ACC403 Accumulated Questions

Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern?

"These goods were returned for credit on November 15."

Which of the following would be considered an assurance engagement?

- Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the past. -Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles. -Giving an opinion on the fair presentation of a newspaper's circulation data. -Giving assurance about the average drive length achieved by golfers with a client's golf balls.

The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from

-Acting in a managerial decision-making role for an audit client. -Auditing the firm's own work on an audit client. -Providing tax consulting to an audit client without audit committee approval.

Fraud risk factors are events or conditions that indicate which of the following?

-An opportunity to carry out a fraud. -An attitude or rationalization that justifies a fraudulent action. --An incentive or pressure to perpetrate fraud.

Analytical procedures can be used in which of the following ways?

-As a means of overall review near the end of the audit. -As "attention-directing" methods when planning an audit at the beginning. -As substantive audit procedures to obtain evidence during an audit.

Prior to accepting a new audit engagement, a public accounting firm should

-Attempt to contact the predecessor auditors. -Evaluate the integrity of management. -Assess the firm's resources to ensure that they are sufficient to permit the firm to accept the engagement.

The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client?

-Bookkeeping services -Internal auditing services -Valuation services

Which of the following is a reason to obtain professional certification?

-Certification provides credibility that an individual is technically competent. -Certification often is a necessary condition for advancement and promotion within a professional services firm. -Obtaining certification is often monetarily rewarded by an individual's employer.

Performance audits usually include

-Economy and efficiency audits -Program audits

When testing a control activity's operating effectiveness, procedures the auditor performs to test operating effectiveness would likely include

-Inquiry of appropriate personnel. -Reperformance of the control activity.

In what way can audit procedures be modified to address assessed fraud risks?

-Obtain more reliable information. -Perform procedures close to year-end. -Apply computer-assisted techniques to all items.

What requirements are usually necessary to become licensed as a certified public accountant?

-Successful completion of the Uniform CPA Examination. -Experience in the accounting field. -Education.

The auditor should assess control risk for each relevant assertion by evaluating the evidence obtained from all sources, including

-The auditor's testing of controls for the audit of internal control on a public company. -Misstatements detected during the financial statement audit. -Any control deficiencies identified during the audit.

When initiating communications with predecessor auditors, prospective auditors should expect

-To take responsibility for obtaining the client's consent for the predecessor to give information about prior audits. -To conduct interviews with the partner and manager in charge of the predecessor public accounting firm's engagement. -To obtain copies of some or all of the predecessor auditors' audit documentation.

When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on

-Whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure. -The magnitude of the potential misstatement resulting from the deficiency or the deficiencies.

The auditors assessed risk of material misstatement at 0.50 and said they wanted to achieve a 0.05 risk of failing to express a correct opinion on financial statements that were materially misstated. What detection risk do the auditors plan to use for planning the remainder of the audit work?

0.10

It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that

A potential conflict of interest always exists between the auditor and the management of the enterprise under audit.

Generally accepted auditing standards require that auditors always prepare and use

A written audit plan.

Which of the following topics is not addressed in the auditors' report for an issuer?

Absolute assurance regarding the fairness of the entity's financial statements in accordance with GAAP.

During the confirmation of accounts receivable, an auditor receives a confirmation via the client's fax machine. Which of the following actions should the auditor take?

Accept the confirmation but verify the source and content through a telephone call to the respondent.

Analytical procedures used when planning an audit should concentrate on

Accounts and relationships that can represent specific potential problems and risks in the financial statements.

A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes the control objective that auditors are most interested in when performing tests of liabilities?

Accounts payable are not materially understated.

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

When auditing the revenue and collection cycle, auditors normally select balances to confirm from the

Accounts receivable listing.

The control procedure "credit sales approved by credit department" is directed toward which transaction assertion?

Accuracy.

Breaux & Co. CPAs require that all audit documentation indicates the identity of the preparer and the reviewer. This procedure provides evidence relating to which of the following?

Adequate planning and supervision.

Which of the following opinions would be issued if auditors believed that the entity's financial statements were not presented in conformity with GAAP?

Adverse opinion.

Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements?

All signed checks must be reviewed and compared with supporting documentation by the treasurer before mailing.

The company being audited has an internal auditor who is both competent and objective. The independent auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the independent auditor may

Allow the internal auditor to perform certain tests of internal controls.

