Chapter 02 Professional Standards Answer Key

True / False Questions

1. The generally accepted auditing standards of field work include a requirement that the auditors
obtain sufficient appropriate audit evidence.
TRUE

Difficulty: Easy

2. The auditors' report on a corporation's financial statements usually is addressed to the

president of the company.
FALSE

Difficulty: Easy

3. The auditors are primarily responsible for preparing the financial statements and expressing an
opinion on whether they follow generally accepted auditing standards.
FALSE

Difficulty: Medium

4. Partners in CPA firms usually have the responsibility for signing the audit report.
TRUE

Difficulty: Medium

5. An audit is more likely to detect tax evasion than violations of antitrust laws.
TRUE

Difficulty: Hard
6. The attestation standards do not supersede any of the generally accepted auditing standards.
TRUE

Difficulty: Medium

7. A peer review is generally performed by employees of the AICPA.

FALSE

Difficulty: Medium

8. If the auditors discover illegal acts by a client, they ordinarily must immediately resign from
the engagement.
FALSE

Difficulty: Medium

9. An audit should be designed to provide reasonable assurance of detecting all illegal acts.
FALSE

Difficulty: Medium

10. The pronouncements of the International Auditing Assurance Standards Board do not
override the national auditing standards of its members, even when financial statements are
issued by a multinational company.
TRUE

Difficulty: Medium
99. (Public) Audit reports issued for financial statements of a public company should refer to generally
easy accepted auditing standards in the scope paragraph.
b a. True
b. False

100. Audit reports issued for financial statements of a private company should refer to generally
easy accepted auditing standards in the scope paragraph.
a a. True
b. False

101. If an audit client has not consistently observed accounting principles in the current period in
easy relation to the preceding period, the auditor should normally issue an unqualified report with an
a explanatory paragraph which explains the nature of the change.
a. True
b. False

102. A qualified report is issued when all auditing conditions have been met, no significant
easy misstatements have been discovered, and it is the auditors opinion that the financial statements
b are fairly stated in accordance with GAAP.
a. True
b. False

103. The audit report is normally addressed to the companys president or chief executive officer.
easy a. True
b b. False
104. The phrase generally accepted accounting principles can be found in the opinion paragraph of
easy a standard unqualified report.
a a. True
b. False

105. (Public) Auditors of public company financial statements must issue separate reports on internal control
medium over financial reporting.
b a. True
b. False

106. Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation
medium purposes, affect consistency but not comparability, and therefore require an explanatory
b paragraph in the audit report.
a. True
b. False

107. When an auditor decides that adherence to GAAP would result in misleading financial statements,
medium the auditor has no choice but to issue a qualified audit report.
b a. True
b. False

108. (Public) The phrase auditing standards generally accepted in the United States of America can be found
medium in the opinion paragraph of a standard, unqualified audit report for a public company.
b a. True
b. False

109. Auditors should issue a disclaimer of opinion when there is a highly material scope restriction
medium caused by the client.
b a. True
b. False

110. Whenever an auditor issues a qualified report, he or she must use the term except for in the
medium opinion paragraph.
a a. True
b. False

111. Whenever an auditor issues a qualified report, he or she must use the term subject to in the
medium opinion paragraph.
b a. True
b. False

112. Whenever an auditor discovers a highly material GAAP violation in the financial statements that
medium the client refuses to correct, the auditor should issue a disclaimer of opinion.
b a. True
b. False

113. When there is a scope limitation in an audit, the audit report will be unqualified, qualified scope
medium and opinion, or adverse, depending on the materiality of the scope limitation.
b a. True
b. False
 114. Changes in reporting entities, such as the inclusion of an additional company in combined
medium financial statements, affect comparability but not consistency, and therefore do not require an
b explanatory paragraph in the audit report.
a. True
b. False

115. When a qualified opinion is issued, an explanatory paragraph is added immediately after the
medium opinion paragraph to explain the nature of the qualification that affects the opinion.
b a. True
b. False

