CH5 Ethics

30 August 2022
4.7 (114 reviews)
66 test answers

Unlock all answers in this set

Unlock answers (62)
question
1. Deliberately underbidding for an audit engagement to obtain a client and secure more lucrative management advisory or consulting services is known as? A. Opinion shopping B. High-balling C. Low-balling D. Client shopping
answer
c
question
2. One of the rules of professional conduct and repeated in GAAS, due care, requires a member to discharge professional responsibilities with _____________. A. Confidentiality and integrity B. Objectivity and ethics C. Standard morals and ethics D. Competence and diligence
answer
D
question
3. Susie is an auditor with XYZ Audit firm. The Senior Audit member has told her that all fieldwork must be completed by the end of the week. Susie knows that corners have been cut and certain tests not completed due to the time constraints. The integrity of the firm could be compromised. What should Susie do? A. Do nothing. B. Talk with the chain of command of the client to see that her concerns are dealt with. C. Follow the chain of command of XYZ to see that her concerns are dealt with. D. Talk with a reporter from the Wall Street Journal.
answer
C. Follow the chain of command of XYZ to see that her concerns are dealt with.
question
4. The expectations gap refers to: A. The space that exists between a train coming into the station and the platform used to board the train B. The difference between what the public expects an audit to uncover and what the profession believes is the purpose of an audit C. The difference between projected earnings based on analysts' expectations and actually earnings D. The difference between what the audit sets out to discover and what it actually does discover
answer
B. The difference between what the public expects an audit to uncover and what the profession believes is the purpose of an audit
question
5. Which of the following is an element of the introductory paragraph of an auditor's report? A. Identifies the type of opinion the auditor is giving B. Identifies the entity, financial statements being audited and time period C. Identifies audit testing and procedures used D. Identifies the generally accepted auditing standards followed in conducting the audit
answer
B. Identifies the entity, financial statements being audited and time period
question
Which of the following is not an element of the auditor's responsibility of the auditor's report? A. States the auditor's responsibility to express an opinion on the financial statements B. States the audit provides reasonable assurance that the statements are free of material misstatement C. States audit provides reasonable basis for the opinion D. States the audit evaluates the overall financial statement presentation
answer
D. States the audit evaluates the overall financial statement presentation
question
7. Typically, when a going concern issue exists the auditor should: A. Issue an unmodified opinion with an emphasis-of-matter paragraph B. Explain the reasons for the going concern issue C. Indicate where management's plans to deal with the going concern are addressed D. All of these
answer
D. All of these
question
8. Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification? A. Inability to gather any sufficient relevant information to form the basis for the opinion B. Misstatements that are material and pervasive C. Going concern issue D. Misstatements that are material but not pervasive
answer
D. Misstatements that are material but not pervasive
question
9. Adverse opinions are preceded by a separate paragraph that should meet all of the following except for: A. Substantive alternative treatments of GAAP B. Substantive reasons for the adverse opinion C. Principal effect of the adverse treatment on financial position and results of operations and cash flows D. Entitled "Basis for Adverse Opinion"
answer
A. Substantive alternative treatments of GAAP
question
10. Under which of the following set of circumstances might the auditors disclaim an opinion? A. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material B. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion C. There has been a material change between periods in the method of the application of accounting principles D. Differences with management that lead to trust issues on the part of the auditor
answer
B. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion
question
11. When would it be appropriate for an auditor to withdraw from an engagement? A. In order to avoid issuing an adverse opinion. B. When that auditor cannot observe the taking of inventory or is unable to confirm receivables. C. When the auditor concludes that management cannot be trusted. D. When the auditor has overbooked too much work.
