auditing final
In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is: (1) Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. (2) Not in accordance with generally accepted auditing standards. (3) A qualification that lessens the collective responsibility of both CPA firms. (4) An example of a dual opinion requiring the signatures of both auditors.
(1)
Which of the following is most likely to be considered a material weakness in internal control? (1) Ineffective oversight of financial reporting by the audit committee. (2) Restatement of previously issued financial statements due to a change in accounting principles. (3) Inadequate controls over non routine transactions. (4) Weaknesses in risk assessment.
(1)
Which of the following ordinarily involves the addition of an emphasis of matter paragraph to an audit report? (1) A consistency modification. (2) An adverse opinion. (3) A qualified opinion. (4) Part of the audit has been performed by component auditors.
(1)
In which of the following reports should a CPA not express negative (limited) assurance? (1) A standard compilation report on financial statements of a nonpublic entity. (2) A standard review report on interim financial statements of a public entity. (3) A standard review report on financial statements of a nonpublic entity. (4) A comfort letter on financial information included in a registration statement filed with the Securities and Exchange Commission.
(1) A compilation report contains a disclaimer regarding the financial statements; it should not include the expression of negative assurance.
A CPA's report relating to a SysTrust engagement is most likely to include: (1) An opinion on whether the system is electronically secure. (2) An opinion on management's assertion that the system meets one or more of the SysTrust principles. (3) Negative assurance on whether the system is secure. (4) No opinion or other assurance, but a summary of findings relating to the system.
(2) A SysTrust report includes an opinion on management's assertion that the Website meets one or more of the SysTrust principles
Which of the following is not an objective of a CPA's examination of a client's MD&A? (1) The presentation includes, in all material respects, the required elements of the rules and regulations adopted by the Securities and Exchange Commission. (2) The presentation is in conformity with rules and regulations adopted by the SEC. (3) The historical amounts included in the presentation have been accurately derived, in all material respects, from the entity's financial statements. (4) The underlying information, determinations, estimates, and assumptions provide a reasonable basis for the disclosures contained in the presentation
(2) while an attestation report on MD&A does state that the presentation includes the required elements of the rules ad regulations adopted by SEC, it does not include an opinion that the presentation is in conformity with rules and regulations adopted by SEC
A report on an attestation engagement should: (1) State the nature of the client's control system. (2) State the practitioner's conclusion about the subject matter or assertion. (3) Include a reasonable limitations section pertaining to data inputs. (4) Refer to the auditor's assertion concerning the subject matter.
(2) state the practitioner's conclusion about the subject matter or assertion
The proper report by an auditor relating to summarized financial statements includes: (1) A statement about the type of opinion expressed in the prior year. (2) An adverse opinion. (3) An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements. (4) No assurance on the information.
(3)
A proper compilation report on financial statements that omit note disclosures: (1) Includes an adverse opinion. (2) Includes a disclaimer of opinion on the accuracy of such note disclosures. (3) Indicates that management has omitted such information. (4) Indicates that note disclosures are not necessary for those not informed about such matters.
(3) The appropriate report on compiled financial statements that omit disclosures includes an indication that management has elected to omit the disclosures and the financial statements are not intended for individuals not informed of such matters.
Which of the following is least likely to be the subject matter of an attestation engagement? (1) Behavior. (2) Historical events. (3) Suitable criteria. (4) Systems or processes
(3) suitable criteria are the criteria followed in the preparation of the subject matter. Accordingly, suitable criteria are not the subject matter
Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . .the financial statements referred to above present fairly. . ." This is: (1) An unmodified opinion. (2) A disclaimer of opinion. (3) An "except for" opinion. (4) An improper type of reporting.
(4)
The assurance services being developed that address user and preparer needs regarding issues of security, availability, processing integrity, confidentiality, and privacy within e-commerce and other systems are referred to as: (1) PrimePlus Services. (2) XBRL Services. (3) Risk Advisory Services. (4) Trust Services.
(4) Trust services deal with the issues of security, availability, processing integrity, confidentiality and privacy
When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a(n): (1) Qualified opinion. (2) Unqualified opinion with a separate explanatory paragraph. (3) Disclaimer of opinion. (4) Adverse opinion.
(4) adverse opinion the attestation standards relating to financial forecasts require that when several significant assumptions are not listed that an adverse opinion be issued
Implement an off-the-shelf accounting package, as well as perform the audit; nonpublic
Allowable
Provide bookkeeping services, as well as perform the audit; not determine journal entries, authorize transactions, or prepare or modify source documents for NONPUBLIC client
Allowable
Provide financial info system design and implementation assistance; WW provides no attest services for that company for PUBLIC client
Allowable
Serve on the board of directors of the company; no attest services for the company; PUBLIC client
Allowable
Prepare the corporate tax return, as well as perform the audit for PUBLIC client
Allowable allowable for nonpublic client as well
the organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the
Cost Accounting Standards Board
attestation standards are primarily designed to provide guidance on the audit of financial statements True / False?
False
the risk of material material misstatement is composed of the three components of audit risk -- T/F?
