question excerpt from audit final
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Question Excerpt From Audit Final
Q.1)Which of the following statements about the study of auditing is NOT true?
A
.
The study of auditing can be valuable to future accountants and business decision makers whether or
not they plan to become auditors
B
.
The study of accounting focuses on learning the analytical and logical skills necessary to evaluate the
relevance and reliability of information
C
.
The study of auditing focuses on learning the rules, techniques, and computations required to analyze
financial statements
D
.
The study of auditing begins with the understanding of a coherent logical framework and techniques
useful for gathering and analyzing evidence about others' assertions
Q.2)The basic purpose of a financial statement audit is to
A
.detect fraud
B.examine individual transactions so that the auditor may certify as to their validity
C
.provide assurance regarding whether the client's financial statements are fairly stated
D
.assure the consistent application of correct accounting procedures
Q.3)Which of the following best describes the concept of audit risk?
A.the risk of the auditor being sued because of the association with an audit client
B
.
the risk that the auditor will provide an unqualified opinion on financial statements that are, in fact,
materially misstated
C
.the overall risk that a material misstatement exists in the financial statements
D
.the risk that auditors use audit procedures that are inappropriate
Q.4)Which of the following best describes the fundamental, underlying reason for why there us demand for an independent auditor to report on financial statements?
A
.a management fraud may exist and it is more likely to be detected by auditors if they are independent
B
.
different interests may exist between the company preparing the statements and the parties using the
statements
C
.
a misstatement of account balances may exist and it is the independent auditor's responsibility to
ensure that financial statements are not misstated
D
.a poorly designed internal control system may be in place
Q.5)Auditors are most likely to use the most rigorous audit procedures to examine
A.routine transactions
B
.management assertions that are deemed to be of low risk
C
.only the rights and obligations assertion
D
.management assertions that are deemed to be of high risk
Q.6)For publicly-held companies, the external auditor is required to audit which of the following:
A
.budgetary information
B
.the company's internal controls
C.management forecasts
D
.interim financial statements
Q.7)when obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:
A.identify areas of relatively high risk of misstatement and plan the audit accordingly
B.provide suggestions for improvement to the client
C
.serve as a basis for setting audit risk and materiality
D.decide whether to perform an audit for the client
Q.8)which one of the following statements best describes the concept of materiality?
A
.materiality is determined by reference to specific quantitative guidelines established by the AICPA
B
.
materiality depends only on the dollar amount of an item relative to toher items in the financial
statements
C
.materiality depends on the nature of an item but not the dollar amount
D.materiality is largely a matter of professional judgment
Q.9)an investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that:
A.any disputes over significant accounting issues have been settled to the auditor's satisfaction
B.the auditor is satisfied that Stankey will be highly profitable in the future
C
.
the auditor is certain that Stankey's financial statements have been prepared accurately and that all
account balances are precisely correct
D
.the auditor has determined that Stankey's management is not qualified to lead the company
Q.10)an auditor would issue an adverse opinion if
A.the auditor encounters adverse attitudes toward the auditor on the part of client management
B.a qualified opinion cannot be given because the auditor is not qualified to do so
C
.an immaterial misstatement is present
D
.
the statements taken as a whole do not fairly present the financial condition and results of operations of
the company
Q.11)the primary audit context with which an auditor is concerned is the client's industry or business
A.True
B.False
Q.12)which of the following is NOT a requirement of the Sarbanes-Oxley Act?
A.audit firms cannot provide most types of nonaudit services to their public company audit clients
B
.
audit firms are required to rotate audit partners off audit engagements every fivve years for public
company audits
C
.firms that audit public companies are subject to inspection by the PCAOB
D
.
a certain number of hours, which is based on the size of the company being audited, must be spent on
each audit engagement
Q.13)a series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002)
A.True
B.False
Q.14) which is not an attribute of an external auditor?
A.independence
B.client advocacy
C.objectivity
D.concern for the public interest
Q.15)the three standards of fieldwork are concerned with:
A.planning and supervision and understanding the client's internal control system
B.choosing evidence with due professional care
C
.adequate training to understand the client's internal controls system
D.ensuring consistency in financial statements for periods presented
Q.16) which of the following best describes the role of corporate governance?
A
.management decides which accounting principles are the most appropriate
B.shareholders vote to decide who should be members of the board of directors
C
.
holding the management team accountable to shareholders and other constituents for the utilization of
the entity's resources
D
.management often is compensated based on the company's profitability
Q.17)PCAOB auditing standards must be followed on all financial statement audits performed in the US
A.True
B.False
Q.18)a financial statement audit is generally organized based on the five basic business processes or cycles
A.True
B.False
Q.19)which assertions may be tested for the 'presentation and disclosure' categury of management
A.existence, rights and obligations, cutoff and classification, completeness, accuracy and valuation
B
.occurence, rights and obligations, existence, accuracy and valuation, cutoff and classification
C.occurrence, completeness, classification and understandability, cutoff and classification
D
.
occurrence, rights and obligations, completeness, classification and understandability, accuracy and
valuation
Q.20)which assertions may be tested for the 'account balances' category of management assertions?