answer
C. When the auditor concludes that management cannot be trusted.
question
12. Which of the following is true about PCAOB audit standards? A. The required standards apply to all companies B. The required standards apply to all public companies only C. The required standards apply to all privately held companies only D. The required standards apply to all not-for-profit entities
answer
B. The required standards apply to all public companies only
question
13. Which of the following summarizes the essence of general standards of GAAS? A. Quality of professionals that perform an audit B. Criteria used to judge whether the audit has met quality requirements C. The standards that guide auditors in issuing the audit report D. Whether the auditor obtained sufficient competent evidential matter to render an opinion
answer
A. Quality of professionals that perform an audit
question
14. Which of the following summarizes the essence of field work standards of GAAS? A. Quality of professionals that perform an audit B. Criteria for judging the quality of audit work C. Whether the auditor was independent in conducting the audit D. Whether the auditor reviewed the client's financial statements for adherence to GAAP
answer
B. Criteria for judging the quality of audit work
question
15. Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion? A. The financial statements have followed GAAP. B. Consistency in the application of GAAP. C. Adequate disclosures exist in the statements. D. Gathering sufficient audit evidence to warrant an opinion.
answer
D. Gathering sufficient audit evidence to warrant an opinion.
question
16. Some critics claim the usefulness of the audit report is limited because: A. Auditors do not examine all of the transactions B. Language in the audit report relies on subjective evaluations such as what is meant by "reasonable" C. Transactions examined are based on materiality and risk assessment determinations D. All of these may create doubts about usefulness
answer
D. All of these may create doubts about usefulness
question
17. Which of the following is not correct about materiality? A. The concept of materiality recognizes that some matters are more important for fair presentation of financial statements B. Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments C. Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality D. An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements
answer
C. Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality
question
18. The auditors' determination of whether the financial statements "present fairly" is based on: A. Whether the users are able to assess the reliability of the financial statements B. Whether the statements have been prepared in accordance with the same GAAP used from one year to another C. Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly D. Whether the accounting principles used are appropriate in the circumstances
answer
D. Whether the accounting principles used are appropriate in the circumstances
question
19. Which of the following is not a component of internal control? A. Control environment B. Information and communication systems C. Monitoring of controls D. Independence of the audit committee
answer
D. Independence of the audit committee
question
20. The auditor's responsibility with regard to illegal acts is greatest when: A. The illegal acts have an indirect and material effect on financial statement amounts B. The illegal acts have a direct and material effect on financial statement amounts C. The illegal acts have a direct and immaterial effect on financial statement amounts D. Illegal acts exist regardless of the effects on the financial statements
answer
B. The illegal acts have a direct and material effect on financial statement amounts
question
21. The first step for an auditor who concludes an illegal act exists is to: A. Bring the matter to the attention of the audit committee B. Bring the matter to the attention of the SEC C. Assess the impact of the illegal act on the financial statements D. Assess the impact of the illegal act on the auditor's opinion
answer
C. Assess the impact of the illegal act on the financial statements
question
22. An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if the A. Auditor is precluded from obtaining sufficient competent evidence about the illegal act B. Illegal act has an effect on the financial statements that is both material and direct C. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements D. Client refuses to take the remedial steps deemed necessary by the auditors
answer
D. Client refuses to take the remedial steps deemed necessary by the auditors
question
23. The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when: A. The illegal act has a material effect on the financial statements B. Senior management and the board have not acted properly to correct for the act C. The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report D. All of these are additional requirements
answer
D. All of these are additional requirements
question
24. Auditors are responsible to detect and correct errors when they are: A. Material B. Material or immaterial C. Due to an illegal act D. Management fails to correct for the error
answer
A. Material
question
25. The auditors' responsibility to communicate findings with respect to fraud can best be summarized as: A. Communicate to the audit committee the existence of fraud but not the amount involved B. Communicate to the audit committee both material and immaterial amounts of fraud that are detected C. Communicate to the SEC the existence of fraud but not the amount involved D. Communicate to the SEC both material and immaterial amounts of fraud that are detected
answer
B. Communicate to the audit committee both material and immaterial amounts of fraud that are detected
question
26. The purpose of the fraud triangle is to identify: A. The causes of when the audit opinion should be qualified. B. To identify the causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements. C. To identify the causes of when there is a lack of independence in performing an audit. D. All of these.
