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Question Excerpt From Audit Final

Question Excerpt From Audit Final

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title=audit-final_1 Question Excerpt From Audit Final
Q.1) Which of the following statements about the study of auditing is NOT true?
The study of auditing can be valuable to future accountants and business decision makers whether or not they plan to become auditors The study of accounting focuses on learning the analytical and logical skills necessary to evaluate the B. relevance and reliability of information The study of auditing focuses on learning the rules, techniques, and computations required to analyze C. financial statements The study of auditing begins with the understanding of a coherent logical framework and techniques D. useful for gathering and analyzing evidence about others' assertions

Q.2) The basic purpose of a financial statement audit is to
A.detect fraud B.examine individual transactions so that the auditor may certify as to their validity C.provide assurance regarding whether the client's financial statements are fairly stated D.assure the consistent application of correct accounting procedures

Q.3) Which of the following best describes the concept of audit risk?
A.the risk of the auditor being sued because of the association with an audit client

the risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, materially misstated C.the overall risk that a material misstatement exists in the financial statements D.the risk that auditors use audit procedures that are inappropriate


Which of the following best describes the fundamental, underlying reason for why there us demand for an independent auditor to report on financial statements?

A.a management fraud may exist and it is more likely to be detected by auditors if they are independent

different interests may exist between the company preparing the statements and the parties using the statements a misstatement of account balances may exist and it is the independent auditor's responsibility to C. ensure that financial statements are not misstated D.a poorly designed internal control system may be in place

Q.5) Auditors are most likely to use the most rigorous audit procedures to examine
A.routine transactions B.management assertions that are deemed to be of low risk C.only the rights and obligations assertion D.management assertions that are deemed to be of high risk


For publicly-held companies, the external auditor is required to audit which of the following:

A.budgetary information B.the company's internal controls C.management forecasts D.interim financial statements

Q.7) when obtaining an understanding of the entity and its environment, the auditor should

obtain an understanding of internal controls primarily to:
A.identify areas of relatively high risk of misstatement and plan the audit accordingly B.provide suggestions for improvement to the client C.serve as a basis for setting audit risk and materiality D.decide whether to perform an audit for the client

Q.8) which one of the following statements best describes the concept of materiality?
A.materiality is determined by reference to specific quantitative guidelines established by the AICPA

materiality depends only on the dollar amount of an item relative to toher items in the financial statements C.materiality depends on the nature of an item but not the dollar amount D.materiality is largely a matter of professional judgment

an investor is reading the financial statements of the Stankey Corporation and observes Q.9) that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:
A.any disputes over significant accounting issues have been settled to the auditor's satisfaction B.the auditor is satisfied that Stankey will be highly profitable in the future

the auditor is certain that Stankey's financial statements have been prepared accurately and that all account balances are precisely correct D.the auditor has determined that Stankey's management is not qualified to lead the company

Q.10) an auditor would issue an adverse opinion if
A.the auditor encounters adverse attitudes toward the auditor on the part of client management B.a qualified opinion cannot be given because the auditor is not qualified to do so C.an immaterial misstatement is present D.

the statements taken as a whole do not fairly present the financial condition and results of operations of the company


the primary audit context with which an auditor is concerned is the client's industry or business

A.True B.False

Q.12) which of the following is NOT a requirement of the Sarbanes-Oxley Act?
A.audit firms cannot provide most types of nonaudit services to their public company audit clients

audit firms are required to rotate audit partners off audit engagements every fivve years for public company audits C.firms that audit public companies are subject to inspection by the PCAOB a certain number of hours, which is based on the size of the company being audited, must be spent on D. each audit engagement


a series of business and related auditing failures led to the passage of the SarbanesOxley Act (2002)

A.True B.False

Q.14) which is not an attribute of an external auditor?
A.independence B.client advocacy