A.existence, accuracy, rights and obligations, completeness
B.existence, rights and obligations, completeness, valuation and allocation
C.occurrence, rights and obligations, completeness, valuation and allocation
D.occurrence, accuracy, rights and obligations, completeness
Q.21)which assertions may be tested for the 'transactions and events' category of management assertions?
A
.existence, completeness, rights and obligations, accuracy, cutoff and classification
B.occurrence, completeness, rights and obligations, accuracy, cutoff and classification
C
.occurrence, completeness, authorization, accuracy, cutoff and classification
D.existence, rights and obligations, accuracy, authorization, and completeness
Q.22)the audit committee consists of:
A
.members of management
B
.a subcommittee of the AICPA who establish the SAS
C.members of the board of directors
D.appointed government overseers
Q.23)the primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the
A.partner assigned to the audit engagement
B.management of the company
C
.auditor in charge of the fieldwork
D.securities and exchange commission
Q.24)with regard to detecting fraud, auditing standards require auditors to
A.perform procedures designed to detect all instances of fraud that might affect the financial statements
B
.
provide reasonable assurance that the financial statements are not materially misstated because of
fraud
C
.issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred
D.design the audit program to meet financial statements users' expectation concerning fraud
Q.25)an internal auditor is likely to be more concerned with ______ than the external auditor
A.internal administrative procedures
B
.cost accounting procedures
C
.the efficiency of operations
D
.internal control
Q.26) which of the following statements regarding the PCAOB is incorrect?
A.it is a public-sector, nonprofit corporation
B.it is overseen by the SEC
C.it sets standards for public company audits
D.it has delegated all of its standard-setting authority to the AICPA
Q.27)inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls
A.True
B.False
Q.28)materiality is based on a quantitative analysis of the financial statements only
A.True
B.False
Q.29) which of the following is a know misstatement?
A
.a management estimate that is outside the range of reasonable outcomes determined bu the auditor
B.a fixed asset being recorded at the incorrect cost
C
.a projected misstatement resulting from errors found during sampling
D.difference in judgment between the auditor and management
Q.30)al of the following represent an increased opportunity to commit fraud except:
A.significant related party transactions
B
.the auditor's relationship with management is strained
C.management is dominated by a single person
D
.the financial statements included highly subjective estimates
Q.31)the auditor is most likely to presume that a high risk of a fraud exists if
A
.the entity is a multinational company that does business in numerous foreign countries
B
.the entity does business with several related parties
C
.inadequate segregation of duties places an employee in a position to perpetrate and conceal theft
D
.inadequate employee training results in lengthy EDP exception reports each month
Q.32)under statements on auditing standards, which of the following would be classified as an error?
A.misappropriation of assets for the benefit of management
B.misinterpretation by management of facts that existed when the financial statements were prepared
C.preparation of records by employees to cover a fraudulent scheme
D.intentional omission of the recording of a transaction to benefit a third party
Q.33)which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements?
A.turnover of senior accounting personnel is low
B
.insiders recently purchased additional shares of the entity's stock
C.management places substantial emphasis on meeting earnings projections
D
.the rate of change in the entity's industry is slow
Q.34)which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
A
.potential for fraud
B
.the company is close to violating loan covenants
C.firm policy sets materiality at 4% of pretax income
D
.a small misstatement would interrupt an earnings trend
Q.35)which of the following is not a concern as to whether a misstatement os qualitatively material?
A.the misstatement hides a failure to meet analysts' expectations
B
.the misstatement is less than 5% of pretax income
C
.the misstatement increases management's compensation
D.the misstatement changes a small amount of profit to a small reported loss
Q.36) an auditor knows that an audit client operating in an industry in which common stock is
valued based on the price-earnings ratio will soon make an initial public offering. all the the following are true except:
A
.materiality should be reduced
B
.risk of material misstatement should increase
C
.detection risk should increase
D.audit risk should increase
Q.37)in designing written audit programs, an auditor should plan specific audit procedures to test
A
.timing of audit procedures
B.cost-benefit of gathering evidence
C
.selected audit techniques
D.management assertions
Q.38)management assertions fall into four main categories
A.True
B.False
Q.39)the classification assertion refers to transactions and events being recorded in the correct accounting period
A.True
B.False
Q.40)you are auditing a manufacturing company which has a large production facility. some of the production equipment is held through lease agreements. which of the following is the account balance assertion you would be most concerned about?