answer
B. To identify the causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.
question
27. Which of the following is not part of the fraud triangle? A. Incentives B. Opportunity C. Materiality D. Rationalization
answer
C. Materiality
question
28. The difference between an error in the financial statements as compared to fraud is: A. An error is always an intentional act designed to deceive another party B. Fraud is always an intentional act designed to deceive another party C. An error always leads to a qualification of the auditors' opinion D. Fraudulent financial reporting is always material in amount
answer
B. Fraud is always an intentional act designed to deceive another party
question
29. Each of the following represents a pressure that might lead to fraud except for: A. Desire to maximize the value of stock options B. Budget pressures C. Meet financial analysts' earnings expectations D. Ability to carry out the fraud
answer
D. Ability to carry out the fraud
question
30. All of the following are in a position to commit fraud except for: A. Employees who have access to assets B. Top management who can override internal controls C. External auditors who audit the financial statements D. All of these are in a position to commit fraud
answer
C. External auditors who audit the financial statements
question
31. All of the following tend to be rationalizations for fraud except for: A. We need to protect the shareholders and keep the stock price high B. All companies use aggressive accounting techniques C. The employee will be fired unless s/he goes along with the fraud D. We are correcting a temporary problem that will not exist in the future
answer
C. The employee will be fired unless s/he goes along with the fraud
question
32. The misappropriation of assets refers to: A. The deliberate use of company assets for personal reasons B. The deliberate overstatement of financial statements C. The deliberate omission of disclosures from the statements D. All of these
answer
A. The deliberate use of company assets for personal reasons
question
33. Backdating options refers to: A. Crossing out the date of exercise on the option certificate and changing it to an earlier date when the stock price was lower B. Changing the grant date of the options to lower the exercise price and reduce reported earnings C. Granting options to employees working for the company in years prior to the granting of the options D. Changing the future exercise price to correspond market increases in the stock price
answer
B. Changing the grant date of the options to lower the exercise price and reduce reported earnings
question
34. The fraud at Tyco included each of the following acts except for: A. Benefits given to certain members of the board of directors to secure their silence about the fraud B. Corporate assets used by members of top management for personal purposes C. Setting up special-purpose-entities to keep debt off Tyco's books D. Related party transactions that were not adequately disclosed
answer
C. Setting up special-purpose-entities to keep debt off Tyco's books
question
35. Members of the audit committee are responsible for each of the following except for: A. Considering risks identified by the external auditor B. Assessing whether management has set the appropriate ethical tone for the organization C. Discussing with the external auditors financial reporting matters of concern D. Rendering an audit opinion after examining the entity's financial statements and internal controls
answer
D. Rendering an audit opinion after examining the entity's financial statements and internal controls
question
36. What is the motive behind the PCAOB Integrated Audit Concept? A. Elevation of importance of internal controls B. Improvement of the quality and integrity of both internal controls over financial reporting and independent financial statement audits C. Improvement of the speed and reliability of both corporate financial reporting and independent financial statement audits D. Elevation of importance of independent financial statement audits
answer
B. Improvement of the quality and integrity of both internal controls over financial reporting and independent financial statement audits
question
37. In an audit, the auditor has a requirement to address risk assessment with respect to: A. The design and performance of audit procedures to respond to assessed risks B. Whether the standards close the expectation gap C. The role and responsibilities of the audit committee in preventing fraud D. All of these
answer
A. The design and performance of audit procedures to respond to assessed risks
question
38. In performing risk assessment the auditor should identify the following types of misstatements: A. Known and unknown misstatements B. Likely and unknown misstatements C. Known and likely misstatements D. All material misstatements
answer
C. Known and likely misstatements
question
39. The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that: A. Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved B. The most common fraud technique involved understating expenses C. The audit committee always sanctioned the fraud D. A minority of audit reports issued during the fraud period contained unqualified audit opinions
answer
A. Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved
question