members of management B.22) the audit committee consists of: A. accuracy.True B. completeness.16) which of the following best describes the role of corporate governance? A. accuracy.False Q.occurrence.True B.objectivity D. completeness. accuracy. rights and obligations.occurence.18) a financial statement audit is generally organized based on the five basic business processes or cycles A.17) PCAOB auditing standards must be followed on all financial statement audits performed in the US A.C. completeness. classification and understandability. cutoff and classification. rights and obligations.adequate training to understand the client's internal controls system D. occurrence.19) which assertions may be tested for the 'presentation and disclosure' categury of management A. rights and obligations.ensuring consistency in financial statements for periods presented Q. accuracy and valuation Q. cutoff and classification D.existence. valuation and allocation C.occurrence. completeness Q.a subcommittee of the AICPA who establish the SAS .existence.concern for the public interest Q.20) which assertions may be tested for the 'account balances' category of management assertions? A. valuation and allocation D. rights and obligations.existence. authorization.21) which assertions may be tested for the 'transactions and events' category of management assertions? A. rights and obligations. existence. accuracy.choosing evidence with due professional care C.occurrence. cutoff and classification C. rights and obligations. Q.shareholders vote to decide who should be members of the board of directors holding the management team accountable to shareholders and other constituents for the utilization of the entity's resources D.existence. completeness.management often is compensated based on the company's profitability C.occurrence. completeness. completeness. rights and obligations.15) the three standards of fieldwork are concerned with: A.planning and supervision and understanding the client's internal control system B. completeness. cutoff and classification C. authorization. rights and obligations.management decides which accounting principles are the most appropriate B. completeness. rights and obligations. accuracy and valuation.False Q. and completeness Q.occurrence. cutoff and classification B. cutoff and classification D. accuracy. accuracy. classification and understandability. rights and obligations. completeness B. accuracy and valuation B.existence.

securities and exchange commission Q.perform procedures designed to detect all instances of fraud that might affect the financial statements provide reasonable assurance that the financial statements are not materially misstated because of fraud C.cost accounting procedures C.partner assigned to the audit engagement B.appointed government overseers Q.it has delegated all of its standard-setting authority to the AICPA Q. Q.25) an internal auditor is likely to be more concerned with ______ than the external auditor A. auditing standards require auditors to A.29) which of the following is a know misstatement? A.True B.a fixed asset being recorded at the incorrect cost C.a management estimate that is outside the range of reasonable outcomes determined bu the auditor B.23) the primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the A.difference in judgment between the auditor and management Q.28) materiality is based on a quantitative analysis of the financial statements only A.26) which of the following statements regarding the PCAOB is incorrect? A.it sets standards for public company audits D.30) al of the following represent an increased opportunity to commit fraud except: A.27) inherent risk is the susceptibility of an assertion to material misstatement.False Q.management of the company C.it is overseen by the SEC C.24) with regard to detecting fraud.issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred D.it is a public-sector.the auditor's relationship with management is strained C.31) the auditor is most likely to presume that a high risk of a fraud exists if A.C.False Q.auditor in charge of the fieldwork D.significant related party transactions B. nonprofit corporation B.internal administrative procedures B.True B.internal control Q. assuming no related controls A.the efficiency of operations D.management is dominated by a single person D.design the audit program to meet financial statements users' expectation concerning fraud B.the financial statements included highly subjective estimates Q.a projected misstatement resulting from errors found during sampling D.members of the board of directors D.the entity is a multinational company that does business in numerous foreign countries .

turnover of senior accounting personnel is low B.intentional omission of the recording of a transaction to benefit a third party Q.the entity does business with several related parties C.management assertions Q.misappropriation of assets for the benefit of management B.37) in designing written audit programs. an auditor should plan specific audit procedures to test A.B.True B.the misstatement is less than 5% of pretax income C.the company is close to violating loan covenants C.preparation of records by employees to cover a fraudulent scheme D.firm policy sets materiality at 4% of pretax income D.potential for fraud B.the misstatement changes a small amount of profit to a small reported loss an auditor knows that an audit client operating in an industry in which common stock is Q.management places substantial emphasis on meeting earnings projections D.the misstatement hides a failure to meet analysts' expectations B.inadequate segregation of duties places an employee in a position to perpetrate and conceal theft D.detection risk should increase D.cost-benefit of gathering evidence C.38) management assertions fall into four main categories A. all the the following are true except: A.35) which of the following is not a concern as to whether a misstatement os qualitatively material? A.selected audit techniques D.a small misstatement would interrupt an earnings trend Q.materiality should be reduced B.32) under statements on auditing standards.insiders recently purchased additional shares of the entity's stock C.risk of material misstatement should increase C.36) valued based on the price-earnings ratio will soon make an initial public offering.misinterpretation by management of facts that existed when the financial statements were prepared C.the rate of change in the entity's industry is slow Q.timing of audit procedures B. which of the following would be classified as an error? A.inadequate employee training results in lengthy EDP exception reports each month Q.False .the misstatement increases management's compensation D.34) which of the following is not a qualitative factor that may affect an auditor's establishment of materiality? A.33) which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? A.audit risk should increase Q.