False consists of two: inherent, control risk
a public accounting firm would least likely by considered in violation of the AICPA independence for which of the following instances?
a partner's checking account, which is fully insured by the Federal Deposit Institution Corporation, is held at a financial institution for which the public accounting firm performs attest services
When the Statements on Auditing Standards use the word "must" relating to a requirement, it means that the auditor: A) Must fulfill the requirement when it is possible. B) Must comply with the requirements unless the auditor finds that alternative actions are sufficient. C) May only decide not to perform the procedure in the audit of a nonpublic company. D) May use professional judgment in all circumstances in deciding whether to meet the requirement.
a)
Ethical dilemmas generally involve situations in which the: A) Welfare of one or more individuals is affected by another's decision. B) AICPA has established "rulings" prohibiting conflicts of interest. C) Individual involved must make a decision that affects continuation of an ethical approach. D) The IIA Code of Conduct has recently been modified.
a) welfare of one or more individuals is affected by another's decision
which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? a. observe the consistency of the employees' use of cash registers and tapes b. trace deposits in the cash receipts journal to the cash balance in the general ledger
a. b. only deals with recorded deposits, and therefore the completeness assertion is not addressed as directly as in a
a client company has not paid its 2013 audit fees. according to the AICPA code of professional conduct, in order to be independent with respect to the 2014 audit, the 2013 audit fees must be paid before the a. 2014 report is issued b. 2015 fieldwork started c. 2013 report is issued d. 2014 fieldwork is started
a. 2014 report is issued
A material weakness corrected shortly after year-end, but prior to issuance of the financial statements is most likely to result in which type of opinion? A) Adverse B) Disclaimer C) Qualified D) Unqualified
a. adverse
An uncorrected material weakness in internal control is most likely to result in which type of opinion? A) Adverse B) Disclaimer C) Qualified D) Unqualified
a. adverse
A CPA firm may not designate itself a s members of AICPA unless a. all of its partners or shareholders are members of the Institute b. all of its professional staff are members of the Institute c. at lest one partner or shareholder is a member of the institute d. a majority of its professional staff are members of the institute
a. all of its partners or shareholders are members of the institute
Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud? A) Are financial reporting operations controlled by and limited to one location? B) Does it have knowledge of fraud or suspect fraud? C) Does it have programs to mitigate fraud risks? D) Has it reported to the audit committee the nature of the company's internal control?
a. are financial reporting operations controlled by and limited to one location?
a problem for a CPA associated with advanced IT system is that a. audit trail sometimes generated only in machine readable form b. client's internal auditors may have been involved at the design stage c. tests of controls are not possible d. audit trail normally does not exist
a. audit trail sometimes generated only in machine readable form
An auditor has accounted for a sequence of inventory tags and is now tracing information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly? A) Completeness B) Existence C) Presentation D) Valuation
a. completeness
which of the following is least likely to be tested with generalized audit software? a. computer operations manual b. schedule of inventory c aging of accounts receivable d. depreciation schedule
a. computer operation manual
which of the following statements regarding the audit of negotiable notes receivable is correct? a. confirmation in writing from the holder of the note is considered an acceptable alt to inspection b. notes receivable discounted with recourse need not be confirmed c. physical inspection of a note by the auditors provides conclusive evidence d. notes receivable discounted without recourse are confirmed via the standard form for confirmation of deposits and loans at financial institutions used in the adit of cash
a. confirmaiton in writing from the holder of the note is considered an acceptable alternative to inspection
in an audit, the assertions of existence and valuation of year-end accounts payable are most likely addressed by a. confirmation b. examination of cash disbursements immediately prior to yearend c. examination of cash disbursements immediately subsequent to yearend d. analytical procedures
a. confirmation
Which of the following procedures is least likely to alert the auditors to unrecorded accounts payable? A) Confirmation of accrued liabilities B) Reconcile recorded liabilities with monthly statements from creditors C) Examine disbursement transactions recorded following year-end D) Analytical procedures involving year-end accounts payable
a. confirmation of accrued liabilities
Assurance services are independent professional services that improve the quality of information or its: A) Context. B) Profitability. C) Reliability. D) Sufficiency.
a. context
Which of the following represent examples of general, application and user control activities, respectively, in the computer environment? A) Control over access to programs, computer exception reports, and manual checks of computer output. B) Manual checks of computer output, control over access to programs, and computer exception reports. C) Computer exception reports, control over access to programs, and manual checks of computer output. D) Manual checks of computer output, computer exception reports, and control over access to programs.
a. control over access to programs, computer exception reports, and manual checks of computer output
In determining the sample size using a structured nonstatistical sample, the reliability factor used takes into consideration the auditor's assessment of? A) Control risk, inherent risk, and risk related to other substantive procedures B) Control risk and detection risk C) Control risk and inherent risk D) Detection risk
a. control risk, inherent risk, and risk related to other substantive procedures
One of the greatest difficulties in auditing a computerized accounting system is: A) Data can be erased from the computer with no visible evidence. B) Because of the lack of an audit trail, computer systems have weaker controls and more substantive testing is required. C) Because of the uniform nature of transaction processing, computer systems have strong controls and less substantive testing is required. D) The large dissemination of entry points into the computer system leads to weak overall reliance on information generated by a computer.
