Auditing and Assurance Services, 17e (Arens/Elder/Beasley)

Chapter 1 The Demand for Audit and Other Assurance Services

1.1 Learning Objective 1-1

1) In the auditing process,

A) the types and amounts of evidence remain constant from audit to audit.
B) the criteria for evaluating information will not vary depending on the information being
audited.
C) the audit report communicates the auditor's findings to users.
D) records are gathered by the auditor to determine whether the audited information is stated in
accordance with SEC standards.

Terms: Audit process

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

2) Which of the following is considered audit evidence?

A)
Oral statements Written Auditor
made by management Communications Observations
Y N N

B)
Oral statements Written Auditor
made by management Communications Observations
N Y Y

C)
Oral statements Written Auditor
made by management Communications Observations
Y Y Y

D)
Oral statements Written Auditor
made by management Communications Observations
N N Y

Terms: Audit evidence

Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

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3) Which of the following can be used as a criterion for evaluating information being audited?
A) International Financial Reporting Standards (IFRS)
B) Generally Accepted Accounting Principles (GAAP)
C) Internal Revenue Code (IRC)
D) all of the above

Terms: Criteria by which an auditor evaluates information

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

4) Auditors do not provide which of the following?

A) assurance on financial statements
B) assurance on the effectiveness of internal controls over financial reporting
C) assurance on corporate sustainability reports
D) absolute assurance on the financial statements including assuming responsibility for them

Terms: Nature of Objectives of Auditing

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

5) The accumulation and evaluation of evidence about information to determine and report on
the degree of correspondence between the information and some established criteria is defined as
A) accounting.
B) financial reporting.
C) tax reporting.
D) auditing.

Terms: Definition of auditing

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

6) The criteria by which an auditor evaluates the information under audit may vary with the
information being audited.
True

Terms: Criteria by which an auditor evaluates information

Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

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7) One criterion used by an external auditor to evaluate published financial statements is known
as generally accepted auditing standards.
False because One criterion used by an external auditor to evaluate published financial
statements is known as generally accepted accounting standards.

Terms: Criteria used by external auditor to evaluate published financial statements

Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

8) Auditors strive to maintain a high level of independence to keep the confidence of users
relying on their reports.
True

Terms: Independence
Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

9) To perform an audit, there must be information in a verifiable form and some criteria by
which the auditor can evaluate the information.
True

Terms: Independence
Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

10) An auditor must be competent and have an independent mental attitude.

True

Terms: Criteria used by external auditor to evaluate published financial statements

Difficulty: Easy
Objective: LO 1-1
AACSB: Reflective thinking

11) Auditors are not allowed and should not audit subjective information like the effectiveness
of computer controls or the efficiency of manufacturing-related operations.
False (Auditors are allowed…)

Terms: Information and Established Criteria for the Performance of Audits

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

12) In an audit of internal controls over financial reporting, the auditor may rely upon Internal
Control - Integrated Framework issued by COSO.
True
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Terms: Information and Established Criteria for the Performance of Audits
Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

13) In circumstances where the auditor is being asked to audit subjective types of information,
typically, the auditor and the entities being audited should agree in writing about the criteria
being audited after the audit starts.
False (thống nhất tiêu chí trước khi conducting the audit…)

Terms: Information and Established Criteria for the Performance of Audits

Difficulty: Moderate
Objective: LO 1-1
AACSB: Reflective thinking

14) Evidence is paramount to audit and attestation engagements. List the four basic types of audit
evidence.
Oral statements Written Auditor Analytical
made by management Communications Observations procedures

1.2 Learning Objective 1-2

1) Recording, classifying, and summarizing economic events in a logical manner for the purpose
of providing financial information for decision making is commonly called
A) finance.
B) auditing.
C) accounting.
D) economics.

Terms: Recording, classifying, and summarizing economic events

Difficulty: Easy
Objective: LO 1-2
AACSB: Reflective thinking

2) An accountant
A) must possess expertise in the accumulation of audit evidence.
B) must decide the number and types of items to test.
C) must have an understanding of the principles and rules that provide the basis for preparing the
accounting information.
D) must be a CPA.

Terms: Distinguishes auditors from accountants

Difficulty: Moderate
Objective: LO 1-2
AACSB: Reflective thinking
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3) When auditing accounting data, auditors focus on
A) determining whether recorded information properly reflects the economic events that
occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.

