Under the Private Securities Litigation Reform Act, independent auditors are required to first
a. report clearly inconsequential noncompliance to the audit committee of the client's board of directors
b. resign from the audit engagement and report the instances of noncompliance to the SEC
c. report to the SEC all instances of noncompliance that believe have a material effect on financial statements if the board of directors does not first report to the SEC
d. report in writing all instances of noncompliance to the client's board of directors
Answer: c. report to the SEC all instances of noncompliance that believe have a material effect on financial statements if the board of directors does not first report to the SEC
Analytical procedures used when planning an audit should concentrate on
a. accounts and relationships that can represent specific potential problems and risks in the financial statements
b. management assertions in financial statements
c. weaknesses in the company's internal control activities
d. predictability of account balances on individual transactions
Answer: a. accounts and relationships that can represent specific potential problems and risks in the financial statements
When evaluating whether accounting estimates made by management are reasonable, auditors would be most interested in which of the following?
a. evidence of a conservative systematic bias
b. assumptions that are similar to industry guidelines
c. key factors that are consistent with prior periods
d. measurements that are objective and not susceptible to bias
Answer: a. evidence of a conservative systematic bias