40. PCAOB Auditing Standard No.4 requires that the external auditors should take each of the following steps when reporting on whether a material weakness still exists in the internal controls except for: A. Evaluate whether management has accepted responsibility for the effectiveness of internal control B. Evaluate whether management asserts whether the controls are effective in correcting the material weakness C. Evaluate whether management has obtained sufficient evidence to support its assessment D. Evaluate whether management has conducted an audit of internal controls
answer
D. Evaluate whether management has conducted an audit of internal controls
question
41. A study conducted of financial statement restatements during the period of 2007 through 2009 indicated a decline in the number of restatements that were attributed to each of the following except for: A. Improved audits of financial statements B. Improved reliability of internal controls C. A more relaxed approach of the SEC regarding materiality and the need to file restatements D. Companies making and reporting fewer mistakes or catching fewer mistakes
answer
A. Improved audits of financial statements
question
42. An ethical dilemma for professional accountants is when a conflict exists between each of the following except for: A. The auditor and client B. Different accounting members of management C. The CEO and board of directors D. All of these
answer
C. The CEO and board of directors
question
43. If a company is seeking out views of different accounting firms until they find one with a desired accounting treatment, it would be called _____. A. Low-balling B. Under bidding C. Opinion shopping D. Option pricing
answer
C. Opinion shopping
question
44. Which is not part of the required links of the chain of command that the controller should follow to inform of a material misstatement in the financial statements? A. Audit Committee of Board of Directors B. CEO C. External auditor D. CFO
answer
C. External auditor
question
45. Which of the following is an example of opinion shopping by a company? A. Changing auditors due to the quality of work by the auditors B. Changing auditors due to wanting a different accounting treatment than required by the external auditor C. Changing auditors due to the size of the audit fees D. Changing auditors due to conflicts over the nature and scope of the audit
answer
B. Changing auditors due to wanting a different accounting treatment than required by the external auditor
question
46. In which of the following circumstances would a qualified opinion be appropriate? A. The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements. B. The statements are not in conformity with generally accepted accounting principles regarding stock options plans and has pervasive effect on the financial statements. C. The auditor has been unable to obtain sufficient competent evidential matter. D. The principal auditors decide to withdraw from the engagement due to distrust of management.
answer
A. The statements are not in conformity with generally accepted accounting principles regarding stock options plans and but does not have pervasive effect on the financial statements.
question
47. Which of the following is not true of "reasonable assurance"? A. The auditors have exercised due care B. The audit opinion is a guarantee that material misstatements have been identified C. The audit has been properly planned and supervised D. The auditors have followed GAAS
answer
B. The audit opinion is a guarantee that material misstatements have been identified
question
48. Which of the following is not a consideration in determining a measure of materiality? A. Risks of material misstatements due to fraud B. Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues C. Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues D. Importance of audit committee in the organization
answer
D. Importance of audit committee in the organization
question
49. Which of the following is not an essential area of fraud considerations assessed by the auditors? A. Assessing the possibility of fraud B. Whether management deliberatively committed fraud C. Identifying risks of fraud D. Evaluating the characteristics of fraud
answer
B. Whether management deliberatively committed fraud
question
50. PCAOB Auditing Standard No.16 require the auditor to communicate with the audit committee all but? A. Significant accounting policies and practices B. Critical accounting practices and policies C. Significant unusual transactions D. The procedures followed by the auditor in evaluating evidence
answer
D. The procedures followed by the auditor in evaluating evidence
question
51. Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with A. Objective judgment B. Professional skepticism C. Internal controls D. Due care
answer
B. Professional skepticism
question
52. The framework of COSO Enterprise Risk Management is to A. Incorporate enhanced internal control principles into enhanced corporate governance B. Incorporate enhanced audit sampling procedures in the testing of internal controls C. Incorporate enhanced corporate governance into internal control principles D. Incorporate enhanced audit sampling procedures in substantive testing
answer
C. Incorporate enhanced corporate governance into internal control principles
question