116. If an audit client has not consistently applied accounting principles, and the auditor does not
medium concur with the appropriateness of the change, either an unqualified, a qualified, or an adverse
a opinion should be issued, depending on the materiality level involved.
a. True
b. False

117. When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue
medium a shared opinion, the wording of the report should be modified in all three paragraphs.
a a. True
b. False

118. An auditor should issue a qualified opinion with an explanatory paragraph whenever there is a
medium material uncertainty affecting the financial statements.
b a. True
b. False

119. The phrase The audit is designed to obtain reasonable assurance about whether the statements
medium are free of material misstatements is included in the introductory paragraph of an audit report.
b a. True
b. False

120. If an auditor is not independent and the auditor knows that the company has not followed GAAP,
challenging the auditor should immediately disclaim an opinion and not mention the departure from GAAP
b in the audit report.
a. True
b. False

Other Objective Answer Format Questions

87. An advantage of specific rules in the Code of Professional Conduct is the enforceability of
easy minimum behavior and performance standards.
a a. True
b. False
88. (SOX) The Sarbanes-Oxley Act permits the auditor to perform a wide variety of non-audit services for
easy audit clients.
b a. True
b. False

89. (SOX) A company may purchase internal audit services from their financial statement auditor if they are
easy approved by the companys audit committee.
b a. True
b. False

90. The audit committee of a private committee need not approve all non-audit services provided by
easy the companys financial statement auditor.
a a. True
b. False

91. An advantage of the principles of professional conduct in the Code of Professional Conduct is
easy that they are more easily enforced than are the specific rules of conduct.
b a. True
b. False

92. Rule 101, Independence, prohibits a CPA from performing both audit services and bookkeeping
easy services for the same public company in the same year.
a a. True
b. False

93. Under Rule 101, Independence, independence is considered to be impaired if fees remain unpaid
easy for professional services provided more than six months before the date of the current years
b report.
a. True
b. False

94. Imprisonment for a period of six months or longer will result in automatic expulsion from the
easy AICPA.
b a. True
b. False

95. Rule 505, Form of Organization and Name, prohibits CPA firms from practicing as limited
easy liability partnerships.
b a. True
b. False

96. Under Rule 505, Form of Organization and Name, a CPA firm may use any name as long as it is
easy not misleading.
a a. True
b. False

97. A CPA firm may practice public accounting only in a form of organization permitted by federal
medium law or regulation whose characteristics conform to resolutions of Council.
b a. True
b. False

98. In the AICPA Code of Professional Conduct, ethical rulings are less specific than rules of conduct.
medium a. True
b b. False
99. Interpretations of rules of conduct in the Code of Professional Conduct are not officially
medium enforceable and practitioners need not justify departure from them.
b a. True
b. False

100. (SOX) The Sarbanes-Oxley Act does not require audit committee approval of all non-audit services prior
medium to their performance by the companys external auditor.
b a. True
b. False

101. In the AICPA Code of Professional Conduct, interpretations of rules are more specific than ethical
medium rulings.
b a. True
b. False

102. In the AICPA Code of Professional Conduct, the second principle of professional conduct, entitled
medium The Public Interest, applies only to members of the AICPA in public practice and not to
b members who work as accountants in business, government, or education.
a. True
b. False

103. In the AICPA Code of Professional Conduct, the sixth principle of professional conduct, entitled
medium Scope and Nature of Services, applies to members of the AICPA who work in public practice,
b business, government, or education.
a. True
b. False

104. Auditors are allowed to have an indirect financial interest in an audit client, such as ownership of
medium stock in a clients company by the auditors brother, as long as the amount of the financial interest
a is immaterial to the brother.
a. True
b. False

105. Rule 101, Independence, applies to members of the AICPA when performing any professional
medium service.
b a. True
b. False

106. Rule 101, Independence, applies to covered members in a position to influence an attest
medium engagement.
a a. True
b. False