A
.existence or occurrence
B.completeness
C.rights and obligations
D.accuracy
Q.41) A confirmation is used to:
A.verify the inventory count if correct
B.verify that a control s being observed
C
.verify a representation from a third party
D.verify that a specific trend is correct
Q.42)in determining whether transactions have been recorded, the direction of the audit testing should start from the
A.general ledger balances
B.adjusted trial balance
C.original source documents
D
.general journal entries
Q.43)which of the following statements concerning audit evidence is correct?
A.appropriate evidence supporting management's assertions should be convincing rather than persuasive
B.effective internal controls contribute little to the reliability of the evidence created within the entity
C
.
the cost ob obtaining evidence is not an important consideration to an auditor in deciding what evidence
should be obtained
D
.
a client's accounting data cannot be considered sufficient audit evidence to support the financial
statements
Q.44)which of the following is the least persuasive documentation in support of an auditor's opinion?
A.schedules of details of physical inventory counts conducted by the client
B
.notation of auditor's inferences drawn from ratios and trends
C
.notation of appraisers' conclusions documented in the auditor's working papers
D
.lists of negative confirmation requests for which no response was received by the auditor
Q.45)which of the following presumptions does not relate to the appropriateness of audit evidence?
A
.
the more effective the internal control stsem, the more assurance it provides about the accounting data
and financial statements
B
.
an auditor's opinion, to be economically useful, is formed within a reasonable time and based on
evidence obtained at a reasonable cost
C
.
evidence obtained from independent sources outside the entity is more reliable than evidence secured
solely within the entity
D
.
the independent auditor's direct personal knowledge, obtained through observation and inspection, is
more persuasive than information obtained indirectly
Q.46)which of the following is an essential factor in evaluating the sufficiency of evidence? the evidence must
A
.be well documented and cross-referenced in the audit documents
B.be based on sources that are considered reliable
C
.bear a direct relationship to the audit assertion
D.be persuasive enough to enable the auditor to form an opinion
Q.47)which set of assertions is tested when, during the completion of the audit, the audit partner conducts a final review of the format of the entity's balance sheet?
A
.assertions about classes of transactions and events
B.assertions about account balances at the period end
C.assertions about presentation and disclosure
D
.none of the above
Q.48)
the third general auditing standard requires that due professional care be exercised in the performance of the examination and the preparation of the report. due professional care deals with what is done by the independent auditor and how will it is done. for example, due care in the matter of audit documents requires that audit documents'
A
.format be neat and orderly and include both a permanent file and a general file
B
.
content be sufficient to provide support for the auditor's report, including the auditor's representation as
to compliance with auditing standards
C.ownership be determined by the legal statutes of the state where the auditor practices
D
.
preparation be the responsibility of assistants whose work is reviewed by seniors, managers, and
partners
Q.49)the permanent (continuing) file of an auditor's working papers most likely would include copies of the
A
.bank statements
B.debt agreements
C
.lead schedules
D
.attorney's letters
Q.50)audit documentation prepared on audits of publicly held clients is the property of the
A
.shareholders
B.the auditor
C.the management of the entity being audited
D.the SEC
Q.51)each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the
A
.difficulty and expense involved in testing a particular item
B.assessment of control risk at a low level
C
.low inherent risk involved
D
.relationship between the cost of obtaining evidence and its usefulness
Q.52)which of the following matters generally is included in an auditor's engagement latter?
A.management's responsibility for the entity's compliance with laws and regulations
B.the factors to be considered in setting preliminary judgments about materiality
C.management;s liability for illegal acts committed by its employees
D the auditor's responsibility to guarantee accuracy of the financial statements
.
Q.53)in order to properly preplan the audit, the auditor must determine the engagement team requirements and ensure the independence of the audit team ad audit firm
A.True
B.False
Q.54)the element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
A.methods of statistical sampling to be used in confirming accounts receivable
B.pending legal matters to be included in the inquiry of the client's attorney
C
.evidence to be gathered to provide a sufficient basis for the auditor's opinion
D
.timing of the audit
Q.55)an independent auditor finds that Holdaway Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding likely indicates the existence of
A.management fraud
B.related party transactions
C.window dressing
D
.weak internal control
Q.56)a dual-purpose test
A
.simultaneously tests debits and credits
B.is a procedure completed by both the internal and external auditors
C.is useful to both the entity and the auditor
D.is both a substantive test of transactions and a test of controls
Q.57) analytical procedures are
A
.never required
B
.required for planning, substantive testing, and overall review of the financial statements
C.required for planning and overall review of the financial statements
D
.required during planning only
Q.58)which of the following tends to be most predictable for purposes of analytical procedures applied as substantive procedures?
A
.relationships involving balance sheet accounts
B
.transactions subject to management discretion
C relationships involving income statement accounts
.
