acct 241 part 1

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acct 241 part 1
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acct 241 part 1
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  1. The underlying conditions that create demand by users for reliable information include
    a. transactions that are numerous and complex
    b. users separated from accounting records by distance and time
    c. financial decisions that are important to investors and users
    d. decisions are time-sensitive
    e. all of the above
    e. all of the above
  2. Information risk refers to the risk that
    a. the client's financial statements may be materially false and misleading
    b. the auditor may express an unqualified opinion on financial statements that are material misstated
    c. the client may not be able to remain in business
    d. errors and frauds would not be detected by the auditor's procedures
    a the client's financial statements may be materially false and misleading
  3. It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that:
    a. a potential conflict of interest always exists between the auditor and the management of the enterprise under audit
    b. in audits of financial statements, the auditor acts exclusively in the capacity of an auditor
    c. the professional status of the independent auditor imposes commensurate professional obligations
    d. financial statements and financial data are verifable
    a a potential conflict of interest always exists between the auditor and the management of the enterprise under audit
  4. According to the AICPA, the objective of an audit of financial statements is:
    a. an expression of opinion on the fairness with which they present financial position results of operations, and cash flows in conformity with generally accepted accounting principles
    b. an expression of opinion on the fairness with which they present financial position, results of operations, and cash flows in conformity with accounting standards promulgated by the financial accounting standards board
    c. an expression of opinion on the fairness with which they present financial position, result of operations, and cash flows in conformity with accounting standards promulgated by the U.S. Securities and Exchange Commission
    d. to obtain systematic and objective evidence about financial assertions and report the results to interest users
    a an expression of opinion on the fairness with which they present financial position results of operations, and cash flows in conformity with generally accepted accounting principles
  5. The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertion about:
    a. compliance
    b. existence
    c. rights and obligations
    d. valuation or allocation
    d valuation or allocation
  6. Which of the following is not one of the three standards of field work?
    a. adequate planning and supervision
    b. due professional care
    c. sufficient appropriate evidence
    d. understanding of the entity, including the risk of material misstatement
    b due professional care
  7. Which of the following is not one of the 4 generally accepted standards of reporting?
    a. The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period
    b. When the auditor determines that information disclosures are not reasonable adequate, the auditor must so state in the auditor's report
    c. the auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report
    d. the auditor should state in the auditor's report whether the audit was conducted in accordance with GAAS
    d the auditor should state in the auditor's report whether the audit was conducted in accordance with GAAS
  8. To exercise due professional care, a CPA should:
    A. Conduct the engagement in accordance with GAAS and ensure that the engagement is completed on a timely basis.
    B. Gather enough audit evidence to have complete assurance that there is enough support for the CPA's opinion on the financial statements.
    C. take continuing professional education classes
    D. report whether the financial statements are in accordance with GAAP
    A. Conduct the engagement in accordance with GAAS and ensure that the engagement is completed on a timely basis.
    (this multiple choice question has been scrambled)
  9. The most persuasive evidence regarding the existence of newly acquired computer equipment is:
    a. inquiry of management
    b. documentation prepared externally
    c. observation of auditee's procedures
    d. physical examination
    d physical examination
  10. An auditor's understanding of the control system in an auditee's organization contributes information for:
    a. determining whether members of the audit team have the required technical training and proficiency to perform the audit
    b. ascertaining the independence in mental attitude of members of the audit team
    c. planning the professional development courses the audit staff needs to keep up to date with new auditing standards
    d. planning the nature, timing, and extent of further audit procedures on an audit
    d planning the nature, timing, and extent of further audit procedures on an audit
  11. Management's representation that all transactions and accounts are included in the financial statements are assertions about
    a. completeness
    b. existence or occurrence
    c. valuation or allocation
    d. presentation and disclosure
    a completeness
  12. Management's representation that all the recorded transactions are real transactions is an example of which of the following assertions?
    a. completeness
    b. existence or occurrence
    c. valuation or allocation
    d. presentation and disclosure.
