Compliance and Auditing Ethics and Professional Standards 3

Question 1

Under the Sarbanes-Oxley Act of 2002, which body is responsible for setting auditing standards for audits of public companies in the United States?

Accepted Answer

PCAOB

Answer

The Public Company Accounting Oversight Board (PCAOB) was created by SOX to set auditing and related professional practice standards for registered public accounting firms auditing public companies.

Question 2

What is the primary purpose of Generally Accepted Auditing Standards (GAAS)?

Accepted Answer

To provide a framework for measuring the quality and consistency of audit engagements

Answer

GAAS provides a framework for measuring audit quality, ensuring auditors perform their work with professional competence, independence, and due care on a consistent basis.

Question 3

When an external auditor discovers evidence of employee fraud during an audit, the general requirement is to:

Accepted Answer

Report it to the appropriate level of management or those charged with governance

Answer

When auditors discover fraud, professional standards require them to communicate findings to the appropriate level of management or governance, escalating to higher levels if management is implicated.

Question 4

The Dodd-Frank Act's whistleblower incentive and protection program for reporting securities law violations is primarily administered by which agency or agencies?

Accepted Answer

CFTC and SEC

Answer

The Dodd-Frank whistleblower program is administered by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), which offer financial rewards for original information about violations.

Question 5

Which auditing standard introduced the requirement for external auditors to communicate 'critical audit matters' in their reports on public company financial statements?

Accepted Answer

SAS No. 134 (AU-C Section 701)

Answer

SAS No. 134, adding AU-C Section 701, requires auditors to communicate critical audit matters — those involving the most difficult, subjective, or complex auditor judgment — in their reports.

Compliance and Auditing Practice Test

Compliance and Auditing Practice Test

Compliance and Auditing Ethics and Professional Standards 3