a. data can be erased from the computer with no visible evidence
when erroneous data are detected by computer program controls, data may be excluded from processing and printed on an exception report. The exception report should probably be reviewed and followed up by a. data control group b. system analyst c. supervisor of IT operations d. computer programmer
a. data control group also tests input procedures, monitors IT processing, handles the reprocessing of exceptions, and reviews and distributes all computer output
an auditor may obtain info on Dec 31 month-end balance per bank in which of the following? a. dec 31 bank statement b. schedule of bank transfers c. both a & b d. none of the above
a. dec 31 bank statement
an audit of the balance in the accounts payable account is ordinarily not designed to a. detect acc pay that are substantially past due b. verify that acc pay were properly authorized c. ascertain the reasonableness of recorded liabilities d. determine that all existing liabilities at the balance sheet date have been recorded
a. detect acc pay that are substantially past due
A CPA reviews a client's payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for: a. distributing payroll checks to employees. b. reviewing and approving time reports for subordinate employees. c. hiring subordinate employees. d. initiating requests for salary adjustments for subordinate employees.
a. distributing payroll checks to employees
to have an adequate basis to issue a management report on internal control under section 404a of the sarbanes-oxley act, management must do all of the following, except a. establish internal control with no material weakness b. accept responsibility for the effectiveness of internal control c. evaluate the effectiveness of internal control using suitable control criteria d. support the evaluation with sufficient evidence
a. establish internal control with no material weakness management may issue a report on internal control regardless of whether the system has a material weakness
When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if: a. information about the entity's ability to continue as a going concern is not disclosed in the financial statements. b. the effects of the adverse financial conditions are likely to be negative. c. management has no plans to reduce or delay future expenditures. d. negative trends and recurring operating losses appear to be irreversible.
a. info about the entity's ability to continue as a going concern is not disclosed in the financial statements
Tests of controls are least likely to include: A) Inquiries of appropriate client vendors. B) Reperformance of a control. C) Observation of the application of an accounting procedure. D) Inspection of documents.
a. inquires of appropriate client vendors
A basis for a modification paragraph in the audit of the financial statements of a nonpublic company: a. is only included with qualified, adverse or disclaimers of opinion. b. has a section title: Emphasis of Matter. c. must be included in all nonpublic company audit reports. d. is presented after the opinion paragraph.
a. is only included with qualified, adverse or disclaimers of opinion
When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: a. issue an unmodified opinion with no reference to this omission. b. issue an adverse opinion. c. issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. d. issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure.
a. issue an unmodified opinion with no reference to this omission
the auditors are using unstratified MPU to audit acc rec as they did in the prior year. which of the following changes in characteristics or specifications would result in a larger required sample size this year than that required in the prior year? a. larger variance in $ value of accounts b. smaller population size c. larger tolerable misstatement d. higher risk of incorrect acceptance
a. larger variance in dollar value of accounts
The auditor's primary means of obtaining corroboration of management's information concerning litigation is a: a. letter of audit inquiry to the client's lawyer. b. confirmation of claims and assessments from the other parties to the litigation. c. letter of corroboration from the auditor's lawyer upon review of the legal documentation. d. confirmation of claims and assessments from an officer of the court presiding over the litigation.
a. letter of audit inquiry to the client's lawyer
In most audits are auditors more concerned with an under- or overstatement of ending inventory, and why? A) Overstatement, because net income would be overstated also. B) Understatement, because net income would be overstated. C) Overstatement, because this would indicate that liabilities are likely to be understated. D) Understatement, because this would indicate that liabilities are likely to be understated.
a. overstatement, because net income would be overstates as well
A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: a. qualification of the audit report. b. an assessment that loss of the litigation is probable. c. an adverse opinion. confirmation of related d. lawsuits with the claimants.
a. qualification of the audit report
When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and compare these items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that: a. recorded obligations occurred prior to year-end. b. incurred obligations were recorded in the correct period. c. recorded obligations were paid. d. cash disbursements were recorded as incurred obligation.
a. recorded obligations occurred prior to year-end
A client's physical count of inventories was lower than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: A) Sales. B) Sales returns. C) Purchases. D) Purchase discounts.
a. sales
An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness? a. Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks. b. Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports. c. Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks. d. Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports.
a. select and examine canceled checks and test whether the related receiving reports are dated no later than the checks
The best control to prevent lapping is: A) Separation of recordkeeping for receivables from custody of cash. B) Separation of authorization of sales transactions from recordkeeping for accounts receivable. C) Timely reconciliation of the bank account by an individual not involved in recordkeeping for receivables. D) Comparison of the total per the daily bank deposit ticket with the total recorded in the cash receipts journal by an individual otherwise independent of the cash receipts function.
a. separation of recordkeeping for receivables from custody of cash
One key control in the organization of the information systems department is the: A) Separation of the systems development group and the operations (data processing) group. B) Operating personnel should strictly control access to the client's database. C) Controller should manage the information system since it supplements the accounting work already done under the supervision of the controller. D) Information systems department should be under the direction of systems development personnel since they are responsible for the overall performance of the system.
a. separation of systems development group and the operations (data processing) group
Which of the following is most likely to indicate fraud? A) Several overpayments are made for goods received from a supplier. B) The year end cash balance does not include cash in transit to the company at year-end. C) A check received after year end was inadvertently recorded as if received before year-end. D) A documented loan to an officer of the company
a. several overpayments are made for goods received from a supplier
senior auditors typically perform all of the following tasks, except a. sign the audit report b. review the working papers prepared by staff assistants c. draft the audit report d. supervise staff assistants
a. sign the audit report
for effective internal control, which of the following functions should not be assigned to the company's accounting dept? a. signing payroll checks b. reconciling accounting records with existing assets c. recording financial transactions d. preparing financial reports
a. signing payroll checks
When an accountant issues an examination report on a financial forecast, the report ordinarily should: A) State that the forecast is presented in conformity with guidelines established by the AICPA. B) Provide an explanation of the differences between an examination and an audit. C) State that the accountant is responsible for events and circumstances not to exceed one year after the report's date. D) Disclaim an opinion on whether the assumptions provide a reasonable basis for the projection.
