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ACCT 4318 Exam I Study online at

ACCT 4318 Exam I

Study online at

  • 1. Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the


  • a. copies of those client records examined by the auditor during the course of the engagement

  • b. evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit

  • c. auditor's comments concerning the efficiency and competence of client management personnel

  • d. auditing procedures followed and the testing performed in obtaining audit evidence

  • 2. The annual audit of Midwestern Manufacturing revealed that sales were accidentally being recorded as revenue

    • a. an unqualified opinion or adverse opinion


when the good were ordered, instead of when they were shipped. Assuming the moment in question is material and the client is unwilling to correct the error, the CPA should issue:

not b, b/c it is pervasive

  • b. a qualified "except for" opinion or disclaimer of opinion

+ material

  • c. a qualified "except for" opinion or adverse opinion

  • d. an unqualified opinion with an explanatory paragraph

  • 3. Audit evidence can come in different forms with different degrees or persuasiveness. Which of the following is the least persuasive type of evidence?


  • a. vendor invoice

  • b. bank statement obtained from the client

  • c. computations made by the auditor

  • d. pre-numbered sales invoices

  • 4. The auditor's report contains the following: "we did not audit the financial statements of EZ, Inc., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 27% and 29% respectively, of the consolidated totals. Those statements were audited by other auidtors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ, Inc., is based solely on the report of the other auditors."


These sentences

  • a. indicate a division of responsibility

  • b. assume responsibility for the other auditor

  • c. require a departure from an unqualified opinion

  • d. are an improper form of reporting

  • 5. Because of the risk of material misstatement, an audit should be planned and performed with an attitude of


  • a. objective judgement

  • b. independent integrity

  • c. professional skepticism

  • d. impartial conservatism

  • 6. The date of the CPA's opinion on the financial statements of the client should be the date of the


  • a. closing of the client's books

  • b. finalization of the terms of the audit engagement

  • c. completion of all important audit procedures

  • d. submission of the report to the client

  • 7. During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be


  • a. a client-owned record of conclusions reached by the auditors who performed the engagement

  • b. evidence supporting financial statements

  • c. support for the auditor's representations as to compliance with auditing standards

  • d. a record to be used as a basis for the following year's engagement


An entity changed from straight line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years.


If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n)

  • a. qualified opinion

  • b. unqualified opinion with explanatory paragraph

  • c. unqualified opinion

  • d. unqualified opinion with explanatory paragraph regarding consistency


If a principal auditor decides to refer in his or her report to the audit of another auditor, he or she is required to disclose the


  • a. name of the auditor

  • b. nature of the inquiry into the other auditor's professional standing and extent of the review of the other

auditor's work

  • c. portion of the financial statements audited by the other auditor

  • d. reasons fore being unwilling to assume responsibility for the other auditor's work

  • 10. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have material effect on the financial statements. Which of the following if material, is a fraud as defined in auditing standards?


  • a. misappropriation of an asset or groups of assets

  • b. clerical mistakes in the accounting data underlying the financial statements

  • c. mistakes in the application of accounting principles

  • d. misinterpretation of facts that existed when the financial statements were prepared

  • 11. The major reason an independent auditor gathers audit evidence is to


  • a. form an opinion on the financial statements

  • b. detect fraud

  • c. evaluate management

  • d. assess control risk

  • 12. The nature and extent of a CPA firm's quality control policies and procedures depend on.



The CPA Firm's Size y/n The nature of the CPA firm's practice y/n Cost-benefit considerations y/n

Firm's Size y The nature of the CPA firm's practice y Cost-benefit considerations y

  • 13. One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to


  • a. enable the CPA firm to attest to the reliability of the client

  • b. satisfy the CPA firm's duty to the public concerning the acceptance of new clients

  • c. provide reasonable assurance that the integrity of the client is considered

  • d. anticipate before performing any field work whether an unqualified opinion can be issued


The opinion paragraph of a CPA'S report states: "In our opinion, except for the effects of not capitalizing certain lease


obligations, as discussed in the preceding paragraph, the financial statements present fairly, in all material paragraph expresses a(n)



  • a. unqualified opinion

  • b. unqualified opinion with explanatory paragraph

  • c. qualified opinion

  • d. adverse opinion

  • 15. The responsibilities principle underlying AICPA auditing standards includes a requirement that


  • a. field work be adequately planned and supervised

  • b. the auditor's report state whether or not the financial statements conform to generally accepted accounting principles

  • c. professional judgment to be exercised by the auditor

  • d. informative disclosures in the financial statements be reasonably adequate

  • 16. Under which of the following circumstances would a disclaimer of opinion not be appropriate?