Terms: Auditing financial accounting data primary concern

Difficulty: Moderate
Objective: LO 1-2
AACSB: Reflective thinking

4) The trait that distinguishes auditors from accountants is the

A) auditor's ability to interpret accounting principles generally accepted in the United States.
B) auditor's education beyond the bachelor's degree.
C) auditor's ability to interpret FASB Statements.
D) auditor's expertise in the accumulation and the interpretation of audit evidence.

Terms: Distinguishes auditors from accountants

Difficulty: Challenging
Objective: LO 1-2
AACSB: Reflective thinking

5) Auditors focus on determining whether recorded information properly reflects the economic
events that occurred during the accounting period.
True

Terms: Roles of accountants and auditors

Difficulty: Easy
Objective: LO 1-2
AACSB: Reflective thinking

6) Both accountants and auditors must possess expertise in the accumulation and interpretation
of audit evidence.
False. Bc just only auditors
Terms: Roles of accountants and auditors
Difficulty: Moderate
Objective: LO 1-2
AACSB: Reflective thinking

7) Accountants are not directly responsible for developing a system that ensures the entity's
economic events are properly recorded on a timely basis and at a reasonable cost.
False bc accountants are directly responsible

Terms: Roles of accountants and auditors

Difficulty: Moderate
Objective: LO 1-2
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AACSB: Reflective thinking

8) Financial statement users do not confuse auditing with accounting any longer.
False bc they do confuse auditing
Terms: Roles of accountants and auditors
Difficulty: Moderate
Objective: LO 1-2
AACSB: Reflective thinking

9) Discuss the differences and similarities between the roles of accountants and auditors. What
additional expertise must an auditor possess beyond that of an accountant?
Differences Similarities
What to focus A thorough understand of
Accountant: principles
Record and classify ->
decision making
Auditor:
Determine whether record
transactions relected truth
-accumulating and interpreting audit evidence

1.3 Learning Objective 1-3

1) ________ risk reflects the possibility that the information upon which the business decision
was made was inaccurate.
A) Client acceptance
B) Information
C) Business
D) Control

Terms: Risk that reflects the possibility that information upon which business risk decision was
made
Difficulty: Moderate
Objective: LO 1-3
AACSB: Reflective thinking

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2) The possibility that a business may not be able to repay a bank loan because of an economic
downturn is referred to as
A) materiality risk.
B) information risk.
C) interest rate risk.
D) business risk.(financial risk)

Terms: Business risk

Difficulty: Moderate
Objective: LO 1-3
AACSB: Reflective thinking

3) A bank loan officer is trying to decide whether the bank should make a loan to a particular
company. The interest rate the bank will charge the company is determined by many factors.
Which of the following factors is influenced by the auditor's report?
A) the risk-free interest rate risk
B) information risk
C) the business risk for/of the customer
D) All of the above are influenced by the auditor's report.

Terms: Interest rate risk/factor influenced by auditor's report

Difficulty: Moderate
Objective: LO 1-3
AACSB: Reflective thinking

4) Auditing can have a significant effect on both information risk and business risk.
False bc auditing can have a significant effect on just information risk

Terms: Business risk and information risk

Difficulty: Moderate
Objective: LO 1-3
AACSB: Reflective thinking

1.4 Learning Objective 1-4

1) A correct relationship among the auditor, the client, and the external users is
A) management of a public company hires the independent auditor. (with private company – cty
TNHH, cty nhỏ: management hires independent auditor (thường cty nhỏ k có committee, mqh
cost-benefit khi thiết lập internal control), public comp: audit commitee hires independent
auditor để đảm bảo tính độc lập vì với cty public cần có ủy ban kiểm toán (non executive
directors) cùng quyết định xem việc thuê kiểm toán phục vụ cho mục đích riêng hay chung) –
corporate governance
B) the audit committee of a private company hires the independent auditor.
C) the client provides capital to the external users. (ngược lại)
D) the external users can rely upon the auditor's report to reduce information risk.

Terms: Relationships among auditor, client, and external users

Difficulty: Moderate
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Objective: LO 1-4
AACSB: Reflective thinking

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2) The most common way for users to obtain reliable information is to
A) have an internal audit.
B) have an independent audit.
C) verify all information individually.
D) verify the information with management.