a. state that the forecast is presented in conformity with guidelines established by AICPA
A report for an agreed-upon procedures ordinarily includes: A) A summary of findings. B) An opinion. C) Negative assurance. D) Unlimited assurance.
a. summary of findings
Communications between the auditor and those charged with governance should include all of the following except: A. A summary of specific audit procedures used. B. Significant audit adjustments. C. Consultations with other accountants. D. Major issues discussed with management before the auditor was retained.
a. summary of specific audit procedures used
An audit program is: A) The detailed plan of audit procedures to be performed in the course of the audit. B) An overview of the company and a general plan for the audit work to be accomplished. C) A generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process. D) A budget of the time that should be necessary to complete each phase of the audit procedures.
a. the detailed plan of audit procedures to be performed in the course of the audit
What is the best description of "tolerable misstatement" for mean-per-unit estimation? A) The maximum misstatement that may exist without causing an account to be materially misstated. B) The "bounds" around the sample mean that we would expect the value to fall within to be correct. C) The "projected" misstatement in the population based upon the sample chosen. D) The upper limit (or lower limit for liabilities) of asset values for which the book value may exceed that sample mean without being materially misstated.
a. the maximum misstatement that may exist without causing an account to be materially misstated
which of the following is accurate regarding tolerable misstatement? a. tolerable mis is directly related to materiality b. tolerable mis cannot be determined until the sample results are evaluated c. tolerable mis does not affect sample size d. tolerable mis is a measure of reliability of the sample
a. tolerable mis is directly related to materiality as the measure of materiality increases, the tolerable misstatement allocated to the various accounts is increased. tolerable misstatement is materiality at the account balance level.
Which of the following most likely would approve the issuance of notes payable? a. Treasurer. b. Payroll. c. Controller. d. Personnel.
a. treasurer
If a company's financial statements violate GAAP for an immaterial item which is expected to become material in the future, then the audit opinion the company will likely receive is: A) Unmodified—standard report. B) Unmodified with an emphasis of matter paragraph. C) Qualified. D) Adverse.
a. unmodified-standard report
A four column bank reconciliation ("proof of cash") will generally assist an auditor in detecting: A) An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry. B) A second payment of a liability that had already been paid in full. C) A check written and recorded on the books for $2,000, not $200 the amount of the actual liability. D) An embezzlement of a portion of the company's petty cash.
a. unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry
an acc pay program posted a payable to a vendor not included in the online vendor master file. A control which would prevent this error is a. validity check b. range check c. limit test d. control total
a. validity check it compares data against a master file for authenticity.
Independent / not? a. CPA's nondependent child owns an immaterial direct financial interest in the client b. CPA's spouse owns an immaterial direct financial interest in the client c. CPA's nondependent brother is a controller of the client d. CPA's nondependent father is a salesman for the client e. CPA's nondependent mother owns an immaterial direct financial interest in the client
a. yes b. no c. no d. yes e. yes
what sampling techniques is typically used for tests of control?
attribute sampling
Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts? A) Investigate confirmation exceptions for indication of amounts in dispute. B) Review amounts of accounts which have been written off as uncollectible prior to year-end. C) Investigate credit ratings for large accounts receivable. D) Discuss with the credit manager the current status of doubtful accounts.
b review amounts of accounts which have been written off as uncollectible prior to year-end
Which of the following is a correct statement concerning the Sarbanes-Oxley Act of 2002? A) It applies to audits of all companies doing business in the United States. B) It makes performance of nonattest services relating to financial information systems design and implementation for audit clients unlawful. C) It requires the divestiture of a consulting department of any CPA firm performing audits of publicly traded companies. D) It requires the reporting of all illegal acts identified during an audit to the Justice Department.
b) it makes perormance of nonattest services relating to financial info systems design and implementation for audit clients unlawful
use of positive (as opposed to negative) form of receivables confirmation is indicated when a. control risk for accounts receivable is assessed as low b. there is reason to believe that a substantial number of accounts may be in dispute c. a large number of small balances are involved d. there is reason to believe a significant portion of the requests will be answered
b.
which of the following would most likely reduce the risk of diversion of customer receipts by a client's employees a. daily deposit of cash receipt b. bank lockbox system
b.
which of the following is most likely to be a violation of AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees? a. Jones performs consulting services for a percentage of the client's savings; this is the only service provided for the client b. Jones names his firm Jones and Smith, CPAs c. Jones advertises the services he provides in an internet set of telephone yellow pages d. Jones, without client consent, makes available working papers for purposes of a peer review of his practice
b. misleading name
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: a. Notify the board of directors that the auditor's report must no longer be associated with the financial statements. b. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. c. Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. d. Issue revised pro forma financial statements taking into consideration the newly discovered information.
b. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available? a. FASB Codification b. FASB Concepts Statement c. SEC rules d. SEC interpretive releases
b. FASB Concepts Statement
authoritative GAAP sources include a. FASB concepts statements b. FASB codification c. both a and b d. none of the above
b. FASB codification
aicpa code of professional conduct will ordinarily be considered to have been violated when the CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the: a. fee was a competitive bid b. actual fee would be substantially higher c. actual fee would be substantially lower than the fees charged by other CPAs for comparable services d. CPA would not be independent
b. actual fee would be substantially higher
A nonpublic client has provided required supplementary information with its audited financial statements. The auditor's proper reporting responsibility includes: a. an adverse opinion on the required supplementary information. b. an emphasis of matter paragraph should be added to the audit report. c. a separate report should be issued on the required supplementary information. d. the required supplementary information should not be referred to.
b. an emphasis of matter paragraph should be added to the audit report
The primary standards for attestation services other than historical financial statements are the: A) Accounting and Review Services. B) Attestation Standards. C) Generally Accepted Auditing Standards. D) Field Standards of Professional Conduct.
b. attestation standards
in using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the a. client is not familiar with the professional certification, personal reputation, or particular competence of the specialist b. auditors, as a result of the specialists' findings, give a qualified opinion on the financial statements c. client understands the auditors' corroborative use of specialists' findings in relation to the representations in the financial statements d. auditors, as a result of the specialist's findings, decide to indicate a division of responsibility with the specialist
b. auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements
An auditor is auditing year 20X2 of a new audit client. The auditor did not observe the counting of the year 20X1 ending inventory and has serious question about the validity of the year 20X1 beginning inventory figure. The inventory is material. In this situation the auditor will generally: A) Be able to issue an unqualified opinion on the statements of income and cash flows, but not on the ending balance sheet. B) Be able to issue an unqualified opinion on the ending balance sheet. C) Be required to disclaim an opinion on all financial statements. D) Be required to issue an adverse opinion on the income statement and the statement of cash flows.
b. be able to issue an unqualified opinion on the ending balance sheet
which of the following statistical sampling techniques is least desirable for use by the auditors? a. random number table selection b. block selection c. systematic selection d. random number generator selection
b. block selection due to relatively large number of blocks needed to forma reasonable audit conclusion, block sampling cannot generally be relied on to efficiently produce a representative sample
Kiting would least likely be detected by: a. analyzing details of large cash deposits around year end. b. comparing customer remittance advices with recorded disbursements in the cash disbursements journal. c. preparing a four-column bank reconciliation for all major cash accounts. d. preparing a schedule of interbank transfers by using the client's records and bank statements around year end.
b. comparing customer remittance advices with recorded disbursements in the cash disbursements journal
The most practical and effective audit procedure for detecting lapping is: A) Preparing an interbank transfer schedule. B) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank. C) Tracing recorded cash receipts to postings in customers' ledger cards. D) Preparing a proof of cash.
b. comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank
during the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. this procedure is most closely related to a. rights b. completeness c. valuation d. existence
b. completeness
Which of the following is most accurate relating to attest engagements? A) The engagement must be performed in accordance with both the generally accepted auditing standards and the attestation standards. B) Criteria only available to certain users result in CPA's report that is restricted to those specified parties. C) The CPA's report is on management's assertion, not the subject matter itself. D) The subject matter of an attest engagement may take many forms, but it must be based on historical events.
b. criteria only available to certain users result in CPA's report that is restricted to those specified parties
which of the following would be least likely to be considered an objective of internal control? a. checking accuracy and reliability of accounting data b. detecting mgmt fraud c. encouraging adherence to managerial policies d. safeguarding assets
b. detecting mgmt fraud One of the inherent limitations of internal control is that it is subject to override by management.
Which of the following is not a primary objective of the auditors in the examination of accounts receivable? a. Consider the adequacy of internal control. b. Determine the expected day of collection of each of the receivables. c. Establish the existence of receivables. d. Determine the approximate realizable value.
b. determine expected day of collection of each of rec
An audit client has refused to allow the auditors to perform a presumptively mandatory auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of: a. an adverse opinion. b. a disclaimer of opinion. c. an unmodified report with an emphasis of matter paragraph. d. a standard unmodified opinion with a qualified scope paragraph.
b. disclaimer of opinion
An audit plan is a: A) Detailed plan of analytical procedures and all substantive tests to be performed in the course of the audit. B) Document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit. C) Generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process. D) Budget of the time that should be necessary to complete each phase of the audit procedures.
b. document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit
the concept of materiality would be least important to an auditor when considering the a. discovery of weakness in a client's internal control b. effects of a direct financial interest in the client upon the CPAs independence c. decision whether to use positive or negative confirmations of acc rec d. adequacy of disclosure of a client's illegal act
b. effects of a direct financial interest in the client upon the CPAs independence
while performing an audit of a public company, the auditors discovered material illegal acts and resigned due to the client's refusal to disclose them. the auditors' reason for resignation should be disclosed through a. CPA direct communication with shareholders b. filing 8-k c. both a and b d. none of the above
b. filing 8-k
the code of professional conduct requires independence for all a. audit and other accounting engagements b. financial statement audits c. service performed d. services performed except tax engagements
b. financial statement audits
tests of controls do not address a. how controls were applied b. how controls were originated c. consistency with which controls were applied d. by what means the controls were applied
b. how controls were originated d. (i.e. electronically)
Which of the following is most likely to be considered an inherent limitation of a client's internal control? A) Complexity of the information system. B) Human errors. C) Management's interest in a profitable enterprise. D) An ineffective audit committee.
