Exam Questions - Audit Profession & Planning - Part I

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Exam Questions - Audit Profession & Planning - Part I
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2012-07-09 16:37:41
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Audit Profession & Planning - Part I
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  1. The generally accepted audit standard that requires "Adequate technical training and proficiency" is normally interpreted as requiring the auditor to have:

    A) Continuing professional education. 
    B) Adequate practical experience for the work to be performed. 
    C) Formal education in auditing and accounting. 
    D) All of the above.
    D) All of the above.
  2. Which of the following is the basic fundamental concept that underlies the audit process? 

    A) Skepticism. 
    B) Risk. 
    C) Materiality. 
    D) All of the above.
    B) Risk.
    (this multiple choice question has been scrambled)
  3. Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? 

    A) Adequate disclosure. 
    B) Client acceptance.
    C) Quality control. 
    D) Materiality and audit risk. 
    D) Materiality and audit risk.
    (this multiple choice question has been scrambled)
  4. The audit committee of a company must be made up of: 

    A) Members of the board of directors who are not officers or employees.
    B) The audit partner, the chief financial officer, the legal counsel and at least one outsider. 
    C) Representatives from the client's management, investors, suppliers, and customers. 
    D) Representatives of the major equity interests, such as preferred and common stockholders. 
    A) Members of the board of directors who are not officers or employees.
    (this multiple choice question has been scrambled)
  5. Which one of the following is not one of the three general standards? 

    A) Independence of mental attitude.
    B) Proper planning and supervision. 
    C) Due professional care. 
    D) Adequate training and proficiency. 
    B) Proper planning and supervision.
    (this multiple choice question has been scrambled)
  6. Which one of the following is not a fieldwork standard? 

    A) Sufficient appropriate audit evidence. 
    B) Due professional care. 
    C) Adequate planning and supervision.
    D) Understanding the entity and its environment including internal control. 
    B) Due professional care
    (this multiple choice question has been scrambled)
  7. The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and changes in cash flow is applied within the framework of: 

    A) The auditor's evaluation of the audited company's internal control. 
    B) Generally accepted auditing standards. 
    C) Generally accepted standards of quality control.
    D) Generally accepted accounting principles. 
    D) Generally accepted accounting principles.
    (this multiple choice question has been scrambled)
  8. 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) Methods of statistical sampling to be used in confirming accounts receivable. 
    B) Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
    C) Pending legal matters to be included in the inquiry of the client's attorney. 
    D) Schedules and analyses to be prepared by the client's staff. 
    D) Schedules and analyses to be prepared by the client's staff
    (this multiple choice question has been scrambled)
  9. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality? 

    A) The anticipated sample size for planned substantive tests.
    B) The results of the initial assessment of control risk.
    C) The entity's financial statements of the prior year. 
    D) The assertions that are embodied in the financial statements. 
    C) The entity's financial statements of the prior year
    (this multiple choice question has been scrambled)
  10. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of 

    A) Supervision and review. 
    B) Fieldwork. 
    C) Due professional care. 
    D) Quality control.
    D) Quality control.
    (this multiple choice question has been scrambled)
  11. The CPA firm of Coach and Talbot is auditing the financial statements of Mays Corporation. LeAnn Jones is a close relative of a covered member of this audit engagement. Which of the following would cause the CPA firm to have a problem with its independence? 

    A) Jones is employed by Mays as head of payroll accounting. 
    B) Jones is employed by Mays as vice-president in charge of advertising. 
    C) Jones owns 100 shares of Mays although the amount is viewed as immaterial.
    D) Jones works for Coach and Talbot as a senior auditor in a different office of the firm. 
    A) Jones is employed by Mays as head of payroll accounting.
    (this multiple choice question has been scrambled)
  12. Eigen Von is working on the audit engagement of the Eppston Corporation for the CPA firm of York and Associates. As part of the engagement team, Eigen is a covered member on the audit. Which of the following situations would not cause the CPA firm to have an independence problem? 

    A) Eigen’s brother, who is not his dependent for tax purposes, works for Eppston as the assistant controller. 
    B) Eigen'’s sister, who is his dependent for tax purposes, works for Eppston as a sales clerk, a position viewed as visible to the public.
    C) A friend of Eigen, who is his dependent for tax purposes, works for Eppston as a member of the management. 
    D) Eigen holds a bond issued by Eppston. The amount is viewed as immaterial. 
    B) Eigen'’s sister, who is his dependent for tax purposes, works for Eppston as a sales clerk, a position viewed as visible to the public
    (this multiple choice question has been scrambled)
  13. In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods 

    A) Influence the design of internal control. 
    B) Determine the auditor's acceptable level of audit risk.
    C) Affect the auditor's preliminary judgment about materiality levels. 
    D) Assist in evaluating the planned audit objectives. 
    A) Influence the design of internal control.
    (this multiple choice question has been scrambled)
  14. A CPA is subject to criminal liability if the CPA:

    A) Refuses to turn over requested audit document to a client.
    B) Willfully breaches a contract with a client. 
    C) Willfully omits a material fact from a set of financial statements. 
    D) Performs an audit in a negligent manner. 
    C) Willfully omits a material fact from a set of financial statements.
    (this multiple choice question has been scrambled)
  15. What is the meaning of the generally accepted auditing standard which requires that the auditor be independent? 

    A) The auditor's sole obligation is to third parties. 
    B) The auditor must adopt a critical attitude during the audit.
    C) The auditor must be without bias with respect to the client under audit. 
    D) The auditor may have a direct ownership interest in his client's business if it is not material. 
    C) The auditor must be without bias with respect to the client under audit.
    (this multiple choice question has been scrambled)
  16. A CPA is most likely to refer to one or more of the three general auditing standards in determining 

    A) The integrity of the client. 
    B) The nature of the CPA's report qualification.
    C) Whether the CPA should undertake an audit engagement. 
    D) The scope of the CPA's auditing procedures. 
    C) Whether the CPA should undertake an audit engagement.
    (this multiple choice question has been scrambled)
  17. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the: 

    A) Audit procedures performed are approved in the professional standards. 
    B) Audit has been performed by persons having adequate technical training and proficiency as auditors. 
    C) Auditor's system of quality control has been maintained at a high level. 
    D) Results are consistent with the conclusions to be presented in the auditor's report.
    D) Results are consistent with the conclusions to be presented in the auditor's report.
    (this multiple choice question has been scrambled)
  18. The members of the Public Company Accounting Oversight Board are appointed and overseen by: 

    A) By U.S. Congress. 
    B) The Securities and Exchange Commission. 
    C) The American Institute of Certified Public Accountants.
    D) The Auditing Standards Board. 
    B) The Securities and Exchange Commission.
    (this multiple choice question has been scrambled)
  19. The Securities and Exchange Commission can impose all but which of the following sanctions? 

