Cpa Review

Which of the following best describes what is meant by the term generally accepted auditing standards?

| a. | Pronouncements issued by the Auditing Standards Board. |

| b. | Rules acknowledged by the accounting profession because of their universal application. |

| c. | Procedures to be used to gather evidence to support financial statements. |

| d. | Measures of the quality of the auditor's performance. |

Explanation

Choice "d" is correct. Generally accepted auditing standards ("GAAS") are measures of the quality of the auditor's performance, and guide the auditor in the performance of a properly planned and executed audit.

Choice "b" is incorrect. GAAS are not "rules," nor are they universally applicable. GAAS are measures of the quality of an auditor's performance.

Choice "a" is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) "Statements on Auditing Standards" (SASs). While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS.

Choice "c" is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

| a. | Significant related party transactions are pervasive. |

| b. | Cash flows from operating activities are negative. |

| c. | Stock dividends replace annual cash dividends. |

| d. | Research and development projects are postponed. |

Explanation

Choice "b" is correct. Negative cash flows from operating activities most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern.

Choices "d" and "c" are incorrect....