Which of the following is false regarding the audit report?

An adverse opinion is required if fraud is discovered on the audit.

PCAOB Auditing Standard 5 requires the audit of internal control to be integrated
with the audit of the financial statements.
The standard unqualified audit report is sometimes called a clean opinion because
there are no circumstances requiring a qualification or modification of the auditors
opinion.
A qualified audit opinion can occur from a scope limitation.
Which of the following is false regarding the review of subsequent events?
The auditor can choose to obtain a management representation letter if deemed
necessary.
Certain subsequent events could require an adjustment in the financial statements
Some subsequent events may require footnote disclosure.
The auditor must review transactions and events that occurred after the balance
sheet date to determine whether any of these transactions or events affect the fair
presentation or disclosure of the current period statements.
Which of the following is false regarding audit planning?
A clear understanding of the terms of the engagement should exist between the
client and the CPA firm in an engagement letter.
Acceptable audit risk is a measure of how willing the auditor is to accept that the
financial statements may be materially misstated after the audit is completed and an
unqualified opinion has been issued.
The auditor is a primary source for identifying client business risks.
The corporate minutes are the official record of the meetings of the board of
directors and stockholders.
Which of the following is false regarding the audit risk model?
Acceptable audit risk is a measure of how willing the auditor is to accept that the
financial statements may be materially misstated after the audit is completed and an
unqualified opinion has been issued.
The inclusion of business risk in the audit risk model is one of the most important
concepts in auditing.

Planned detection risk is the risk that audit evidence for an audit objective will fail
to detect misstatements exceeding performance materiality.
The audit risk model helps auditors decide how much and what types of evidence to
accumulate for each relevant audit objective.
Which of the following is false regarding legal liability?
The SarbanesOxley Act greatly increases the responsibilities of public companies
and their auditors.
The Securities Act of 1933 deals only with the reporting requirements for
companies issuing new securities.
The Ultramares doctrine proved absence of causal connection.
The lack of duty to perform the service means that the CPA firm claims that there
was no implied or expressed contract.
Which of the following is false regarding final evidence accumulation?
Auditing standards require the auditor to evaluate going concern for at least six
months after the balance sheet date.
If supplementary information is presented, the auditor must clearly distinguish their
audit and reporting responsibilities.
Auditing standards require the auditor to perform analytical procedures during the
completion of the audit.
Auditing standards suggest four categories of specific matters that should be
included in the management representation letter.
The existence assertion concerns whether recorded transactions included in the financial
statements actually occurred.
True
False
Which of the following is false regarding the SEC and the PCAOB?
The SEC requires all public companies to file a 10-K annually.
The SEC has considerable influence in setting GAAP.
The PCAOB was responsible for establishing the SEC.

The SEC oversees the conduct of public companies.

The audit risk model formula can be written: PDR = AAR/IR x CR
True
False
Which of the following is false regarding preliminary analytical procedures?
Common size financial statements are considered more substantive in nature than
analytical procedures.
Auditors perform preliminary analytical procedures to better understand the clients
business and to assess client business risk.
In identifying areas of specific risk, the auditor is likely to focus on the liquidity
activity ratios.
The usefulness of analytical procedures as audit evidence depends significantly on
the auditor developing an expectation.
Which of the following is false regarding audit objectives?
The auditors transaction related audit objectives are very different from
managements assertions about classes of transactions.
Management assertions are implied or expressed representations by management
about classes of transactions and the related accounts and disclosures in the
financial statements.
several audit objectives must be met for each account balance.
Transaction cycles are an important way to organize audits.
Accountability is considered an ethical principle.
True
False

Which of the following is false regarding the review for contingent liabilities and
commitments?
Contingency footnotes should describe the nature of the contingency to the extent it
is known and the opinion of legal counsel or management as to the expected
outcome.
The most important characteristic of a commitment is the agreement to commit the
firm to a set of fixed conditions in the future, regardless of what happens to profits
or the economy as a whole.
An attorney letter is only sent to gather information if a known contingency exists.
Material contingent liabilities must be disclosed in the footnotes.
Which of the following is false regarding the transaction related audit objectives and
integrating the four phases of the audit?
One of the most challenging parts of auditing is properly applying the factors that
affect tests of details of balances.
Tests of controls and substantive tests of transactions are designed with the
expectation that certain results will be obtained.
The process of continuous auditing is frequently used in smaller audits of financial
statements and internal control for nonpublic companies.
Auditors accumulate evidence related to presentation and disclosure-related audit
objectives.
The accuracy assertion addresses whether transactions have been recorded at correct
amounts.
True
False
Which of the following is false regarding the five types of audit tests?
Auditors use risk assessment procedures to assess the risk of material misstatement,
represented by the combination of inherent risk and control risk.
Tests of controls are also used to determine whether these controls are effective and
usually involve testing a sample of transactions.
Analytical procedures are only required during planning but can be used in other
phases of the audit.