    A) Require a CPA to participate in continuing professional educations programs and make changes in their practice.
    B) Prohibit a CPA from accepting new SEC clients for a period of time. 
    C) Revoke a CPA license. 
    D) Suspend a CPA from auditing SEC clients. 
    C) Revoke a CPA license.
    (this multiple choice question has been scrambled)
  20. Under the Securities Exchange Act of 1934, which type of organization is required to submit audited financial statements to the SEC? 

    A) Every corporation which is chartered by a state government. 
    B) Every corporation with securities traded on national and over-the-counter exchanges. 
    C) Every corporation.
    D) Every company issuing new securities. 
    B) Every corporation with securities traded on national and over-the-counter exchanges
    (this multiple choice question has been scrambled)
  21. Which of the following factors most likely would cause an auditor not to accept a new audit engagement? 

    A) An inability to perform preliminary analytical procedures before assessing control risk. 
    B) Concluding that the entity's management probably lacks integrity. 
    C) An inadequate understanding of the entity's internal control structure.
    D) The close proximity to the end of the entity's fiscal year. 
    B) Concluding that the entity's management probably lacks integrity.
    (this multiple choice question has been scrambled)
  22. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to 

    A) Anticipate before performing any field work whether an unqualified opinion can be expressed. 
    B) Enable the CPA firm to attest to the reliability of the client. 
    C) Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. 
    D) Minimize the likelihood of association with clients whose management lacks integrity.
    D) Minimize the likelihood of association with clients whose management lacks integrity.
    (this multiple choice question has been scrambled)
  23. Historically, most major lawsuits against CPA firms have dealt with: 

    A) Disputes over income tax preparation services. 
    B) Disputes over the accuracy of bookkeeping services. 
    C) Audited and unaudited financial statements.
    D) Disputes arising in the performance of MAS contracts. 
    C) Audited and unaudited financial statements.
    (this multiple choice question has been scrambled)
  24. To succeed in an action against the auditor, the client company must be able to show that: 

    A) There is a close causal connection between the auditor's behavior and the damages suffered by the client. 
    B) The auditor was fraudulent. 
    C) There was a written contract.
    D) The auditor was grossly negligent. 
    A) There is a close causal connection between the auditor's behavior and the damages suffered by the client.
    (this multiple choice question has been scrambled)
  25. Which of the following is an illustration of a liability to clients under common law? 

    A) Client sues auditor for not discovering a theft of assets by an employee. 
    B) Combined group of stockholders sue auditor for not discovering materially misstated financial statements.
    C) Federal government prosecutes auditor for knowingly issuing an incorrect audit report. 
    D) Bank sues auditor for not discovering that borrower's financial statements are misstated. 
    A) Client sues auditor for not discovering a theft of assets by an employee.
    (this multiple choice question has been scrambled)
  26. In planning an audit, an auditor would most likely obtain an understanding of a continuing client's business by:

    A) Reevaluate the client's internal control environment. 
    B) Performing tests of details of transactions and balances. 
    C) Reading specialized industry journals. 
    D) Reviewing prior-year working papers and the permanent file for the client.
    D) Reviewing prior-year working papers and the permanent file for the client.
    (this multiple choice question has been scrambled)
  27. In accordance with SAS No. 105 (AU Section 150), which of the following correctly denotes the revised wording of the first general standard of auditing? 

    A) The audit must be performed by a person or persons who are partners in a CPA firm. 
    B) The audit must be performed by a person or persons with a college degree in accounting. 
    C) The audit must be performed by a person or persons having adequate technical training and proficiency as an auditor. 
    D) The audit should be performed by a person or persons having adequate technical training and proficiency as an auditor.
    C) The audit must be performed by a person or persons having adequate technical training and proficiency as an auditor
    (this multiple choice question has been scrambled)
  28. Jane Eyre works as a staff auditor for the CPA firm of East & West.   She is currently working on the audit engagement of the Hitchcock Corporation.   Her daughter is employed by Hitchcock.   Her daughter is 27 years old and not a dependent of Jane Eyre.   The firm is trying to determine whether Jane Eyre must be removed from the audit team because of a lack of independence.   In applying these rules, which designation is applied to the daughter? 

    A) Member of immediate family 
    B) General member of family
    C) Distant relative 
    D) Close relative 
    D) Close relative
    (this multiple choice question has been scrambled)
  29. Independence of mind, as defined in the AICPA's conceptual framework, is the state of mind that permits an individual to act with all of the following EXCEPT:  

    A) Professional skepticism 
    B) Integrity
    C) Reasonable suspicion 
    D) Objectivity 
    C) Reasonable suspicion
    (this multiple choice question has been scrambled)
  30. Lana Lily and Jill Jazz are in a debate about the appropriate attitude an auditor should have when interacting with client personnel during an audit.  Each claims that the other is misconstruing the definition of professional skepticism in the AICPA standards.  The definition of professional skepticism includes all of the following elements EXCEPT:  

    A) Assuming that material misstatement due to fraud is present in the financial statements 
    B) Objective and critical assessment of audit evidence 
    C) Possessing a questioning mind during the audit 
    D) Not being influenced by past experience with the entity and beliefs about management's integrity and honesty
    A) Assuming that material misstatement due to fraud is present in the financial statements
    (this multiple choice question has been scrambled)
  31. An auditor should design the written audit program so that:

    A) The audit procedures selected will achieve specific audit objectives. 
    B) Each account balance will be tested under either tests of controls or tests of transactions.
    C) Substantive tests prior to the balance date will be minimized. 
    D) All material transactions will be selected for substantive testing. 
    A) The audit procedures selected will achieve specific audit objectives.
    (this multiple choice question has been scrambled)
  32. In designing the audit program, an auditor should establish specific audit objectives that relate primarily to the:

    A) Cost-benefit of gathering evidence. 
    B) Financial statement assertions.
    C) Selected audit techniques. 
    D) Timing of the audit procedures. 
    B) Financial statement assertions.
    (this multiple choice question has been scrambled)
  33. Audit programs should be designed so that 

    A) Most of the required procedures can be performed as interim work. 
    B) The audit evidence gathered supports the auditor's conclusions.
    C) Inherent risk is assessed at a sufficiently low level. 
    D) The auditor can make constructive suggestions to management. 
    B) The audit evidence gathered supports the auditor's conclusions.
    (this multiple choice question has been scrambled)
  34. When allocating materiality, most practitioners choose to allocate to: 

    A) The balance sheet accounts because there are fewer. 
    B) Both balance sheet and income statement accounts because there could be errors on either. 
    C) The income statement because they are most important. 
    D) All of the financial statements because they are all equally important.
    A) The balance sheet accounts because there are fewer.
    (this multiple choice question has been scrambled)
  35. When an auditor is attempting to determine the extent to which external users rely on a client's financial statements, they may consider several factors including: 

    A) Types and amounts of liabilities. 
    B) Client size. 
    C) Concentration of ownership. 
    D) All of the above.
    D) All of the above.
  36. During the initial planning phase of an audit, a CPA most likely would 

