Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the following?

A) Provide nonaudit services for their clients.

B) Audit public companies whose chief executives worked for the audit firm in the preceding year.

C) Be hired by company management.

D) Maintain working papers for at least seven years following an audit.

Answer: Maintain working papers for at least seven years following an audit.

Which of the following does not represent a major provision of the Sarbanes-Oxley Act?

A) Nonaudit services.

B) Quarterly financial statements.

C) Auditor rotation.

D) Corporate executive accountability.

Answer: Quarterly financial statements.

Under the provisions of the Sarbanes-Oxley Act, corporate executives:

A) Have limited responsibility for financial statements.

B) Must personally prepare the company's financial statements.

C) Must personally certify the company's financial statements.

D) Are not allowed to view the company's financial statements.

Answer: Must personally certify the company's financial statements.

Under the Private Securities Litigation Reform Act, independent auditors are required to first

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

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements

The risk that the auditors' own procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is

a. audit risk
b. inherent risk
c. control risk
d. detection risk


Answer: d. detection risk

The risk of material misstatements is composed of which audit risk components?

a. inherent risk, control risk and detection risk
b. inherent risk and detection risk
c. inherent risk and control risk
d. control risk and detection risk


Answer: c. inherent risk and control risk

When evaluating whether accounting estimates made by mangement are reasonable, the audit team 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