D
.data subject to audit testing in the prior year
Q.59) in correct order, general types of audit tests include:
A.substantive procedures, tests of controls, and risk assessment procedures
B.substantive procedures, risk assessment procedures, and tests of controls
C.risk assessment procedures, tests of controls, and substantive procedures
D.risk assessment procedures, substantive procedures, and tests of controls
Q.60)an auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by
A
.availability of data aggregated at a high level
B.relative effectiveness and efficiency of the tests
C
.timing of tests performed after the balance sheet date
D.auditor's familiarity with industry trends
Q.61)as a result of analytical procedures conducted during the planning phase, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
A
.
express an opinion which is qualified due to the inability of the client company to continue as a going
concern
B.evaluate management;s performance in causing this decline
C
.require footnote disclosure
D.consider the possibility of an error in the financial statements
Q.62)an independent auditor might consider the procedures performed by the internal auditors because
A.they are employees whose work must be reviewed during substantive testing
B.they are employees whose work might be relied upon
C
.their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations
D.their degree of independence may be inferred by the nature of their work
Q.63)to emphasize auditor independence from management, publicly traded corporations are requires to
A
.appoint a partner of the CPA firm conducting the examination to the corporation's audit committee
B
.
establish a policy of discouraging social contact between employees of the corporation and the
independent auditors
C
.request that a representative of the independent auditor be onhand at the annual stockholders' meeting
D
.
have the independent auditor report to an audit committee of independent members of the board of
directors
Q.64)which of the following situations would most likely require special audit planning?
A.some items of factory and office equipment do not bear identification numbers
B.depreciation methods used on the client's tax return differ from those used on the books
C.assets costing less than $500 are expensed even though the expected life exceeds one year
D.inventory is comprised of precious stones
Q.65)an auditor obtains knowledge about a new client's business and its industry in order to
A
.make constructive suggestions concerning improvements to the client's internal control structure
B.develop an attitude of professional skepticism concerning management's financial statement assertions
C
.
evaluate whether the aggregation of know misstatements causes the financial statements taken as a
whole to be materially misstated
D.understand the events and transactions that may have an effect on the client's financial statements
Q.66)an auditor who discovers that a client's employees paid small bribed to municipal officials most likely would withdraw from the engagement if
A
.the payments violated the client's policies regarding the prevention of illegal acts
B.the client receives financial assistance from a federal government agency
C
.documentation that is necessary to prove that the bribes were paid does not exist
D
.management fails to take the appropriate remedial action
Q.67)in obtaining an understanding of an entity's internal control in a financial statement audit of a non-public company, an auditor is not obligated to
A.determine whether the control activities have been place in operation
B.perform procedures to understand the design of the internal control policies
C.document the understanding of the entity's internal control components
D
.search for significant deficiencies in the operation of the internal control
Q.68)to obtain evidential matter about control risk, an auditor selects tests from a variety of techniques including
A.inquiry
B.analytical procedures
C
.calculations
D
.confirmation
Q.69)the independent auditor selects several transactions in each functional area and traces them through the entire system, paying special attention to evidence about whether or not the control activities are in operation. this is an example of a(n)
A.analytical procedure
B
.test of controls
C.substantive procedure
D
.functional test
Q.70)management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control enviornment when
A
.external policies established by parties outside the entity affect its accounting practices
B.management is dominated by one individual
C
.internal auditors have direct access to the board of directors and the entity's management
D
.the audit committee is active in overseeing the entity's financial reporting policies
Q.71)internal control consists of six components
A.True
B.False
Q.72)the risk assessment component of internal controls refers to
A.the auditor's assessment of control risk
B.the auditor's assessment of client risk
C
.the entity's identifications and analysis of risks relevant to achievement of its objectives
D.the entity's monitoring of the potential for material misstatements
Q.73)a substantive strategy differs from a reliance strategy in that a substantive strategy includes
A
.increased implementation of detailed tests of transactions and balances
B.extra tests of controls
C.increased emphasis on verbal representations from management
D.setting control risk at a minimal level
Q.74)a substantive strategy is used when control risk has been set at the maximum level
A.True
B.False
Q.75)assessing control risk at below the maximum most likely would invlove:
A
.