    A) Discuss the timing of the audit procedure with the client's management. 
    B) Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion. 
    C) Identify specific internal control activities that are likely to prevent fraud. 
    D) Evaluate the reasonableness of the client's accounting estimates.
    A) Discuss the timing of the audit procedure with the client's management.
    (this multiple choice question has been scrambled)
  37. A listing of all the things which the auditor will do to gather sufficient, competent evidence is the: 

    A) Audit procedure. 
    B) Audit risk model. 
    C) Audit strategy.
    D) Audit program. 
    D) Audit program
    (this multiple choice question has been scrambled)
  38. Risk affecting the preparation of financial statements can arise or change due to circumstances such as: 

    A Corporate restructurings. 
    B Rapid growth. 
    C New accounting pronouncements. 
    D All of the above.
    D All of the above.
  39. In planning and performing an audit, auditors are concerned about risk factors for two distinct types of fraud: fraudulent financial reporting and misappropriation of assets. Which of the following is a risk factor for misappropriation of assets? 

    A) An unreliable accounting system. 
    B) Management preoccupation with increased financial performance. 
    C) A very lucrative performance-based compensation system.
    D) Strained relationships between the auditors and management. 
    A) An unreliable accounting system.
    (this multiple choice question has been scrambled)
  40. Which of the following best describes what is meant by the term "fraud risk factor"? 

    A) Factors whose presence requires the modification of planned audit procedures. 
    B) Reportable conditions identified during an audit.
    C) Factors whose presence often have been observed in circumstances where frauds have occurred. 
    D) Factors whose presence indicates the present of fraud risk is high. 
    C) Factors whose presence often have been observed in circumstances where frauds have occurred.
    (this multiple choice question has been scrambled)
  41. Three conditions generally are present when fraud occur. Select the one that is not one of those conditions. 

    A) Supervisory position. 
    B) Attitude. 
    C) Opportunity.
    D) Incentive or pressure. 
    A) Supervisory position.
    (this multiple choice question has been scrambled)
  42. When performing a financial statement audit, auditors are required to explicitly assess the risk of material misstatement due to 

    A Errors. 
    B Fraud. 
    C Illegal acts. 
    D Business risk.
    B Fraud.
  43. The risk that an auditor will conclude, based on substantive tests, that a material misstatement does not exist in an account balance when in fact, such misstatement does exist is referred to as: 

    A) Business risk. 
    B) Inherent risk. 
    C) Control risk. 
    D) Detection risk.
    D) Detection risk.
    (this multiple choice question has been scrambled)
  44. The auditors of Epps Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 4 percent. They believe that there is an inherent risk of a material misstatement of 80 percent. Based on their analysis, they also believe there is a 20 percent risk that a material misstatement could have bypassed the client's system of internal control. What is the maximum detection risk the auditors should specify in their substantive tests of details of accounts receivable?  

    A) 25% 
    B) 12.50% 
    C) 8% 
    D) 80%
    A) 25%
    (this multiple choice question has been scrambled)
  45. Inherent risk and control risk differ from detection risk in that inherent risk and control risk are 

    A) Elements of the auditor's tolerable risk level, while detection risk is not. 
    B) Functions of the client and its environment, while detection is not. 
    C) Evaluated prior to the analysis of subsequent events. 
    D) Considered when evaluating managements assertions about an account balance, while detection is not.
    B) Functions of the client and its environment, while detection is not.
    (this multiple choice question has been scrambled)
  46. In connection with the financial statements, an independent auditor could be responsible for failure to detect a material fraud if: 

    A) Statistical sampling techniques were not used on the audit engagement. 
    B) The fraud was perpetrated by one employee who circumvented the existing internal controls.
    C) The auditor planned the audit in a negligent manner. 
    D) Accountants performing the important parts of the work failed to discover a close relationship between the treasurer and cashier. 
    C) The auditor planned the audit in a negligent manner.
    (this multiple choice question has been scrambled)
  47. The risk of material misstatement refers to: 

    A) Inherent risk. 
    B) Control risk and acceptable audit risk. 
    C) The combination of inherent risk and control risk. 
    D) None of the above.
    C) The combination of inherent risk and control risk.
    (this multiple choice question has been scrambled)
  48. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting. 

    A) The element of reasonable assurance.
    B) The element of internal control. 
    C) The element of materiality and relative risk. 
    D) The element of corroborating evidence. 
    C) The element of materiality and relative risk.
    (this multiple choice question has been scrambled)
  49. The assessed level of detection risk in an audit is inversely related to which of the following? 

    A) Assurance provided by substantive tests. 
    B) Risk of failing to discover material misstatements. 
    C) Risk of misapplying auditing procedures.
    D) Preliminary judgment about materiality levels. 
    A) Assurance provided by substantive tests.
    (this multiple choice question has been scrambled)
  50. As the acceptable level of detection risk decreases, an auditor may:

    A) Postpone the planned timing of substantive tests from interim dates to the year end.
    B) Eliminate the assessed level of inherent risk from consideration as a planning factor. 
    C) Lower the assessed level of control risk from the maximum level to below the maximum. 
    D) Reduce substantive testing by relying on the assessments of inherent risk and control risk. 
    A) Postpone the planned timing of substantive tests from interim dates to the year end.
    (this multiple choice question has been scrambled)
  51. If the acceptable level of detection risk is reduced, the amount of audit evidence the auditor accumulates will: 

    A) Remain unchanged. 
    B) Increase. 
    C) Decrease.
    D) Be indeterminate.
    B) Increase.
    (this multiple choice question has been scrambled)
  52. Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's: 

    A) Audit Strategy. 
    B) Tests of controls. 
    C) Tests of transactions. 
    D) Risk assessment procedures.
    D) Risk assessment procedures.
    (this multiple choice question has been scrambled)
  53. The firm of Bart and Simpson has accepted an engagement to audit the financial statements of Thompson, Inc. During the planning stage of the audit, the auditors made the determination that the substantive testing would need to reduce detection risk to a particular level before an unqualified opinion could be rendered. However, after the auditors had performed a significant amount of work, this earlier decision was modified. The acceptable level of detection risk was lowered as a prerequisite for an unqualified opinion. Which of the following is most likely to have led to that change? 

    A) The level of overall audit risk that was deemed to be acceptable was raised. 
    B) The auditors assessed control risk and determined that it was higher than they had expected. 
    C) No fraud risk factors were discovered during the early stages of the audit.
    D) The auditors assessed inherent risk and it was lower than they had anticipated. 
    B) The auditors assessed control risk and determined that it was higher than they had expected.
    (this multiple choice question has been scrambled)
  54. What are the three components of audit risk? 

