cpa audit review ch 13 to 17 review 1

Card Set Information

Author:
Joens1313
ID:
287041
Filename:
cpa audit review ch 13 to 17 review 1
Updated:
2014-10-25 16:45:53
Tags:
cpa audit review 13 17
Folders:

Description:
cpa audit review ch 13 to 17 review 1
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user Joens1313 on FreezingBlue Flashcards. What would you like to do?


  1. An auditor determines that a client has properly capitalized a leased asset (and corresponding lease liability) as representing, in substance, an installment purchase. As part of the auditor’s procedures, (s)he should

    A.Substantiate the cost of the property to the lessor and determine that this is the cost recorded by the client.

    B.Evaluate whether the total amount of lease payments represents the fair value of the property.

    C.Evaluate the propriety of the interest rate used in discounting the future lease payments.

    D.Determine that the leased property is being amortized over the life of the lease.
    C.Evaluate the propriety of the interest rate used in discounting the future lease payments.

    Under U.S. GAAP, a capital lease is recorded by the lessee as an asset and a liability at the present value of the minimum lease payments. Thus, the interest rate used in the discounting process is an important consideration in determining whether the asset is fairly presented in the balance sheet. The interest rate is the lessee’s incremental borrowing rate, unless the lessor’s implicit rate in the lease is known and is less than the lessee’s incremental rate.
  2. When the risk of material misstatement is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and

    A.Observing the distribution of paychecks.

    B.Inspecting payroll tax returns.

    C.Recalculating payroll accruals.

    D.Footing and crossfooting the payroll register.
    C.Recalculating payroll accruals.

    When controls are judged to be effective, the auditor’s procedures are typically limited to analytical procedures and testing for completeness and cutoff of the year-end accruals.
  3. A material misstatement results in either a qualified or an adverse opinion. The auditor must exercise judgment as to whether the misstatement is pervasive. If the misstatement is not pervasive, the auditor should express a -------------------.
    qualified opinion
  4. A charge in the subsequent period to a notes receivable account from the cash disbursements journal should alert the auditor to the possibility that a

    A.Contingent liability has come into existence in the subsequent period.

    B.Provision for contingencies is required.

    C.Contingent asset has come into existence in the subsequent period.

    D.Contingent liability has become a real liability and has been settled.
    D.Contingent liability has become a real liability and has been settled.

    The entry may represent the establishment of a receivable from a party for whom the client has guaranteed a debt. The payment of the debt upon default of the party is recognized by a debit to notes receivable and a credit to cash.
  5. A CPA is considered not associated with unaudited financial statements of a public entity when (s)he

    A.Received all input data from the client, analyzed it, and returned it to the client for processing by an independent computer service company.

    B.Assisted in the preparation of the unaudited financial statements for an issuer.

    C.Performed a review of an issuer’s unaudited financial statements that are presented in a quarterly report to the shareholders.

    D.Completed an audit and reported on the financial statements that, without the CPA’s consent, were part of a prospectus including unaudited financial statements.
    D.Completed an audit and reported on the financial statements that, without the CPA’s consent, were part of a prospectus including unaudited financial statements.

    PCAOB auditing standards apply to engagements involving issuers. Under these standards, a CPA is associated with unaudited financial statements of a public entity when (s)he prepares or assists in preparing them or consents to the use of his/her name with them. If neither condition is met, the CPA is not associated with the unaudited statements in the prospectus (PCAOB Interim Auditing Standards).
  6. An auditor usually obtains evidence of a company’s equity transactions by reviewing its

    A.Canceled stock certificates.

    B.Minutes of board of directors meetings.

    C.Transfer agent’s records.

    D.Treasury stock certificate book.
    B.Minutes of board of directors meetings.

    Equity transactions are typically few in number and large in amount. They require authorization by the board of directors. Thus, an auditor reviews the minutes of the board meetings to identify transactions.
  7. Four factors are considered in determining the sample size for ----------------------. Those factors include (1) the population size, (2) an estimate of population variation (the standard deviation), (3) the risk of incorrect rejection (its complement is the confidence level), and (4) the tolerable misstatement (the desired allowance for sampling risk is a percentage thereof, and this percentage is a function of the risk of incorrect rejection and the allowable risk of incorrect acceptance).
    mean-per-unit estimation
  8. Under which of the following circumstances would a disclaimer of opinion not be appropriate?

    A.The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances.

    B.The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry.

    C.The financial statements fail to contain adequate disclosure concerning related party transactions.

    D.The auditor is unable to determine the amounts associated with fraud committed by the client’s management.
    C.The financial statements fail to contain adequate disclosure concerning related party transactions.

    A disclaimer is inappropriate when the financial statements contain material departures from the applicable financial reporting framework. Inadequacy of the disclosures required by the applicable financial reporting framework is such a departure. Because U.S. GAAP require certain disclosures about related party transactions, the inadequacy of such disclosures is a basis for expressing a qualified or an adverse opinion.
  9. In connection with the audit of a current issue of bonds payable, the auditor should

    A.Decide whether the bond issue was made without violating state or local law.

    B.Calculate the effective interest rate to see if it is substantially the same as the rates for similar issues.

    C.Ascertain that the client has obtained the opinion of counsel on the legality of the issue.

    D.Conclude that no bondholders are owners, directors, or officers of the company issuing the bonds.
    C.Ascertain that the client has obtained the opinion of counsel on the legality of the issue.

    An audit of noncurrent debt (1) determines that all noncurrent debt has been recorded and constitutes bona fide liabilities; (2) verifies that federal and state laws relevant to financial reporting have been complied with; (3) determines that premium, discount, interest payable, and interest expense are accurately recorded; (4) monitors compliance with debt contracts; and (5) reviews proper presentation and disclosure in the financial statements. The auditor therefore should determine that the client has obtained the opinion of a lawyer on the legality of the bond issue.
  10. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity’s ability to continue as a going concern would most likely be mitigated by evidence relating to the

    A.Ability to expand operations into new product lines in the future.

    B.Marketability of assets that management plans to sell.

    C.Feasibility of plans to purchase leased equipment at less than market value.

    D.Committed arrangements to convert preferred stock to noncurrent debt.
    B.Marketability of assets that management plans to sell.

    Once an auditor identifies conditions and events indicating that a substantial doubt exists about an entity’s ability to continue as a going concern, (s)he should consider management’s plans to mitigate their adverse effects. With regard to plans to sell assets, the auditor’s considerations may include restrictions on disposal, marketability of the assets, and the possible direct and indirect effects of the disposal. Thus, the greater the marketability of the assets, the greater the potential mitigation.

What would you like to do?

Home > Flashcards > Print Preview