A transaction-level internal control activity is best described as

An action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company.

Embezzlement is a type of fraud that involves

An employee misappropriating an employer's money or property entrusted to the employee's control in the employee's normal job.

Which of the following communications is most likely to be written before the balance-sheet date?

An engagement letter.

Which of the following would best be described as an attest engagement?

An engagement to assess the effectiveness of an internal control system.

An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by

An error in recording amortization of the excess of the investor's cost over the investment's underlying book value.

Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of an audit client?

An internal control questionnaire.

Which of the following auditprocedures is least likely todetect an unrecorded liability?

Analysis and recomputation of depreciation expense

It is acceptable under generally accepted auditing standards for an audit team to

Assess risk of material misstatement at high and achieve an acceptably low audit risk by performing extensive substantive tests.

What is the primary objective of the fraud brainstorming session?

Assess the potential for material misstatement due to fraud.

A primary objective of analytical procedures used in the final review stage of an audit is to

Assist the auditor in evaluating the overall financial statement presentation.

The particular and specialized actions that auditors take to obtain evidence during a specific engagement are known as

Audit procedures.

Which of the following best describes the relationship between auditing and attestation engagements?

Auditing is a subset of attestation engagements that focuses on the certification of financial statements

An auditor referred to the findings of aauditor's external specialist in the auditor'sreport. This may be an appropriatereporting practice if the

Auditor's report contains a qualified opinion

Which of the following statements is not true with respect to the performance principle?

Auditors are required to prepare a written audit plan during the planning stages of initial audits but are not required to do so in continuing audits.

Which of the following statements best describes auditors' responsibility for detecting a client's noncompliance with a law or regulation?

Auditors must design tests to obtain reasonable assurance that all noncompliance with direct material financial statement effects is detected.

Which of the following is true about electronic cash confirmations obtained through Confirmation (Confirmation.com)?

Auditors must obtain evidence supporting the reliability of controls surrounding the Confirmation (Confirmation.com) process.

In most audits of large entities, control risk assessment contributes to audit efficiency, which means that

Auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs.

The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the

Authorization of transactions from the custody of related assets

Which of the following is least indicative of fraudulent activity?

Bank reconciliation has no outstanding checks or deposits older than 15 days.

Kramer, CPA, consulted an independent appraiser regarding the valuation of fine art for a not-for-profit museum. Consultation with the appraiser in this case would

Be considered as exercising proper due care.

Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit?

Being able to decide early what type of audit opinion to issue.

When completing the audit of internal controls for an issuer, AS 2201 requires auditors to test

Both operating and design effectiveness.

In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances. Which of the following would be the best source of information for use in the estimate of cash?

Cash budgets.

The revenue cycle of a company generally includes which accounts?

Cash, accounts receivable, and sales.

If tests of controls induce the audit team to change the assessed level of control risk for fixed assets from 0.4 to 1.0 and audit risk (0.05) and inherent risk remain constant, the acceptable level of detection risk is most likely to

Change from 0.25 to 0.1.

Which of the following procedures would a CPA most likely perform in planning a financial statement audit?

Compare financial information with nonfinancial operating data

large university has relativelyineffective internal control. Theuniversity's auditor seeks assurance thatall tuition revenue has been recorded.The auditor could best obtain the desiredassurance by

Comparing business office revenue records withregistrar's office records of students enrolled

Which of the following would be considered an analytical procedure?

Comparing inventory balances to recent sales activities.

In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for

Completeness

An auditor selected items for test counts from the client's warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that agreed to the financial statements. This procedure most likely provided evidence concerning management's assertion of

Completeness.

Cutoff tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management's assertion of

Completeness.

In auditing the accrued liabilities account on the balance sheet, an auditor's procedures most likely would focus primarily on management's assertion of

Completeness.

When auditing account balances of liabilities, auditors are most concerned with management's assertion about

Completeness.

An audit committee is

Composed of members of a company's board of directors who are not involved in the day-to-day operations of the company.

To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except for

Confirmation of balances.

Allison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud?

Consulting service expense

For which of the following accounts would the matching concept be the most appropriate?

Cost of goods sold

Which of the following best demonstrates the concept of professional skepticism?

Critically assessing verbal evidence received from the entity's management.

