1.

To become a Certified Public Accountant (CPA), an individual must pass the Uniform CPA Examination and
a. Demonstrate his or her independence.
b. Comply with state education and experience requirements.
c. Obtain employment with a public accounting firm.
d. Become a member of the AICPA.

2. Which of the following statements is an example of an assertion made by management in an entity's

financial statements?
a. The financial statements were prepared in an unbiased manner.
b. Reported inventory balances reflect all related transactions for the period.
c. Reported accounts receivable does not include any uncollectible accounts.
d. The scope of the auditors' investigation was not limited in any way by management.

3. Statements on Auditing Standards

a. Relate to the filing requirements and enforcement activities of the SEC.
b. Describe procedures to be applied in specific areas of audit activity to eliminate inconsistencies in audit
practice.
c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function.
d. Interpret standards that provide guidelines or measures of quality for an independent audit.

4. The primary purpose of an independent financial statement audit is to

a. Provide a basis for assessing management's performance.
b. Comply with state and federal regulatory requirements.
c. Assure management that the financial statements are unbiased and free from material error.
d. Provide users with an unbiased opinion about the fairness of information reported in the financial
statements.

5. Independent auditing can best be described as a

a. Branch of accounting.
b. Discipline that attests to the results of accounting and other operations and data.
c. Professional activity that measures and communicates financial and business data.
d. Regulatory function that prevents the issuance of improper financial information.
(AICPA ADAPTED)

6. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any fraudulent activity has been corrected.
(AICPA ADAPTED)
7. Which of the following types of audits are most similar?
a. Operational audits and compliance audits.
b. Independent financial statement audits and operational audits.
c. Compliance audits and independent financial statement audits.
d. Internal audits and independent financial statement audits.

8. The Auditing Standards Board

a. Sets rules and regulations that govern public accounting firms.
b. Is an arm of the Financial Accounting Standard Board.
c. Is a senior technical body of the AICPA designated to issue authoritative auditing pronouncements.
d. Reports directly to the Securities and Exchange Commission.

9. The essence of the attest function is to

a. Detect fraud.
b. Examine individual transactions so that the auditor can certify as to their validity.
c. Determine whether the client's financial statements are fairly stated.
d. Ensure the consistent application of correct accounting procedures.
(AICPA ADAPTED)

10. Which of the following criteria is unique to the independent auditor's attest function?
a. General competence.
b. Familiarity with the particular industry of each client.
c. Due professional care.
d. Independence. (AICPA ADAPTED)

11. The definition of auditing contained within A Statement of Basic Auditing Concepts recognizes that auditing
includes both a(an)
a. Documentation process and an evaluation process.
b. Evaluation process and a reporting process.
c. Investigative process and a reporting process.
d. Documentation process and a reporting process.

12. An operational audit is designed to

a. Assess the efficiency and effectiveness of management's operating procedures.
b. Assess the presentation of management's financial statements in accordance with generally accepted
accounting principles.
c. Determine whether management has complied with applicable laws and regulations.
d. Determine whether the audit committee of the board of directors is effectively discharging its responsibility to
oversee management's operations.
 13. The market for auditing services is driven by
a. The regulatory authority of the Securities and Exchange Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing Standards Board.
d. Congress at the federal level and elected legislative bodies at the state level.

14. The first contemporary audit related legislation was the

a. Securities Act of 1933.
b. Securities Exchange Act of 1934.
c. British Joint Stock Companies Act of 1844.
d. Companies Act of 1947.

15. The first authoritative auditing pronouncement in the U.S. was

a. Statement on Auditing Procedures No. 1, "Extensions of Auditing Procedures."
b. Statement on Auditing Standards No. 1, "Codification of SASs."
c. "Uniform Accounting: A Tentative Proposal Submitted by the Federal Reserve Board (1917)."
d. "Examination of Financial Statements by Independent Public Accountants (1936)."

16. The first authoritative audit standards-setting body empowered to issue auditing pronouncements in the U.S.
was the
a. The Committee on Auditing Procedure.
b. The Auditing Standards Executive Committee.
c. The Auditing Standards Board.
d. The Accounting and Review Services Committee.

17. Which of the following incorrectly matches the authoritative body with its authoritative pronouncements?
a. Accounting and Review Services Committee: "Statements on Standards for Accounting and Review
Services"
b. Auditing Standards Board: "Statements on Auditing Standards"
c. Auditing Standards Executive Committee: "Statements on Auditing Procedure"
d. Securities and Exchange Commission: "Financial Reporting Releases"

18. A license to practice as a certified public accountant is granted by

a. State boards of accountancy.
b. The AICPA.
c. State societies of CPAs.
d. The SEC.

19. The purpose of a compliance audit for a governmental entity is to determine whether
a. Financial statements comply with GAAP and whether the entity is operating efficiently.
b. Financial statements comply with GAAP and the entity has complied with applicable laws and regulations.
c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP.

20. The audit process is

a. A special application of the scientific method of inquiry.
b. Regulated by the AICPA.
c. The only service a CPA is allowed to perform by law.
d. Performed only by CPAs.