changing the timing of substantive procedures by omitting interim testing and performing the tests at
year-end
B.identifying specific internal controls relevant to specific assertions
C.performing more extensive substantive procedures with larger sample sizes than originally planned
D.reducing inherent risk for most of the assertions relevant to significant account balances
Q.76)in an audit of financial statements in accordance with generally accepted auditing standards, an auditor is required to
A
.identify specific internal control activities relevant to management's financial statement assertions
B
.perform tests of control to evaluate the effectiveness of the entity's accounting system
C.determine whether procedures are suitable designed to prevent or detect material misstatements
D
.document the auditor's understanding of the entity's internal control
Q.77)an auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance aboout the
A.efficiency of management's decision-making process
B.appropriate prices that the entity should charge for its products
C.methods of assigning production tasks to employees
D.entity's ability to accurately process and summarize financial data
Q.78)management philosophy and operating style most likely would have a significant influence on an entity's control environment when
A
.the internal auditor reports directly to management
B
.managements is dominated by one individual
C.accurate management job descriptions delineate specific duties
D.the audit committee actively oversees the financial reporting process
Q.79)proper monitoring within an internal control framework includes all of the following except
A.an external auditor
B.an effective audit committee
C.an internal audit department
D.the internal revenue service
Q.80)proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of
A.authorization, execution, and payment
B
.authorization, recording, and custody
C.custody, execution, and reporting
D.authorization, payment, and recording
Q.81)factors that the auditor should consider as increasing the effectiveness of the audit committee include all of the following except whether
A
.it is independent of management
B
.
it is comprised almost exclusively of members of management, ensuring detailed knowledge of the
company's operations
C.it asks management difficult questions
D
.it interacts regularly with internal auditors
Q.82) the documentation of an auditor's understanding of internal
controls
A
.is optional
B
.must be exclusively in either narrative, questionnaire, or flowchart form
C.must include flowcharts
D.can use any combination of narratives, questionnaire, or flowcharts
Q.83) reports on service organizations typically
A
.provide reasonable assurance that their financial statements are free of material misstatements
B
.
ensure that the client will not have any misstatements in areas related to the service organization's
activities
C
.ensure that the client is billed correctly
D
.
assess whether the service organization's controls are suitably designed to achieve internal control
objectives
Q.84)based on PCAOB guidelines, the audit of ICFR and financial statements audit should be conduced as an 'integrated audit'
A.True
B.False
Q.85)an 'integrated audit' as stated on section 404 of the sarbanes-oxley act means
A.the auditor must consider the integrated thoughts and ideas of everyone on the audit staff
B
.
the auditor must conduct two audits, one on the effectiveness of internal control and one on the
financial statements, in an integrated way
C
.
the auditor must integrate the same objectives whether auditing internal control or auditing the financial
statements
D.two independent CPA firms must work together on the audit
Q.86)setion 404 of the sarbanes-oxley act requires the auditor to provide which of the following
A
.reasonable assurance on the financial statements, absolut assurance on internal control
B.reasonable assurance on internal control, absolute assurance on the financial statements
C.absolute assurance on both the financial statements and internal control
D
.reasonable assurance on both the financial statements and internal control
Q.87)a deficiency that implies that there is reasonable possibility of misstatement in the financial statements that is significant but not material is
A
.a material weakness
B.a significant deficiency
C
.an insignificant deficiency
D
.a probably deficiency
Q.88) the main goal of auditing internal control is:
A
.to allow the auditor to fix any internal control deficiencies
B.to form an opinion on the ability of internal controls to prevent fraud
C
.
to assure management that internal control is preventing all material misstatements on the financial
statements
D
.
to evaluate the effectiveness of controls over all relevant financial disclosures in the financial
statements
Q.89) the five step process in the audit of ICFR includes
A
.form an opinion on the safeguarding of the entity's assets
B
.identify controls to test using a top-down, risk-based approach
C
.form an opinion on the fairness of the presentation of the financial statements
D.form an opinion on the effectiveness of internal controls in meeting operational goals
Q.90)examples of company-level controls include:
A
.management's risk assessment process
B.controls to monitor results of operations
C
.the period-end financial reporting process
D.all of the above are examples of company-level controls
Q.91)public reporting on the effectiveness of internal control over financial reporting, as required by the sarbanes-oxley act, includes:
A
.
a statements that the public accounting firm that audited the financial statements has provided input on
the design of internal controls
B
.
a statement of management's responsibility for establishing and maintaining adequate internal control
over financial reporting
C
.
an explicit statement as to whether management agrees with the public accounting firm's assessment
of internal controls
D
.
a detailed statement describing changes or additions to the internal control environment that occurred in
the current year
Q.92)prior ti issuing a report on internal controls over financial reporting, an auditor is required to:
A
.perform procedures sufficient to identify all control deficiencies
B
.
communicate to management, in writing, all control deficiencies previously included in written
communication from the internal auditors
C
.
communicate to management, in writing, all control deficiencies identified during the audit and inform
the audit committee when such a communivation has been made
D.represent that no significant deficiencies were noted during the audit of internal control
Q.93)according to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity?
