True False Questions

2-1 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02 The Financial Statement Auditing Environment

True / False Questions

• A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act

(2002).

True False

• The primary audit context with which an auditor is concerned is the auditee's industry or business.

True False

• The audit committee generally includes senior executives of the organization.

True False

• A financial statement audit is generally organized based on the five basic business processes or

cycles.

True False

• One of the five basic business processes is the warehousing cycle.

True False

• The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which include

principles underlying an audit conducted in accordance with generally accepted auditing standards.

True False

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2-2 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

True False

• A financial statement audit must be conducted based on GAAP.

True False

• Generally, the financial statements of U.S. companies must be prepared based on GAAP.

True False

• PCAOB auditing standards must be followed on all audits of public companies' financial statements.

True False

Multiple Choice Questions

• The Audit Committee consists of

• Members of management.

• A subcommittee of the AICPA who establish the SAS.

• Members of the Board of Directors.

• Appointed government overseers.

2-3 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• What organization is responsible for setting auditing standards for audits of publicly-traded

companies in the U.S.?

A. AICPA.

B. FASB.

C. GASB.

D. PCAOB.

• The Public Company Accounting Oversight Board's role is to

• Conduct the final review of auditors' work before the auditor's opinion is issued.

• Oversee the auditors of public companies in order to protect the interests of investors.

• Conduct audits of governmental entities.

• Sanction auditors who fail to follow GAAS.

• The authoritative body designed to promulgate standards concerning a CPA's association with

audited financial statements of an entity that is required to file financial statements with the SEC is the

• Financial Accounting Standards Board.

• General Accounting Office.

• Public Company Accounting Oversight Board.

• Auditing Standards Board.

• The auditor must be independent of the auditee unless

• The lack of independence does not influence his or her professional judgment.

• Both parties agree that the independence issue is not a problem.

• The lack of independence is insignificant.

• None of the above—the auditor cannot lack independence.

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• Which of the following describes the PCAOB generally accepted auditing standard requiring a critical

review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

• Proficiency.

• Audit risk.

• Inspection.

• Due care.

• Which of the following best describes the general character of the three PCAOB generally accepted

auditing standards that are classified as standards of fieldwork?

• The competence, independence, and professional care of persons performing the audit.

• Criteria for the content of the auditor's report on financial statements and related footnote

disclosures.

• The criteria of audit planning and evidence-gathering.

• The need to maintain independence in mental attitude in all matters relating to the audit.

• The first PCAOB general standard requires that the examination of financial statements is to be

performed by a person or persons having adequate technical training and

• Independence with respect to the financial statements and supplementary disclosures.

• Exercising professional care as judged by peer reviewers.

• Proficiency as an auditor, which likely has been acquired from previous experience.

• Objectivity as an auditor as verified by proper supervision.