which of the following is the account balance assertion you would be most concerned about? A.rights and obligations D.False you are auditing a manufacturing company which has a large production facility.existence or occurrence B. some Q.original source documents D.adjusted trial balance C.verify the inventory count if correct B.verify that a control s being observed C.notation of appraisers' conclusions documented in the auditor's working papers D. solely within the entity .completeness C.45) A.general ledger balances B. the direction of the audit testing should start from the A. evidence obtained at a reasonable cost evidence obtained from independent sources outside the entity is more reliable than evidence secured C.verify that a specific trend is correct Q.40) of the production equipment is held through lease agreements.appropriate evidence supporting management's assertions should be convincing rather than persuasive B. Q. statements C. the more assurance it provides about the accounting data and financial statements an auditor's opinion.lists of negative confirmation requests for which no response was received by the auditor Q.43) which of the following statements concerning audit evidence is correct? A.effective internal controls contribute little to the reliability of the evidence created within the entity the cost ob obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained a client's accounting data cannot be considered sufficient audit evidence to support the financial D.42) in determining whether transactions have been recorded.Q. is formed within a reasonable time and based on B.True B.general journal entries Q. which of the following presumptions does not relate to the appropriateness of audit evidence? the more effective the internal control stsem.41) A confirmation is used to: A.44) which of the following is the least persuasive documentation in support of an auditor's opinion? A.notation of auditor's inferences drawn from ratios and trends C.schedules of details of physical inventory counts conducted by the client B.accuracy Q.verify a representation from a third party D. to be economically useful.39) the classification assertion refers to transactions and events being recorded in the correct accounting period A.

lead schedules D.ownership be determined by the legal statutes of the state where the auditor practices preparation be the responsibility of assistants whose work is reviewed by seniors.assertions about classes of transactions and events B.47) which set of assertions is tested when.assessment of control risk at a low level C. by itself.be based on sources that are considered reliable C.none of the above the third general auditing standard requires that due professional care be exercised in the performance of the examination and the preparation of the report. obtained through observation and inspection. managers.be well documented and cross-referenced in the audit documents B.difficulty and expense involved in testing a particular item B.assertions about account balances at the period end C.51) each of the following might. due care in the matter of audit documents requires that audit documents' A.bear a direct relationship to the audit assertion D. the audit partner conducts a final review of the format of the entity's balance sheet? A. partners B. and D.49) the permanent (continuing) file of an auditor's working papers most likely would include copies of the A.format be neat and orderly and include both a permanent file and a general file content be sufficient to provide support for the auditor's report. form a valid basis for an auditor to reduce substantive testing except for the A.relationship between the cost of obtaining evidence and its usefulness Q.52) which of the following matters generally is included in an auditor's engagement latter? A. the independent auditor's direct personal knowledge.48) care deals with what is done by the independent auditor and how will it is done. during the completion of the audit.debt agreements C. is more persuasive than information obtained indirectly Q.management's responsibility for the entity's compliance with laws and regulations .the auditor C. due professional Q.D.the SEC Q.bank statements B. Q.50) audit documentation prepared on audits of publicly held clients is the property of the A.shareholders B.46) which of the following is an essential factor in evaluating the sufficiency of evidence? the evidence must A.assertions about presentation and disclosure D. for example.low inherent risk involved D. including the auditor's representation as to compliance with auditing standards C.be persuasive enough to enable the auditor to form an opinion Q.the management of the entity being audited D.attorney's letters Q.

59) in correct order.55) charge.s liability for illegal acts committed by its employees D. and risk assessment procedures B.False Q.required during planning only Q.is useful to both the entity and the auditor D.substantive procedures. and overall review of the financial statements C.54) the element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the A. This finding likely indicates the existence of A.risk assessment procedures.timing of the audit an independent auditor finds that Holdaway Corporation occupies office space. tests of controls.relationships involving balance sheet accounts B. the auditor must determine the engagement team requirements and ensure the independence of the audit team ad audit firm A.53) in order to properly preplan the audit.B.pending legal matters to be included in the inquiry of the client's attorney C.relationships involving income statement accounts D.substantive procedures.True B.the auditor's responsibility to guarantee accuracy of the financial statements Q. general types of audit tests include: A.risk assessment procedures.evidence to be gathered to provide a sufficient basis for the auditor's opinion D.data subject to audit testing in the prior year Q.required for planning. substantive procedures. and tests of controls Q.56) a dual-purpose test A.methods of statistical sampling to be used in confirming accounts receivable B. tests of controls.transactions subject to management discretion C. in an office building owned by a shareholder.is a procedure completed by both the internal and external auditors C.never required B.57) analytical procedures are A.management fraud B.management.weak internal control Q. substantive testing. and tests of controls C.60) an auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by .is both a substantive test of transactions and a test of controls Q. and substantive procedures D.required for planning and overall review of the financial statements D.window dressing D.the factors to be considered in setting preliminary judgments about materiality C. at no Q.simultaneously tests debits and credits B.58) which of the following tends to be most predictable for purposes of analytical procedures applied as substantive procedures? A.related party transactions C. risk assessment procedures.