A.the entity's CEO and/or CFO
B
.the entity's board of directors
C.an internal control specialist
D.the external editor
Q.94)the person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. this is an example of
A.a management deficiency
B
.a design deficiency
C
.a deficiency in operation
D.this is not an internal control deficiency
Q.95)management documentation should include all of the following except:
A.documentation regarding the auditor's evaluation of internal controls
B.documentation regarding management's testing and evaluation of the controls
C
.documentation regarding the safeguarding of assets
D.documentation on the controls designed in all five components of internal control
Q.96)which of the following is not a primary objective of internal control as established by COSO?
A.efficiency and effectiveness of operations
B
.effective purchasing systems
C.compliance with laws and regulations
D.reliable financial reporting
Q.97)in determining the extent to which the auditor may use the work of other in the audit of ICFR, the auditor should do all of the following expect
A
.test some of the work performed by others to evaluate the quality and effectiveness of their work
B.evaluate the nature of the controls subjected to the work of others
C
.evaluate the competence and objectivity of the individuals who performed the work
D.all of the above are required
Q.98)which of the following is the least likely to represent a material weakness in internal control for Flynt Corporation?
A
.
Flynt Corporation's computer systems were not working properly for two days; consequently,
employees needed to do all reconciliations manually
B.Flynt Corporation's CFO was arrested last year for embezzling money from the company
C
.
For the current year, the auditor found a material misstatement in FLynt's sales recognition that was
undetected by the internal controls
D.Flynt's audit committee is deemed to be ineffective
Q.99)S&H Accounting has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management from management about internal control. Which of the following is true?
A
.S&H must still assume that management has assessed the effectiveness of internal control
B
.Depending on other factors in the audit, S&H can still issue an unqualified opinion
C
.S&H should consider this situation a limitation on the scope of the audit
D
.
management does not need to give S&H a letter if they have disclosed all known internal control
deficiencies
Q.100)an 'integrated audit'
A
.will, in most cases, lead to a substantive audit strategy
B.denies the auditor access to information about the client's controls
C.may be performed by two separate audit firms
D
.is comprised of audits of internal control over financial reporting and of financial statements
Q.101)which of the following is not an inherent risk factor for the revenue process?
A.complexity of revenue recognition issues
B
.difficulty of auditing transactions
C
.special industry practices
D
.the client does not follow its stated policies for sales order approvals
Q.102) an example of a contingent liability is an income tax dispute
A.True
B.False
Q.103)
Cooper, CPA is auditing the financial statements of a small rural municipality. the receivable balances represent residents' delinquent real estate taxes. internal control at the municipality is weak. to determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely
A.send positive confirmation requests
B.send negative confirmation requests
C.examine evidence of subsequent cash receipts
D.inspect the internal records, such as copies of the tax invoices that were mailed to the residents
Q.104)a disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when:
A
.the outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated
B.the loss can be reasonably estimated, but the outcome is unknown
C
.
the outcome of the event is judged to be reasonably possible but the loss cannot be reasonably
estimated
D
.
the outcome is unknown and the loss is reasonably estimable but the client does not want to book to
loss
Q.105)which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable?
A
.tracing amounts in the subsidiary ledger to details on shipping documents
B
.comparing receivable turnover ratios to industry statistics for reasonableness
C.inquiring about receivables pledged under loan agreements
D.assessing the allowance for uncollectible accounts for reasonableness
Q.106)which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims and assessments?
A
.
inquire of and discuss with management the policies and procedures adopted for identifying, evaluating,
and accounting for litigation, claims, and assessments
B
.
obtain from management a description and evaluation of litigation, claims, and assessment that existed
at the balance sheet date
C
.
obtain assurance from management that it has disclosed all unasserted claims that the lawyer has
advised are likely to be asserted and must be disclosed
D
.confirm directly with the client's lawyer that all claims have been recorded in the financial statements
Q.107)auditors sometimes use ratios as audit evidence. for example, an unexplained increase in the ratio of gross profit to sales may suggest which of the following possibilities?q
A.fictitious purchases
B
.fictitious sales
C.selling and general expenses erroneously being recorded as merchandise purchases
D.unrecorded sales
Q.108)an example of a Type 1 event or condition is the settlement of a lawsuit after the balance sheet date for an amount different from the amount recorded in the year-end financial statements
A.True
B.False
Q.109)tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion
A.classification
B.cutoff
C occurrence
.
D
.authorization and accuracy
Q.110)a type 2 subsequent event usually requires:
A
.an adjustment to the financial statements and the footnotes
B
.an adjustment to the financial statements but no special disclosure is required
C.disclosure in the footnotes
D.neither an adjustment to the financial statements nor disclosure in the footnotes
Q.111)audit documents often include a client-prepared aged trial balance of accounts receivable as of the balance sheet date. this aging is used by the auditor to
A.evaluate internal control over credit sales
B
.test the accuracy of recorded credit sales
C
.evaluate the allowance for doubtful accounts
D.verify the existence of the recorded receivables
Q.112)
if an auditor dates the auditor's report on financial statements for the year ended dec 31 2009, as of feb 10 2010, except for note j, as to which the date is march 3 2010, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of
A.all subsequent events occurring through march 3 2010
B.all subsequent events occurring through feb 10 2010
C
.
all subsequent events occurring through feb 10 2010 and the specific subsequent event referred to in
note j through march 3 2010
D
.only the specific subsequent event referred to in note j as of march 3 2010
Q.113)customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. which of the following is the most appropriate audit procedure?