    b existence or occurrence
  13. The risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated is referred to as
    a. audit risk
    b. detection risk
    c. information risk
    d. business risk
    a audit risk
  14. The risk that the auditors' own work will lead to the decision that material misstatements do not exist in the financial statements, when in fact such misstatements do exist, is:
    a. audit risk
    b. inherent risk
    c. control risk
    d. detection risk
    d detection risk
  15. An audit program contains:
    a. specifications of audit standards relevant to the financial statements being audited
    b. specifications of procedures the auditors believe appropriate for the financial statements under audit
    c. documentation of the assertions under audit, the evidence obtained, and the conclusions reached
    d. reconciliation of the account balances in the financial statements with the account balances in the client's general ledger
    b specifications of procedures the auditors believe appropriate for the financial statements under audit
  16. Confirmations of accounts receivable provide evidence primarily about these two assertions:
    a. completeness and valuation
    b. valuation and rights and obligations
    c. rights and obligations and existence
    d. existence and completeness
    c rights and obligations and existence
  17. One of the typical characteristics of management fraud is:
    a. falsification of documents in order to steal money from an employer
    b. victimization of investors through the use of materially misleading financial statements
    c. illegal acts committed by management to evade laws and regulations
    d. conversion of stolen inventory to cash deposited in a falsified bank account
    b victimization of investors through the use of materially misleading financial statements
  18. In testing the existence assertion for an asset, an auditor ordinarily works from the
    a. financial statements to the potentially unrecorded items
    b. potentially unrecorded items to the financial statements
    c. accounting records to the supporting evidence
    d. supporting evidence to the accounting records
    c accounting records to the supporting evidence
  19. Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?
    a. accounts payable
    b. accounts receivable
    c. payroll expense
    d. advertising expense
    c payroll expense
  20. Auditors perform analytical procedures in the planning stage of an audit for the purpose of:
    a. deciding the matters to cover in an engagement letter
    b. identifying unusual conditions that deserve more auditing effort
    c. determining which of the financial statement assertions are the most important for the client's financial statements
    d. determining the nature, timing, and extent of audit procedures for auditing the inventory
    b identifying unusual conditions that deserve more auditing effort
  21. When planning an audit, which of the following is not a factor that affects auditors' decisions about the quantity, type and content of audit documentation?
    a. the auditors' need to document compliance with generally accepted auditing standards
    b. the existence of new sales contracts important for the clients business
    c. the auditors' judgment about their independence with regard to the client
    d. the auditors' judgment about materiality
    c the auditors' judgment about their independence with regard to the client
  22. An audit working paper that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the:
    a. current file evidence audit documentation
    b. permanent file audit documentation
    c. administrative audit documentation in the current file
    d. planning memorandum in the current file
    a current file evidence audit documentation
  23. Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of starting an audit?
    a. being able to fine-tune the audit work for effectiveness and efficiency
    b. avoiding the problem of doing more work than necessary (over auditing)
    c. being able to decide early what kind of audit opinion to give
    d. avoiding the problem of doing too little work (under auditing)
    c being able to decide early what kind of audit opinion to give
  24. A primary advantage of using computer assisted audit tools and techniques in the audit of the advanced computer system is that it enables the auditor to:
    a. substantiate the accuracy of data through self-checking digits and hash totals
    b. utilize the speed and accuracy of the computer
    c. verify the performance of machine operations which leave visible evidence of occurrence
    d. gather and store large quantities of supportive audit evidence in machine readable form
    b utilize the speed and accuracy of the computer
  25. An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's assertions about:
    a. existence or occurrence
    b. rights and obligations
    c. valuation or allocation
    d. presentation and disclosure
    c valuation or allocation
  26. Generally accepted auditing standards states that analytical procedures:
    a. should be applied in the planning and final review stages of the audit and as a substantive test during the audit
    b. should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit
    c. should be applied in the planning stage and can be applied as a substantive test and in the final review stage
    d. should be applied in the final review stage, and can be applied as a substantive test and in the planning stage
    b should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit
  27. With respect to the concept of materiality, which one of the following statements is correct?
    a. Materiality depends only on the dollar amount of an item relative to other items in the financial statements.
    b. Materiality depends on the nature of a transaction rather than the dollar amount of the transaction.
    c. Materiality is determined by reference to ACIPA guidelines.
    d. Materiality is a matter of professional judgment.
    d Materiality is a matter of professional judgment.
