Auditing And Assurance Services, 15e, Global Edition .
Auditing And Assurance Services Global 15th Edition Arens Test BankFull Download: nk/Auditing and Assurance Services, 15e, Global Edition (Arens)Chapter 2 The Audit Standards’ Setting ProcessLearning Objective 2-11) The legal right to perform audits is granted to a CPA firm by regulation of:A) each state.B) the Financial Accounting Standards Board (FASB).C) the American Institute of Certified Public Accountants (AICPA).D) the Audit Standards Board.Answer: ATerms: Legal rights to perform auditsDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skills2) The four categories for describing the size of audit firms include: the Big Four internationalfirms; national firms; regional and local firms; and small firms. Which of the following is not acharacteristic of a small firm?A) Most have fewer than 25 professionals.B) They perform audits on small and not-for-profit businesses.C) Tax services are more important to their practice than auditing.D) They do not audit publicly traded companies.Answer: DTerms: Four categories for describing size of audit firmsDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skills3) Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providingmany consulting services to their publicly traded audit clients. Which of the following is true forauditors of publicly traded companies?I. They are restricted from providing consulting services to privately held companies.II. There is no restriction on providing consulting services to non-audit clients.A) I onlyB) II onlyC) I and IID) Neither I or IIAnswer: BTerms: Sarbanes-Oxley and Securities Exchange Commission restrictionsDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skillsTopic: SOX1Copyright 2014 Pearson EducationThis sample only, Download all chapters at: alibabadownload.com
4) Which of the following statements is true as it relates to limited liability partnerships?A) Only senior partners are liable for the partnership's debts.B) Partners have no liability in a limited liability partnership arrangement.C) Partners are personally liable for the acts of those under their supervision.D) All partners must be AICPA members.Answer: CTerms: Limited liability partnershipsDiff: ChallengingObjective: LO 2-1AACSB: Reflective thinking skills5) List and describe the three factors that influence the organizational structure of all CPA firms.What are the most common forms of CPA firm organization?Answer: The three factors that influence the organization of a CPA firm include:1. Independence from clients. Independence is important as it allows the auditors to remainunbiased in drawing conclusions on client financial statements.2. Auditor Competency. Competency allows auditors to conduct audits and perform serviceseffectively and efficiently.3. Litigation. The increased litigation risk faced by auditors increases audit firm business risk.Certain organizational structures allow a degree of personal protection to individual firmmembers.Common forms of audit firm organization include: Limited Liability Partnerships Limited Liability Companies Professional Corporations General Corporations General Partnerships Sole ProprietorshipTerms: Factors that influence that influence the organizational structure of CPA firmsDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skills2Copyright 2014 Pearson Education
6) List and describe the six organizational structures available to CPA firms.Answer: CPA firms can take one of six organizational forms: Proprietorship. This form is limited to firms with only one owner. General partnership. This form is similar to a proprietorship, except that it applies tomultiple owners. General corporation. Unlike a general partnership, shareholders in a general corporation areliable only to the extent of their investment in the corporation. Many states prohibit CPA firmsfrom organizing as a general corporation. Professional corporation. Professional corporations can have one or more shareholders.Personal liability protection for shareholders in professional corporations varies widely fromstate to state. Limited liability company. This form combines the most favorable attributes of a generalcorporation and a general partnership. LLCs are taxed like a general partnership, but its ownershave limited personal liability similar to that of a general corporation. Limited liability partnership. An LLP is structured and taxed like a general partnership.However, the personal liability protection of an LLP is less than that of a general corporation oran LLC, but it is greater than a general partnership. Many accounting firms now operate as LLPs.Terms: Organizational structures available to CPA firmsDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skills7) Many small, local accounting firms do not perform audits as their primary services to theirclients include accounting and tax.A) TrueB) FalseAnswer: ATerms: Small accounting firms do not perform auditsDiff: EasyObjective: LO 2-1AACSB: Reflective thinking skills8) All of the Big Four accounting firms and many of the smaller CPA firms now operate asLimited Liability Partnerships.A) TrueB) FalseAnswer: ATerms: Limited liability partnershipsDiff: EasyObjective: LO 2-1AACSB: Reflective thinking skills3Copyright 2014 Pearson Education
9) Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providingmany consulting services to their publicly traded audit clients.A) TrueB) FalseAnswer: ATerms: Sarbanes-Oxley and Securities Exchange Commission restrict auditorsDiff: EasyObjective: LO 2-1AACSB: Reflective thinking skillsTopic: SOX10) Limited liability companies are structured and taxed like a general partnership, but theirowners have limited personal liability similar to that of a general corporation.A) TrueB) FalseAnswer: ATerms: Limited liability companiesDiff: ModerateObjective: LO 2-1AACSB: Reflective thinking skillsLearning Objective 2-21) The organization that is responsible for providing oversight for auditors of public companiesis called the .A) Auditing Standards BoardB) American Institute of Certified Public AccountantsC) Public Oversight BoardD) Public Company Accounting Oversight BoardAnswer: DTerms: Organization responsible for providing oversight for auditors of public companiesDiff: EasyObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOX2) Members of the Public Company Accounting Oversight Board are appointed and overseen by:A) the U.S. Congress.B) the American Institute of Certified Public Accountants.C) the Auditing Standards Board.D) the Securities and Exchange Commission.Answer: DTerms: Members of Public Company Accounting Oversight BoardDiff: EasyObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOX4Copyright 2014 Pearson Education
3) The Public Company Accounting Oversight Board:A) performs inspections of the quality controls of audit firms that audit public companies.B) establishes auditing standards that must be followed by CPAs on all audits.C) oversees auditors of private companies.D) performs any of the above functions.Answer: ATerms: Public Company Accounting Oversight BoardDiff: ModerateObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOX5Copyright 2014 Pearson Education
4) Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violationduring its inspection of a registered accounting firm. The PCAOB:A)can enforcereport the matter todisciplinary actionthe Securities and suspend the license toagainst the accountingExchangepractice of the CPAfirmCommissionguilty of the violationYesYesYesB)can enforcereport the matter todisciplinary actionthe Securities and suspend the license toagainst the accountingExchangepractice of the CPAfirmCommissionguilty of the violationYesYesNoC)can enforcereport the matter todisciplinary actionthe Securities and suspend the license toagainst the accountingExchangepractice of the CPAfirmCommissionguilty of the violationYesNoNoD)can enforcereport the matter todisciplinary actionthe Securities and suspend the license toagainst the accountingExchangepractice of the CPAfirmCommissionguilty of the violationNoNoNoAnswer: BTerms: Public Company Accounting Oversight Board inspection violationsDiff: ModerateObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOX5) The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board(PCAOB). What are the PCAOB's primary functions?Answer: The PCAOB has responsibility for providing oversight to auditors of public companies,establishing auditing and quality control standards for public company audits and performinginspections of the quality controls at audit firms performing those audits.Terms: Sarbanes-Oxley Act; Public Company Accounting Oversight Board primary functionsDiff: ModerateObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOX6Copyright 2014 Pearson Education
6) The Public Company Accounting Oversight Board (PCAOB) provides oversight to auditors ofpublicly traded and private companies.A) TrueB) FalseAnswer: BTerms: Public Company Accounting Oversight BoardDiff: EasyObjective: LO 2-2AACSB: Reflective thinking skills7) All CPA firms registered with the PCAOB are required to undergo a peer review annually.A) TrueB) FalseAnswer: BTerms: PCAOB requirement for peer reviewDiff: ModerateObjective: LO 2-2AACSB: Reflective thinking skillsTopic: SOXLearning Objective 2-31) The form that must be completed and filed with the Securities and Exchange Commissionwhenever a company experiences a significant event that is of interest to public investors is the:A) Form S-1.B) Form 8-K.C) Form 10-K.D) Form 10-Q.Answer: BTerms: Sec form 8-k, reporting significant eventsDiff: ModerateObjective: LO 2-3AACSB: Reflective thinking skills2) The form that must be filed with the Securities and Exchange Commission whenever acompany plans to issue new securities to the public is the:A) Form S-1.B) Form 8-K.C) Form 10-K.D) Form 10-Q.Answer: ATerms: Form must be completed and filed with Securities and Exchange Commission whencompany plans to issue new securitiesDiff: ModerateObjective: LO 2-3AACSB: Reflective thinking skills7Copyright 2014 Pearson Education
