The underlying reason for a code of professional conduct for any profession is:
The need for public confidence in the quality of service of the profession
It provides a safeguard to keep unscrupulous people out
It is required by federal legislation
It allows licensing agencies to have a yardstick to measure deficient behavior
Because of legal liability and loss of professional reputation most auditors are concerned about
Status- quo auditing
None of the other options
Money Laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities, allowing them to maintain control over the proceeds. In which order is money laundered:
Placement, integration and layering
Placement, layering and integration
Layering, integration and placement
Integration, placement and layering
The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:
In accordance with generally accepted auditing standards.
As effectively as reasonably possible.
In a timely manner.
Only after an adequate investigation of the management team
Which of the following statements is the most correct regarding errors and fraud?
An error is unintentional, whereas fraud is intentional.
Frauds occur more often than errors in financial statements.
Errors are always fraud and frauds are always errors
Auditors have more responsibility for finding fraud than errors.
Which of the following statements is true with respect to audit committees?
Audit committee members should consist of members of the company's management.
All members of the audit committee must be financial experts.
Increase public confidence in the credibility and objectivity of financial statements.
Audit committees must have a minimum of ten members.
The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to:
Provide reasonable assurance that material misstatements will be detected.
Be a guarantor of the fairness in the statements.
Be equally responsible with management for the preparation of the financial statements.
Be an insurer of the fairness in the statements.
The members of a client's "audit committee" should be:
Members of management.
Directors who are not a part of company management.
Non-directors and non-managers.
Directors and managers.
When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership:
In all circumstances.
Only for direct ownership.
Only for indirect ownership.
Under no circumstances.
Relevant safeguard(s) against a financial interest in a client could be through:
Disposing of the client
Removing the relevant individual from the assurance team
Informing the audit committee of the situation
All of the above
An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
Plan and perform the engagement with an attitude of professional scepticism.
Not rely on internal controls that are designed to prevent or detect errors or fraud.
Design audit tests to detect unrecorded transactions.
Extend the work to audit the majority of the recorded transactions and records of an entity.
If an auditor discovers fraud, an auditor should:
Conduct further investigations
Approach the appropriate level of management
Consider withdrawing from the audit if the fraud is significant
All of the above
When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor:
Should inquire of management about whether the entity is in compliance with such laws and regulations.
Has no responsibility to determine if any violations of these laws has occurred.
Must report all violations, including inconsequential violations, to the audit committee.
Should perform the same procedures as for violations having a direct effect on the financial statements.
Which of these issues relating to good engagement performance should be addressed in an audit firm's procedures manual
All of the above
According to ISQC 1, when considering whether to accept an engagement with a new or existing client auditors, the auditors must consider whether a....................arises?
Conflict of interest
All of the following factors influence the continuance of an existing auditor-client relationship except:
The balance of client fees owed
Pending litigation between client and auditor
Inability to obtain a management representations letter
Which of the following statements is usually true?
Materiality is easy to quantify.
Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management.
Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement.
An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements.
The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:
Tests of controls.
Tests of transactions.
Understanding the entity's internal control.
The assessment of whether to accept the audit engagement.
When an auditor believes that an illegal act may have occurred, the auditor should first:
Obtain an understanding of the nature and circumstances of the act.
Consult with legal counsel or others knowledgeable about the illegal act.
Discuss the matter with the audit committee.
Withdraw from the engagement.
Which of the following is the auditor least likely to do when aware of an illegal act?
Discuss the matter with the client's legal counsel.
Obtain evidence about the potential effect of the illegal act on the financial statements.
Contact the local law enforcement officials regarding potential criminal wrongdoing.
Consider the impact of the illegal act on the relationship with the company's management.
Which of the following is a factor that relates to incentives to misappropriate assets?
Management's practice of making overly aggressive forecasts.
High turnover of accounting, internal audit and information technology staff.
Auditor's need to exhibit professional scepticism when auditing a client. This auditing standard is best expressed by which of the following?
The auditor neither assumes dishonesty or honesty of management
The auditor assumes dishonesty of management
The auditor assumes honesty of management
The auditor assumes management lacks integrity
While performing their audit, the audit team uncovers fraud that is likely to have an immaterial affect on the financial statements taken as whole. In this case the auditors should:
Plan on additional audit procedures to determine the exact amount of the fraud.
Communicate with legal authorities as to the identity of the fraudsters.
Disclose the fraud to the appropriate level of management or to the audit committee.
Call the whistleblower hotline and name the suspected individuals.
Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?
Audit committee members
Committee of Sponsoring Organizations
Qualitative factors can affect an auditor's assessment of materiality. Which of the following statements is true?
I. Misstatements that are otherwise immaterial may be material if they affect earnings trends.
II. Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.
I and II
Neither I nor II
When dealing with audit risk:
Auditors accept some level of risk in performing the audit function.
Most risks that auditors encounter are relatively easy to measure.
The audit risk model is only used for classes of transactions.
Most audit firms prefer to use a quantitative assessment for risk
The major limitation of using the audit risk model is the:
Objective nature of its components
There is no limitation to the model
Application of the model
Subjective nature of its components
Which of the following is least likely to uncover fraud?
When a group auditor uses the work of a component auditor he must document:
The professional qualifications, independence and professional competence of the other auditor
Procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate is all the consideration necessary
The impact of internal controls on the work of the other auditor
The audit area in which the work was performed by the other auditor