Professional Standards MCQ – Professional Standards – The Auditing and Attestation section tests audits of issuers, nonissuers, governmental entities, not‐for‐profit entities, and employee benefit plans. In addition to audits, this section also tests other types of engagements that an accountant may be called upon to perform, such as accounting and review service engagements and attestation and assurance engagements. Each engagement requires the accountant to follow the applicable ethical guideline(s) and standard(s) for the engagement. For example, an audit engagement requires the auditor to perform the audit in accordance with generally accepted auditing standards (GAAS). These engagements and applicable standards will be covered in more detail in later modules.
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CPA Audit Reports Professional Standards MCQ
- Which of the following best describes what is meant by the term generally accepted auditing standards?
A. Measures of the quality of the auditor’s performance.
B. Procedures to be used to gather evidence to support financial statements.
C. Pronouncements issued by the Auditing Standards Board.
D. Rules acknowledged by the accounting profession because of their universal application.
Explanation:
Choice A is correct. Generally Accepted Auditing Standards (GAAS) are benchmarks used to evaluate the quality of an auditor’s performance. They serve as guidance for conducting a well-planned and properly executed audit.
Choice B is incorrect. Auditing standards and auditing procedures are not the same. While auditing procedures refer to specific actions the auditor performs, auditing standards focus on how well those actions are carried out.
Choice C is incorrect. The Auditing Standards Board (ASB) issues various pronouncements, including Statements on Auditing Standards (SASs), which help interpret GAAS. However, not every pronouncement from the ASB is related to audits or considered GAAS.
Choice D is incorrect. GAAS are not strict “rules” and do not apply universally. Instead, they represent standards for assessing the quality of an auditor’s work.
- The phrase “U.S. generally accepted accounting principles” is an accounting term that:
A. Includes broad guidelines of general application but not detailed practices and procedures.
B. Provides a measure of conventions, rules, and procedures governed by the AICPA.
C. Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time.
D. Is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).
Correct Answer: Choice C
U.S. generally accepted accounting principles (GAAP) evolve over time, and therefore, they represent the conventions, rules, and procedures that define accepted accounting practices at a specific point in time. U.S. GAAP is one of the recognized financial reporting frameworks used to prepare financial statements. Another widely accepted framework is IFRS.
Incorrect Choices: Choice A: Incorrect. U.S. GAAP literature does include detailed accounting practices and procedures.
Choice B: Incorrect. The term “U.S. generally accepted accounting principles” refers to accounting standards, not to the AICPA’s guidance. The AICPA issues Statements on Auditing Standards (SAS), which address auditing procedures, not accounting principles.
Choice D: Incorrect. The mention of “U.S. generally accepted accounting principles” in an auditor’s report indicates whether the financial statements are prepared in line with U.S. accounting standards. However, it does not confirm whether the audit was conducted in accordance with generally accepted auditing standards (GAAS).
- Which of the following terms used within standards indicates a presumptively mandatory requirement?
A. May
B. Might
C. Should
D. Must
Correct Answer: C
The word “should” signifies a presumptively mandatory requirement. This means it generally must be followed whenever applicable, unless there are exceptional circumstances. In such rare cases, deviation is allowed only if there is a valid justification, alternative procedures are adequately performed, and the departure is thoroughly documented.
Incorrect Answers: A is incorrect because “may” conveys explanatory material and does not establish a mandatory performance requirement.
B is incorrect because “might” also refers to explanatory material without setting a professional obligation.
D is incorrect because “must” implies an absolute requirement that must be followed whenever applicable.
- Which of the following provides the most authoritative guidance for the auditor of a nonissuer?
A. Specific guidance provided by an interpretation of a Statement on Auditing Standards.
B. A Journal of Accountancy article discussing implementation of a new standard.
C. General guidance provided by a Statement on Auditing Standards.
D. An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client’s industry.
Correct Answer: C
General guidance issued through a Statement on Auditing Standards (SAS) represents the highest level of authoritative guidance for audits of nonissuers. Auditors are required to follow SASs and must be ready to justify any deviations from them.
