Question 1

2 out of 2 points

A(n) ________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards.

Answer

Selected Answer:

audit

Correct Answer:

audit

Question 2

2 out of 2 points

The assessment against a defendant of the full loss suffered by a plaintiff regardless of the extent to which other parties shared in the wrongdoing is called:

Answer

Selected Answer:

joint and several liability.

Correct Answer:

joint and several liability.

Question 3

0 out of 2 points

Which of the following required an adequate system of internal control for SEC registrants?

Answer

Selected Answer:

Securities Act of 1934

Correct Answer:

Foreign Corrupt Practices Act of 1977

Question 4

2 out of 2 points

An individual who is not party to the contract between a CPA and the client, but who is known by both and is intended to receive certain benefits from the contract is known as:

Answer

Selected Answer:

a third-party beneficiary.

Correct Answer:

a third-party beneficiary.

Question 5

2 out of 2 points

Audit fraud occurs when:

Answer

Selected Answer:

a misstatement is made and there is both knowledge of its falsity and the intent to deceive.

Correct Answer:

a misstatement is made and there is both knowledge of its falsity and the intent to deceive.

Question 6

2 out of 2 points

Which of the following most accurately describes fraud?

Answer

Selected Answer:

Knowledge and intent to deceive

Correct Answer:

Knowledge and intent to deceive

Question 7

2 out of 2 points

A financial institution sues the audit firm for failure to discover that a borrower's financial statements are materially misstated. This is an example of which of the following legal liability concepts?

Answer

Selected Answer:

Liability to 3rd parties under common law

Correct Answer:

Liability to 3rd parties under common law

Question 8

2 out of 2 points

In connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if:

Answer

Selected Answer:

the auditor planned the audit in a negligent manner.

Correct Answer:

the auditor planned the audit in a negligent manner.

Question 9

0 out of 2 points

The preferred defense in third-party suits is:

Answer

Selected Answer:

lack of duty to perform.

Correct Answer:

non-negligent performance.

Question 10

0 out of 2 points

Laws that have been passed by the U.S. Congress and other governmental units are:

Answer

Selected Answer:

federal laws.

Correct Answer:

statutory laws.

Question 11

2 out of 2 points

In third-party suits, which of the auditor's defenses contends lack of privity of contract?

Answer

Selected Answer:

Lack of duty

Correct Answer:

Lack of duty

Question 12

2 out of 2 points

Privity of contract exists between:

Answer

Selected Answer:

auditor and client.

Correct Answer:

auditor and client.

Question 13

0 out of 2 points

If the CPA negligently failed to properly prepare and file a client's tax return, the CPA may be liable for:

Answer

Selected Answer:

the penalties and interest, the tax preparation fee, and the amount of tax that was underpaid.

Correct Answer:

the penalties and interest the client owes, plus the tax preparation fee the CPA charged.

Question 14

2 out of 2 points

A third-party beneficiary is one which:

Answer

Selected Answer:

does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract.

Correct Answer:

does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract.

Question 15

2 out of 2 points

A CPA is subject to criminal liability if the CPA:

Answer

Selected Answer:

willfully omits a material fact from a set of financial statements.

Correct Answer:

willfully omits a material fact from a set of financial statements.

Question 16

2 out of 2 points

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

Answer

Selected Answer:

company management.

Correct Answer:

company management.

Question 17

2 out of 2 points

If the auditor insists on financial statement disclosures that the management finds unacceptable, the auditor can:

Answer

Selected Answer:

Issue an adverse audit report Issue a qualified audit report

Yes Yes

Correct Answer:

Issue an adverse audit report Issue a qualified audit report

Yes Yes

Question 18

2 out of 2 points

The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected.

Answer

Selected Answer:

material to the financial statements

Correct Answer:

material to the financial statements

Question 19

0 out of 2 points

Which of the following is the auditor least likely to do when aware of an illegal act?

Answer

Selected Answer:

Discuss the matter with the client's legal counsel.

Correct Answer:

Contact the local law enforcement officials regarding potential criminal wrongdoing.

Question 20

2 out of 2 points

International auditing standards and U.S. GAAP classify assertions into three categories. Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

Answer

Selected Answer:

Assertions about the quality of source documents used to prepare the financial statements

Correct Answer:

Assertions about the quality of source documents used to prepare the financial statements

Question 21

2 out of 2 points

The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:

Answer

Selected Answer:

in accordance with generally accepted auditing standards.

Correct Answer:

in accordance with generally accepted auditing standards.

Question 22

2 out of 2 points

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

Answer

Selected Answer:

has the responsibility of notifying financial statement users through the auditor's report.

Correct Answer:

has the responsibility of notifying financial statement users through the auditor's report.

Question 23

2 out of 2 points

Which of the following statements is most correct regarding errors and fraud?

Answer

Selected Answer:

An error is unintentional, whereas fraud is intentional.

Correct Answer:

An error is unintentional, whereas fraud is intentional.

Question 24

2 out of 2 points

Fraudulent financial reporting is most likely to be committed by whom?

Answer

Selected Answer:

company management

Correct Answer:

company management

Question 25

2 out of 2 points

Which of the following would most likely be deemed a direct-effect illegal act?

Answer

Selected Answer:

violation of federal income tax laws

Correct Answer:

violation of federal income tax laws

Question 26

0 out of 2 points

In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

Answer

Selected Answer:

GAAP.

Correct Answer:

the Securities Exchange Act of 1934.

Question 27

2 out of 2 points

If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the:

Answer

Selected Answer:

classification and understandability assertion.

Correct Answer:

classification and understandability assertion.

Question 28

0 out of 2 points

When an auditor believes that an illegal act may have occurred, the auditor should first:

Answer

Selected Answer:

accumulate additional evidence.

Correct Answer:

inquire of management at a level above those likely to be involved.

Question 29

2 out of 2 points

In order to provide reasonable assurance the audit must be performed with an attitude of professional skepticism. Which of the following is most correct regarding the "attitude" of professional skepticism?

Answer

Selected Answer:

auditors should assume that management is neither dishonest nor honest

Correct Answer:

auditors should assume that management is neither dishonest nor honest

Question 30

0 out of 2 points

Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements?

Answer

Selected Answer:

Accounting presentations contain complex estimates which involve uncertainty.

Correct Answer:

Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

Sunday, November 4, 2012 10:59:06 AM EST

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