Terms: Obtain reliable information

Difficulty: Moderate
Objective: LO 1-4
AACSB: Reflective thinking

3) External users of the financial statements

A) value the auditor's report because of the auditor's independence from the client.
B) look to the auditor's report as an indication of the statements' reliability.
C) use the audited information on the assumption that it is reasonably complete, accurate, and
unbiased.
D) all of the above.

Terms: Relationships among auditor, client, and external users

Difficulty: Easy
Objective: LO 1-4
AACSB: Reflective thinking

4) Which of the following is not a cause of information risk?

A) Society, today, is not as complex as it used to be.
B) Remoteness of information.
C) The volume and the complexity of data and exchange transactions.
D) The biases and the motives of the information provider.

Terms: Causes of Information Risk

Difficulty: Easy
Objective: LO 1-4
AACSB: Reflective thinking

5) Large businesses, especially, have the ability to reduce information risk. Which of the
following is not a way for a large business to reduce information risk?
A) Paying higher interest rates on loans.
B) The user verifies the information they need by any possible means.
C) The user of information shares information risk with management.
D) Having an independent audit performed of the financial statements.

Terms: Causes of Information Risk

Difficulty: Moderate
Objective: LO 1-4
AACSB: Reflective thinking

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6) As society becomes more complex, decision makers are more likely to receive reliable
information.
False as society becomes more complex, decision makers are more likely to receive unreliable
information.

Terms: Reducing information risk

Difficulty: Easy
Objective: LO 1-4
AACSB: Reflective thinking

7) Management is required by GAAP to reduce information risk, even if the costs outweigh the
benefits.
False management is required by GAAP to reduce information risk, unless the costs outweigh
the benefits.
VD: nếu chi phí để làm việc giúp reduce IR quá lớn, vượt quá benefit nó mang lại thì chịu v
Terms: Reducing information risk
Difficulty: Moderate
Objective: LO 1-4
AACSB: Reflective thinking

8) Explain what is meant by information risk, and list the four causes of this risk.
Remoteness of information.
The volume of data and exchange transactions.
The complexity of data and exchange transactions.
The biases and the motives of the information provider.

1.5 Learning Objective 1-5

1) In the audit of historical financial statements, management asserts that the financial statements
are fairly stated in accordance with what standards?
A) regulatory accounting principles
B) applicable international accounting standards
C) applicable U.S. accounting standards
D) B and C
Nếu có đáp án all of the above thì chọn ló

Terms: Audit of historical financial statements

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

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2) Any service that requires a CPA firm to issue a report about the reliability of an assertion that
is made by another party is a(n)
A) accounting and bookkeeping service.
B) attestation service. (dvu xác nhận lại khẳng định của bên khác) phát hành báo cáo về độ tin
cậy của một khẳng định do bên khác đưa ra, đây chính là dịch vụ xác nhận và written report is
required là yếu tố qtrong để xác định đó có p là attestation service.
C) assurance service.
D) tax service.

Terms: Assurance services

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

3) Three common types of attestation services are

A) audits of historical financial statements, reviews of historical financial statements, and audits
of internal control over financial reporting.
B) audits of historical financial information, verifications of historical financial information, and
attestations regarding internal controls.
C) reviews of historical financial information, verifications of future financial information, and
attestations regarding internal controls.
D) audits of historical financial information, reviews of controls related to investments, and
verifications of historical financial information. (verification ko yêu cầu written report)

Terms: Types of attestation services

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

4) Which of the following services provides the lowest level of assurance on a financial
statement?
A) review (limited assurance-lower level-negative form)
B) audit (reasonable assurance-higher level-positive form)
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.

Terms: Service provides lowest level of assurance on a financial statement

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

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5) Which of the following is an accurate statement regarding assurance services?
A) Assurance services must be performed by a CPA. (not necessarily)
B) An attestation service is not a type of assurance service. (it is)
C) Assurance services improve the quality of information for decision makers.
D) Assurance services can only be performed on financial data. (On any others)

Terms: Assurance services

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

6) Audits
A) are an assurance service, but not an attestation service. (audit chắc chắn là 1 attestation)
B) are designed to provide absolute assurance that the financial statements are free of material
misstatement. (chỉ provide reasonable assurance)
C) are required for publicly traded companies in the United States.
D) do not require the auditor to express their opinion in a written report. (do require)

Terms: Audit assurance

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

7) A high, but not absolute, level of assurance is called

A) probable assurance.
B) reasonable assurance.
C) limited assurance.
D) incomplete assurance.