. 21. Due professional care requires

a. A critical review of the work done at every level of supervision.
b. The examination of all corroborating evidence available.
c. The exercise of error-free judgment.
d. A consideration of internal control structure that includes tests of controls.
(AICPA ADAPTED)

22. The first general standard requires that the audit of financial statements be performed by a person or
persons having adequate technical training and
a. Independence with respect to the financial statements and supplementary disclosures.
b. Exercising professional care as judged by peer reviewers.
c. Proficiency as an auditor, which likely has been acquired from previous experience.
d. Objectivity as an auditor, as verified by proper supervision. (AICPA ADAPTED)

23. An auditor, while performing an audit, strives to achieve the appearance of independence in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of fieldwork.
c. Become independent in fact.
d. Maintain public confidence in the profession. (AICPA ADAPTED)

24. Adequate technical training and proficiency as an auditor encompasses an ability to understand a computer
system sufficiently to identify and evaluate
a. The processing and imparting of information.
b. Essential accounting control features.
c. All control procedures.
d. The degree to which programming conforms to the application of generally accepted accounting principles.
(AICPA ADAPTED)
25. Competence as a certified public accountant includes all of the following except
a. Having the technical qualifications to perform an engagement.
b. Possessing the ability to supervise and evaluate the quality of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information is needed. (AICPA ADAPTED)

26. Ultimately, the decision about whether or not an auditor is independent must be made by the
a. Auditor.
b. Client.
c. Audit committee.
d. Public. (AICPA ADAPTED)

27. Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau Corporation has a
great number of small accounts receivable that also total $1,000,000. The importance of an error in any one
account is, therefore, greater for Madison than for Nassau. This is an example of the auditor's concept of
a. Account bias.
b. Audit risk.
c. Materiality.
d. Reasonable assurance. (AICPA ADAPTED)

28. Which of the following best describes what is meant by generally accepted auditing standards?
a. Acts to be performed by the auditor.
b. Measures of the quality of an auditor's performance.
c. Procedures used to gather evidence to support financial statements.
d. Audit objectives generally determined on audit engagements. (AICPA ADAPTED)

29. There is an inverse relationship between the effectiveness of an entity's internal control structure and the
a. Reliability of financial statements.
b. Extent of detailed audit tests required.
c. Degree of staff supervision required in the performance of an audit.
d. Fairness of management assertions in the financial statements.

30. Which of the following best describes the character of the three generally accepted auditing standards
classified as general standards?
a. Criteria for competence, independence, and professional care of individuals performing the audit.
b. Criteria for the content of the financial statements and related footnote disclosures.
c. Criteria for the content of the auditor's report.
d. The requirements for planning and supervision. (AICPA ADAPTED)

31. The generally accepted standards of fieldwork relate to

a. The competence, independence, and professional care of persons performing the audit.
b. Criteria for the content of the auditor's report on financial statements.
c. Audit planning and evidence gathering.
d. The need to maintain independence in mental attitude. (AICPA ADAPTED)

32. Which of the following statements is correct concerning the concept of materiality?
a. Materiality is determined by reference to AICPA guidelines.
b. Materiality depends only on the dollar amount involved.
c. Materiality depends on the nature of an item rather than on the dollar amount.
d. Materiality is a matter of professional judgment. (AICPA ADAPTED)

33. The generally accepted standards of reporting encompass all of the following except
a. Consideration of an entity's internal control structure.
b. Consistent application of accounting principles.
c. Informative disclosures.
d. Conformity of financial statements with GAAP.

34. An objective of the fourth generally accepted standard of reporting, relating to the expression of an opinion,
is to
a. Prohibit the auditor from issuing a report that does not include an opinion on the financial statements taken
as a whole.
b. Inform users that the financial statements and related notes are the joint responsibility of the auditor and
management.
c. Prevent users of financial statements from misinterpreting the degree of responsibility assumed by the
auditor.
d. Ensure adequate informative disclosures in the financial statements.

35. The least important evidence of a public accounting firm's evaluation of its system of quality controls would
concern the firm's policies and procedures with respect to
a. Employment (hiring).
b. Confidentiality of audit engagements.
c. Assigning personnel to audit engagements.
d. Determination of audit fees. (AICPA ADAPTED)
36. Which of the following is not an element of quality control?
a. Documentation.
b. Inspection.
c. Supervision.
d. Consultation. (AICPA ADAPTED)

37. Williams & Co., a large international public accounting firm, is due to have a peer review. The peer review
will most likely be performed by
a. Employees and partners of Williams & Co. who are not associated with the particular audit being reviewed.
b. Audit review staff of the Securities and Exchange Commission.
c. Audit review staff of the AICPA.
d. Employees and partners of another firm. (AICPA ADAPTED)

38. In a financial statement audit, audit risk represents the probability that
a. Internal control fails and the failure is not detected by the auditor's procedures.
b. The auditor unknowingly fails to modify an opinion on materially misstated financial statements.
c. Inherent and control risk cause errors that could be material to the financial statements.
d. The auditor is not retained to conduct a financial statement audit in the succeeding year.

39. In a financial statement audit, inherent risk represents

a. The susceptibility of an account balance to error that could be material.
b. The risk that error could occur and not be prevented or detected by the internal control structure.
c. The risk that error could occur and not be detected by the auditor's procedures.
d. The risk that the auditor fails to modify materially misstated financial statements.

40. What is the magnitude of audit risk if inherent risk is .50, control risk .40, and detection risk .10?
a. .20.
b. .10.
c. .04.
d. Not determinable from the facts given.