Audit documentation 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

Current file audit documentation.

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion?

Cutoff

When a company that sells its products with a positive gross profit increases its sales by 15 percent and its cost of goods sold by 7 percent, the cost of goods sold ratio will

Decrease.

The risk that the auditors' own testing procedures will lead to the decision that material misstatements do not exist in the financial statements when in fact such misstatements do exist is

Detection risk.

Which of the following risk types increase when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date?

Detection.

According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to

Determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors or fraud that could result in material misstatements, if they operate as prescribed.

The primary purpose for obtaining an understanding of internal control during the audit of a non-issuer is to

Determine the nature, timing, and extent of further audit tests to be performed.

The primary objective of compliance auditing is to

Determine whether client personnel are following laws, rules, regulations, and policies.

Which of the following combinations of standards and types of audits are most closely related to the activities of the Public Company Accounting Oversight Board?

Develop Auditing Standards for the audits of issuers.

The evidence considered most appropriate by auditors is best described as

Direct personal knowledge obtained through physical observation and mathematical recalculation.

If the auditors encounter a significant scope limitation in evaluating an issuer's internal control over financial reporting, which of the following types of opinions on the effectiveness of the company's internal control over financial reporting would be appropriate?

Disclaimer of opinion.

Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?

Disclaimer of opinion—significant deficiencies exist.

When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following excep

Do nothing for immaterial balances.

Which of the following is the best reason for prenumbering in numerical sequence documents such as sales orders, shipping documents, and sales invoices?

Enables personnel to check the numerical sequence for missing documents and unrecorded transactions.

According to the AICPA, the purpose of an audit of financial statements is to

Enhance the degree of confidence that intended users can place in the financial statements.

An audit team 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. The purpose of this audit procedure is to establish that

Entries in the accounts receivable subsidiary ledger were properly invoiced.

A good fraud prevention program should address employees' motivation to steal from the company. The best method for doing this is to

Establish employee assistance programs.

Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to

Estimate credit losses.

When auditors become aware of noncompliance with a law or regulation committed by client personnel, the primary reason that the auditors should obtain a better understanding of the nature of the act is to

Evaluate the effect of the noncompliance on the financial statements.

Once the auditor detects a control deficiency, which of the following steps must he or she take first?

Evaluate the severity of the deficiency on the auditor's control risk assessment for that assertion.

When evaluating whether accounting estimates made by management are reasonable, auditors would be most interested in which of the following?

Evidence of a conservative systematic bias.

When evaluating whether accounting estimates made by management are reasonable, the audit team would be most concerned about which of the following?

Evidence of a conservative systematic bias.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?

Examine a sample of cash disbursements in the period subsequent to year-end.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?

Examining vendor statements for amounts not reported as purchases.

An auditor's permanent file audit documentation most likely will contain

Excerpts of the corporate charter and bylaws.

During an audit of a company's cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion?

Existence

When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion?

Existence

Confirmations of accounts receivable provide evidence primarily about which two assertions?

Existence and rights and obligations.

In the audit of accounts receivable, the most important emphasis should be on the

Existence assertion.

Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the

Existence of the balances confirmed.

During an audit of cash, the auditor is most concerned with the management assertion of

Existence.

When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed assets are not overstated, she wants to obtain evidence as to management's assertion regarding

Existence.

When auditing the accounts receivable account on the balance sheet, an auditor's procedures most likely would focus primarily on management's assertion of

Existence.

Once a CPA has determined thataccounts receivable have increasedbecause of slow collections in a tightmoney environment, the CPA is likely to

Expand tests of collectibility

Which of the following would not overstate current-period net income?

Failing to record a check paying an item in Vouchers Payable

Based on this information, the auditor is most likely concerned about

Fictitious sales.

When completing the audit of internal controls for an issuer, the PCAOB requires the audit team to audit internal controls over

Financial reporting.

When auditing the existence assertion for an asset, auditors proceed from the

General ledger back to the supporting original transaction documents.

The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the

Government Accountability Office (GAO)

Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable?

Have customers send payments directly to the company's depository bank.

Purchase cutoff procedures testthe completeness assertion. Acompany should include goodsin its inventory if it

Holds legal title to the goods

Fraud risk factors are events or conditions that indicate I An incentive or pressure to perpetrate fraud. II An opportunity to carry out the fraud. III An attitude or rationalization that justifies the fraudulent action. Which of the following statements is true?