timing of tests performed after the balance sheet date D.request that a representative of the independent auditor be onhand at the annual stockholders' meeting have the independent auditor report to an audit committee of independent members of the board of D.develop an attitude of professional skepticism concerning management's financial statement assertions evaluate whether the aggregation of know misstatements causes the financial statements taken as a whole to be materially misstated D.the payments violated the client's policies regarding the prevention of illegal acts B.consider the possibility of an error in the financial statements A.the client receives financial assistance from a federal government agency C.they are employees whose work must be reviewed during substantive testing B.their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations D. The auditor should express an opinion which is qualified due to the inability of the client company to continue as a going concern B.65) an auditor obtains knowledge about a new client's business and its industry in order to A.require footnote disclosure D.some items of factory and office equipment do not bear identification numbers B.inventory is comprised of precious stones Q.make constructive suggestions concerning improvements to the client's internal control structure B.61) independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year.relative effectiveness and efficiency of the tests C. directors B.their degree of independence may be inferred by the nature of their work Q.availability of data aggregated at a high level B.s performance in causing this decline C. Q.64) which of the following situations would most likely require special audit planning? A.evaluate management.63) to emphasize auditor independence from management.understand the events and transactions that may have an effect on the client's financial statements C.66) an auditor who discovers that a client's employees paid small bribed to municipal officials most likely would withdraw from the engagement if A.appoint a partner of the CPA firm conducting the examination to the corporation's audit committee establish a policy of discouraging social contact between employees of the corporation and the independent auditors C. publicly traded corporations are requires to A.management fails to take the appropriate remedial action . Q.documentation that is necessary to prove that the bribes were paid does not exist D. the Q.A.62) an independent auditor might consider the procedures performed by the internal auditors because A. Q.they are employees whose work might be relied upon C.depreciation methods used on the client's tax return differ from those used on the books C.auditor's familiarity with industry trends as a result of analytical procedures conducted during the planning phase.assets costing less than $500 are expensed even though the expected life exceeds one year D.

substantive procedure D.Q.analytical procedure B.document the understanding of the entity's internal control components D.external policies established by parties outside the entity affect its accounting practices B.True B.72) the risk assessment component of internal controls refers to A.the entity's identifications and analysis of risks relevant to achievement of its objectives D.internal auditors have direct access to the board of directors and the entity's management D.increased implementation of detailed tests of transactions and balances B.the audit committee is active in overseeing the entity's financial reporting policies Q.the entity's monitoring of the potential for material misstatements Q.71) internal control consists of six components A.74) a substantive strategy is used when control risk has been set at the maximum level A.confirmation the independent auditor selects several transactions in each functional area and traces Q. an auditor selects tests from a variety of techniques including A. paying special attention to evidence about whether or not the control activities are in operation.69) them through the entire system.False Q. an auditor is not obligated to A.False .analytical procedures C.search for significant deficiencies in the operation of the internal control Q.test of controls C.the auditor's assessment of control risk B.determine whether the control activities have been place in operation B.70) meeting projected profit goals most likely would significantly influence an entity's control enviornment when A.inquiry B.extra tests of controls C. this is an example of a(n) A.the auditor's assessment of client risk C.management is dominated by one individual C.67) in obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company.True B.perform procedures to understand the design of the internal control policies C.functional test management's attitude toward aggressive financial reporting and its emphasis on Q.increased emphasis on verbal representations from management D.68) to obtain evidential matter about control risk.calculations D.setting control risk at a minimal level Q.73) a substantive strategy differs from a reliance strategy in that a substantive strategy includes A.

