Audit Final

1. Documentation prepared by independent parties and sent to the client. 2. Proceeding forward through the accounting and control system from the evidence to the financial statements. 3. Audit of details of transactions and balances. 4. Audit procedure that provides compelling evidence of existence. 5. Direct correspondence with independent parties. 6. A list of audit procedures.

1. External-internal evidence 2. Tracing 3. Substantive procedures 4. Inspections of tangible assets 5. Confirmation 6. Audit plan

Which of the PCAOB assertions (A-E) are best verified by the following audit procedures (1-4)? 1. Confirming inventory held on consignment by the client with independent third party. 2. Consulting the Wall Street Journal for year-end prices of securities held by the client. 3. Physically examine all major property and equipment additions. 4. Review the aged trial balance for significant past due accounts.

1. Rights and obligations 2. Valuation or allocation 3. Existence or occurrence 4. Valuation or allocation

ABC Company had a major sale to XYZ Company. This sale accounted for 20% of the revenue of ABC Company. The auditors performed the audit procedures listed 1-3. For each audit procedure select the ASB transaction assertion that is most likely being tested. 1. The auditor reviewed the shipping documents to check the date that product was shipped to XYZ Company. 2. The auditor reviewed the shipping documents to ensure that all product included in the sales revenue to XYZ had been shipped. 3. The auditor reviewed the invoice sent to XYZ Company to ensure that XYZ had been properly billed.

1. cutoff 2. completeness 3. classification

1. Refers to changes across two or more years 2. A wide range of evidence-gathering activity that occurs before year-end 3. Chain of evidence found at an audit client 4. Procedures performed that rely on relationships among account balances and/or relevant non-financial data 5. Financial statement amounts expressed as proportions of a base

1. horizontal analysis 2. interim audit work 3. audit trail 4. analytical procedures 5. vertical analysis

1. Match shipping documents with sales invoices before a sale is recorded. 2. Balance total of individual customers' receivables with the control account. 3. Sales manager approves taking discounts. 4. Computer check for billing the quantity shipped, list price, and total. 5. Account for numerical sequence of pre-numbered shipping documents.

1. occurence 2. classification 3. allocation or valuation 4. accuracy 5. completeness

1. For a sample of recorded cash receipts, the auditors compared the date of receipt to the recording date. 2. The auditors traced a sample of daily cash reports to the cash receipts journal. 3. The auditors vouched a sample of recorded cash receipts to the deposits in the bank statement. 4. The auditors recalculate the cash listed on the daily deposit for a sample of recorded cash receipts. 5. The auditors traced a sample of recorded cash receipts to postings in the correct customers' accounts.

1. proper period 2. completeness 3. existence 4. accuracy 5. accounting and posting

Auditors are auditing the warehouse of Huge Lots Corporation. The auditors performed the audit procedures listed 1-5. For each audit procedure select the ASB balance assertion that is most likely being tested. 1. The auditors walked through the warehouse looking for obsolete inventory. 2. The auditors compared invoices received from suppliers with the cost of inventory listed in the inventory accounts. 3. The auditors reviewed purchase orders to determine if any inventory was on consignment. 4. The auditors reviewed vendor invoices to determine if freight costs, taxes, tariffs or other costs had been included in inventory costs. 5. The auditors selected items from the inventory and reviewed inventory records to ensure these items were included in those records.

1. valuation 2. accuracy 3. rights and obligations 4. valuation 5. completeness

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances

A. Scan sales invoices for missing numbers in sequence. B. Perform arithmetic recalculation of a sample of recorded sales invoices. C. For a sample of recorded sales, determine whether credit was approved. D. Trace a sample of credit memos to postings in customers' accounts. E. Select a sample of customer accounts and vouch debits to sales invoices.

A. completeness B. accuracy C. accuracy D. completeness E. occurence

A client has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?

Adverse opinion

Which of the following is an underlying condition that in part creates the demand by users for reliable information?

All of these

Which of the following procedures is considered a test of controls?

An auditor interviews and observes appropriate personnel to determine segregation of duties

Which of the following statements concerning noncompliance by clients is correct?

An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds

To whom should written representations be addressed?

Auditors

Which of the following should an auditor do when control risk is assessed at the maximum level?

Document the assessment

Which of the following is not a restriction placed on audit partners by Sarbanes-Oxley?

Engagement partners must review nonaudit work to ensure that independence has not been compromised

What type of evidence would provide the highest level of assurance in an attestation engagement?

Evidence obtained from independent sources

A vendor's invoice received and held by the client would be considered what type of evidence?

External-internal

Which of the following is not considered one of the three factors increasing the probability of fraud?