b. human errors
Which of the following is most likely to be presumed to represent a fraud risk on an audit? A) Capitalization of repairs and maintenance expense into the property, plant and equipment asset account B) Improper revenue recognition C) Improper interest expense accrual D) Introduction of significant new products
b. improper revenue recognition
What is the major difference between statistical and nonstatistical sampling in substantive testing? A) In nonstatistical sampling the determination of the sample size is ad hoc based upon the auditors' professional judgment. B) In nonstatistical sampling the level of risk is not formally quantified, instead auditors use their professional judgment. C) The results of nonstatistical sampling are not as reliable as those in statistical sampling. D) Nonstatistical sampling uses more randomized methods for sample selection and thus is more reliable.
b. in nonstatistical sampling the level of risk is not formally quantified, instead auditors use their professional judgment
Which of the following is considered a control environment factor by the COSO definition of internal control? A) Control objectives B) Integrity and ethical values C) Reasonable assurance D) Risk assessment
b. integrity and ethical values
When the auditors discover an overstatement of accounts payable, they would most likely also expect to find an overstatement of: A) Accrued liabilities. B) Inventory. C) Retained earnings. D) Revenues.
b. inventory
Which of the following best describes the passing of confidential information from a client to its auditor, that information: A) Should in no circumstances be conveyed to third parties. B) Is not legally protected and can be subpoenaed by a federal court. C) Can only be released for peer reviews after receiving permission from the client. D) Should be conveyed to the public if it affects the "correctness" of the financial statements.
b. is not legally protected and can be subpoenaed by a federal court
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when: a. pledging of the receivables is probable. b. no reply to a positive confirmation request is received. c. no reply to a negative confirmation request is received. d. collectibility of the receivables is in doubt.
b. no reply to positive confirmation request is received
which of the following best describes the auditors' typical observation of plant and equipment? a. observes physical inventory of ppe, anually b. observe major additions to ppe during the year c. observe all major ppe in the clients' accounts each year d. observe all additions to ppe made during the year
b. observe major additions to ppe made during the year
in what section of the audit working papers would a long-term lease agreement be filed? a. current working paper file b. permanent working paper file c. lead schedule file d. corroborating documents file
b. permanent working paper file
Internal control over accounts payable is improved when: a. informal bids are obtained. b. purchase orders show approved prices. c. payment is made upon approval of the purchasing agent. d. annual trial balance of accounts payable subsidiary ledgers is required.
b. purchase orders show approved prices
Which of the following is a control procedure that is usually applied to accounts payable? a. Periodic confirmation of accounts payable. b. Reconciliation of vendor statements with accounts payable. c. Periodic aging of accounts payable. d. Mailing statements to vendors detailing their account.
b. reconciliation of vendor statements with acc pay
as one step in testing sales transactions, a CPA inspects a random sample of sales journal entries and inspects the related debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether a. all debit entries in the acc rec subsidiary ledger are properly supported by sales journal entries b. recorded sales have been properly posted to customer accounts
b. recorded sales have been properly posted to customer accounts because entries in the sales journal represent recorded sales, tracing entries from it to debits in the accounts receivable ledger provides evidence on whether recorded sales have been properly posted to customer accounts. Since no supporting docs (i.e., receiving reports) are inspected, this procedure cannot provide evidence of existence of recorded sales
which of the following best describes why auditors investigate related party transactions? a. related party transactions generally are illegal acts b. substance of related party transactions may differ from their form c. all related party transactions must be eliminated as a step in preparing consolidated financial statement d. related party transactions are a form of management fraud
b. substance of related party transactions may differ from their form
Which of the following is not a computer-assisted audit technique? A) Test data B) Tagging and lagging C) Integrated test facility D) Program analysis
b. tagging and lagging
Control risk is most likely to be assessed at a level below the maximum when? A) No tests of controls have been performed. B) Tests of controls have been performed. C) Externally generated evidence supports management's contentions relating to internal control. D) The results of the consideration of internal control suggest that controls are not operating effectively.
b. tests of controls have been performed
in providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions? a. maintaining custody of the client's securities b. training client employees c. supervising client employees d. acting as 3rd approver of large client expenditure
b. training client employees
When reporting on comparative financial statements where the financial statements of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor should indicate in the report: a. whether the predecessor auditor's review of the current year's financial statements revealed any matter that might have a material effect on the successor auditor's opinion. b. the type of opinion expressed by the predecessor auditor. c. the reasons why the predecessor auditor's report is not presented. d. the identity of the predecessor auditor who examined the financial statements of the prior year.
b. type of opinion expressed by the predecessor auditor
analytical procedures are most likely to detect a. weakness of material nature in internal control b. unusual transaction c. noncompliance with prescribed control activities d. improper separation of accounting and other financial duties
b. unusual transaction
the best way to verify the amounts of dividend revenue received during the year is a. recomputation b. verification by reference to dividend record books c. confirmation with dividend-paying companies d. examination of cash disbursements records
b. verification by reference to dividend record books it is virtually impossible to confirm the receipt of dividends with the company paying those dividends
When would "auditing around the computer" be appropriate? A) When controls over the computer system are strong. B) When controls over the computer system are non-existent. C) When controls over the computer system are adequate. D) It is never appropriate to audit around the computer.
b. when controls over the computer system are non-existent
Which of the following is not an underlying premise of an audit relating to management's responsibility to provide an auditor? A) Provide all information relevant to the preparation and fair presentation of the financial statements. B) Provide any additional information requested by the auditor. C) Provide inner-connectivity to all operational databases used during the previous three year period. D) Provide unrestricted access to those within the entity whom the auditor determines it necessary to obtain audit evidence.
c)
Which of the following is most likely to be considered a Type 1 subsequent event? a. A business combination completed after year-end, but for which negotiations began prior to year-end. b. A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago. c. Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. d. Introduction of a new line of products after year-end for which major research had been completed prior to year-end.
c. Customer checks deposited prior to year-end, but determined to be uncollectible after year-end.
