors would be least likely to cause concern about an entity’s auditability?

  • Important evidence available only in electronic form

  • Related party transactions

  • Lack of audit trail

  • Disregard of responsibility to maintain adequate internal controls

    17. In the audit risk model, audit sampling applies to

  • detection risk.

  • control risk and detection risk.

  • inherent risk and control risk.

  • inherent risk and detection risk.

    18. An inaccurate form of the audit risk model would show that

  • detection risk may be determined from audit risk, inherent risk, and control risk.

  • increases in control risk will cause decreases in detection risk.

  • detection risk is inversely related to inherent risk.

  • detection risk is inversely related to audit risk.

  • audit risk is directly related to all other risks in the model.

    19. There are several paragraphs in the auditor’s standard report in internal control over financial reporting. Which paragraph defines internal control over financial reporting?

  • Inherent limitations

  • Definition

  • Introductory

  • Scope

    20. If reported sales for 2010 erroneously include sales that occur in 2011, the assertion violated on the 2010 statements would be

  • valuation or allocation.

  • existence or occurrence.

  • completeness.

  • presentation and disclosure.

    21. Which of the following is NOT a characteristic of management’s philosophy and operating style?

  • Conscientiousness and conservatism in developing accounting estimates

  • Monitoring policies for developing and modifying accounting systems

  • Approach to taking and monitoring business risks

  • Its attitudes and actions toward financial reporting

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