Lack of training

Which of the following is not included in the American Accounting Association (AAA) definition of auditing?

Potential conflict of interest

Which reporting options do auditors have if the client's financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS)?

Qualified opinion or adverse opinion

If financial statements contain a material but non-pervasive departure from generally accepted accounting principles, the auditors should render a(n)

Qualified opinion with reference to departure

Which of the following should be performed by the persons opening the mail and recording payments?

Restrictive endorsement on all checks

Which of the following events or activities may occur following the audit report release date?

Subsequently discovered facts

Which of the following is not a concept from the performance principle under generally accepted auditing standards?

The auditor must express an opinion in accordance with the auditor's findings

When auditors lack independence, which of the following is true about the report on the entity's financial statements that should be issued?

The auditors should disclaim an opinion and should state specifically that they are not independent

Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?

The same person authorizes voucher packages and signs checks

Which of the following philosophical principles in ethics places emphasis on the consequences of action, rather than on following the rules?

Utilitarianism principle

An auditor is concerned about a policy of management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor's concern?

Verifying that approved spending limits are not exceeded

Which of the following questions would be inappropriate for an auditor to ask a client when exhibiting an appropriate level of professional skepticism while completing an audit procedure related to the internal control system?

Which of your employees is a fraudster?

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of:

a cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit

A voucher would typically contain

a purchase requisition, purchase order, vendor invoice, receiving report, and check copy.

Auditors will issue an adverse opinion when

a violation of generally accepted accounting principles is sufficiently material and pervasive that a qualified opinion is not justified

Maralee has been approached by J. Fox Entertainment to perform an audit of her theatre company. Maralee has never audited a theatre company before. Maralee can:

accept the engagement if she can obtain the required knowledge before the end of the engagement

Auditors are required to reference consistency in their report when there are changes in

accounting principles

an inappropriate audit procedure...

accounts are collected by the balance sheet date

An auditor assesses the risk of material misstatement because it:

affects the level of detection risk that the auditor may accept

Failure to record a liability generally results in:

an overstatement of profit

The primary objective of analytical procedures used near the end of an audit is to:

assist auditors in evaluating the overall financial statement presentation

A small business owner can best offset the lack of separation of duties by:

being actively involved in the accounting process

The SEC requires all of the following for revenue to be recognized except:

cash is collected

The primary consideration when planning whether to send confirmations of accounts receivable before the balance sheet date is the:

client's internal control over transactions affecting receivables

Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the:

client's management

Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of:

completeness

In auditing the long-term debt account, an auditor's procedures most likely would focus primarily on management's assertion of:

completeness

The audit objective that all transactions and accounts that should be presented in the financial statements are in fact included is related to which of the PCAOB assertions?

completeness

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of:

cutoff

The appropriate separation of duties does not include:

data preparation

Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

decrease detection risk

An audit team's responsibility would not include:

designing client's internal controls

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to:

determine that purchases were properly recorded

To be recognized, revenues must also be realized or realizable and:

earned

An engagement letter is used primarily to:

ensure a clear contractual understanding of the services to be provided by the CPA

When an auditor becomes aware of possible noncompliance by a client, the auditor should obtain an understanding of the nature of the act to:

evaluate the effect on the financial statements

When auditing PP&E, the auditor's approach is generally to:

examine evidence supporting additions during the year

Auditors who are reporting on financial statements that contain a material departure from generally accepted accounting principles should include an additional paragraph and

express a qualified or adverse opinion

An audit of the financial statements of Camden Corporation is being conducted by external auditors. The external auditors are expected to:

give an opinion on the fair presentation of Camden's financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS)

In the planning stage, analytical procedures are used to:

identify potential problem areas

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?

incompatible duties

The document that generates recording of a sale is the:

invoice

The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except:

mailing the confirmation letters

A CPA firm would provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by

maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure

In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from:

no reply to negative confirmations

The assertion that auditors will probably emphasize in the revenue and collection cycle is:

occurence

During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing. Tests of controls Substantive Tests A. Yes Yes B. Yes No C. No Yes D. No No

option A

When testing the completeness assertion for a liability account, an auditor ordinarily works from the:

potentially unrecorded items to the financial statements

Three conditions are generally...

professional skepticism

When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is

qualified or adverse, depending on the overall materiality and pervasiveness of the GAAP departure

"Bill and hold" refers to an arrangement where:

sales are recorded but are not shipped

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

sales invoices with shipping documents

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balances. A purpose of this procedure is to:

seek information about contingent liabilities and security agreements

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if:

the client does not take the remedial action that the auditor considers necessary

A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as:

the control environment

An auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if:

the results of alternative procedures that were performed compensate for the omission

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be?

vendors with whom the entity has previously done business