Incorrect Answers: B: Articles from the Journal of Accountancy do not carry any authoritative weight, though they can offer useful insights.
A and D: AICPA audit and accounting guides and SAS interpretations are considered interpretive publications. While they offer guidance on applying SASs in specific contexts, they are not as authoritative as the SASs themselves.
- An auditor of a non issuer must conduct the audit in accordance with:
I. ASB standards.
II. PCAOB standards.
A. II.
B. Either I or II, but not both.
C. Both I and II.
D. I.
Explanation
Choice “D” is correct. An auditor of a nonissuer must conduct the audit in accordance with ASB standards.
Choice “A” is incorrect. An auditor of a nonissuer is not required to conduct the audit in accordance with PCAOB standards.
Choice “B” is incorrect. While an auditor is only required to conduct the audit in accordance with ASB standards, the auditor may choose to follow PCAOB standards as well.
Choice “C” is incorrect. An auditor of a nonissuer is not required to conduct the audit in accordance with PCAOB standards.
- Which of the following best describes an auditor’s responsibility regarding the Statements on Auditing Standards (SAS)?
A. The auditor is generally expected to comply with the guidance outlined in the Standards and must be able to justify any deviations.
B. The auditor is generally expected to follow the guidance in the Standards, except when doing so would make the audit not cost-effective.
C. The auditor must adhere strictly to the Standards at all times, with no exceptions.
D. The auditor is expected to follow the Standards they are aware of, but will not be held accountable for not following those they did not know about.
Explanation
Choice A is correct. Auditors are generally expected to comply with the guidance outlined in the Standards, and any deviations must be properly justified.
Choice B is incorrect. The cost of complying with a Statement on Auditing Standards (SAS) does not justify disregarding its guidance.
Choice C is incorrect. While departures from SAS guidance may occasionally occur, they are rare and must be supported with valid justification.
Choice D is incorrect. Being unfamiliar with a SAS is not an acceptable reason for failing to follow its guidance. Auditors are responsible for being sufficiently knowledgeable about the relevant SASs for each audit engagement.
- Which of the following provides the most authoritative guidance for an audit of an issuer?
A. General guidance provided by the Public Company Accounting Oversight Board Auditing Standards.
B. An article in the AICPA CPA Letter addressing frequently asked questions on a new auditing standard.
C. Specific guidance provided by the Statement on Auditing Standards.
D. Audit disclosure checklists obtained from a continuing professional education class.
Explanation – Explanation
Choice “A” is correct. General guidance provided by the Public Company Accounting
Oversight Board Auditing Standards is the most authoritative level of auditing guidance for audits of issuers.
Choice “B” is incorrect. The AICPA CPA Letter has no authoritative status.
Choice “C” is incorrect. Guidance provided by the Statement on Auditing Standards is the most authoritative level of auditing guidance for non issuers.
Choice “D” is incorrect. Information obtained from a continuing professional education class has no authoritative guidance.
- When a PCAOB auditing standard indicates that an auditor “could” perform a specific procedure, how should the auditor decide whether and how to perform the procedure?
A. By evaluating whether the audit is likely to be subject to inspection by the PCAOB.
B. By soliciting input from the issuer’s audit committee.
C. By exercising professional judgment in the circumstances.
D. By comparing the PCAOB standard with related AICPA auditing standards.
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Correct Answer: Choice C
The terms “may,” “might,” and “could” refer to actions or procedures that auditors are expected to consider. These matters warrant the auditor’s attention and understanding. Whether and how the auditor incorporates them into the audit is determined by professional judgment, in alignment with the objectives of the relevant standard.
Incorrect Answers:
Choice D: The word “could” does not imply that the auditor is required to compare PCAOB standards to related AICPA standards.
Choice A: The possibility of the audit being reviewed by the PCAOB should not influence the auditor’s decision to perform a specific procedure.
Choice B: Auditors should not seek input from the issuer’s audit committee when determining audit procedures. These decisions fall solely within the auditor’s professional responsibility.
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