107. Under Rule 301, Confidential Client Information, permission is not required from the client to
medium use the audit documentation relating to that client during an AICPA-authorized peer review
a program with another CPA firm.
a. True
b. False

108. Information obtained by a CPA from a client is legally privileged in federal court.
medium a. True
b b. False
109. Rule 502, Advertising and Other Forms of Solicitation, prohibits members of the AICPA in public
medium practice from performing comparative advertising.
b a. True
b. False

110. Under Rule 505, Form of Organization and Name, a CPA firm may not designate itself as
medium Members of the American Institute of Certified Public Accountants unless a majority of its
b owners are members of the Institute.
a. True
b. False

111. Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to
medium prevent a CPA from practicing public accounting.
b a. True
b. False

112. Under the AICPAs Code of Professional Conduct, CPAs are prohibited from offering audit
medium clients a discount for referring a prospective client even if they are disclosed.
b a. True
b. False

113. All owners of a CPA firm must be CPAs who are qualified to practice.
medium a. True
b b. False

114. The Independence Standards Board was formed to provide a conceptual framework for
medium independence issues related to audits of public companies.
a a. True
b. False

89. Responsibility for the fair presentation of financial statements rests equally with management and the
easy auditor.
b a. True
b. False

90. Errors are usually more difficult for an auditor to detect than frauds.
easy a. True
b b. False
91. Auditors have found that the most efficient way to conduct audits is to focus primarily on testing
easy classes of transactions and performing minimal or no tests of ending account balances.
b a. True
b. False

92. When an auditor has reduced assessed control risk based on tests of controls, he or she may then
easy reduce the extent to which the accuracy of the financial statement information directly related to those
a controls must be supported through the accumulation of evidence using substantive tests.
a. True
b. False

93. Tests of details of balances typically involve the use of comparisons and relationships to assess the
easy overall reasonableness of account balances.
b a. True
b. False

94. Other than inquiring of management about policies they have established to prevent illegal acts and
easy whether management knows of any laws or regulations that the company has violated, the auditor
a should not search for indirect-effect illegal acts unless there is reason to believe they may exist.
a. True
b. False

95. When an auditor believes that an illegal act may have occurred, the first step he or she should take is
easy to inquire of management at a level above those likely to be involved in the potential illegal act.
a a. True
b. False

96. Audits are expected to provide a higher degree of assurance for the detection of material frauds than
medium is provided for an equally material error.
b a. True
b. False

97. Auditors have a higher degree of responsibility for detecting direct-effect illegal acts than indirect-
medium effect illegal acts.
a a. True
b. False

98. The auditors first course of action when an illegal act is uncovered should be to immediately notify
medium the appropriate authorities, including but not limited to the police, and for publicly held companies,
b the Securities and Exchange Commission.
a. True
b. False

99. Under the cycle approach to segmenting an audit, transactions recorded in different journals should
medium never be combined with the general ledger balances that result from those transactions.
b a. True
b. False

100. General transaction-related audit objectives vary from audit to audit, depending on the nature and
medium characteristics of the clients business and industry.
b a. True
b. False
101. The audit objective of posting and summarization is associated with the management assertion of
medium accuracy.
a a. True
b. False

102. Balance-related audit objectives are usually applied to the ending balance in income statement
medium accounts; transaction-related audit objectives are usually applied to transactions reflected in balance
b sheet accounts.
a. True
b. False

103. The transaction-related audit objective of timing is related to the assertion of cutoff.
medium a. True
a b. False

104. The effect of a violation of the existence transaction-related audit objective for the sales account
medium would be an overstatement of that account.
a a. True
b. False

105. The effect of a violation of the completeness transaction-related audit objective for cash
medium disbursements transactions would be an overstatement of cash disbursements.
b a. True
b. False

106. The transaction-related audit objective that deals with whether recorded transactions have actually
medium occurred is the completeness objective.
b a. True
b. False