  • a. the auditor is unable to determine the amounts associated with an employee fraud scheme

  • b. management does not provide reasonable justification for a change in accounting principles

  • c. the client refuses the auditor permission to confirm certain accounts receivable or apply alternative procedures to verify

their balances

  • d. the chief executive officer is unwilling to sign the management representation letter

  • 17. What assurance does the auditor provide that ERRORS and FRAUD that are material to the financial statements will be detected?


  • a. limited, negative

  • b. reasonable, reasonable

  • c. limited, limited

  • d. reasonable, limited

  • 18. what is the general character of the responsibilities characterized by the Performance principles?


  • a. the competence, independence, and professional care of persons performing the audit

  • b. criteria for the content of the auditor's report on financial statements and related footnote disclosures.

  • c. the criteria of audit planning and evidence gathering

  • d. the need to maintain an independence in mental attitude in all matters pertaining to the audit

  • 19. When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in existence, the auditor should issue a(n)


  • a. adverse opinion

  • b. qualified opinion only

  • c. unqualified opinion

  • d. unqualified opinion with explanatory paragraph

  • 20. which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?


  • a. Human resource

  • b. Monitoring

  • c. Engagement Performance

  • d. all of the above

  • 21. which of the following best describes the reason why an independent auditor reports on financial statements?


  • a. a misappropriation of assets may exist, and it is more likely to be detected by independent auditors

  • b. different interests may exist b/w the company preparing the statements and the persons using the statements

  • c. a misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work

  • d. poorly designed internal controls may be in existence

  • 22. which of the following best describes what is meant by U.S. auditing standards?


  • a. acts to be performed by an auditor

  • b. measures of the quality of the auditor's performance

  • c. procedures to be used to gather evidence to support financial statements

  • d. audit objectives generally determined on audit engagements

  • 23. which of the following is not a primary purpose of audit documentation?


  • a. to coordinate the audit

  • b. to assist in preparation of the audit report

  • c. to support the financial statements

  • d. to provide evidence of the audit work performed

  • 24. Which of the following is not a required element of a standard unqualified audit report issued in accordance with AICPA auditing standards?


  • a. a title that emphasizes the report is from an independent auditor

  • b. the signature of the engagement partner

  • c. the city and state of the audit firm issuing the report

  • d. a statement explaining management's responsibilities for the financial statements

  • 25. which of the following presumptions is correct about the reliability of audit evidence?


  • a. information obtained indirectly from outside sources is the most reliable audit evidence

  • b. to be reliable, audit evidence should be convincing rather than merely persuasive

  • c. reliability of audit evidence refers to the amount of corroborative evidence obtained

  • d. effective internal control provides more assurance about the reliability of audit evidence

  • 26. which of the following statements concerning audit evidence is true?


  • a. to be appropriate, audit evidence should be either persuasive or relevant, but need not be reliable

  • b. the measure of the quantity and quality of audit evidence lies in the auditor's judgement

  • c. the difficulty and expense of obtaining audit evidence concerning an account balance is valid basis for omitting the test

  • d. a client's accounting records can be sufficient audit evidence to support the financial statements

  • 27. Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud?


  • a. audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional

misstatement that is concealed through collusion

  • b. an audit is designed to provide reasonable assurance of detecting material errors but there is no similar responsibility

concerning fraud

  • c. the factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low

risk of unintentional misstatements

  • d. the auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial

statements taken as a whole

28. which of the following types of documentary evidence should the auditor consider to be the most reliable?


  • a. sales invoice issued by the client and supported by a delivery receipt from an outside trucker

  • b. confirmation of an account payable balance mailed by and returned directly to the auditor

  • c. a check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed

directly to the auditor

  • d. an audit schedule prepared by the client's controller and reviewed by the client's treasurer.