Audit Final Exam

When active market does not exist for a specific asset, the fair value must be determined by using a(n) ______ model, involving discounted cash flows.

Valuation

A decision as to the materiality of an unrecorded transaction hinges to an important extent on whether the transaction:

affects net income

When searching for unrecorded accounts payable, the auditors will examine transactions that were recorded ______ year end.

after

For a change in accounting principle, the client must report in the note to the financial statements all of the following except the ______ the change.

auditor's approval of

The audit of accounts payable should include test of controls and substantive procedures that establish the ______ of recorded accounts payable.

completeness

Group auditors need to obtain an understanding of whether ______ auditors are competent.

component

Auditors need to test assets acquired from related parties because of the risk the transactions have been recorded at:

inflated amounts

Property, plant, and equipment that are temporarily idle:

need not be reclassified

Payables to a corporation's ______ require particular attention by the auditors since they are not the result of arm's-length bargaining by parties of opposing interests.

officers

The auditing steps for accrued liabilities include performing a retrospective analysis of the ______ estimates of management bias for significant estimates.

prior year's

Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements?

Settlement of litigation

Which of the following is least likely to be considered a substantive procedure relating to payroll?

Test whether employee time reports are approved by supervisors.

Which of the following statements is false?

The extent of the vouching is dependent upon the auditors' assessment of inherent risks for the existence and valuation of the assets

The purpose of notes to financial statements is to:

properly disclose information required by GAAP

The principal working papers for accounts payable include all of the following except:

purchase requisitions

The PCAOB requires that critical audit matters (CAMs):

only be reported for the period being audited

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?

Capitalization

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should:

Consider the possibility of a misstatement in the financial statements.

Auditors need to verify that the amounts in the property and equipment subsidiary ledgers agree in total with the balances in the:

Controlling general ledgers accounts

Which of the following is most likely to be considered a Type 1 subsequent event?

Customer checks deposited prior to year-end but determined to be uncollectible after year-end.

If asset recovery periods are not reasonable, __________ expense may be materially misstated and the auditors will not be in a position to issue an unqualified opinion on the financial statements.

Depreciation

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n):

Loss contingency

Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job?

Make a surprise observation of the company's regular distribution of paychecks on a test basis.

Which of the following procedures is most likely to be included near completion of an audit?

Performing analytical procedures

What control helps to verify the existence, location, and condition of all property listed in the accounts?

Periodic physical inspections

Evidence of legal ownership of property, plant, and equipment include:

Property tax bills

The main reason auditors investigate property, plant, and equipment that has been replaced, sold, dismantled, or abandoned during the year is to:

determine that the retirement is recorded

Multiple uncertainties that cause the auditor to conclude it's not possible to form an opinion on the financial statements may make a(n) ______ opinion appropriate.

disclaimer of

Auditors cannot issue the ______ report for an audit if there are material departures from GAAP in the financial statements.

standard

The audit report should be signed with the name of:

the CPA firm

A major assumption underlying the inclusion of an emphasis-of-matter paragraph for an uncertainty is:

the matter is adequately disclosed in the notes

A situation in which conclusive audit evidence concerning the ultimate outcome cannot be gathered because the outcome will occur in the future is called a(n):

uncertainty

If a client changes depreciation methods but the change is immaterial, the auditor should issue a(n):

unmodified opinion

Auditors who want to emphasize significant transactions with related parties can issue a(n):

unmodified opinion with an emphasis-of-matter paragraph

Auditors need to perform a complete historical analysis of the property accounts for a client that has never been audited because:

Repair and maintenance expenses may have been capitalized

Testing voucher register or the accounts payable ledgers by vouching specific items back through journals to original documents:

is necessary to determine the operating effectiveness of certain controls

To evaluate consistent application of GAAP when reporting on only the current period, auditors should consider the current period under audit and the preceding:

period