Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and attest services?
(1) While attest services involve financial data, assurance services involve nonfinancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.

b. Which of the following has primary responsibility for the fairness of the representations made in financial statements?
(1) Client's management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.

c. The most important benefit of having an annual audit by a public accounting firm is to:
(1) Provide assurance to investors and other outsiders that the financial statements are reliable.
(2) Enable officers and directors to avoid personal responsibility for any misstatements in the financial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.

d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review financial reports filed with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit firms.

e. Which of these organizations has the responsibility to perform inspections of auditors of public companies?
(1) American Institute of Certified Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.

f. Governmental auditing, in addition to including audits of financial statements, often includes audits of efficiency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.

g. In general, internal auditors' independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive officer.

h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002 to regulate public accounting firms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of financial statements by a number of public companies.
(3) Conviction of the accounting firm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.

i. Which of the following organizations establishes accounting standards for U.S. govern ment agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.

j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law firms; they are not performed by CPA firms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is suspected.

k. What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the client's operations.

l. Which of the following is an example of a compliance audit?
(1) An audit of financial statements.
(2) An audit of a company's policies and procedures for adhering to environmental laws and regulations.
(3) An audit of a company's internal control over financial reporting.
(4) An audit of the efficiency and effectiveness of a company's legal department.