Terms: Reasonable assurance

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

8) Which of the following is an accurate statement regarding the various types of other assurance
services?
A) Assurance services must be about the reliability of another party's assertion about compliance
with specified criteria. (cái này là attestation)
B) Other assurance services must meet the definition of an attestation service. (not necessarily,
While attestation services are a subset of assurance services, not all assurance services fall under
the definition of attestation services. Assurance services can also include other types of
engagements, such as consulting services that improve the quality of information without
necessarily being attestation engagements.)
C) The primary purpose of a management consulting engagement is to improve the quality of
information. (The primary purpose of management consulting engagements is typically to
provide advice and support to improve business processes, operations, and overall performance.)
D) The market for other forms of assurance services is open to non-CPA competitors (ko p cong
ty kiem toan-công chứng viên, luật sư) . (While CPA firms provide many assurance services,
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other types of assurance services, such as certain types of consulting or risk management
services, may be provided by non-CPA professionals or firms, depending on the specific nature
of the service and regulatory requirements.)

Terms: Assurance services

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

9) CPA firms are never allowed to provide bookkeeping services for clients.
False, CPA firms are allowed except that CPA firm used to do some assurance services for
clients before.

Terms: CPA services provided to clients

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

10) Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor
attest to their internal control over financial reporting. (Mục 404 của Đạo luật Sarbanes-Oxley
yêu cầu các công ty đại chúng phải có một kiểm toán viên bên ngoài chứng thực về khả năng
kiểm soát nội bộ của họ đối với báo cáo tài chính.)
True (vietstock)

Terms: Section 404 of the Sarbanes-Oxley Act

Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

11) Most public companies audited financial statements are available on the SEC's EDGAR
database.
True (ko can bit)
Terms: Public companies audited financial statements: SEC's EDGAR database
Difficulty: Moderate
Objective: LO 1-5
AACSB: Reflective thinking

12) The primary purpose of a management consulting engagement is to generate a

recommendation to management.
True

Terms: Nonassurance services provided by CPAs; management consulting

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

13) The primary purpose of a management consulting engagement is to generate a

recommendation to management.
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Terms: Nonassurance services provided by CPAs; management consulting
Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

14) Audits and some types of attestation services are no longer limited by regulation to licensed
CPAs.
False bc still be limited. (vẫn p có chứng chỉ)

Terms: Who can provide audits and certain types of attestation services
Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

15) Evaluating internal controls at third-party service providers, such as cloud computing
suppliers, is not an attestation type of service which a CPA is allowed to perform today.
Đánh giá các biện pháp kiểm soát nội bộ tại các nhà cung cấp dịch vụ bên thứ ba, chẳng hạn như
nhà cung cấp điện toán đám mây, không phải là loại dịch vụ chứng nhận mà CPA được phép
thực hiện hiện nay.
False bc it may be an attestation type (audit yêu cầu 2 văn bản 1 là internal control có effective
hay ko và 2 là báo cáo tài chính có trung thực hợp lí hay k)
Terms: Who can provide other types of attestation services
Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

16) It is increasingly important for companies to ask their third-party service provider of
services, including payroll and other types of transaction processing, for attestation reports
covering a review of the effectiveness of internal controls in place at the third-party service
provider.
True bc the good statement about the comp is said by another parties so it is more reliable

Terms: Who can provide other types of attestation services

Difficulty: Easy
Objective: LO 1-5
AACSB: Reflective thinking

17) Two types of attestation services provided by CPA firms are audits and reviews. Discuss the
similarities and differences between these two types of attestation services. Which type provides
the least assurance? (gtrinh)
Similarities Differences
Đều là Audit: reasonable assurance, higher level of assurance, positive form
attestation Reviews: limited assurance, lower level of assurance, negative form

Review provides the least assurance.

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18) What is an audit of internal control over financial reporting?