I, II, and III are fraud risk factors.

When planning the audit of internal controls for an issuer, the audit team should

Identify significant accounts, locations, and relevant assertions.

Which of the following procedures would most likely be performed during planning?

Identifying related parties.

Auditors perform analytical procedures in the planning stage of an audit for the purpose of

Identifying unusual conditions that deserve more auditing effort.

Which of the following is most closely related to the relevance of audit evidence?

In addition to confirmations of accounts receivable, auditors perform an analysis of the aging of accounts receivable to evaluate the collectability of accounts receivable.

Which of the following might bedetected by an auditor's reviewof the client's sales cutoff?

Inflated sales for the year

Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date?

Inflating sales for the year.

Independent auditors of financial statements perform audits that reduce

Information risk faced by investors.

The risk to investors that a company's financial statements may be materially misleading is called

Information risk.

The risk of material misstatement is composed of which audit risk components?

Inherent risk and control risk.

The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here?

Inherent risk was particularly high for accounts receivable.

Ordinarily, what source of evidence should least affect audit conclusions?

Inquiry of management.

Which of the following audit procedures probably would provide the most reliable evidence related to the entity's assertion of rights and obligations for the inventory account?

Inspect agreements for evidence of inventory held on consignment.

Which of the following procedures would provide the most reliable audit evidence?

Inspection of bank statements obtained directly from the client's financial institution.

When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase

Invoices.

Jones, CPA, is planning the audit of Rhonda's Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda's representation in this regard

Is not considered a sufficient basis for Jones to conclude that all expenses have been recorded.

A material weakness is a situation in which

It is reasonably possible that a material misstatement would not be detected on a timely basis.

An audit team would most likely examine the detail support for charges to which of the following accounts?

Legal expense.

Auditors are not responsible for accounting estimates with respect to

Making the estimates.

An auditor's engagement letter most likelywill include

Management's acknowledgement of itsresponsibility for maintaining internal control.

An auditor is required to confirm accounts receivable if the accounts receivable balances are

Material to the financial statements.

With respect to the concept of materiality, which of the following statements is correct?

Materiality is a matter of professional judgment.

Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager's representation?

Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.

If the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, timing, and extent of further audit procedures are based on that lower assessment, the auditor must

Obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance.

When auditing an investment in a publicly traded company, an auditor most likely would seek to conduct which audit procedure to help satisfy the valuation assertion?

Obtain market quotations from The Wall Street Journal or another independent source.

Tests of controls in a GAAS audit are required for

Obtaining evidence about the operating effectiveness of client control activities.

A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of

Operational auditing.

Which of the following would probably not be considered an indication of a material weakness?

Overproduction by the manufacturing plant.

Which of the following is true with respect to PCAOB inspections of accounting firms?

PCAOB inspections review a sample of audits conducted by firms as well as the firm's systems of quality control.

If the auditor believes that a misstatement is or might be intentional and the effect on the financial statements could be material or cannot be readily determined, the auditor should do which of the following?

Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is likely to have occurred.

Which of the following categories of principles is most closely related to gathering audit evidence?

Performance.

Effectiveness of audit procedures would be reduced by

Performing procedures during the interim period as opposed to at the fiscal year-end date.

Which of the following is a specific audit procedure that would be completed in response to a particular fraud risk in an account balance or class of transactions?

Performing procedures such as inventory observation and cash counts on a surprise or unannounced basis.

Substantial equivalency refers to

Permitting a CPA to practice in another state without having to obtain a license in that state.

A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment?

Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

The most reliable evidence regarding the existence of newly acquired computer equipment is

Physical observation.

Auditors' understanding of the internal control in an entity provides information for

Planning the nature, timing, and extent of substantive procedures on an audit.

The best way to enact a broad fraud prevention program is to

Practice management "of the people and for the people" to help them share personal and professional problems.

Immediately upon receipt of cash, a responsible employee should

Prepare a remittance listing.

Which of the following is an effective audit procedure that an auditor might use to detect kiting between intercompany banks?

Prepare a schedule of the bank transfers.

In an attestation engagement, a CPA practitioner is engaged to

Prepare a written report containing a conclusion about the reliability of a management assertion.