107. The general balance-related audit objective that deals with determining that details in the account
medium balance agree with related master file amounts, foot to the total in the account balance, and agree with
a the total in the general ledger is the detail tie-in objective.
a. True
b. False

108. The cutoff objective, transactions near the balance sheet date are recorded in the proper period, is
medium a balance-related audit objective.
a a. True
b. False

109. For a private company audit, tests of controls are normally performed only on those internal controls
medium the auditor believes have not been operating effectively during the period under audit.
b a. True
b. False

110. An audit generally provides no assurance that indirect-effect illegal acts will be detected.
medium a. True
a b. False

111. When an auditor believes there is a moderate or high risk of management fraud, the auditor will
medium normally do less audit work at interim dates instead of at year-end.
a a. True
b. False
 112. An auditor must inform a clients audit committee of an illegal act discovered during an audit in
challenging writing.
b a. True
b. False

113. The objective of the audit of financial statements by an independent auditor is to verify that the
challenging financial statements are free of misstatements and accurately represent the companys financial
b position and results of operations.
a. True
b. False

114. The auditors responsibility for uncovering direct-effect illegal acts is the same as for fraud.
challenging a. True
a b. False

Other Objective Answer Format Questions

72. When an auditor decides there is higher inherent risk for an account, one potential effect is that
easy more audit evidence will be required for that account.
a a. True
b. False

73. As acceptable audit risk is decreased, the likely cost of conducting an audit increases.
easy a. True
a b. False

74. Before accepting a new client, most CPA firms investigate the company to determine its
easy acceptability. However, AICPA confidentiality requirements prohibit CPA firms from contacting
b certain partiesnamely the companys attorneys and bankersduring this investigation.
a. True
b. False

75. For prospective clients that have previously been audited by another CPA firm, the predecessor
easy auditor is required to communicate with the successor auditor.
b a. True
b. False

76. When a successor auditor contacts a companys previous auditor, the predecessor auditor is
easy required to respond fully and without limit to the request for information.
b a. True
b. False

77. A predecessor auditor who has been contacted by a successor auditor for information about the
easy client does not have to obtain permission from the former client before providing any confidential
b information to the successor auditor because the confidentiality requirement does not extend to
former clients.
a. True
b. False

78. Auditors should obtain copies of the clients articles of incorporation, bylaws, and minutes of the
easy meetings of the board of directors to aid in their understanding of the companys management
a and governance structure.
a. True
 b. False

79. An auditor must evaluate a specialists professional qualifications and understand the objectives
easy of the specialists work.
a a. True
b. False

80. To evaluate a specialists work the auditor must himself/herself be considered a specialist.
medium a. True
b b. False

81. An engagement letter establishes a clear understanding of the terms of the engagement between
medium the client and the auditor, but it is optional for private companies.
a a. True
b. False
82. Because of the requirements of Rule 201 of the AICPAs Code of Professional Conduct which
easy state that auditors should undertake only those professional services that the member or the
b members firm can reasonably expect to be completed with professional competence, auditors
are not normally permitted to consult with, or rely on the work of, outside specialists during an
audit engagement.
a. True
b. False

83. Acceptable audit risk is a measure of the auditors willingness to accept that the financial
medium statements do not contain material misstatements after the audit is completed and a qualified audit
b report has been issued.
a. True
b. False

84. If a prospective client has been audited in the past, the successor auditor will typically rely solely
medium on the representations about the client by the predecessor auditor.
b a. True
b. False

85. Two major factors that affect acceptable audit risk are the likely users of the financial statements
medium and the likelihood of issuing an unqualified audit opinion.
b a. True
b. False

86. A major consideration in assigning staff to an audit engagement is the experience levels required
medium for the work, while a less important consideration is maintaining staff continuity on the
b engagement.
a. True
b. False

87. Inherent risks typically vary across industries.

medium a. True
b b. False

88. Transactions with related parties must be disclosed in the financial statements if they are deemed
medium to be material.
a a. True
b. False