    A) Preliminary risk, construction risk, and design risk 
    B) Payment risk, receipt risk, and recording risk 
    C) Variable risk, attribute risk, and assessment risk
    D) Inherent risk, control risk, and detection risk 
    D) Inherent risk, control risk, and detection risk
    (this multiple choice question has been scrambled)
  55. The CPA firm of Bryant and James is auditing Garnett Corporation and has made the decision that there is a increased amount of risk that the financial statements being issued contain a material misstatement. Which of the following is most likely to have led to that assessment? 

    A) Garnett is a bank in a region where several banks have failed in recent months. 
    B) The board of directors takes an active role in the oversight of company management. 
    C) The president of Garnett holds two percent of the outstanding shares of the company.
    D) The company recently sold land and has reporting a gain on that transaction. 
    A) Garnett is a bank in a region where several banks have failed in recent months.
    (this multiple choice question has been scrambled)
  56. A CPA firm is auditing the financial statements of Valdese Computing. The auditors become aware of certain facts that indicate that fraud might have occurred. What are the two types of fraud that the auditor is concerned about? 

    A) Mistakes and errors 
    B) Misstatements of the balance sheet and misstatements of the income statement 
    C) Fraudulent reporting and misappropriation of assets. 
    D) Computer theft and manual system theft
    C) Fraudulent reporting and misappropriation of assets.
    (this multiple choice question has been scrambled)
  57. In auditing, what is meant by the term “inherent risk?” 

    A) It is the chance that a reporting entity will go bankrupt regardless of its current financial position. 
    B) It is the chance that a material misstatement will exist in a financial statement assertion, assuming no related internal controls are in place. 
    C) It is the chance that an independent auditor will make a mistake purely because of being a human being. 
    D) It is the chance that an independent auditor will see a material misstatement but not recognize that it a material misstatement.
    B) It is the chance that a material misstatement will exist in a financial statement assertion, assuming no related internal controls are in place.
    (this multiple choice question has been scrambled)
  58. When an auditor becomes aware of a possible client illegal act, the auditor should obtain an understanding of the nature of the act to 

    A) Evaluate the effect on the financial statements. 
    B) Determine the reliability of management's representations.
    C) Increase the assessed level of control risk. 
    D) Recommend remedial actions to the audit committee. 
    A) Evaluate the effect on the financial statements.
    (this multiple choice question has been scrambled)
  59. Most illegal acts affect the financial statements: 

    A) Materially if direct; immaterially if indirect. 
    B) Only indirectly.
    C) Directly. 
    D) Both directly and indirectly. 
    B) Only indirectly.
    (this multiple choice question has been scrambled)
  60. With respect to the detection of illegal acts, which have an indirect effect on the financial statements, auditing standards state that the auditor provides: 

    A) Assurance that they will be detected, if material. 
    B) The same reasonable assurance provided for other items.
    C) No assurance that they will be detected. 
    D) Assurance that they will be detected, if highly material. 
    C) No assurance that they will be detected.
    (this multiple choice question has been scrambled)
  61. If an auditor uncovers an illegal act at a public company, the auditor must notify: 

    A) The Public Company Accounting Oversight Board. 
    B) The Securities and Exchange Commission. 
    C) Local law enforcement officials. 
    D) All of the above.
    B) The Securities and Exchange Commission.
    (this multiple choice question has been scrambled)
  62. When the auditor knows that an illegal act has occurred, the auditor must: 