76) in an audit of financial statements in accordance with generally accepted auditing standards.managements is dominated by one individual C. and payment B.reducing inherent risk for most of the assertions relevant to significant account balances A. recording.determine whether procedures are suitable designed to prevent or detect material misstatements D.authorization.an internal audit department D.the audit committee actively oversees the financial reporting process Q. and reporting D.authorization. and custody C.81) factors that the auditor should consider as increasing the effectiveness of the audit committee include all of the following except whether A. ensuring detailed knowledge of the company's operations C.77) an auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance aboout the A.authorization.79) proper monitoring within an internal control framework includes all of the following except A.accurate management job descriptions delineate specific duties D.document the auditor's understanding of the entity's internal control Q.performing more extensive substantive procedures with larger sample sizes than originally planned D.Q. and recording Q.efficiency of management's decision-making process B.it interacts regularly with internal auditors B.entity's ability to accurately process and summarize financial data Q.identify specific internal control activities relevant to management's financial statement assertions B.methods of assigning production tasks to employees D. Q.identifying specific internal controls relevant to specific assertions C.an effective audit committee C.perform tests of control to evaluate the effectiveness of the entity's accounting system C. .the internal auditor reports directly to management B.custody.75) assessing control risk at below the maximum most likely would invlove: changing the timing of substantive procedures by omitting interim testing and performing the tests at year-end B. payment. execution.appropriate prices that the entity should charge for its products C.78) management philosophy and operating style most likely would have a significant influence on an entity's control environment when A.an external auditor B.80) proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of A. execution.the internal revenue service Q. an auditor is required to A.it asks management difficult questions D.it is independent of management it is comprised almost exclusively of members of management.

absolut assurance on internal control B.85) an 'integrated audit' as stated on section 404 of the sarbanes-oxley act means A.a probably deficiency Q.88) the main goal of auditing internal control is: A. Q. or flowcharts Q. questionnaire.reasonable assurance on the financial statements.to form an opinion on the ability of internal controls to prevent fraud to assure management that internal control is preventing all material misstatements on the financial statements to evaluate the effectiveness of controls over all relevant financial disclosures in the financial D.must include flowcharts D.86) setion 404 of the sarbanes-oxley act requires the auditor to provide which of the following A. one on the effectiveness of internal control and one on the financial statements.False Q. Q.to allow the auditor to fix any internal control deficiencies B.must be exclusively in either narrative.Q.89) the five step process in the audit of ICFR includes . objectives B.reasonable assurance on internal control. or flowchart form C. statements C.a material weakness B.reasonable assurance on both the financial statements and internal control Q. questionnaire.82) the documentation of an auditor's understanding of internal controls A.84) based on PCAOB guidelines. in an integrated way the auditor must integrate the same objectives whether auditing internal control or auditing the financial C.the auditor must consider the integrated thoughts and ideas of everyone on the audit staff the auditor must conduct two audits.absolute assurance on both the financial statements and internal control D.83) reports on service organizations typically A. the audit of ICFR and financial statements audit should be conduced as an 'integrated audit' A.is optional B.two independent CPA firms must work together on the audit B.ensure that the client is billed correctly assess whether the service organization's controls are suitably designed to achieve internal control D. statements D. Q.True B.an insignificant deficiency D.a significant deficiency C.87) a deficiency that implies that there is reasonable possibility of misstatement in the financial statements that is significant but not material is A.can use any combination of narratives. absolute assurance on the financial statements C.provide reasonable assurance that their financial statements are free of material misstatements ensure that the client will not have any misstatements in areas related to the service organization's activities C.

over financial reporting an explicit statement as to whether management agrees with the public accounting firm's assessment C.perform procedures sufficient to identify all control deficiencies communicate to management.95) management documentation should include all of the following except: A.controls to monitor results of operations C.91) A.documentation regarding the safeguarding of assets . this is an example of A. an auditor is required to: A. all control deficiencies previously included in written communication from the internal auditors communicate to management.form an opinion on the effectiveness of internal controls in meeting operational goals Q.documentation regarding the auditor's evaluation of internal controls B.identify controls to test using a top-down.90) examples of company-level controls include: A.the entity's board of directors C.all of the above are examples of company-level controls Q.93) according to the PCAOB.the period-end financial reporting process D.the entity's CEO and/or CFO B.94) the person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. the audit committee when such a communivation has been made D.A. who is responsible for the reliability of the internal controls over financial reporting process of an entity? A.a deficiency in operation D.the external editor Q. as required by the sarbanes-oxley act.this is not an internal control deficiency Q. in the current year Q. in writing.documentation regarding management's testing and evaluation of the controls C.form an opinion on the fairness of the presentation of the financial statements D. all control deficiencies identified during the audit and inform C.represent that no significant deficiencies were noted during the audit of internal control B.form an opinion on the safeguarding of the entity's assets B. of internal controls a detailed statement describing changes or additions to the internal control environment that occurred D. in writing.an internal control specialist D. Q. risk-based approach C.92) prior ti issuing a report on internal controls over financial reporting. public reporting on the effectiveness of internal control over financial reporting.a management deficiency B. includes: a statements that the public accounting firm that audited the financial statements has provided input on the design of internal controls a statement of management's responsibility for establishing and maintaining adequate internal control B.management's risk assessment process B.a design deficiency C.