A.examine shipping documents
B.review collections during the year being examined
C
.intensify the study of the client's system of internal control with respect to receivables
D.increase the balance in the allowance for incollectible accounts
Q.114)which of the following auditing procedures is ordinarily performed last
A.confirming accounts payable
B
.testing the purchasing function
C
.reading the minutes of directors' meetings
D.obtaining a management representation letter
Q.115)which of the following is the best argument against the use of negative accounts receivable confirmations?
A.the cost-per-response is excessively high
B
.there is no way of knowing if the intended recipients received them
C.recipients are likely to feel that, in reality, the confirmation is a subtle request for payment
D
.the inference drawn from receiving no replay may not be correct
Q.116)which of the following is not an issue related to the valuation of accounts receivable?
A
.the valuation of revenue that makes up the detail of accounts receivable
B.a proper allowance for doubtful accounts
C
.the net realizable value of accounts receivable
D.proper cut-off
Q.117)'there are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency' the foregoing passage most likely is from a (an)
A.client engagement letter
B.report on compliance with laws and regulations
C.management representation letter
D
.attestation report on internal controls
Q.118)an auditor's purpose in reviewing credit rating of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about
A.valuation and allocation
B.completeness
C
.existence
D.rights and obligations
Q.119)a client erroneously recorded a large purchase twice. which of the following internal controls would be most likely to detect this error in a timely and efficient manner?
A.footing the purchase journal
B.reconciling vendor's monthly statements with subsidiary payable ledger accounts
C
.tracing totals from the purchases journal to the ledger accounts
D
.sending written quarterly confirmations to all vendors
Q.120)which of the following items should an auditor communicate to those charges with governance in a publicly-held entity?
A
.
significant audit adjustment recorded by the entity and management's consultation with other
accountants about significant accounting matters
B
.
significant audit adjustments recorded by the entity but not management's consultation with other
accountant about significant accounting matters
C
.
management's consultation with other accountants about significant accounting matters but not
significant audit adjustments recorded by the entity
D
.
neither significant audit adjustments recorded by the entity nor management's consultation with other
accountants about significant accounting matters
Q.121)which of the following accounts is not affected by cash disbursement transactions?
A
.cash
B
.accounts payable
C
.
purch
ase
discou
nts
D.purchase returns
Q.122)
budd, the purchasing agent for lake hardware wholesalers, has a relative who owns a retail hardware store. budd arranged for hardware to be delivered by manufacturers to the retail store on a COD basis, thereby enabling his relative to buy at lake's wholesale prices. budd was probably able to accomplish this because of lake's poor internal control over
A.purchase requisitions
B.cash receipts
C
.perpetual inventory records
D.purchase orders
Q.123)
in the course of the examination of financial statements for the purpose of expressing an opinion, the auditor normally prepares a schedule of unadjusted differences for which the auditor did not propose adjustments when they were discovered. what is the primary purpose of this schedule?
A
.to point out to the responsible client officials the errors made by various company personnel
B
.
to summarize the adjustments that must be made before the company can prepare and submit its
federal tax return
C
.
to identify the potential financial statement effects of errors or disputed items that were considered
immaterial when discovered
D
.
to summarize the errors made by the company so that corrections can be made after the audited
financial statements are released
Q.124) the occurrence assertion for accounts payable includes
A
.determining whether all accounts payable are recorded
B
.determining whether all accounts payable actually are liabilities
C
.determining whether all accounts payable are recorded in the proper period
D.determining whether all accounts payable are properly classified in the financial statements
Q.125)the cutoff assertion for accounts payable includes
A
.determining whether all accounts payable are recorded
B
.determining whether all accounts payable actually are liabilities
C
.determining whether all accounts payable are recorded in the proper period
D.determining whether all accounts payable are properly classified in the financial statements
Q.126)which of the following parties is responsible for the fairness of the representations made in financial statements?
A
.client's managements
B.independent auditor
C.audit committee
D.AICPA
Q.127)for effective internal control, the accounts payable department should compare the information on each vendor's invoice with the
A.receiving report and the purchase order
B
.receiving report and the voucher
C
.vendor's packing slip and the purchase order
D
.vendor's packing slip and the voucher
Q.128)an auditor wishes to perform tests of control on a client's cash disbursements procedures. if the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
A.inquiry and analytical procedures
B.confirmation and observation
C.observation and inquiry
D
.analytical procedures and confirmation
Q.129)which of the following situations will not result in modification of the auditor's report because of a scope limitation?