89. All known related parties must be identified and included in the auditors permanent files related
medium to the client.
a a. True
b. False

90. Generally, auditors assess inherent risk as moderate for related party transactions because they
medium expect clients to be aware of their scrutiny of such transactions.
b a. True
b. False

91. The corporate charter typically establishes the companys fiscal year and frequency of
medium stockholder meetings.
b a. True
b. False
92. Ordinarily, the auditor should review and abstract copies of contracts during the later stages of an
medium audit.
b a. True
b. False

93. When a successor auditor requests information from a companys previous auditor, and there are
medium legal problems or disputes between the client and the predecessor auditor, the predecessor
a auditors response to the new auditor may be limited to stating that no information will be
provided.
a. True
b. False

94. One purpose of performing preliminary analytical procedures in the planning phase of an audit is
medium to help the auditor make a preliminary assessment of control risk.
b a. True
b. False

95. Material transactions between the client and the clients related parties must be disclosed in the
medium auditors report.
b a. True
b. False

96. An engagement letter can affect the CPA firms legal responsibilities to the client, but does not
challenging affect responsibility to external users of audited financial statements.
a a. True
b. False

97. Two categories of audit-relevant information found in corporate charters and bylaws are
challenging authorizations and discussions of matters affecting inherent risk.
b a. True
b. False

71. The auditors preliminary judgment about materiality is the maximum amount by which the
easy auditor believes the financial statements could be misstated and still not affect the decisions of
a reasonable users.
a. True
b. False

72. There is no precise definition of materiality in the professional literature.

easy a. True
a b. False

73. The FASB definition of materiality focuses on potential users of financial statements.
easy a. True
b b. False

74. Net income before taxes is normally the most important base for deciding materiality.
easy a. True
a b. False

75. Most practitioners allocate the preliminary judgment about materiality to income statement
easy accounts.
b a. True
 b. False

76. The primary purpose of allocating the preliminary judgment about materiality to financial
easy statement accounts is to help the auditor decide the appropriate evidence to accumulate.
a a. True
b. False
77. Auditors cannot use prior year financial statement balances to establish their preliminary
easy judgment about materiality in planning the current years audit.
b a. True
b. False

78. If acceptable audit risk is low, and inherent risk and control risk are both high, then planned
easy detection risk should be high.
b a. True
b. False

79. Inherent risk and planned detection risk are inversely related; i.e., as inherent risk increases,
easy planned detection risk should decrease, ceteris paribus.
a a. True
b. False

80. Acceptable audit risk and planned detection risk are inversely related; i.e., as acceptable audit risk
easy increases, planned detection risk should decrease, ceteris paribus.
b a. True
b. False

81. The most important element of the audit risk model is control risk.
easy a. True
b b. False

82. For a private company client, auditors are required to test any internal controls they believe have
easy not been operating effectively during the period under audit.
b a. True
b. False

83. If an auditor believes the client will have financial difficulties after the audit report is issued, and
easy external users will be relying heavily on the financial statements, the auditor will probably set
a acceptable audit risk as low.
a. True
b. False

84. Achieved detection risk can be reduced only by accumulating more audit evidence.
medium a. True
b b. False

85. Auditors have difficulty applying the concept of materiality in practice because they often do not
medium know who the users of the financial statements are or what decisions will be made.
a a. True
b. False

86. The audit risk model that must be used for planning audit procedures and evaluating audit results
medium is: AcAR = IR x CR x AcDR.
b a. True
b. False
87. Statements on Auditing Standards provide detailed, objective guidance on how auditors are to
medium establish a preliminary materiality level, thus eliminating the need for subjective auditor judgment
b in this task.
a. True
b. False

88. If the preliminary judgment of materiality increases, the amount of audit evidence required will
medium also increase.
b a. True
b. False