S&H should consider this situation a limitation on the scope of the audit D.effective purchasing systems C.difficulty of auditing transactions C.100) an 'integrated audit' A. undetected by the internal controls D.reliable financial reporting Q.98) A.97) in determining the extent to which the auditor may use the work of other in the audit of ICFR. the auditor found a material misstatement in FLynt's sales recognition that was C.Flynt Corporation's CFO was arrested last year for embezzling money from the company For the current year.103) Cooper.efficiency and effectiveness of operations B.documentation on the controls designed in all five components of internal control Q.evaluate the nature of the controls subjected to the work of others C.test some of the work performed by others to evaluate the quality and effectiveness of their work B.is comprised of audits of internal control over financial reporting and of financial statements Q. which of the following is the least likely to represent a material weakness in internal control for Flynt Corporation? Flynt Corporation's computer systems were not working properly for two days.Depending on other factors in the audit.may be performed by two separate audit firms D. CPA is auditing the financial statements of a small rural municipality.D.101) which of the following is not an inherent risk factor for the revenue process? A.96) which of the following is not a primary objective of internal control as established by COSO? A. management does not need to give S&H a letter if they have disclosed all known internal control deficiencies Q. the auditor should do all of the following expect A. lead to a substantive audit strategy B. consequently.complexity of revenue recognition issues B. in most cases.all of the above are required Q.will. employees needed to do all reconciliations manually B. S&H can still issue an unqualified opinion C.False Q.the client does not follow its stated policies for sales order approvals Q.Flynt's audit committee is deemed to be ineffective S&H Accounting has just performed an audit of Bob's Bikes. Which of the following is true? A.102) an example of a contingent liability is an income tax dispute A. the .True B.special industry practices D.compliance with laws and regulations D.evaluate the competence and objectivity of the individuals who performed the work D. S&H was unable to obtain Q.99) a written representation from management from management about internal control.denies the auditor access to information about the client's controls C.S&H must still assume that management has assessed the effectiveness of internal control B.

and assessments obtain from management a description and evaluation of litigation. which of the following is not an audit procedure that the independent auditor would perform with respect to litigation.104) a disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when: A.send positive confirmation requests B.comparing receivable turnover ratios to industry statistics for reasonableness C.106) A.108) balance sheet date for an amount different from the amount recorded in the year-end financial statements A.tracing amounts in the subsidiary ledger to details on shipping documents B. to determine the existence of the accounts receivable balances at the balance sheet date.fictitious sales C. and assessment that existed B. claims and assessments? inquire of and discuss with management the policies and procedures adopted for identifying. for example.the loss can be reasonably estimated. evaluating.105) which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable? A.inquiring about receivables pledged under loan agreements D. but the outcome is unknown the outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated the outcome is unknown and the loss is reasonably estimable but the client does not want to book to D.False Q. Cooper would most likely A.receivable balances represent residents' delinquent real estate taxes.fictitious purchases B.107) increase in the ratio of gross profit to sales may suggest which of the following possibilities?q A. loss C.True B.selling and general expenses erroneously being recorded as merchandise purchases D. claims. claims.confirm directly with the client's lawyer that all claims have been recorded in the financial statements auditors sometimes use ratios as audit evidence.send negative confirmation requests C. advised are likely to be asserted and must be disclosed D. Q. such as copies of the tax invoices that were mailed to the residents Q.examine evidence of subsequent cash receipts D.inspect the internal records.assessing the allowance for uncollectible accounts for reasonableness Q. an unexplained Q. at the balance sheet date obtain assurance from management that it has disclosed all unasserted claims that the lawyer has C. and accounting for litigation.the outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated B.109) tests designed to detect credit sales made after the end of the year that have been . internal control at the municipality is weak.unrecorded sales an example of a Type 1 event or condition is the settlement of a lawsuit after the Q.