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about

Presentation and disclosure.

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting

Presentation and disclosure.

Which of the following is not related to ethical requirements of auditors?

Professional judgment.

Which of the following accounts would most likely be audited in connection with a related balance-sheet account?

Property tax expense.

Budd, the purchasing agent of 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 cash-on-delivery (C.O.D.) 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

Purchase orders.

Which of the following accounts is not normally part of the revenue and collection cycle?

Purchases Returns and Allowances

Which of the following results of analytical procedures would most likely indicate possible unrecorded liabilities?

Ratio of accounts payable to total current liabilities of 3:1, compared to 5:1 for the prior period.

Which of the following concepts is least related to the standard of due care?

Reasonable assurance

Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements?

Reasonable assurance

To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all

Receiving reports.

Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by

Refusal by the purchasing department to approve the vendor.

Analytical procedures are generally used to produce evidence from

Relationships among current financial balances and prior balances, forecasts, and nonfinancial data.

Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients?

Relevant ethical requirements.

Auditing standards do not require auditors of financial statements to

Report all errors and frauds found to police authorities.

Under the Private Securities Litigation Reform Act (the act), independent auditors are required to first

Report to the SEC all instances of noncompliance with the act they believe have a material effect on financial statements if the board of directors does not first report to the SEC.

Which of the following principles is most closely associated with the auditors' conclusion as to the fair presentation of the entity's financial statements?

Reporting principle.

In testing inventory at an audit client in the retail industry, you note that some of the inventory is contracted to be held on consignment. As a result, which financial statement assertion is now relevant?

Rights and obligations

When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client's ending inventory balance. This audit procedure provides assurance about which management assertion?

Rights and obligations

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

Risk of material misstatement.

Sales are normally recorded on the date of the

Sales invoice.

When a sample of customer accounts receivable is selected for vouching debits, auditors will vouch them to

Sales invoices with shipping documents and customer sales invoices.

Which of the following accounts does not appear in the acquisition and expenditure cycle?

Sales returns

To conceal a theft involving receivables, a dishonest bookkeeper might charge which of the following accounts?

Sales returns.

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?

Scanning the minutes for significant transactions with members of the board of directors.

An audit engagement letter should normally include which of the following matters of agreement between the auditor and the client?

Schedules and analyses to be prepared by the client's employees.

Which of the followingprocedures is least likely to beperformed before the balancesheet date?

Search for unrecorded liabilities

Which of the following procedures is least likely to be performed before the balance-sheet date?

Search for unrecorded liabilities.

A client has a separate sales group for its largest "preferred" customers, a select group of customers who normally make purchases in excess of $250,000 and often have accounts receivable balances in excess of $1 million. Which of the following audit procedures would the auditor most likely perform?

Send out positive confirmations on a large sample of these customers.

When accounts receivable are confirmed at an interim date, auditors need not be concerned with

Sending negative confirmations to all customers as of the year-end date.

Which of the following internal control activities most likely would deter lapping of collections from customers?

Separation of duties between receiving cash and posting the accounts receivable ledger.

Which of the following is a preventive control?

Separation of duties between the payroll and personnel departments.

Tracing bills of lading to salesinvoices provides evidence that

Shipments to customers were invoiced.

When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that

Shipments to customers were invoiced.

An audit plan contains

Specifications of procedures the auditors believe appropriate for the financial statements under audit.

An audit strategy memorandum contains

Specifications of procedures the auditors believe appropriate for the financial statements under audit.

One of an accounting firm's basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this objective can be obtained by following

Standards within a system of quality control.

Which of the following best describes the general contents of the first paragraph of the "Basis for Opinion" section of the auditors' report?

Statements identifying the responsibility of auditors and management in the financial reporting process.

An audit firm is testing controls within the purchasing cycle. In which of the following procedures would the firm most likely apply sampling techniques?

Testing of operating effectiveness of controls over authorization of purchase orders.

An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?

The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.

Which of the following is most closely related to the responsibilities principle?

The auditors' compliance with relevant ethical requirements of independence and due care.

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?

The auditors' judgment about their independence with regard to the client.

When auditing Vandalay Jewelry, Costanza, CPA, was not familiar with the quality and cut of the company's precious jewel inventory. To address this shortcoming, Costanza hired Benes, an expert in jewel valuation, to assist as an audit specialist for the inventory valuation. Should Costanza refer to Benes's work in the audit report?