  28. In most audits of large companies, internal control risk assessment contributes to audit efficiency, which means:
    a. the cost of substantive procedures will exceed the cost of control evaluation work
    b. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
    c. the cost of control evaluation work will exceed the cost of substantive procedures
    d. auditors will be able to reduce the cost of substantive procedures by an amount less than the control evaluation costs
    b auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
  29. Tests of controls are required for:
    a. obtaining evidence about the financial statement assertions
    b. accomplishing control over the occurrence of recorded transactions
    c. analytical procedures applied to financial statement balance
    d. obtaining evidence about the operating effectiveness of client control procedures
    d obtaining evidence about the operating effectiveness of client control procedures
  30. A client's control procedures is:
    a. an actions taken by auditors to obtain evidence
    b. an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions
    c. a method for recording, summarizing, and reporting financial information
    d. the functioning of the board of directors in support of its audit committee
    b an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions
  31. When planning an audit, an auditor's prior experience with the client's internal control procedures can be used to:
    a. identify the errors and frauds that could occur in the business
    b. assess the operational efficiency this year of the internal controls in general
    c. find evidence of whether management has circumvented controls by collusion
    d. prepare audit files documenting the decision about the control risks this year
    a identify the errors and frauds that could occur in the business
  32. In updating a computerized accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the posting of cash receipts remittances?
    a. the sum of the cash deposits plus the discounts less the sales returns
    b. the sum of the cash deposits
    c. the sum of the cash deposits less the discounts taken by customers
    d. the sum of the cash deposits plus the discounts taken by customers
    d the sum of the cash deposits plus the discounts taken by customers
  33. The best way to enact a broad fraud-prevention program is to:
    a. install airtight control systems of checks and supervision
    b. name an "ethic officer" who is responsible for receiving and acting upon fraud tips
    c. place dedicated "hotline" telephone on walls around the workplace with direct communication to the company ethics officer
    d. practice management "of the people and for the people" to help them share personal and professional problems
    d practice management "of the people and for the people" to help them share personal and professional problems
  34. Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances?
    a. the cashier prepares the daily deposit
    b. the cashier makes the daily deposit at a local bank
    c. the cashier posts the receipts to the accounts receivable subsidiary ledger cards
    d. the cashier endorses the checks
    c the cashier posts the receipts to the accounts receivable subsidiary ledger cards
  35. Which of the following is one of the better audit procedures that might be used by an auditor to detect kiting between inter-company banks?
    a. review composition of authenticated deposit slips
    b. review subsequent bank statements
    c. prepare a schedule of the bank transfer
    d. prepare a year end bank reconciliation
    c prepare a schedule of the bank transfer
  36. Upon receipt of customers' check in the mail room, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the:
    a. internal auditor to investigate the listing for unusual transactions
    b. treasurer to compare the listing with the monthly bank statement
    c. accounts receivable bookkeeper to update the subsidiary accounts receivable records
    d. entity's bank to compare the listing with the cashier's deposit slip
    c accounts receivable bookkeeper to update the subsidiary accounts receivable records
  37. During an audit of cash, the auditor is most concerned with the management assertion of:
    a. existence
    b. rights
    c. valuation
    d. presentation
    a existence
  38. The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:
    a. not believe the bank is obligated to verify confidential information to a 3rd party
    b. sign and return the form without inspecting the accuracy of the client's bank reconciliation
    c. not have access to the client's bank statement
    d. be unaware of all the financial relationships that the bank has with the client
    d be unaware of all the financial relationships that the bank has with the client
  39. Which of the following is one of the better auditing techniques to detect kiting?
    a. review composition of authenticated deposit slips
    b. review subsequent bank statements and canceled checks received directly from the banks