89. Insert risk and control risk are normally assessed for the overall audit.
medium a. True
b b. False

90. Tolerable misstatement is the maximum combined total of all misstatements in the financial
medium statements that the auditor is willing to allow, or tolerate, when issuing a standard unqualified
b opinion.
a. True
b. False

91. If an auditor assigns a tolerable misstatement of $1,000 to accounts payable, he or she would need
medium to obtain more audit evidence for that account than if $100,000 had been assigned.
a a. True
b. False

92. To maximize audit efficiency, the auditor should allocate less tolerable misstatement to accounts
medium that can be verified by using low-cost audit procedures, such as analytical procedures, than to
a accounts that are more costly to audit.
a. True
b. False

93. To maximize audit effectiveness, the auditor should establish a high preliminary judgment about
medium materiality and allocate most of the amount to balance sheet accounts.
b a. True
b. False

94. Acceptable audit risk and the amount of substantive evidence required are inversely related.
medium a. True
a b. False

95. As control risk increases, the amount of substantive evidence the auditor plans to accumulate
medium should increase.
a a. True
b. False

96. Inherent risk and control risk are directly related.

medium a. True
b b. False
97. An acceptable audit risk assessment of low indicates a risky client requiring more extensive
medium evidence, assignment of more experienced personnel, and/or a more extensive review of audit
a files.
a. True
b. False

98. Engagement risk is effectively the audit firms business risk.

medium a. True
a b. False

99. Audit assurance is the complement of planned detection risk, that is, one minus planned detection
medium risk.
b a. True
b. False

94. If, when obtaining an understanding of control activities of a relatively small client, the auditor
easy identified no control activities, the auditor would probably set a high assessment of control risk.
a a. True
b. False
95. If, when obtaining an understanding of control activities of a relatively small client, the auditor
easy identified no control activities, the auditor would probably determine the client were unauditable.
a a. True
b. False

96. When internal controls are effective, then substantive audit tests are more reliable; thus, the extent
easy of substantive tests should be reduced.
b a. True
b. False

97. Auditors of private companies may rely on prior periods tests of controls for a period not to
easy exceed four years.
b a. True
b. False

98. In an audit of a non-public company, the less control risk there is, the smaller the amount of
easy planned substantive evidence that is required.
a a. True
b. False

99. As a clients information system becomes more complex, it is likely that an auditor will decrease
easy reliance on controls and increase substantive tests to support a control risk assessment.
b a. True
b. False

100. When a company designs and implements internal controls, cost of the controls is not a valid
easy consideration.
b a. True
b. False

101. (Public) PCAOB Standard 2 requires auditors to perform walkthroughs to assist in understanding internal
easy control.
a a. True
b. False
102. Adequate documents and records is a subcomponent of the control environment.
easy a. True
b b. False

103. For proper internal control, there should be adequate separation of duties. However, the extent of
easy separation of duties considered adequate depends heavily on the size of the organization.
a a. True
b. False

104. In an audit of a non-public company, the auditors assessment of control risk and the extent of
medium tests of controls are inversely related.
a a. True
b. False

105. Smaller companies usually have more extensive internal controls than larger companies which
medium result in fewer frauds being committed at small companies.
b a. True
b. False

106. (Public) To issue an unqualified opinion on internal control over financial reporting, there must be no
medium identified material weaknesses and no restrictions on the scope of the audit.
a a. True
b. False

107. (SOX) The Sarbanes-Oxley Act of 2002 requires that public companies issue an internal control report.
medium a. True
a b. False

108. The most important component of internal control is risk assessment.

medium a. True
b b. False

109. The primary emphasis by auditors when evaluating and testing internal control is on controls over
medium classes of transactions rather than controls over account balances.
a a. True
b. False

110. When internal controls over a given financial statement account are assessed as highly effective,
medium the auditor need not obtain audit evidence for that account beyond testing the controls.
b a. True
b. False

111. The chart of accounts is a control and is closely related to the controls related to adequate
medium documents and records.
a a. True
b. False