    A) Withdraw from the engagement. 
    B) Report it to the proper authorities. 
    C) Consider the effects on the financial statements, including the adequacy of disclosure. 
    D) Issue an adverse opinion.
    C) Consider the effects on the financial statements, including the adequacy of disclosure.
    (this multiple choice question has been scrambled)
  63. When the auditor has reason to believe an illegal act has occurred, the auditor should: 
    A) Inquire of management at a level above those likely to be involved with the illegality. 
    B) Consider accumulating additional evidence to determine if there is actually an illegal act. 
    C) Consult with the client's legal counsel. 
    D) Do all three of the above.
    D) Do all three of the above.
  64. When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should: 
    A) Still include some audit procedures designed specifically to uncover illegalities. 
    B) Make inquires of management regarding their policies for detecting illegal acts and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors and illegalities. 
    C) Ignore the issue.
    D) Include audit procedures which have a strong probability of detecting illegal acts. 
    B) Make inquires of management regarding their policies for detecting illegal acts and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors and illegalities. 
    (this multiple choice question has been scrambled)
  65. Which of the following is an area in which the Public Company Accounting Oversight Board is not empowered to establish or adopt standards? 
    A) Auditing.
    B) Quality Control. 
    C) Accounting. 
    D) Independence. 
    C) Accounting. 
    (this multiple choice question has been scrambled)
  66. An independent auditor carries out an audit to reduce the risk that there is a material misstatement in any of the five assertions made by management about the financial statements it has produced. If that risk can be reduced to an acceptably low level, the auditor provides reasonable assurance that the statements are presented fairly according to US generally accepted accounting principles. For which of the following does the auditor not have to seek to reduce the level of risk? 
    A) Indirect illegal act. 
    B) Fraudulent financial reporting. 
    C) An error (an unintentional misstatement). 
    D) Misappropriation
    A) Indirect illegal act. 
    (this multiple choice question has been scrambled)
  67. An audit conducted in accordance with generally accepted auditing standards should be designed to provide reasonable assurance of detecting illegal acts: 
    A) Involving violations of antitrust laws.
    B) Perpetrated by top management. 
    C) Having an indirect effect on the income statement accounts. 
    D) Having a material direct effect on the determination of financial statement amounts. 
    D) Having a material direct effect on the determination of financial statement amounts. 
    (this multiple choice question has been scrambled)
  68. The Haynsworth CPA firm is auditing Agnestic Corporation. The auditors have come to the conclusion that certain illegal acts may have occurred during the year so that additional testing will be necessary. Which of the following is most likely to have led to this assessment? 
    A) The design of the company’s internal control policies and procedures has not been revised in four years. 
    B) Checks were written to “cash” during the year despite policies to the contrary.
    C) Confirmation of accounts receivable indicates that several recorded balances appear to be understated. 
    D) Related party transactions have occurred throughout the year. 
    B) Checks were written to “cash” during the year despite policies to the contrary.
    (this multiple choice question has been scrambled)
  69. Mr. A makes a $3,000 payment on Monday to Acme Company. The money is stolen by one of Acme’s employees. On Friday, Ms. B makes a $3,000 payment to Acme Company. The same employee credits this payment to Mr. A’s account (rather than to Ms. B’s account) so that a second bill will not be sent to him. Several days later, a payment is received from Mr. C and it is posted to Ms. B’s account. What is this type of theft known as? 
    A) Posting fraud 
    B) Receivable Management Deficiency (RMD)
    C) Reconciliation shortage 
    D) Lapping 
    D) Lapping 
    (this multiple choice question has been scrambled)
  70. The CPA firm of Nguyen & Assoc. discovers that the president of its biggest client committed several illegal acts in the name of the company last year.  He authorized the payment of bribes to officials of a competing company.   The board of directors was informed of this activity but chose to take no action because the amounts were judged to be immaterial in comparison to the reported balances taken as a whole.   Which of the following is the most likely decision by the CPA firm? 
    A) Provide disclosure of the information in the audit report but do not change the audit opinion being rendered. 
    B) Provide disclosure of the information in the audit report and do change the audit report to a qualified audit opinion. 
    C) Contact the appropriate government officials to disclose the actions of the president. 
    D) Consider quitting the engagement.
    D) Consider quitting the engagement.
    (this multiple choice question has been scrambled)
  71. An independent auditor is concerned about her responsibility for uncovering illegal acts that have been committed by an audit client.   Which of the following statements is not true? 
    A) One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may involve nonfinancial problems.
    B) One reason that an auditor might not be expected to discover all client illegal acts is that some of these acts may be well hidden from the auditors. 
    C) A reporting company is guilty of polluting the local river and will be subjected to a heavy monetary fine if caught. This is an example of an indirect illegal act.
    D) A company records false sales in its financial statements in order to obtain a bank loan. Defalcation has occurred. 
    D) A company records false sales in its financial statements in order to obtain a bank loan. Defalcation has occurred.
    (this multiple choice question has been scrambled)
  72. The treasurer of a company has stolen $10,000 in cash from the company.   At the end of the year, he is afraid that he will be caught so he transfers $10,000 from one company bank account to another.   He records the deposit on December 31 of the first year so that $10,000 cash is added.   He does not record the withdrawal from the other account until January 1 of the second year.   As a result, for one day, the company looks like it has $10,000 more than it really does.   What is this deception called? 
    A) Simultaneous Origination 
    B) Kiting 
    C) Lapping 
    D) Zero Line Fraud
    B) Kiting 
    (this multiple choice question has been scrambled)
  73. Polly is joining the audit team of Big Minty Corporation.  Her first assignment is to assist with the assessment of fraud risk during the audit planning stage.  Under AICPA professional standards, Polly should perform all of the following procedures EXCEPT 
    A) Designing the audit to detect all errors due to fraudulent financial reporting 
    B) A discussion among the audit team about how and where the client's financial statements may be at risk for material misstatement due to fraud 
    C) Considering the potential for management override of internal controls
    D) Designing the audit to provide reasonable assurance of detecting misstatements that are material to the financial statements, whether due to error or fraud 
    A) Designing the audit to detect all errors due to fraudulent financial reporting 
    (this multiple choice question has been scrambled)
  74. During the audit of Enormo Corporation, Waldo is involved with preliminary assessment of the risk of material financial statement fraud.  Which of the following procedures should be performed?  
    A) Analytical procedures on revenue accounts, which are particularly susceptible to fraud 
    B) Inquiry of management about any fraud, suspected fraud, or alleged fraud at the company 
    C) Inquiry of management about internal controls that are intended to mitigate fraud risk 
    D) All of the above procedures should be performed
    D) All of the above procedures should be performed
  75. The Public Company Accounting Oversight Board does not: 
    A) Oversee auditors of public companies. 
    B) Perform inspections of the quality controls at audit firms that audit public companies. 
    C) Establish auditing standards that must be followed by all CPAs. 
    D) Perform any of the above functions.
    C) Establish auditing standards that must be followed by all CPAs. 
    (this multiple choice question has been scrambled)
  76. As a result of the Sarbanes-Oxley Act, the Public Company Accounting Oversight Board (PCAOB) has been created. Which of the following is not true? 
    A) All public accounting firms that participate in the preparation of an audit report for a company that issues securities must register with the PCAOB.
    B) The PCAOB is funded by fees charged to all publicly traded registered companies. 
    C) The PCAOB is a government agency. 
    D) The PCAOB comes under the oversight and enforcement authority of the SEC. 
    C) The PCAOB is a government agency. 
    (this multiple choice question has been scrambled)
  77. If the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm, which of the following may occur? 
    A) The PCAOB could report the matter to the Securities and Exchange Commission. 
    B) The PCAOB could report the matter to the appropriate state accountancy board. 
    C) The PCAOB could enforce some disciplinary action against the accounting firm. 
