The following questions deal with auditing standards. Choose the best response.
a. Which of the following best describes what is meant by U.S. auditing standards?
(1) Acts to be performed by the auditor
(2) Measures of the quality of the auditor’s performance
(3) Procedures to be used to gather evidence to support financial statements
(4) Audit objectives generally determined on audit engagements
Securities and Exchange Commission
(SEC)—a federal agency that oversees the orderly conduct of the securities markets; the SEC assists in providing investors in public corporations with reliable information upon which to make investment decisions Statements on Auditing Standards
(SASs)—pronouncements issued by the Auditing Standards Board of the AICPA
applicable to audits of entities other than public issuers
2-1 (OBJECTIVES 2-1, 2-2, 2-8) What major characteristics of the organization and conduct of CPA firms permit them to fulfill their social function competently and independently?
2-2 (OBJECTIVE 2-3) What is the role of the Public Company Accounting Oversight Board
(PCAOB)? How does the PCAOB provide oversight of audit firms?
2-3 (OBJECTIVE 2-4) Describe the role of the SEC in society and discuss its relationship with and influence on the practice of auditing.
2-4 (OBJECTIVE 2-5) What are the purposes of the AICPA Statements on Standards for Attestation
Engagements?
2-5 (OBJECTIVES 2-3, 2-5, 2-6) Who is responsible for establishing auditing standards for audits of U.S. public companies? Who is responsible for establishing auditing standards for audits of U.S. private companies? Explain.
2-6 (OBJECTIVE 2-6) Describe the role of International Standards on Auditing. What is the relationship between International Standards on Auditing and U.S. auditing standards?
2-7 (OBJECTIVES 2-4, 2-7) Distinguish between auditing standards and generally accepted ac-
counting principles, and give two examples of each.
2-8 (OBJECTIVE 2-7) The Responsibilities principle requires that auditors be responsible for having appropriate competence and capabilities to perform the audit. What are the various ways in which auditors can fulfill this principle?
2-9 (OBJECTIVE 2-7) Auditing standards have been criticized by different sources for failing to provide useful guidelines for conducting an audit. The critics believe the standards should be more specific to enable practitioners to improve the quality of their performance. Evaluate this criticism of auditing standards.
2-10 (OBJECTIVE 2-8) What is meant by the term quality control as it relates to a CPA firm?
2-11 (OBJECTIVE 2-8) The following is an example of a CPA firm’s quality control procedure requirement: “Any person being considered for employment by the firm must have completed a basic auditing course and have been interviewed and approved by an audit partner of the firm before he or she can be hired for the audit staff.” Which element of quality control does this procedure affect and what is the purpose of the requirement?
2-12 (OBJECTIVE 2-8) State what is meant by the term peer review. What are the implications
of peer review for the profession?
REVIEW QUESTIONS
43Chapter 2 / THE CPA PROFESSION
b. The Responsibilities principle underlying AICPA auditing standards includes a
requirement that
(1) the audit be adequately planned and supervised.
(2) the auditor’s report state whether or not the financial statements conform to
generally accepted accounting principles.
(3) professional judgment be exercised by the auditor.
(4) informative disclosures in the financial statements be reasonably adequate.
c. Who establishes auditing standards applicable to private companies and other non-
public entities in the U.S.?
(1) The Private Company Audit Standards Board
(2) The Financial Accounting Standards Board
(3) The Auditing Standards Board of the AICPA
(4) The Public Company Accounting Oversight Board