53. Which of the following is not an element of COSO Enterprise Risk Management? A. Enhancing risk response decisions B. Reducing operating surprises and losses C. Seizing opportunities D. Improving deployment of information technology
answer
D. Improving deployment of information technology
question
54. Management's attitude toward aggressive financial statement reporting and its emphasis on meeting projected profit numbers would significantly influence an entity's control environment when A. Internal auditors report to the audit committee B. The audit committee is active in overseeing the entity's financial reporting C. Management is dominated by one shareholder with little other governance D. Management does not have a stock option plan
answer
C. Management is dominated by one shareholder with little other governance
question
55. Larry is the controller of ABC Industries and has a difference of opinion on an accounting matter with the CFO. Larry is told that the very survival of the company depends on his going along with the proposed accounting treatment that has been approved by the CEO and increases earnings 20 percent above what Larry believes it should be. If Larry goes along with the CFO, he is reasoning at what stage in Kohlberg's model: A. Stage 1 B. Stage 2 C. Stage 3 D. Stage 4
answer
C. Stage 3
question
56. XYZ Company requires that its internal auditor must bring all accounting and financial reporting matters of concern to the CFO and CEO before going to the audit committee. The weakness in internal controls is most likely to lead to which element of the fraud triangle when instances of fraud occur A. Pressure B. Opportunity C. Rationalization D. Professional skepticism
answer
A. Pressure
question
57. In the Computer Associates case, each of the following allegations were made against the company except for the following: A. Backdating software contracts into the prior month B. Executing contracts with preprinted dates from prior quarter C. Misusing company resources by members of top management D. Extending quarters by at least 3 business days
answer
C. Misusing company resources by members of top management
question
58. In the ZZZZ best case, Barry Minkow was sentenced to 5 years for his involvement in A. A fraudulent insurance restoration scam B. Insider trading on Lennar stock C. Stealing from a San Diego church D. Overcharging a LA housewife for carpet cleaning services
answer
B. Insider trading on Lennar stock
question
59. In the Imperial Valley Thrift & Loan case, each of the following were reasons for the going concern issue except for: A. The magnitude of loan losses B. Insufficient equity capital C. Operating losses over an extended period of time D. Questions about the collectability of outstanding loans
answer
C. Operating losses over an extended period of time
question
60. The primary issue discussed in the Krispy Kreme case was: A. Use of special-purpose-entities to keep debt off the books B. Use of "round trip" transactions to accelerate the recording of earnings C. Internal controls over operating activities D. Internal controls over the making of doughnuts
answer
B. Use of "round trip" transactions to accelerate the recording of earnings
question
61. The Audit Client Consideration case deals with issues related to: A. Acceptance of new clients B. Issues that arise between the predecessor audit firm and the client C. Going concern issues raised by previous auditors D. All of these
answer
D. All of these
question
62. The Dunco Industries case deals with issues related to: A. The timing of revenue recognition and shipping date of merchandise B. The timing of revenue recognition and delivery date of merchandise C. The timing of expense recognition on accrual accounts D. Manual entries after the quarter's close that lacked sufficient supporting documentation
answer
A. The timing of revenue recognition and shipping date of merchandise
question
63. The First Community Bank case contained each of the following deficiencies except for: A. The loan loss reserves of the bank were understated B. The level of impairment of existing bank loans was material C. The collateral for loans was insufficient D. All of these
answer
D. All of these
question
64. The Groupon case deals with all but the following issues? A. Improperly estimated customer returns B. Improper recognition of gross revenue C. Used a new innovative metric of "Adjusted Consolidated Segment Operating Income" D. Blamed material weakness on their auditors EY
answer
B. Improper recognition of gross revenue
question
65. Fannie Mae's financial statements were investigated because of allegations that the company: A. Deferred derivative losses on the balance sheet thereby inflating profits B. Used derivatives to hid subprime loans C. Sold derivatives to increase cash flows prior to bank financing D. All of these
answer
A. Deferred derivative losses on the balance sheet thereby inflating profits
question
66. The primary accounting issue in the Royal Ahold case is: A. Fraudulent recording of revenues on sales to customers B. Fraudulent use of company resources by top management for personal purposes C. Fraudulent inflation of promotional allowances to increase operating income D. Fraudulent inflation of inventory to reduce losses on the income statement
answer
C. Fraudulent inflation of promotional allowances to increase operating income