    D) The PCAOB could take any or all of the above steps if it identifies a violation.
    D) The PCAOB could take any or all of the above steps if it identifies a violation.
  78. The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the: 
    A) Form 10-K. 
    B) Form 10-Q.
    C) Form S-1. 
    D) Form 8-K. 
    C) Form S-1
    (this multiple choice question has been scrambled)
  79. A basic objective of a CPA firm is to provide professional services to conform to professional standards. Reasonable assurance of achieving this basic objective is provided through: 
    A) Continuing professional education. 
    B) Compliance with generally accepted reporting standards. 
    C) A system of peer review. 
    D) A system of quality control.
    D) A system of quality control.
    (this multiple choice question has been scrambled)
  80. Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as: 
    A) Benchmarks to be used on all audits, reviews, and compilations. 
    B) Minimum standards of performance that must be achieved on each audit engagement.
    C) Maximum standards that denote excellent work. 
    D) Ideals to work towards, but which are not achievable. 
    B) Minimum standards of performance that must be achieved on each audit engagement.
    (this multiple choice question has been scrambled)
  81. A CPA firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include 
    A) Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily. 
    B) Inquiry of third parties, such as the prospective client's bankers and attorneys, about information regarding the prospective client and its management. 
    C) Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion. 
    D) Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the extent of required substantive tests.
    B) Inquiry of third parties, such as the prospective client's bankers and attorneys, about information regarding the prospective client and its management.
    (this multiple choice question has been scrambled)
  82. A typical objective of an operational audit is to determine whether an entity's 
    A) Internal control is adequately operating as designed. 
    B) Financial statements are presented fairly as a result of operations. 
    C) Operational information is in accordance with generally accepted governmental auditing standards.
    D) Specific operating units are functioning efficiently and effectively. 
    D) Specific operating units are functioning efficiently and effectively. 
    (this multiple choice question has been scrambled)
  83. Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements? 
    A) The board of directors makes all major financing decisions. 
    B) Reportable conditions previously communicated to management are not corrected. 
    C) Management places little emphasis on meeting earnings projections.
    D) Transactions selected for testing are not supported by proper documentation. 
    D) Transactions selected for testing are not supported by proper documentation. 
    (this multiple choice question has been scrambled)
  84. What is an auditor's responsibility for supplementary information, such as segment information, which is outside the basic financial statements, but required by the FASB? 
    A) The auditor's only responsibility for required supplementary information is to determine that such information has not been omitted. 
    B) The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements. 
    C) The auditor should apply tests of details of transactions and balances to the required supplementary information, and report any material misstatements in such information. 
    D) The auditor should apply certain limited procedures to the required supplementary information, and report deficiencies in, or omissions of, such information.
    D) The auditor should apply certain limited procedures to the required supplementary information, and report deficiencies in, or omissions of, such information.
    (this multiple choice question has been scrambled)
  85. Which of the following audits is most likely to be performed by an internal auditor? 
    A) Financial statement audit. 
    B) Compliance audit. 
    C) Operational audit. 
    D) Government audit.
    C) Operational audit. 
    (this multiple choice question has been scrambled)
  86. Any CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) is subject to periodic inspections. Which of the following statements is true? 
    A) All firms will be inspected annually by the PCAOB. 
    B) All firms will be inspected every three years by the PCAOB. 
    C) These firms must undergo inspection by the PCAOB as well as peer review by an outside CPA firm. 
    D) Larger firms will be inspected annually whereas all other firms will only be inspected every three years.
    D) Larger firms will be inspected annually whereas all other firms will only be inspected every three years.
    (this multiple choice question has been scrambled)
  87. In registering with the Public Company Accounting Oversight Board (PCAOB), a CPA firm must provide significant information. Which of the following is not a required disclosure? 
    A) A list of all accountants participating in the audit of each client that is an issuer of securities.
    B) The annual fees from each client that is an issuer of securities, divided between audit and non-audit services. 
    C) Information about any criminal actions pending against the firm. 
    D) A list of all audit clients.
    D) A list of all audit clients.
    (this multiple choice question has been scrambled)
  88. The AICPA has the authority to establish standards and rules in all but which of the following areas? 
    A) Auditing standards applicable to financial statements of private companies. 
    B) Professional conduct. 
    C) Auditing standards applicable to financial statements of private and public companies. 
    D) Compilation and review standards.
    C) Auditing standards applicable to financial statements of private and public companies. 
    (this multiple choice question has been scrambled)
  89. Which of the following is not an essential component of quality control? 
    A) Policies and procedures to ensure that the work performed by the personnel meet applicable professional standards.
    B) Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies. 
    C) Policies to ensure that personnel maintain their independence in fact and in appearance. 
    D) Policies to ensure that monitoring activities are effectively applied. 
    B) Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies. 
    (this multiple choice question has been scrambled)
  90. The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the: 
    A) Form 8-K.
    B) Form 10-Q. 
    C) Form 10-K. 
    D) Form S-1 
    A) Form 8-K.
    (this multiple choice question has been scrambled)
  91. The form that must be completed and filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is which of the following? 
    A) Form 10-Q. 
    B) Form S-1. 
    C) Form 10-K.
    D) Form 8-K. 
    B) Form S-1. 
    (this multiple choice question has been scrambled)
  92. If the Public Companies Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm, which of the following may occur? 
    A) The PCAOB could report the matter to the Securities and Exchange Commission. 
    B) The PCAOB could enforce some disciplinary action against the accounting firm. 
    C) The PCAOB could report the matter to the appropriate state accountancy board. 
    D) The PCAOB could take any or all of the above steps if it identifies a violation.
    D) The PCAOB could take any or all of the above steps if it identifies a violation.
  93. Early appointment of the auditor will enable 
    A) A proper consideration of internal control to be performed. 
    B) Sufficient competent evidential matter to be obtained.
    C) A more sufficient audit to be planned. 
    D) A more thorough audit to be performed. 
    C) A more sufficient audit to be planned. 
    (this multiple choice question has been scrambled)
  94. Which of the following is not a possible indication of fraud? 
    A) Accidental recording of a balance 
    B) Intentional omission of necessary information.
    C) Misapplication of GAAP. 
    D) Intentional departure from fact. 
    A) Accidental recording of a balance
    (this multiple choice question has been scrambled)
  95. Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit: 
    A) Private companies only. 
    B) All companies in the United States.
    C) Public companies only. 
    D) Private and Public partnerships only. 
    C) Public companies only.
    (this multiple choice question has been scrambled)
  96. Cox Company is being audited by Brown & Yellow CPAs.   This public accounting firm has offices in five locations but this audit is primarily performed out of the Baltimore office.   Smith is a partner in this firm and works out of the Baltimore office but does not participate in the Cox Company audit.   Jones is also a partner in this firm but works out of the Philadelphia office and does not participate in the Cox Company audit.   The CPA firm is now trying to determine who in the firm qualifies as a covered member of this engagement so audit independence rules can be verified.   Which of the following is true? 
    A) Smith is a covered member but Jones is not 
    B) Jones is a covered member but Smith is not 
    C) Neither Smith nor Jones is a covered member
    D) Smith and Jones are both covered members for this audit engagement. 
    A) Smith is a covered member but Jones is not 
    (this multiple choice question has been scrambled)
  97. Darn Yarn Co. is audited by Scoop & Sweet, CPAs.  Which of the following parties is not considered a "covered member" for purposes of the AICPA Code of Professional Conduct independence standards?   