    c. prepare a schedule of bank transfers from the client's books
    d. prepare year end bank reconciliations
    c prepare a schedule of bank transfers from the client's books
  40. Which of the following may cause management to intentionally understate profits?
    a. management wants to create "cookie jar" reserves for a rainy day
    b. the company is under scrutiny by tax authorities
    c. the company is suffering a large loss and wants to take a "big bath"
    d. all of the above
    d all of the above
  41. If tests of control induce the auditor to change the assessed level of control risk for fixed assets from .4 to 1, and audit risk (.05) and inherent risk remain constant, the acceptable level of detection risk is most likely to:
    a. change from .1 to .04
    b. change from .2 to .3
    c. change from .25 to .1
    d. be unchanged
    c change from .25 to .1
  42. Analytical procedures are generally used to produce evidence from:
    a. confirmation mailed directly to the auditors by client customers
    b. physical observation of inventories
    c. relationship among current financial balances and prior balanced, forecasts, and nonfinancial data
    d. detailed examination of external, external-internal, and internal documents
    c relationship among current financial balances and prior balanced, forecasts, and nonfinancial data
  43. Reduction of audit procedures can be characterized by:
    a. selecting larger sample sizes for audit
    b. moving audit procedures to the fiscal year end date
    c. deciding to optain external evidence instead of internal evidence
    d. selecting smaller sample sizes for audit
    d selecting smaller sample sizes for audit
  44. A bridge working paper shows the connection between:
    a. control evaluation findings and subsequent audit procedures
    b. control objectives and accounting system procedures
    c. control objectives and company control procedures
    d. financial statement assertions and tests of controls
    a control evaluation findings and subsequent audit procedures
  45. AS 5 requires auditors to test
    a. operating effectiveness only
    b. design effectiveness only
    c. both operating and design effectiveness
    c both operating and design effectiveness
  46. Which of the following combinations is a good means of hiding employee fraud but a poor means of carrying out management (financial reporting) fraud?
    a. overstating sales revenue and overstating customer accounts receivable balances
    b. overstating sales revenue and overstating bad debt expense
    c. understating interest expense and understating accrued interest payable
    d. omit the disclosure information about related party sales to the president's relatives at below-market prices
    b overstating sales revenue and overstating bad debt expense
  47. Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable?
    a. segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail
    b. segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts
    c. have customers send payment directly to the company's depository bank
    d. request that customers' payment checks be made payable to the company and addressed to the treasurer
    c have customers send payment directly to the company's depository bank
  48. An auditor is auditing sales transactions. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. What would the auditor intend to establish by this step?
    a. sales invoices represent bona fide sales
    b. all sales have been recorded
    c. all sales invoices have been properly posted to customer accounts
    d. debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoices
    d debit entries in the accounts receivable subsidiary ledger are properly supported by sales invoices
  49. To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounting?
    a. miscellaneous income
    b. petty cash
    c. miscellaneous expense
    d. sales returns
    d sales returns
  50. The audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The aging is best used by the auditor to:
    a. evaluate internal control over credit sales
    b. test the accuracy of recorded charge sales
    c. estimate credit losses
    d. verify the existence of the recorded receivables
    c estimate credit losses
  51. Which of the following is the best reason for pre-numbering in numerical sequence such documents as sales orders, shipping documents, and sales invoices?
    a. enables company personnel to determine the accuracy of each document
    b. enables personnel to determine the proper period recording of sales revenue and receivables
    c. enables personnel to check the numerical sequence for missing documents and unrecorded transactions
    d. enable personnel to determine the occurrence of recorded transactions
    c enables personnel to check the numerical sequence for missing documents and unrecorded transactions
  52. In the audit of accounts receivable, the most important emphasis should be on the:
    a. completeness assertions
    b. existence assertion
    c. rights and obligations assertions
    d. presentation and disclosure assertion
    b existence assertion
  53. When accounts receivable are confirmed at an interim date, the auditors need not be concerned with:
    a. obtaining a summary of receivables transactions from the interim date to the year-date
    b. obtaining a year-end trail balance of receivables, comparing it to the interim trail balance, and obtaining evidence and explanations for large variations
    c. sending negative confirmations to all the customers as of the year-end date
    d. considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materially
    c sending negative confirmations to all the customers as of the year-end date
  54. When an auditor selects a sample of shipping documents and takes the tracing direction of a test to find the related sales invoice copies, the evidence is relevant for deciding if:
    a. shipments to customers were invoiced
    b. shipping to customers were recorded as sales
    c. recorded sales were shipped
    d. invoiced sales were shipped
    a shipments to customers were invoiced
  55. Which of the following internal control procedures most likely would deter lapping of collections from customers?
    a. independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries
    b. authorization of write-offs of un-collectible accounts by a supervisor independent of credit approval
    c. segregation of duties between receiving cash and posting they accounts receivable ledger
    d. supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries
    c segregation of duties between receiving cash and posting they accounts receivable ledger
  56. Which of the following would not overstate current period net income?
    a. capitalizing an expenditure that should be expensed
    b. failing to record a liability for an expenditure
    c. failing to record a check paying an item in vouchers payable
    d. all of the above would ovestate net income
    c failing to record a check paying an item in vouchers payable
  57. A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the purchasing systems?
    a. accounts payable are not materially understated
    b. authority to incur liabilities is restricted to one designated person
    c. acquisition of materials is not made from one vendor or one group of vendors
    d. commitments for all purchases are made only after established competititve bidding procedures are followed
    a accounts payable are not materially understated
  58. Which of the following procedures is least likely to be preformed before the balance sheet date?
    a. observation of inventory
    b. review of internal controls over cash disbursements
    c. search for unrecorded liabilities
    d. confirmation of receivables
    c search for unrecorded liabilities
  59. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population for this test consists of all:
    a. vendors' invoices
    b. purchase orders
    c. receiving reports
    d. canceled checks
    c receiving reports
  60. When auditing inventories, and auditor would least likely verify that:
    a. all inventory owned by the client is on hand at the time of the count
    b. the client has used proper inventory pricing
    c. the financial statement presentation of inventories is appropriate
    d. damaged goods and obsolete items have been properly accounted for
    a all inventory owned by the client is on hand at the time of the count
  61. A client maintains perpetual inventory records in quatities and in dollars. If the assessed level of control risk is high, an auditor would probably:
    a. apply gross profit tests to ascertain the reasonableness of the physical counts
    b. increased the extent of tests of controls relevant to the inventory cycle
    c. request the client to schedule the physical inventory count a the end of the year
    d. insist that the client perform physical counts of inventory items several times during the year
    c request the client to schedule the physical inventory count a the end of the year
  62. A common audit procedure in the audit of payroll transactions involves vouching selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that:
    a. only bona fide employees worked and their pay was properly computed
    b. on jobs which employees worked, their pay was properly computed
    c. internal controls relating to payroll disbursements are operating effectively
    d. all employees worked the number of hours for which their pay was computed
    d all employees worked the number of hours for which their pay was computed
  63. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the:
    a. authorization of transactions from the custody of related assets
    b. operational responsibility from the record-keeping responsibility
    c. human resources function from the controller ship function
    d. administrative controls from the internal accounting controls
    a authorization of transactions from the custody of related assets
  64. A large retain enterprise has established a policy the requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to:
    a. assure that employees who were absent on a payroll distribution day are not paid for that day
    b. prevent the paymaster from cashing checks that are unclaimed for several weeks
    c. prevent a bona fide employee's check from being claimed by another employee
    d. detect any fictitious employee who may have been placed on the payroll
    d detect any fictitious employee who may have been placed on the payroll
  65. The overall production authorization starts with a
    A. purchase order
    B. bill of materials
    C. sales forecast
    D. production plan
    D. production plan
    (this multiple choice question has been scrambled)
  66. Comparing material usage reports to raw material stores issue slips is a control to help insure which ASB transaction assertion?