The auditors' report should mention the use of the audit specialist only when the audit specialist's findings affect the auditors' conclusions.

Each morning the controller gets the prior day's list of remittances, a copy of the payment report, and a copy of the deposit slip returned from the bank. When comparing these items, the controller would be able to determine that

The cash received and remittance advice received were maintained in a single batch.

Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances?

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

The client made several large adjustments at or near year-end.

When auditing with "fraud awareness," auditors should especially notice and follow up employee activities under which of these conditions?

The company always estimates the inventory but never takes a complete physical count

Revenues are normally considered to have been earned when

The company has substantially accomplished what it must to be entitled to the benefits.

The most important foundational component of an entity's internal control system is

The control environment.

Which of the following matters relating to an entity's operations would an auditor most likely consider as an inherent risk factor in planning an audit?

The entity enters into significant derivative transactions as hedges.

A client decides not to correct misstatementscommunicated by the auditor that collectively are notmaterial and wants the auditor to issue the report based onthe uncorrected numbers. Which of the followingstatements is correct regarding the financial statementpresentation?

The financial statements are free from material misstatement, andno disclosure is required in the notes to the financial statements.

Which of these arrangements of duties could most likely lead to an embezzlement or theft?

The inventory warehouse manager has responsibility for making the physical inventory observation and reconciling discrepancies to the perpetual inventory records.

Which of the following control activities could prevent a paid disbursement voucher from being presented for payment a second time?

The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents.

The primary difference between operational auditing and financial auditing is that in operational auditing

The operational auditor is seeking to help management use resources in the most effective manner possible.

Matters that could affect the necessary extent of testing for a control activity as it related to the degree of auditor reliance on a control activity would not include the following:

The relevance and reliability of the audit evidence to be obtained to test the operating effectiveness of a control activity.

An audit team was testing source documents in the purchasing cycle and identified the following circumstances. Which of the following would be the most indicative of source document fraud?

The same invoice number appears on different invoices from the same vendor.

Which of the following is an advantage of computer-assisted audit techniques (CAATs)?

The software can be used for audits of clients that use differing computer equipment and file formats.

Write-offs of doubtful accounts should be approved by

The treasurer.

A code of ethics is an important element of a fraud prevention program. Which of the following would diminish the effectiveness of a company's code of conduct?

The violation of the code of ethics by senior management.

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

There will be a client-imposed scope limitation.

Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because

They generally see a potential conflict of interest between company managers who want to get loans and the bank's needs for reliable financial statements.

Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?

They typically use financial and nonfinancial data aggregated at a high level.

The primary purpose for obtaining an understanding of the entity's environment (including its internal control) in a financial statement audit is

To determine the nature, timing, and extent of substantive procedures to be performed.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Understating the sales journal.

Unrecorded liabilities are mostlikely to be found during thereview of which of the followingdocuments?

Unpaid bills

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Unrecorded sales.

In testing the goodwill at an audit client in the retail industry, an auditor may seek to determine whether the account balance had been impaired. Such impairment procedures would be designed to test which financial statement assertion?

Valuation

An auditor seeks to test the accuracy of the amount recorded as revenue on a contract with a customer under ASC 606. Which PCAOB assertion is most likely being tested?

Valuation and allocation

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

Valuation and allocation.

An auditor performs a test to determinewhether all merchandise for which theclient was billed was received. Thepopulation for this test consists of all

Vendors' invoices.

If sales were overstated by recording a false credit sale at the end of the year, where could you find the false "dangling debit"?

Victimization of investors through the use of materially misleading financial statements.

The primary audit test todetermine if accounts payableare valued properly is

Vouching accounts payable to supportingdocumentation

Which of the following internal control activities will most likely prevent the concealment of a cash shortage by improperly writing off a trade account receivable?

Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.

The objective of assurance services is best described as

enhancing decision making

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?

he official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents.

Users of an issuer's financial statements demand independent audits because

management may not be objective in reporting

Madison Corp. has a few large accounts receivable thattotal $1 million. Nassau Corp. has a great number of smallaccounts receivable that also total $1 million. Theimportance of misstatement in any one account is thereforegreater for Madison than for Nassau. This is an example ofthe auditor's concept of

materiality