19) What are the four categories of attestation services?

Audits of historical financial statements, reviews of historical financial statements, and audits of
internal control over financial reporting, công chứng

20) CPA firms perform numerous services that generally fall outside the scope of assurance
services. Give three examples of such services.
Non-assurance services: bookeeping, consultant serving, …

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1.6 Learning Objective 1-6

1) One objective of an operational audit is to

A) determine whether the financial statements fairly present the entity's operations.
B) determine if the auditee is in compliance with GAAP.
C) make recommendations for improving performance.
D) report on the entity's relative success in attaining profit maximization.

Terms: Objective of operational audit

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

2) An examination of part of an organization's procedures and methods for the purpose of

evaluating efficiency and effectiveness is what type of audit?
A) operational audit
B) compliance audit
C) financial statement audit
D) production audit

Terms: Examination of part of an organization's procedures and method to evaluate efficiency

and effectiveness
Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

3) An audit to determine whether an entity is following specific procedures or rules set down by
some higher authority is classified as a(n)
A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.

Terms: Audit to determine whether entity followed specific procedures or rules

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

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4) Which one of the following is more difficult to evaluate objectively?
A) presentation of financial statements in accordance with generally accepted accounting
principles
B) compliance with government regulations
C) efficiency and effectiveness of operations
D) All three of the above are equally difficult.

Terms: Most difficult to evaluate objectively

Difficulty: Challenging
Objective: LO 1-6
AACSB: Reflective thinking

5) Which of the following audits can be regarded as generally being a compliance audit?
A) IRS agents' examinations of taxpayer returns
B) GAO auditor's evaluation of the computer operations of governmental units
C) an internal auditor's review of a company's payroll authorization procedures
D) a CPA firm's audit of a public company

Terms: Compliance audit

Difficulty: Challenging
Objective: LO 1-6
AACSB: Reflective thinking

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6) Which of the following are required to have a written report regarding the assertion of another
party?
A)
Financial
Statement Operational Compliance Attestation Assurance
Audit Audit Audit Engagement Engagement
Y Y Y Y Y

B)
Financial
Statement Operational Compliance Attestation Assurance
Audit Audit Audit Engagement Engagement
Y Y Y Y N

C)
Financial
Statement Operational Compliance Attestation Assurance
Audit Audit Audit Engagement Engagement
Y Y Y N N

D)
Financial Operational Compliance Attestation Assurance
Statement Audit Audit Engagement Engagement
Audit
N N N Y Y

Terms: Required to have a written report

Difficulty: Challenging
Objective: LO 1-6
AACSB: Reflective thinking

7) In a financial statement audit, the auditor

A) gathers evidence to determine whether the statements contain material errors or other
misstatements.
B) must have a thorough understanding of the entity and its environment.
C) determines whether the financial statements are stated in accordance with specified criteria.
D) all of the above.

Terms: Audit of historical financial statements

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

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8) Which of the following is not an example of a compliance audit?
A) The accounting personnel at the Chinese subsidiary following the financial statement
preparation procedures prescribed in writing by the corporate controller.
B) Is the company paying the minimum wage rates required by state laws?
C) Determine if a company is meeting the financial covenants of a loan agreement with its
lenders.
D) Is the computerized processing of payroll at the Indian subsidiary operating effectively and
efficiently?

Terms: Examples of compliance audits

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

9) The primary purpose of a compliance audit is to determine whether the financial statements
are prepared in compliance with generally accepted accounting principles.
F =>

Terms: Compliance audit

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

10) Results of compliance audits are typically reported to the company's management rather than
to a broad spectrum of outside users.
T

Terms: Compliance audit

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

11) An integrated approach to auditing considers both the risk of misstatements and operating
controls intended to prevent misstatements. T

Terms: Audit of historical financial statements; integrated approach

Difficulty: Moderate
Objective: LO 1-6
AACSB: Reflective thinking

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12) Discuss the similarities and differences between financial statement audits, operational
audits, and compliance audits. Give an example of each type.