Substantive tests are procedures designed to test for dollar misstatements (often
called monetary misstatements) that directly affect the correctness of financial
statement balances.
Which of the following is false regarding analytical procedures?
Analytical procedures involve comparisons of recorded amounts to expectations
developed by those charged with governance.
Reasonableness test are considered analytical procedures.
The two purposes of analytical procedures are to indicate possible misstatements
and provide substantive evidence.
Analytical procedures are relatively inexpensive
Which of the following is false regarding materiality?
Materiality is subjective.
Misstatements that arise from differences between managements and the auditors
judgment about estimates of account balances would be an example of a known
misstatement.
Accounting and auditing standards do not provide specific materiality guidelines to
practitioners.
Auditors set a preliminary judgment about materiality to help plan the appropriate
evidence to accumulate.
Which of the following is false regarding internal control?
A system of internal control consists of policies and procedures designed to provide
management with reasonable assurance that the company achieves its objectives
and goals.
Section 404(a) of the SarbanesOxley Act requires management of all public
companies to issue an internal control report.
Management must also identify the framework used to evaluate the effectiveness of
internal control.
COSO provides a framework with four internal control components.

Which of the following is false?

The standard of due care is often called the prudent person concept.
Audit risk is avoidable.
There are four sources of legal liability.
Audit failure occurs when the auditor issues an incorrect audit opinion because it
failed to comply with the requirements of auditing standards.
Which of the following is false regarding audit responsibilities?
The auditor is responsible for absolute assurance.
Auditing standards make no distinction between the auditors responsibilities for
searching for errors and fraud.
One of the difficulties for the auditor is determining how laws and regulations
impact financial statement amounts and disclosures.
The SarbanesOxley Act requires the chief executive officer (CEO) and the chief
financial officer (CFO) of public companies to certify the quarterly and annual
financial statements submitted to the SEC.
Which of the following is false regarding evidence mix and design of the program?
Because substantive analytical procedures are relatively inexpensive, many auditors
perform them on all audits.
Audit procedures can be added or deleted as the auditor deems necessary. For some
audit procedures, sample size, items to select, and timing cannot be changed
however.
The choice of which types of tests to use and how extensively they need to be
performed can vary widely among audits for differing levels of internal control
effectiveness and inherent risks.
Auditors must decide the preliminary judgment about materiality for the audit as a
whole and then allocate the total to account balances, to establish performance
materiality for each significant balance.
Which of the following is false regarding legal liability?
Documenting audit procedures properly provides little to no defense in a lawsuit.
Opposing lawsuits is a proper response of the profession.
Dealing with clients possessing integrity reduces the risk of litigation.

Foreseen users are members of a limited class of users that the auditor knows will
rely on the financial statements.
Which of the following is false regarding auditor liability?
Ordinary negligence is the absence of reasonable care that can be expected of a
person in a set of circumstances.
Lack of duty to perform means that the CPA firm claims that there was no implied
or expressed contract.
Fraud is the existence of extreme or unusual negligence even though there was no
intent to deceive or do harm.
Absence of causal connection is a defense used by auditors.
Which of the following is false regarding audit evidence?
The list of audit procedures for an audit area or an entire audit is called an audit
program.
An audit procedure is the detailed instruction that explains the audit evidence to be
obtained during the audit.
Analytical procedures consist of evaluations of financial information through
analysis of plausible relationships among financial and nonfinancial data.
The two determinants of the persuasiveness of evidence are relevance and
reliability.
Which of the following is false regarding communication between the auditor and the
audit committee or those charged with governance?
A client representation letter is a written statement from a nonindependent
source but is still regarded as reliable evidence.
Auditing standards require the auditor to obtain a letter of representation
documenting managements most important oral representations made during the
audit.
Auditing standards requires the auditor to read other information included in annual
reports pertaining directly to the financial statements.
As an aid in deciding whether the audit evidence is adequate, auditors often use a
completing the audit checklist, which is a reminder of items that may have been
over looked.

Which of the following is false regarding substantive testing?

An exception in a substantive test is a financial statement misstatement.
Assessed control risk does not affect the planning of substantive procedures.
Analytical procedures are a type of substantive test.
Substantive tests of transactions are used to determine whether all six-transaction
related audit objectives have been satisfied for each class of transactions.
Which of the following is false regarding evaluating results?
An independent review is required for SEC engagements.
As part of the final review for financial statements disclosures, many CPA firms
require the completion of a financial statement disclosure checklist for every audit.
The audit report is the only thing that most users see in the audit process.
An independent reviewer normally conducts the initial detailed review of audit files
prepared by another auditor.
Current ratio = Current Assets/Current Liabilities
True
False
Which of the following is false regarding professional ethics?
Professionals are expected to conduct themselves at a higher level than most other
members of society.
Independence, because of its importance, is the first rule of conduct.
Ethics can be defined broadly as a set of moral principles or values.
Sarbanes-Oxley did not affect independence rules already in place; the act deals
strictly with audit procedures and documentation