Which of the following accounting changes requires an emphasis of matter paragraph regarding consistency in the auditors' report? a. A change in calculating bad debt expense from one percent to two percent of credit sales. b. A write-off of a patent because future benefits do not appear to exist. c. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets. d. A change in the estimated useful lives of a class of fixed assets.
c. a change from straight line method of depreciation to an accelerated method for a class of fixed assets
Which of the following best describes a voucher? A) A document prepared by Purchasing that indicates the amount to be purchased. B) A document prepared by Receiving that indicates the quantity received and approves payment. C) A document prepared by Accounts Payable authorizing a cash disbursement. D) A document received by Purchasing from a supplier, indicating quantity of goods purchased and amount due.
c. a document prepared by accounts payable authorizing a cash disbursement
An engagement letter is best described as which of the following? A) A letter from company management to the auditors specifying management's expectations for completion of the audit on a timely basis and the fees. B) A letter from the auditors to company management specifying that management is responsible for the financial statements, and the auditors will issue an opinion on the financial statements. C) A letter from the auditors to company management that specifies the responsibilities of both the company and the auditors in completing the audit and the timing for its completion. D) A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been engaged to perform the audit and the fees to be paid.
c. a letter from the auditors to company management that specifies the responsibilities of both the company and the auditors in completing the audit and the timing for its completion
the auditors would most likely be concerned with which of the following controls in a distributed data processing system? a. hardware controls b. systems doc controls c. access control d. disaster recovery controls
c. access controls a distributed data processing system is one in which communication links are used to share data and programs among various users in remote locations throughout the organization. Accordingly, access controls in such a system gain importance
Providing reasonable assurance with respect to which of the following is not required under the internal control provisions of the Foreign Corrupt Practices Act? A) Management is responsibility for knowledge and authorization of transactions. B) Transactions are recorded to maintain accountability for assets. C) Access to assets is limited to members of management. D) Transactions are recorded to permit the preparation of reliable
c. access to assets is limited to members of management
A scope restriction is least likely to result in a(an): a. qualified opinion. b. standard unmodified opinion. c. adverse opinion. d. disclaimer of opinion.
c. adverse opinion if scope limitation is not material it results in unmodified; if it is material but not pervasive, it results in qualified; if it is both material and pervasive, it results in disclaimer of opinion
The auditors' verification of rapidly changing payable accounts is ordinarily most effective when performed: A) Before the balance sheet date. B) At the balance sheet date in conjunction with inventory cutoff tests. C) After the balance sheet date. D) Simultaneously with the audit of accrued liabilities.
c. after the balance sheet date
aicpa independence requirements suggests that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all the relevant facts, to conclude that a. a questioning mind reveals doubt as to independence b. the accountant is definitely not independent c. an unacceptable risk of non-independence exists there is substantial cause for a legal finding of non-independence
c. an unacceptable risk of non-independence exists
detection risk maybe separated into which two components? a. inherent risk and substantive test of details risk b. inherent risk and audit risk c. analytical procedures risk and substantive test of details risk d. analytical procedures risk and control risk
c. analytical procedures risk and substantive test of details risk
Which of the following is true about the auditors' observation of the client's physical inventory? a. The auditors should supervise the client's personnel. b. The auditors should plan the physical inventory. c. The auditors should evaluate the adequacy of the client's counting procedures. d. The auditors should segregate damaged and obsolete goods.
c. auditors should evaluate the adequacy of the client's counting procedures
One type of analytical procedure is trend analysis. Which of the following is the best example of trend analysis? A) Comparison of company financial ratios to that of its competitors B) Comparison of accounting records to budgeted amounts C) Comparison of inventory levels over the past 3 years D) Comparison of interest expenses to outstanding loan balances
c. comparison of inventory levels over the past 3 years
A manufacturer's employees are paid once a month, on the 3rd of the following month. What audit issue pertaining to labor costs exists at year end? A) Rights B) Existence C) Completeness D) Presentation
c. completeness
an auditor will use the computer test data method in order to gain assurances with respect to a. security of data in a system b. IT system capacity c. controls contained within a program d. degree of data entry accuracy of batch input data
c. controls contained within a program the audit approach is that of identifying relevant controls within the computer program, and then preparing transactions to run through that program to determine whether the controls operate effectively.