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13) To perform an audit, it is necessary for the information to be in a verifiable form and there
must be some criteria by which the auditor can evaluate the information. Detail the information
and criteria that would be used when
(A) an independent CPA firm audits a company's historical financial statements.
(B) an Internal Revenue Service auditor audits that same company's tax return.
(C) an internal auditor performs an operational audit to evaluate whether the company's
computerized payroll processing system is operating efficiently and effectively. (cost-benefit)

1.7 Learning Objective 1-7

1) Internal auditors
A) must be independent of the entity that employs them.
B) report to the accounting department.
C) are employed by all types of organizations.
D) must be CPAs.

Terms: Internal audit

Difficulty: Moderate
Objective: LO 1-7
AACSB: Reflective thinking

2) Which type of auditor audits the financial information prepared by various federal government
agencies before it is submitted to Congress?
A) internal auditor
B) revenue agent
C) independent auditor
D) GAO auditor

Terms: Types of auditors

Difficulty: Easy
Objective: LO 1-7
AACSB: Reflective thinking

3) The primary role of the United States General Accounting Office is the enforcement of the
Federal tax laws as defined by Congress and interpreted by the courts. F

Terms: Primary role of United States General Accounting Office

Difficulty: Moderate
Objective: LO 1-7
AACSB: Reflective thinking

4) CPA firms are often called and thought of by outsiders as external auditors, independent
auditors, or internal auditors. F

Terms: Primary role of CPA firms

Difficulty: Easy
Objective: LO 1-7
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AACSB: Reflective thinking

5) Compliance is a secondary objective of audits performed by the GAO of the financial

information prepared by the various Federal government agencies before that information is
submitted to Congress. F

Terms: Primary role of the GAO

Difficulty: Moderate
Objective: LO 1-7
AACSB: Reflective thinking

6) The GAO reports to the Public Company Accounting Oversight Board, which reports to the
Securities and Exchange Commission. F

Terms: GAO reports to and is responsible only to Congress

Difficulty: Moderate
Objective: LO 1-7
AACSB: Reflective thinking

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7) Match the engagement described to the (A) type of audit and (B) auditor that would most
likely perform the engagement. Each engagement will have an answer from List-A and List-B.
An answer can be used once, more than once, or not at all.

List A - Type of Audit: List B - Type of Auditor:

a. Financial Statement d. Internal
b. Compliance e. External
c. Operational f. Government
g. IRS

Engagement:
1. Evaluate a company's payroll processing for economy of scale. C
2. Evaluate/determine if bank covenants are being met. B D
3. Evaluate financial statements that are to be submitted to a bank. A E
4. Evaluate the promptness of materials inspection in a manufacturer's receiving department. C D
5. Determine if Medicare reimbursements are in accordance with the Healthcare Financing
Administration (HCFA). B F
6. Determine if the tax return of a multinational corporation is in accordance with the tax code. B
G
7. Determine if a public school is properly applying their reimbursement for the payment-in-kind
program. B E D
8. Determine the effectiveness of a Department of Defense project. C F

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8) Discuss the similarities and differences between the roles of independent auditors, GAO
auditors, internal revenue agents, and internal auditors.

1.8 Learning Objective 1-8

1) The three requirements for becoming a CPA include all but which of the following?
A) uniform CPA examination requirement
B) education requirements
C) character requirements
D) experience requirement

Terms: Requirements for becoming a CPA

Difficulty: Moderate
Objective: LO 1-8
AACSB: Reflective thinking

2) The use of the Certified Public Accountant title is regulated by

A) the federal government.
B) state law through the licensing departments of each state.
C) the American Institute of Certified Public Accountants through the licensing departments of
the tax and auditing committees.
D) the Securities and Exchange Commission.

Terms: Certified Public Accountant title

Difficulty: Moderate
Objective: LO 1-8
AACSB: Reflective thinking

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3) The AICPA completed a significant revision of the CPA examination effective April 1, 2017.
In total, the CPA Examination has four sections, and the total number of hours these four
sections involve when taking the Examination is
A) 16 hours, 4 hours for each section.
B) 20 hours, 5 hours for each section.
C) 16 hours, 5 hours each for two of the sections, 3 hours for the other two sections.
D) 20 hours, 6 hours for two of the sections, 4 hours for the other two sections.

Terms: Structure of the CPA Examination

Difficulty: Moderate
Objective: LO 1-8
AACSB: Reflective thinking

4) List and discuss the three primary requirements to become a CPA.

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