    A) Candy Cohen, a partner in the office of Scoop & Sweet from which the audit is conducted 
    B) Rob Jolly, who provides 40 hours of tax services to Darn Yarn every year 
    C) Van Wafer, a secretary who faxes, mails, and files audit documentation for the Darn Yarn audit, and other audits, as needed 
    D) Brandy Carsen, human resources manager at Scoop & Sweet who determines pay raises for members of the audit team
    C) Van Wafer, a secretary who faxes, mails, and files audit documentation for the Darn Yarn audit, and other audits, as needed 
    (this multiple choice question has been scrambled)
  98. In which of the following scenarios would the independence of Bumble & Sweet, CPAs, be impaired with respect to its client, Cutie Cupcakery?   
    A) Bob Bumble, lead audit partner at Bumble & Sweet, inherits stock in Cutie Cupcakery from his grandmother, Diane, and sells the stock 20 days after receipt 
    B) Due to slow economic times, Cutie Cupcakery is behind on its audit fees for the last two years 
    C) Cutie Cupcakery leases its space from Bumble & Sweet under an operating lease 
    D) Rob Sweet, partner in Bumble & Sweet, has sued Cutie Cupcakery in the firm's name in small claims court for unpaid tax fees in the amount of $200.
    B) Due to slow economic times, Cutie Cupcakery is behind on its audit fees for the last two years 
    (this multiple choice question has been scrambled)
  99. Bravo CPAs is the auditor for Smiley Cat Corporation.  Although Bravo has been Smiley Cat's auditor without incident for five years, in the current year, litigation is initiated that involves the audit firm and its client.  Which of the following litigation scenarios would not threaten Bravo's independence from the audit of Smiley Cat?  
    A) Smiley Cat management has sued Bravo for deficiency in its audit for failing to detect a material error in the financial statements. 
    B) Smiley Cat management has strongly indicated an intent to sue Bravo for deficiency in its audit, but has not yet filed suit
    C) Bravo has sued Smiley Cat management for misrepresentation and fraud during the audit 
    D) Smiley Cat's controlling shareholder has sued Bravo for deficiency in its audit and Bravo has not initiated any cross claims against Smiley Cat. 
    D) Smiley Cat's controlling shareholder has sued Bravo for deficiency in its audit and Bravo has not initiated any cross claims against Smiley Cat. 
    (this multiple choice question has been scrambled)
  100. Darla Delaney is a new auditor who just graduated from her university program.  She is assigned to the audit of Smeagol, LLC, a local company specializing in fine jewelry.  Samantha Merriweather is the president of the company and is impressed with Darla's professionalism.  Which of the following scenarios would impair Darla's independence from Smeagol, LLC, under the independence guidelines and interpretations contained in the AICPA's Code of Professional Conduct? 
    A) Samantha invites Darla to a thank you dinner at a local restaurant after the audit is over.
    B) Samantha holds a luncheon for Smeagol employees, suppliers, and customers, to which she invites Darla. 
    C) Samantha gives Darla a small fruit basket on the last day of audit work with a thank you note attached. 
    D) Samantha gives Darla a gold watch from the jewelry case that was abandoned by a client months ago, and is, therefore, no loss to Smeagol. 
    D) Samantha gives Darla a gold watch from the jewelry case that was abandoned by a client months ago, and is, therefore, no loss to Smeagol.
    (this multiple choice question has been scrambled)
  101. Charlie Chaucer has been in CPA practice for over 30 years and is well respected in the profession.  He has been asked to speak about the AICPA's Code of Professional Conduct, but has not reviewed the independence guidelines in several years.  When he notices the section about loans to and from clients, he becomes worried that his independence to a local client, Chipper Falls Credit Union, may be impaired.  In which of the following scenarios would Charlie's independence be impaired under the AICPA's independence guidelines? 
    A) Charlie's mortgage on his home, which was obtained through Chipper Regional Bank, was sold to Chipper Falls Credit Union. 
    B) Charlie's mortgage on a vacation home, on which Charlie has forgotten to make payments for the last several months, was obtained through Chipper Falls before Charlie became the credit union's auditor. 
    C) Charlie has a car loan through Chipper Falls Credit union for his son's car, which is collateral for the loan. 
    D) None of the above
    B) Charlie's mortgage on a vacation home, on which Charlie has forgotten to make payments for the last several months, was obtained through Chipper Falls before Charlie became the credit union's auditor.
    (this multiple choice question has been scrambled)
  102. The accounting firm of Light & Sabre, CPAs is a regional expert in auditing employee benefit plans.  Light & Sabre is currently conducting the audit of the employee benefit plan of Je D'ai Corporation.  Under the appropriate independence guidelines for auditors of such plans, a direct or material indirect financial interest in the plan is acceptable for which of the following individuals?  
    A) Juan, a partner in an office in another city, who is not involved in the audit 
    B) The firm, Light & Sabre 
    C) Anakin, who is a junior auditor on the engagement 
    D) None of the above
    D) None of the above
  103. Daisy is seeking employment as an auditor at Mayes, CPAs.  This firm exclusively audits employee benefit plans of U.S. firms.  To prepare for her interview Daisy familiarizes herself with the independence standards promulgated by which of the following?  
    A) Financial Accounting Standards Board 
    B) Government Accountability Office 
    C) Department of Labor 
    D) International Federation of Accountants
    C) Department of Labor 
    (this multiple choice question has been scrambled)
  104. In preparation for a career as a public accountant and auditor, Randy Macho is reviewing his responsibility to adhere to various professional standards and requirements.  Which of the following statements is true?  
    A) As an accountant in public practice, Randy must adhere to the requirements of his state board of accountancy 
    B) Randy will be subject to sanction if he fails to follow the guidelines set forth by the PCAOB during an audit of a private company 
    C) If Randy fails to adhere to the independence standards in the AICPA's Code of Professional Conduct, the AICPA may revoke his CPA license 
    D) All of the above statements are true
    A) As an accountant in public practice, Randy must adhere to the requirements of his state board of accountancy
    (this multiple choice question has been scrambled)
  105. Monica Marchbanks is attempting to determine whether her firm is required to follow a particular standard included in the AICPA's Statements on Auditing Standards.  Which of the following statements is FALSE?  
    A) A statement in the auditing standards that uses the word "should" is explanatory material that does not impose a requirement on the auditor 
    B) A statement in the auditing standards that uses the word "must" is an unconditional requirement and Monica's firm must comply with it 
    C) Monica's firm may depart from a statement in the auditing standards that is "presumptively mandatory", but must document the justification for such a departure 
    D) Descriptive guidance contained in the standards that uses words such as "may," might," or "could" does not impose a requirement on the auditor
    A) A statement in the auditing standards that uses the word "should" is explanatory material that does not impose a requirement on the auditor
    (this multiple choice question has been scrambled)
  106. All of the following sets of AICPA professional guidance contain both "presumptively mandatory" and "unconditional" professional requirements EXCEPT:  
    A) Statements on Auditing Standards 
    B) Statements on Standards for Accounting and Review Services
    C) Auditing Statements of Position 
    D) Statements on Quality Control Standards 
    C) Auditing Statements of Position
    (this multiple choice question has been scrambled)
  107. Doris Dia has participated in public company audits for over twenty years and now serves as the reviewing partner for several key audits performed by her firm.  Which of the following statements is FALSE about the reviewing partner?   
    A) During her review, Doris will focus on evaluating the engagement team's judgments and related conclusions during the audit 
    B) The reviewing partner is not required to possess the level of knowledge and competence related to accounting, auditing, and financial reporting that would be required to serve as the audit partner on the audit under review
    C) Doris' firm may only allow clients to use the audit report after she provides the concurring approval of issuance 
    D) Doris may provide concurring approval of issuance of the audit report only if she is not aware of a significant engagement deficiency after conducting her review in accordance with professional standards 
    B) The reviewing partner is not required to possess the level of knowledge and competence related to accounting, auditing, and financial reporting that would be required to serve as the audit partner on the audit under review
    (this multiple choice question has been scrambled)
  108. In the evaluating the accuracy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of 
    A) Rights and obligations. 
    B) Existence or occurrence. 
    C) Completeness.
    D) Valuation or allocation. 
    D) Valuation or allocation.
    (this multiple choice question has been scrambled)