    A. occurrence
    B. valuation or accuracy
    C. completeness
    D. rights and obligations
    A. occurrence
    (this multiple choice question has been scrambled)
  67. Tracing a test count to the inventory compilation provides evidence for which ASB balance assertion?
    A. completeness
    B. valuation
    C. existence
    D. presentation and disclosure
    A. completeness
    (this multiple choice question has been scrambled)
  68. In determining the effectivenes of an entity's policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and:
    a. observe the segregation of duties concerning personnel responsibilities and payroll disbursement
    b. inspect evidence of accounting for pre numbered payroll checks
    c. re compute the payroll deductions for employee fringe benefits
    d. verify the preparation of the monthly payroll account bank reconciliation
    a observe the segregation of duties concerning personnel responsibilities and payroll disbursement
  69. Jones was engaged to examine the financial statments of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities. Which of the following is the best method of verifying the accuracy of recorded dividend income?
    a. tracing recorded dividend income to cash receipts records and validated deposit slips
    b. utilizing analytical procedures and statistical sampling
    c. comparing recorded dividends with amounts appearing on federal information Form 1099
    d. comparing recorded dividends with a standard financial reporting service's record of dividends
    d comparing recorded dividends with a standard financial reporting service's record of dividends
  70. Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet?
    a.changes in the capital stock account are verified by an independent stock transfer agent
    b. stock dividend are capitalized at par or stated vlue on the dividend declaration date
    d. entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors
    achanges in the capital stock account are verified by an independent stock transfer agent
  71. The primary reason for preparing a reconciliation between interest bearing obligations outstanding during the year and interest expense in the financial statement is to:
    a. evaluate internal control over securities
    b. determine the validity of prepaid interest expense
    c. ascertain the reasonableness of imputed interest
    d. detect unrecorded liabilities
    d detect unrecorded liabilities
  72. The main purpose of management representation letter is to:
    a. shift responsibility for financial statments from the management to the auditor
    b. provide a substitute source of auditor evidence for substantive procedures auditors would otherwise perform
    c. provide managment a place to make assertions about the quantity and valuation of the physical inventory
    d. impress upon management its ultimate responsibility for the financial statement and disclosures
    d impress upon management its ultimate responsibility for the financial statement and disclosures
  73. A type 1 subsequent event involves subsequent information about a condition that existed at the balance sheet date. Subsequent knowledge of which of the following would cause the company to adjust its December 31 financial statements?
    a. sales of an issue of new stock for $500,000 on January 30.
    b. Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000
    c. settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statments
    d. storm damage of $1 million to the company's buildings on March 1.
    c settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statments
  74. The auditing standards regarding "subsequent discover of facts that existed at the balance sheet date" refers to knowledge obtained after:
    a. the date the audit report was delivered to the client
    b. the auditor report date
    c. the company's year end balance sheet date
    d. the date interim audit work was complete
    d the date interim audit work was complete
  75. The primary reason an auditor requests letters of inquiry from a client's attorneys is to provide the auditor with:
    a. the probable outcome of asserted claims and pending or threatened litigation
    b. corroboration of the information furnished by manangement about litigation, claims, and assessments
    c. the attorney's opinions of the client's historical experiences in recent similar litigation
    d. a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date
    b corroboration of the information furnished by manangement about litigation, claims, and assessments
  76. Procedures used to allow auditors to extend their conclusions to the end of the year under audit are referred to as:
    a. analytical procedures
    b. interim testing
    c. roll-forward work
    d. test of controls
    c roll-forward work
  77. Which of the following procedures is normally not considered in the auditors' substantive procedures for revenue and expense accounts?
    a. evaluate evidence gathered in the audit of balance sheet accounts and examination of transaction cycles
    b. individually confirm significant transactions with third parties
    c. perform analytical procedures to verify the overall reasonableness of revenue and expense accounts
    d. examine "miscellaneous", "other", and "clearing" accounts classified as revenues and expenses
    b individually confirm significant transactions with third parties
  78. Which of the following is typically the auditors' initial procedure performed to identify litigation, claims, and assessments?
    a. perfrom analytical procedures
    b. confirm litigation, claims, and assessments with third-party litigants
    c. obtain an attorney letter from the entity's legal counsel
    d. inquire of the entity regarding the existence of litigation, claims, and assessments
    d inquire of the entity regarding the existence of litigation, claims, and assessments
  79. Which of the following procedures would not be performed by auditors to identify subsequent events?
    a. review prior year financial statements and disclosures
    b. inquire of officers and other executives about various matters
    c. read minutes of meetings of shareholders, directors, and appropriate committees
    d. obtain attorney letters from legal counsel engaged by the entity
    a review prior year financial statements and disclosures
  80. Which of the following types of audit documentation review is focused on ensuring that the quality of audit work and reporting is consistent with the quality standards of the firm?