3) The AICPA has authority to establish standards and rules in all but which of the followingareas?A) Auditing standards applicable to financial statements of private companiesB) Compilation and review standardsC) Professional conductD) Auditing standards applicable to financial statements of private and public companiesAnswer: DTerms: AICPA has authority to establish standards and rulesDiff: ChallengingObjective: LO 2-3AACSB: Reflective thinking skills4) Discuss the purpose of the Securities and Exchange Commission and its influence on settinggenerally accepted accounting principles.Answer: The SEC, an agency of the federal government , assists in providing investors withreliable information upon which to make investment decisions. The SEC has considerableinfluence in setting generally accepted accounting principles and disclosure requirements forfinancial statements as a result of its authority for specifying reporting requirements considerednecessary for fair disclosure to investors. The SEC has power to establish rules for any CPAassociated with audited financial statements submitted to the commission. The SEC's attitude isgenerally considered in any major change proposed by the FASB, the independent organizationthat establishes U.S. GAAP.Terms: Securities and Exchange Commission influence on setting generally accepted accountingprinciplesDiff: ModerateObjective: LO 2-3AACSB: Reflective thinking skills5) The difference between the Securities Act of 1933 and the Securities Act of 1934 is that onlythe 1934 act requires audited financial statements.A) TrueB) FalseAnswer: BTerms: Securities Acts of 1933 and 1934Diff: EasyObjective: LO 2-3AACSB: Reflective thinking skills6) Form 10-K must be filed with the SEC whenever a public company experiences a significantevent.A) TrueB) FalseAnswer: BTerms: Form 10-K; SECDiff: ModerateObjective: LO 2-3AACSB: Reflective thinking skills8Copyright 2014 Pearson Education
7) The overall purpose of the Securities and Exchange Commission is to assist in providinginvestors with reliable information upon which to make investment decisions.A) TrueB) FalseAnswer: ATerms: Securities and Exchange CommissionDiff: ModerateObjective: LO 2-3AACSB: Reflective thinking skillsLearning Objective 2-41) Statements on Standards for Accounting and Review Services are issued by the:A) Accounting and Review Services Committee.B) Professional Ethics Executive Committee.C) Securities and Exchange Commission.D) Financial Accounting Standards Board.Answer: ATerms: Statements on Standards for Accounting and Review Services (SSARS)Diff: ModerateObjective: LO 2-4AACSB: Reflective thinking skills2) What are the major functions of the AICPA?Answer: Major functions of the AICPA include: Establishing standards and rules that practicing CPAs must follow. These standards consistof auditing standards for auditors of private companies, compilation and review standards, otherattestation standards, and the Code of Professional Conduct. Research and publication on many different subjects related to accounting, auditing,attestation and assurance services, management consulting services, and taxes. AICPApublications include the Journal of Accountancy, industry audit guides, periodic updates of theCodification of Statements on Auditing Standards, and the Code of Professional Conduct. Promoting the accounting profession through organizing national advertising campaigns. Developing specialist certifications to help market and ensure the quality of services inspecialized practice areas. Writing and grading the uniform CPA examination. Providing continuing education seminars for its members.Terms: Major functions of AICPADiff: ModerateObjective: LO 2-4AACSB: Reflective thinking skills9Copyright 2014 Pearson Education
3) Membership in the AICPA is restricted to CPAs who are currently practicing as independentauditors.A) TrueB) FalseAnswer: BTerms: Membership in AICPADiff: EasyObjective: LO 2-4AACSB: Reflective thinking skills4) Membership in the AICPA is mandatory for all licensed practicing CPAs.A) TrueB) FalseAnswer: BTerms: Membership in AICPADiff: EasyObjective: LO 2-4AACSB: Reflective thinking skills5) Any public accounting firm can be a member of the AICPA if the firm meets the membershiprequirements.A) TrueB) FalseAnswer: ATerms: Membership in AICPADiff: EasyObjective: LO 2-4AACSB: Reflective thinking skills10Copyright 2014 Pearson Education
Learning Objective 2-51) Which of the following are audit standards used in professional practice by audit firms?A)InternationalU.S. GenerallyPCAOB AuditingStandardsAccepted AuditingStandardson AuditingStandardsYesNoNoB)InternationalStandardson AuditingYesU.S. GenerallyAccepted AuditingStandardsYesPCAOB AuditingStandardsInternationalStandardson AuditingYesU.S. GenerallyAccepted AuditingStandardsYesPCAOB AuditingStandardsInternationalStandardson AuditingNoU.S. GenerallyAccepted AuditingStandardsYesPCAOB AuditingStandardsNoC)YesD)YesAnswer: CTerms: Standards used in professional practiceDiff: EasyObjective: LO 2-5AACSB: Reflective thinking skills2) For privately held companies who is responsible for establishing auditing standards?A) Securities and Exchange CommissionB) Public Company Accounting Oversight BoardC) Auditing Standards BoardD) National Association of AccountingAnswer: CTerms: Establishing auditing standards for privately held companiesDiff: EasyObjective: LO 2-5AACSB: Reflective thinking skills11Copyright 2014 Pearson Education