customers having substantial year-end past due balances fail to reply after second Q.there is no way of knowing if the intended recipients received them C. in reality.obtaining a management representation letter Q.intensify the study of the client's system of internal control with respect to receivables D.confirming accounts payable B.115) which of the following is the best argument against the use of negative accounts receivable confirmations? A. which of the following is the most appropriate audit procedure? A. the Q.increase the balance in the allowance for incollectible accounts Q. as of feb 10 2010.all subsequent events occurring through feb 10 2010 all subsequent events occurring through feb 10 2010 and the specific subsequent event referred to in note j through march 3 2010 D.only the specific subsequent event referred to in note j as of march 3 2010 C. this aging is used by the auditor to A.114) which of the following auditing procedures is ordinarily performed last A. except for note j.all subsequent events occurring through march 3 2010 B.recipients are likely to feel that.evaluate internal control over credit sales B.110) a type 2 subsequent event usually requires: A.authorization and accuracy Q. the confirmation is a subtle request for payment D.evaluate the allowance for doubtful accounts D.the inference drawn from receiving no replay may not be correct .classification B.112) auditor is acknowledging responsibility to actively search for and ensure proper handling by management of A.cutoff C.an adjustment to the financial statements but no special disclosure is required C.test the accuracy of recorded credit sales C.verify the existence of the recorded receivables if an auditor dates the auditor's report on financial statements for the year ended dec 31 2009.examine shipping documents B.review collections during the year being examined C.reading the minutes of directors' meetings D.an adjustment to the financial statements and the footnotes B.occurrence D.the cost-per-response is excessively high B.neither an adjustment to the financial statements nor disclosure in the footnotes Q.disclosure in the footnotes D.111) audit documents often include a client-prepared aged trial balance of accounts receivable as of the balance sheet date. as to which the date is march 3 2010.testing the purchasing function C.recorded in the current year provide assurance about management's assertion A.113) request forms have been mailed directly to them.

Q.cash B.119) a client erroneously recorded a large purchase twice. budd arranged for hardware to be delivered by manufacturers to .121) which of the following accounts is not affected by cash disbursement transactions? A.purchase returns C.footing the purchase journal B.management representation letter D.attestation report on internal controls an auditor's purpose in reviewing credit rating of customers with delinquent accounts Q.117) should be considered for disclosure in the financial statements or as a basis for recording a loss contingency' the foregoing passage most likely is from a (an) A.tracing totals from the purchases journal to the ledger accounts D. which of the following internal controls would be most likely to detect this error in a timely and efficient manner? A.118) receivable most likely is to obtain evidence concerning management's assertions about A.120) A. which of the following items should an auditor communicate to those charges with governance in a publicly-held entity? significant audit adjustment recorded by the entity and management's consultation with other accountants about significant accounting matters significant audit adjustments recorded by the entity but not management's consultation with other B.report on compliance with laws and regulations C.existence D.the net realizable value of accounts receivable D.proper cut-off 'there are no violations or possible violations of laws or regulations whose effects Q. accountant about significant accounting matters management's consultation with other accountants about significant accounting matters but not C.Q.116) which of the following is not an issue related to the valuation of accounts receivable? A.client engagement letter B.rights and obligations Q. significant audit adjustments recorded by the entity neither significant audit adjustments recorded by the entity nor management's consultation with other D.valuation and allocation B.accounts payable purchase discounts D.completeness C.reconciling vendor's monthly statements with subsidiary payable ledger accounts C. the purchasing agent for lake hardware wholesalers.sending written quarterly confirmations to all vendors Q. accountants about significant accounting matters Q. has a relative who owns a retail hardware store.a proper allowance for doubtful accounts C.the valuation of revenue that makes up the detail of accounts receivable B.122) budd.

Q. what is the primary purpose of this schedule? A.determining whether all accounts payable actually are liabilities C.determining whether all accounts payable are recorded in the proper period D.126) which of the following parties is responsible for the fairness of the representations made in financial statements? A.127) for effective internal control.receiving report and the purchase order B.purchase requisitions B.determining whether all accounts payable are properly classified in the financial statements Q.determining whether all accounts payable are recorded B.determining whether all accounts payable are properly classified in the financial statements Q.audit committee D.determining whether all accounts payable are recorded B.vendor's packing slip and the purchase order D. financial statements are released B.purchase orders in the course of the examination of financial statements for the purpose of expressing an opinion.determining whether all accounts payable actually are liabilities C.independent auditor C. the auditor most likely will test the procedures by .128) procedures.124) the occurrence assertion for accounts payable includes A. immaterial when discovered to summarize the errors made by the company so that corrections can be made after the audited D.the retail store on a COD basis.AICPA Q.125) the cutoff assertion for accounts payable includes A. if the control activities leave no audit trail of documentary evidence. the accounts payable department should compare the information on each vendor's invoice with the A.receiving report and the voucher C. the auditor normally prepares a schedule of unadjusted differences for Q.client's managements B.123) which the auditor did not propose adjustments when they were discovered. budd was probably able to accomplish this because of lake's poor internal control over A.vendor's packing slip and the voucher an auditor wishes to perform tests of control on a client's cash disbursements Q.to point out to the responsible client officials the errors made by various company personnel to summarize the adjustments that must be made before the company can prepare and submit its federal tax return to identify the potential financial statement effects of errors or disputed items that were considered C.perpetual inventory records D.cash receipts C.determining whether all accounts payable are recorded in the proper period D. thereby enabling his relative to buy at lake's wholesale prices.