  109. An auditor may achieve audit objectives related to certain assertions by 
    A) Adhering to a system of good quality control. 
    B) Performing analytical procedures. 
    C) Preparing proper audit documentation.
    D) Reducing the level of detection risk. 
    B) Performing analytical procedures.
    (this multiple choice question has been scrambled)
  110. The CPA firm of Wilson and Williams has been hired to audit the financial statements of Harkins Corporation, a privately held company applying for a bank loan. Which of the following is not a financial statement assertion made by management about the financial statements? 
    A) Effectiveness of internal control. 
    B) Completeness of recorded assets and liabilities. 
    C) Valuation of assets and liabilities. 
    D) Existence of recorded assets and liabilities.
    A) Effectiveness of internal control.
    (this multiple choice question has been scrambled)
  111. An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective of 
    A) Existence. 
    B) Control.
    C) Completeness. 
    D) Accuracy. 
    C) Completeness.
    (this multiple choice question has been scrambled)
  112. An auditor select items for test counts while observing a client's physical inventory. The auditor then traces the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of 
    A) Existence or occurrence. 
    B) Rights and obligations. 
    C) Completeness.
    D) Valuation. 
    C) Completeness.
    (this multiple choice question has been scrambled)
  113. Confirmation is most likely to be a relevant form of evidence with regard to assertion about accounts receivable when the auditor has concern about the receivables' 
    A) Classification. 
    B) Existence. 
    C) Valuation. 
    D) Completeness.
    B) Existence.
    (this multiple choice question has been scrambled)
  114. An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure and 
    A) Obligations and Rights.
    B) Existence. 
    C) Valuation or allocation. 
    D) Completeness. 
    C) Valuation or allocation.
    (this multiple choice question has been scrambled)
  115. An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's assertions about 
    A) Presentation and disclosure. 
    B) Existence or occurrence. 
    C) Valuation or allocation. 
    D) Obligations and Rights.
    C) Valuation or allocation.
    (this multiple choice question has been scrambled)
  116. Which of the following audit procedures is best for identifying unrecorded trade accounts payable? 
    A) Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. 
    B) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. 
    C) Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
    D) Examining unusual relationships between monthly accounts payable balances and recorded cash payments. 
    B) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
    (this multiple choice question has been scrambled)
  117. When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: 
    A) Payees of checks drawn in the month after the year end. 
    B) Invoices filed in the entity's open invoice file. 
    C) Vendors with whom the entity has previously done business. 
    D) Amounts recorded in the accounts payable subsidiary ledger.
    C) Vendors with whom the entity has previously done business.
    (this multiple choice question has been scrambled)
  118. An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of: 
    A) Completeness.
    B) Presentation and disclosure. 
    C) Existence or occurrence. 
    D) Valuation or allocation. 
    B) Presentation and disclosure.
    (this multiple choice question has been scrambled)
  119. Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of valuation or allocation and 
    A) Completeness. 
    B) Presentation and disclosure. 
    C) Existence or occurrence.
    D) Rights and obligations. 
    B) Presentation and disclosure.
    (this multiple choice question has been scrambled)
  120. In auditing a client's retained earnings account, an auditor should determine whether there are any restrictions on retained earnings that result from loans, agreements, or state law. This procedure is designed to corroborate which financial statement assertion made by management? 
    A) Presentation and disclosure. 
    B) Rights and obligations.
    C) Existence or occurrence. 
    D) Valuation and allocation. 
    A) Presentation and disclosure.
    (this multiple choice question has been scrambled)
  121. Which of the following procedures would an auditor perform to test the controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? 
    A) Inquire about the employees' access to recorded but undeposited cash. 
    B) Observe the consistency of the employees' use of cash registers and tapes. 
    C) Trace the deposit in the cash receipt journal to the cash balance in the general ledger.
    D) Compare the cash balance in the general ledger with the bank confirmation request. 
    B) Observe the consistency of the employees' use of cash registers and tapes.
    (this multiple choice question has been scrambled)
  122. The confirmation of accounts receivable provides evidence about management's assertion of rights and obligations. For what other assertion does the confirmation of accounts receivable balances provide primary evidence? 
    A) Valuation or allocation.
    B) Existence. 
    C) Completeness. 
    D) Presentation and disclosure. 
    B) Existence.
    (this multiple choice question has been scrambled)
  123. In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion of 
    A) Completeness. 
    B) Rights and obligations.
    C) Existence or occurrence. 
    D) Valuation or allocation. 
    D) Valuation or allocation.
    (this multiple choice question has been scrambled)
  124. An independent auditor uncovers a material misstatement in one of the assertions made by management about a set of financial statements. Which of the following is true? 
    A) Some misstatements can be material even though they are smaller than other misstatements which are viewed as immaterial.
    B) The term “material” is a quantitative analysis. 
    C) The size of a material misstatement is the same (in percentage terms) for all audits. 
    D) The term “material” relates to fraud rather than errors. 
    A) Some misstatements can be material even though they are smaller than other misstatements which are viewed as immaterial.
    (this multiple choice question has been scrambled)
  125. Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of 
    A) Presentation and disclosure. 
    B) Existence or occurrence. 
    C) Completeness. 
    D) Rights and obligations.
    C) Completeness.
    (this multiple choice question has been scrambled)
  126. In testing the existence assertion for an asset, an auditor ordinarily works from the 
    A) Potentially unrecorded items to the financial statements. 
    B) Supporting evidence to the accounting records. 
    C) Accounting records to the supporting evidence.
    D) Financial statements to the potentially unrecorded items. 
    C) Accounting records to the supporting evidence.
    (this multiple choice question has been scrambled)
  127. In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of 
    A) Completeness. 
    B) Existence or occurrence. 
    C) Valuation or allocation.
    D) Presentation and disclosure. 
    B) Existence or occurrence.
    (this multiple choice question has been scrambled)
  128. An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management's assertions about 
    A) Valuation or allocation.
    B) Completeness. 
    C) Presentation and disclosure. 
    D) Existence or occurrence. 
    C) Presentation and disclosure.
    (this multiple choice question has been scrambled)
  129. An auditor is analyzing documents created by a client company in connection with the purchase of a large warehouse. In studying the ten-year loan that was taken out to pay for the acquisition, the auditor discovers that the company must maintain a current ratio of at least 2-to-1 or the debt can be immediately called by the bank. The current ratio is well over 2-to-1 at the moment. What impact does this requirement have on the auditor’s investigation of the financial statements? 
    A) The requirement impacts the book value reported for the liability. 
    B) The requirement impacts the capitalized cost of the warehouse. 
    C) The requirement must be disclosed in the notes to the financial statements.
    D) The loan must be recorded as a current liability rather than as a noncurrent liability. 
    C) The requirement must be disclosed in the notes to the financial statements.
    (this multiple choice question has been scrambled)
  130. The CPA firm of Jeter and Cano is auditing the Angel Corporation.  Currently, the auditors are looking at current liabilities that were recording shortly after the end of the fiscal year.  They are concerned that some of these liabilities were actually owed by the reporting company at the end of the year under audit.  Which financial statement assertion are the auditors most likely to be attempting to substantiate? 
    A) Allocation
    B) Existence 
    C) Disclosure 
    D) Completeness 
    D) Completeness
    (this multiple choice question has been scrambled)
  131. The Machieto Corporation produces a set of financial statements according to United States generally accepted accounting principles (GAAP).   However, by an accident, the accountant reported the book value of the company’s warehouse using a method that was not appropriate under GAAP.  The accountant has created a misstatement in which of the following assertions? 
    A) Valuation
    B) Existence 
    C) Completeness 
    D) Presentation 
    A) Valuation
    (this multiple choice question has been scrambled)

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