    a. review of staff work by audit supervisor
    b. review of staff work by audit manager
    c. review of work by audit manager and audit partner
    d. review of work by second (reviewing) partner
    d review of work by second (reviewing) partner
  81. Which of these situations would require an auditor to append an explanatory paragraph about consistency to an otherwise unqualified audit report?
    a. client changed its estimated allowance for uncollectible accounts receivable
    b. client corrected a prior mistake in accounting for interest capitalization
    c. client sold one of its subsidiaries and consolidated six this year compared to seven last year
    d. client changed its inventory costing method from FIFO to LIFO
    d client changed its inventory costing method from FIFO to LIFO
  82. Wolfe became the new auditor for Royal Corporation, succeeding Mason, who audited the financial statements last year. Wolfe needs to report on Royal's comparative financial statements and should write in this report an explanation about another auditor having audited the prior year:
    a. only if Mason's opinion last year was qualified
    b. describing the prior audit and the opinion but not naming Mason as the predecessor auditor
    c. describing the audit but not revealing the type of opinion Mason gave
    d. describing the audit and the opinion and naming Mason as the predecessor auditor
    a only if Mason's opinion last year was qualified
  83. When other independent auditors are involved in the current audit of parts of the client's business, the principal auditor can write an audit report that (2 answers)
    a. mentions the other auditor, descrise the extent of the other auditor's work, and gives an unqualified opinion
    b. does not mention the other auditor and gives an unqualified opinion in a standard unqualified report
    c. places primary responsibility for the audit report on the other auditors
    d. names the other auditors, describes their work, and present only the principal auditor's report
    a mentions the other auditor, descrise the extent of the other auditor's work, and gives an unqualified opinion
  84. In his letter to stockholders in the annual repot, True Fax's president states that this year was the most profitable year in the company's history. Actually, the company did better profit-wise last year according to the audited financial statements. What type of opinion should the auditors issue?
    a. an unqualified opinion with an emphasis of a matter paragraph noting the inconsistency
    b. a disclaimer of opinion because the additional information accompanying the financial statements wasn't audited
    c. an adverse opinion because the annual report does not present fairly the financial condition of the company
    d. an "except for" qualification because the president's letter is not part of the audited financial statements
    a an unqualified opinion with an emphasis of a matter paragraph noting the inconsistency
  85. The principal auditors decide not to take responsibility for the work of other auditros CPA who audited a wholly-owned subsidiary of the principal represent 27% and 28% of the related consolidation totals. What type of opinion should the principal auditors issue?
    a. unqualified opinion
    b. adverse opinion
    c. qualified opinion
    d. disclaimer of opinion
    a unqualified opinion
  86. The opinion paragraph of the auditor's report states: "In our opinion, with the exception of the effects of not observing inventory in one of the client's Siberian warehouses, as discussed in the preceding paragraph, the financial statements present fairly, in all material respects,...." This paragraph expresses a(n)
    a. unqualified opinion
    b. adverse opinion
    c. qualified opinion
    d. opinion modified because of an uncertainty
    c qualified opinion
  87. Auditors who are reporting on financial statements that contain a material departure from GAAP should include a separate explanatory paragraph and
    a. not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote
    b. disclaim an opinion on the financial statements
    c. express a qualified or adverse opinion
    d. express a qualified opinion or disclaim an opinion
    c express a qualified or adverse opinion
  88. When auditors mention consistency in their report, a reader, a reader of the financial statements may infer
    a. that GAAP have been not consistently observed in the current period in relation to the preceding period
    b. that a material departure from GAAP has been detected
    c. that a reclassification of items or change in classifications has occurred
    d. nothing about application of accounting principles within the period
    a that GAAP have been not consistently observed in the current period in relation to the preceding period

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