A.reliance placed on the report of another auditor C.True B.analytical procedures and confirmation Q. successor auditor D.observation and inquiry D.cutoff D.classification Q.132) if the auditor believes that there us minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements.'except for' opinion B.135) auditors are most likely to ensure that no production activity is scheduled prior to . the auditor would issue a(n) A.False analytical procedures can be used to examine the reasonableness of accounts payable and accrued expenses Q.133) recorded in the subsequent year most likely would provide assurance about management's assertion of A.both a and c Q. invoices scan the cash disbursements entries recorded just before year-end for indications of unusual D.accuracy B.read the financial statements of the current period B.130) A.inability to obtain sufficient appropriate evidential matter D.inquiry and analytical procedures B.disclaimer of opinion tests designed to detect purchases made before the end of the year that have been Q.129) which of the following situations will not result in modification of the auditor's report because of a scope limitation? A.134) a predecessor auditor should do the following before reissuing a report on statements presented on a comparative basis" A.adverse opinion C.restriction imposed by the client B.unqualified opinion D.read the financial statements of the past five years C.confirmation and observation C.trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor C. Q.inadequacy in the accounting records Q.131) which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? A. transactions B.obtain a letter of representations from the current-year.occurrence C.

research and development projects are postponed C.140) 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.ascertaining the physical quantities of inventory on hand D.determining standard costs B.142) a client's physical count of inventories was higher than the inventory quantities per the perpetual records.stock dividends replace annual cash dividends Q.manufacturing overhead was not allocated to the production process D.obtaining confirmation of inventories pledged under loan agreements Q. in a footnote the portions of the financial statements that were covered by the examinations of both auditors Q.141) which one of the following is not one of the independent auditor's objectives regarding the examination of inventories? A.obsolete inventory B.determining the amount of consigned inventory Q.139) in a manufacturing company. under these sircumstances.new product line where sales exceed production C.verifying that all inventory owned by the client is on hand at the time of the count Q.significant related party transactions are pervasive D.cash flows from operating activities are negative B.the natire of frazier's review of the other cpa's work D.137) statements of a subsidiary company.verifying that the client has used proper inventory pricing C.138) which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory? A. frazier.False inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset in connection with the examination of the consolidated financial statements of molt industries.manufacturing salaries were recorded as administrative expenses Q.examining paid vendors' invoices C.testing the computation of standard overhead rates B.the name of the other CPA and the type of report issued by the other cpa B.A. plans to refer to another cpa's examination of the financial Q.136) A.reviewing direct labor rates D.the portion of the financial statements examined by the other cpa C. this situation could be the result of the failure to record .True B.verifying that inventory counted is owned by the client B. frazier's report must disclose A.observing physical inventory C. which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date? A.completing the book to physical adjustment D. cpa.

True B.sale in the subsequent period B.recorded inventory actually exists C.purchase requisitions initiated by authorized personnel B.valuation B.148) designed to detect whether merchandise included in the physical count at year-end was not recorded as a A.is appropriate and would not negate the unqualified opinion B. the inclusion of this separate paragraph A.146) an auditor would issue an adverse opinion if A. the statements taken as a whole do not fairly present the financial condition and results of operations of the company Q. the audit steps should be Q.purchases D.143) emphasize that the entity being reported on had significant transactions with related parties.completeness Q. an auditor most likely would make inquiries of production and sales personnel Q.rights and obligations C.False Q.purchase in the current period C.A.the audit begun by other independent auditors who withdrew from the engagement B.existence D.sales B.necessitates a revision of the opinion paragraph to include the phrase 'with the foregoing explanation' D.145) inventory should be valued using the lower-of-cost-or-market rule A.purchase return in the subsequent period Q.149) other comprehensive bases of accounting (ocboa) include all of the following except A.all inventory is recorded the audit of the year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate.a restriction on the scope of the audit was significant D.147) which of the following best describes the occurrence assertion for inventory? A.sales discounts C.tax basis .144) concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of A.sale in the current period D.a qualified opinion cannot be given because the auditor lacks independence C.purchase returns an auditor includes a separate paragraph in an otherwise unmodified report to Q.inventory properly accumulated from journals and ledgers D.is considered an 'except for' qualification of the opinion violates generally accepted auditing standards is this information is already disclosed in footnotes to the financial statements C.

B.False an audit may be unable to express an unqualified opinion if an immaterial departure from gaap is present in the financial statements .non-gaap methods used for internal reporting C.150) A.regulatory basis Q.cash basis D.True B.

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