3) Standards issued by the Public Company Accounting Oversight Board must be followed byCPAs who audit:A) both private and public companies.B) public companies only.C) private companies, public companies, and nonprofit entities.D) private companies only.Answer: BTerms: Public Company Accounting Oversight Board StandardsDiff: ModerateObjective: LO 2-5AACSB: Reflective thinking skillsTopic: SOX4) The International Standards on Auditing (ISAs):A) are issued by the AICPA.B) override a country's regulations governing the audit of a company.C) has many of the same standards as the Auditing Standards Board (ASB).D) must be followed by companies whose stock is traded in the U.S.Answer: CTerms: International Standards on Auditing; International Auditing and Assurance StandardsBoardDiff: ModerateObjective: LO 2-5AACSB: Reflective thinking skills5) If an auditor of a public company cannot find guidance issued by the PCAOB on a particularaudit matter, the auditor should generally seek guidance from which of the following sources?A) Statements on Auditing StandardsB) Statements on Standards for Accounting and Review ServicesC) Regulations issued by the Securities and Exchange CommissionD) The AICPA Code of Professional ConductAnswer: ATerms: Guidance issued by PCAOBDiff: ChallengingObjective: LO 2-5AACSB: Reflective thinking skillsTopic: SOX12Copyright 2014 Pearson Education
6) Which of the following is a true statement regarding auditing standards?A) Prior to the passage of Sarbanes-Oxley, the FASB established auditing principles for U.S.public companies.B) PCAOB auditing standards are applicable to entities outside the U.S.C) There are no similarities between PCAOB standards and International Standards on Auditing.D) The Auditing Standards Board has revised most of its standards to converge with theinternational standards.Answer: DTerms: Auditing standards of United States and International Standards of AuditingDiff: EasyObjective: LO 2-5AACSB: Reflective thinking skills7) The PCAOB considers International Standards on Auditing (ISAs) when developing itsstandards.A) TrueB) FalseAnswer: ATerms: Public Company Accounting Oversight Board StandardsDiff: EasyObjective: LO 2-5AACSB: Reflective thinking skillsTopic: SOX8) International Standards on Auditing are issued by the International Auditing and AssuranceStandards Board.A) TrueB) FalseAnswer: ATerms: International Standards on Auditing; International Auditing and Assurance StandardsBoardDiff: EasyObjective: LO 2-5AACSB: Reflective thinking skillsLearning Objective 2-61) Historically auditing standards have been organized into three categories, including:A) Standards of field work.B) Purpose of an audit.C) Responsibilities of the auditor.D) Proper planning and supervision.Answer: ATerms: GAAS, general standardsDiff: EasyObjective: LO 2-6AACSB: Reflective thinking skills13Copyright 2014 Pearson Education
2) The "Principles Underlying an Audit in Accordance with Generally Accepted AuditingPrinciples" provides a framework to help auditors:A) understand the ten GAAS standards.B) obtain complete assurance that the financial statements are free from any error.C) report on the financial statements.D) prevent fraud.Answer: CTerms: GAAS; New principles underlying GAASDiff: EasyObjective: LO 2-6AACSB: Reflective thinking skills3) Which of the following is not one of the responsibilities of an auditor under the principlesunderlying an audit?A) Possess appropriate competence and capabilitiesB) Comply with ethical requirementsC) Plan work and supervise assistantsD) Maintain professional skepticism and exercise professional judgmentAnswer: CTerms: New principles underlying an auditDiff: EasyObjective: LO 2-6AACSB: Reflective thinking skills4) To obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, the auditor must fulfill several performance responsibilities,including:A) verifying that all audit work is performed by a CPA with a minimum of three yearsexperience.B) obtaining sufficient, appropriate audit evidence.C) exercising professional judgment.D) providing an opinion on the
Auditing and Assurance Services, 15e, Global Edition (Arens) Chapter 2 The Audit Standards’ Setting Process Learning Objective 2-1 1) The legal right to perform audits is granted to a CPA firm by regulation of: A) each state. B) the Financial Accounting Standards Board (FASB). C) the American Institute of Certified Public Accountants (AICPA). D) the Audit Standards Board. Answer: A Terms .
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Auditing and Assurance Services, 15e (Arens) Chapter 9 Materiality and Risk Learning Objective 9-1 1) If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2: A) material. B) insignificant.
Auditing and Assurance Services, 15e (Arens) Chapter 8 Audit Planning and Analytical Procedures . review certain workpapers for high risk accounts for a new audit client. The new audit client's refusal to allow this communication to occur would impact Rodgers decision concerning: A) the audi
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