112. Auditing standards prohibit reliance on the work of internal auditors due to the lack of
medium independence of the internal auditors.
b a. True
b. False

113. If an auditor wishes to rely on the work of internal auditors (IA), the auditor must obtain
medium satisfactory evidence related to the IAs competence, integrity, and objectivity.
a a. True
b. False
 114. Procedures used to obtain an understanding of internal control are normally performed on fewer
medium transactions than procedures used to test controls.
a a. True
b. False

115. For most uses, flowcharts are superior to narratives as a method of communicating the
medium characteristics of internal control.
a a. True
b. False

116. When documenting their understanding of a clients internal controls, auditors are required to use
medium narratives.
b a. True
b. False

Other Objective Answer Format Questions

59. In the context of financial statement auditing, fraud is defined as an intentional misstatement of
easy the financial statements.
a a. True
b. False

60. The two main categories of fraud are fraudulent financial reporting and misappropriation of
easy assets.
a a. True
b. False

61. Cookie jar reserves are often created by companies whenever their earnings are high to create
easy reserves for future periods when earnings are at or above current levels.
b a. True
b. False

62. Management and the board of directors are responsible for setting the tone at the top.
easy a. True
a b. False

63. Two conditions are generally present when material misstatements due to fraud occur incentives
easy and opportunities.
b a. True
b. False

64. Financial statements of all companies are potentially subject to manipulation.

easy a. True
a b. False

65. Fraud is more prevalent in large businesses than small businesses and not-for-profit organizations.
easy a. True
b b. False

66. The audit committee is responsible for overseeing an organizations financial reporting and
medium internal control processes.
a a. True
b. False
67. The same three fraud triangle risk conditions apply to fraudulent financial reporting and
medium misappropriation of assets.
a a. True
b. False

68. An attitude, character, or set of ethical values exist that allow management or employees to
medium commit a dishonest act . describes the opportunities condition included in the fraud triangle.
b a. True
b. False

69. Misappropriation of assets is normally perpetrated at the highest levels of the organization
medium hierarchy.
b a. True
b. False

70. Fraudulent financial reporting usually involves manipulation of amounts rather than disclosures.
medium a. True
a b. False

71. An example of a fraud risk factor describing incentives/pressures is ineffective board of director
medium oversight over financial reporting.
b a. True
b. False

72. An example of a fraud risk factor describing opportunities is ineffective board of director
medium oversight over financial reporting.
a a. True
b. False

73. (Public) PCAOB Standard 2 indicates that material fraud by senior management is a material weakness.
medium a. True
a b. False

74. Information and idea exchange sessions are required by SAS No. 99.
medium a. True
a b. False

75. SAS No. 99 does not specifically indicate which members of an audit engagement team must
medium attend a brainstorming session.
a a. True
b. False
76. The presence of fraud risk factors increases the likelihood of fraud and usually suggests that fraud
medium is present.
b a. True
b. False

77. Professional skepticism requires auditors to either assume that management is dishonest or they
medium have questionable honesty.
b a. True
b. False

78. Auditors should consider risk factors related to incentives, opportunities, and attitudes whenever
medium they assess the likelihood of material misstatements due to fraud.
a a. True
 b. False

79. (Public) Auditors must issue a qualified opinion on internal control whenever senior management commits
challenging fraud that is considered a material weakness.
b a. True
b. False

80. The board of directors has the primary responsibility to assess fraud risks and establish corporate
challenging governance programs and controls to prevent, deter, and detect fraud.
b a. True
b. False

81. One of the strongest internal corporate governance mechanisms over senior management is the
challenging audit committee of the board of directors.
a a. True
b. False

82. Because fraud perpetrators are often knowledgeable about audit procedures, SAS No. 99 requires
challenging auditors to incorporate unpredictability into the audit plan.
a a. True
b. False

83. All misstatements the auditor finds during the audit should be evaluated for any indication of
challenging fraud.
a a. True
b. False