A.restriction imposed by the client
B.reliance placed on the report of another auditor
C.inability to obtain sufficient appropriate evidential matter
D inadequacy in the accounting records
.
Q.130)analytical procedures can be used to examine the reasonableness of accounts payable and accrued expenses
A.True
B.False
Q.131)which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
A
.trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving
B
.
compare a sample of purchase orders issued just after year-end with the year-end accounts payable
trial balance
C
.
vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor
invoices
D
.
scan the cash disbursements entries recorded just before year-end for indications of unusual
transactions
Q.132)if the auditor believes that there us minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n)
A
.'except for' opinion
B.adverse opinion
C
.unqualified opinion
D
.disclaimer of opinion
Q.133)tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of
A.accuracy
B
.occurrence
C.cutoff
D.classification
Q.134)a predecessor auditor should do the following before reissuing a report on statements presented on a comparative basis"
A.read the financial statements of the current period
B
.read the financial statements of the past five years
C.obtain a letter of representations from the current-year, successor auditor
D
.both a and c
Q.135)auditors are most likely to ensure that no production activity is scheduled prior to
A determining standard costs
.
B
.observing physical inventory
C
.completing the book to physical adjustment
D.determining the amount of consigned inventory
Q.136)inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset
A.True
B.False
Q.137)
in connection with the examination of the consolidated financial statements of molt industries, frazier, cpa, plans to refer to another cpa's examination of the financial statements of a subsidiary company. under these sircumstances, frazier's report must disclose
A.the name of the other CPA and the type of report issued by the other cpa
B
.the portion of the financial statements examined by the other cpa
C.the natire of frazier's review of the other cpa's work
D
.
in a footnote the portions of the financial statements that were covered by the examinations of both
auditors
Q.138)which of the following is a plausible explanation for a large increase in the number of days outstanding in inventory?
A.obsolete inventory
B
.new product line where sales exceed production
C
.manufacturing overhead was not allocated to the production process
D
.manufacturing salaries were recorded as administrative expenses
Q.139)in a manufacturing company, which one of the following audit procedures would give the least assurance about the valuation of inventory at the audit date?
A
.testing the computation of standard overhead rates
B.examining paid vendors' invoices
C
.reviewing direct labor rates
D
.obtaining confirmation of inventories pledged under loan agreements
Q.140)which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern
A.cash flows from operating activities are negative
B
.research and development projects are postponed
C significant related party transactions are pervasive
.
D
.stock dividends replace annual cash dividends
Q.141)which one of the following is not one of the independent auditor's objectives regarding the examination of inventories?
A
.verifying that inventory counted is owned by the client
B
.verifying that the client has used proper inventory pricing
C.ascertaining the physical quantities of inventory on hand
D
.verifying that all inventory owned by the client is on hand at the time of the count
Q.142)a client's physical count of inventories was higher than the inventory quantities per the perpetual records. this situation could be the result of the failure to record
A
.sales
B.sales discounts
C.purchases
D.purchase returns
Q.143)an auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. the inclusion of this separate paragraph
A.is considered an 'except for' qualification of the opinion
B
.
violates generally accepted auditing standards is this information is already disclosed in footnotes to the
financial statements
C
.necessitates a revision of the opinion paragraph to include the phrase 'with the foregoing explanation'
D
.is appropriate and would not negate the unqualified opinion
Q.144)an auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support management's financial statement assertion of
A.valuation
B.rights and obligations
C
.existence
D.completeness
Q.145)inventory should be valued using the lower-of-cost-or-market rule
A.True
B.False
Q.146)an auditor would issue an adverse opinion if
A
.the audit begun by other independent auditors who withdrew from the engagement
B.a qualified opinion cannot be given because the auditor lacks independence
C.a restriction on the scope of the audit was significant
D
.
the statements taken as a whole do not fairly present the financial condition and results of operations of
the company
Q.147)which of the following best describes the occurrence assertion for inventory?
A.purchase requisitions initiated by authorized personnel
B.recorded inventory actually exists
C
.inventory properly accumulated from journals and ledgers
D.all inventory is recorded
Q.148)
the audit of the year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. the audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a
A
.sale in the subsequent period
B
.purchase in the current period
C.sale in the current period
D
.purchase return in the subsequent period
Q.149)other comprehensive bases of accounting (ocboa) include all of the following except
A.tax basis
B
.non-gaap methods used for internal reporting
C.cash basis
D.regulatory basis
Q.150)an audit may be unable to express an unqualified opinion if an immaterial departure from gaap is present in the financial statements
A.True
B.False