Treetop corp. acquired a building and arranged mortgage financing during the year. verification of the related mortgage acquisition costs would be least likely to include an examination of the related a. interest expense b. canceled checks c. deed d. closing statement
c. deed closing statement: document commonly used in real estate transactions, detailing fees, commissions, insurance, etc. that must be transacted for a sucecssful transfer of ownership deed: legal doc that grants the bearer a right or privilege, provided that he or she meets a number of conditions
Documentation may not be deleted from the working papers after the: A) Audit report delivery date. B) Date of the audit report. C) Documentation completion date. D) Final day of fieldwork.
c. documentation completion date
which of the following is not an advantage of establishing an enterprise risk management system within an organization? a. reduces operational surprises b. provides integrated response to multiple risks c. eliminates all risks d. identifies opprotunities
c. eliminates all risks
Which of the following is a customary audit procedure for the verification of the legal ownership of real property? a. Examination of correspondence with the corporate counsel concerning acquisition matters. b. Examination of corporate minutes and resolutions concerning the approval to acquire property, plant, and equipment. c. Examination of deeds and title guaranty policies on hand. d. Examination of ownership documents registered and on file at a public hall of records.
c. examination of deeds and title guaranty policies on hand
Which of the following is most likely to be included in the auditors' search for unrecorded accounts payable? A) Examine invoices received and recorded prior to year-end. B) Examine unmatched sales orders issued prior to year-end. C) Examine vouchers payable entered into the voucher register subsequent to the balance sheet date. D) Examine shipping reports for items shipped to customers recorded subsequent to the balance sheet date.
c. examine vouchers payable entered into the voucher register subsequent to the balance sheet date
Audit documentation relating to the A Company audit should be sufficient to allow which type of auditor to understand the audit work performed? A) Any auditor B) Any auditor that works on A Company's audit C) An experienced auditor D) An experienced auditor with experience on A Company's audit
c. experienced auditor
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: a.December 31, 20X8. b.January 17, 20X9. c. February 10, 20X9. d. February 16, 20X9.
c. feb 10, 20x9 on the completion of audit
Billy Jo is responsible for custody of the finished goods in the warehouse. If his company wishes to maintain strong internal control, which of the following responsibilities are incompatible with his primary job? A) He is also responsible for the company's fixed asset control ledger. B) He is responsible for receiving of goods into the warehouse. C) He is responsible for the accounting records for all receipts and shipments of goods from the warehouse. D) He is responsible for issuing goods for shipment.
c. he is responsible for the accounting records for all receipts and shipments of goods from the warehouse
to determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the a. authorized members of audit committee b. accounting dept c. individual who signs the checks d. chief executive officer
c. individual who signs the checks
the risk that information is misstated is referred to as a. relative risk b. business risk c. information risk d. inherent risk
c. information risk
Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditors' working papers. the prospective client's refusal to permit this will bear directly on Hawkins' decision concerning a. adequacy of the preplanned audit program b. ability to establish consistency in application of acct principles between years c. integrity of management d. apparent scope limitation
c. integrity of mangement
after obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. the auditor most likely decided that a. additional evidence to support a reduction in assessed level of control risk is not available b. there were many internal control deficiencies that would allow misstatements to enter the accounting system c. it would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures d. increase in assessed level of control risk is justified for certain financial statement assertions
c. it would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures
An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to: a. accelerate the due date of an existing mortgage. b. issue stock options to key executives. c. lease rather than purchase operating facilities. d. repurchase the entity's stock at a price below its book value.
c. lease rather than purchase operating facilites
Which of the following is confirmed on the standard form used for cash balances at financial institution? A) Factored accounts receivable B) Loss contingencies C) Loans payable D) Safe deposit boxes controlled by the entity
c. loans payable
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? a. Examine human resources records for accuracy and completeness. b. Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. c. Make a surprise observation of the company's regular distribution of paychecks on a test basis. d. Visit the working areas and verify that employees exist by examining their badge or identification numbers.
c. make a surprise obs of the comp's regular distribution of paychecks on a test basis the fictitious employee's paycheck will ordinarily not be picked up, and further audit procedures performed by auditors may reveal that this is a fictitious employee
which of the following elements describes broad judgments the auditor must make when designing an audit in accordance with generally accepted auditing standards, particularly the standards of field work and reporting? a. adequate disclosure b. quality control c. materiality and audit risk d. client acceptance
c. materiality and audit risk materiality and audit risk underly the application of generally accepted auditing standard in that so many audit decisions are affected by the amount used as a materiality measure and the level of audit risk assumed on the engagement
An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: a. should refuse the engagement because there is a client-imposed scope limitation. b. should refuse the engagement because of a departure from generally accepted auditing standards. c. may accept the engagement. d. may accept the engagement but must disclaim an opinion because of an inability to apply the procedures considered necessary.
c. may accept the engagement
The auditors compare information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that: a. recorded cash disbursement transactions are properly authorized. b. cash disbursements are for goods and services actually received. c. no discrepancies exist between the data on the checks and the data in the journal. d. proper cash purchase discounts have been recorded.
c. no discrepancies exist between the data on the checks and the data in the journal
Which of the following is true regarding the notes to financial statements prepared following GAAP? A) Notes are not required, but are typically included by all companies. B) Notes are not required, since they only give additional information contained in the financial statements. C) Notes are an integral part of the financial statements. D) Notes are not encompassed in the auditors' opinion of the financial statements since they are supplementary information.
c. notes are an integral part of the financial statements
which of the following is the least significant factor that affects the independent auditors' judgment as to the quantity, type, and content of working papers? a. need for supervision of the engagement b. nature of financial statements, schedules, or other info upon which the auditors are reporting c. number of audit personnel to be assigned to the engagement d. nature of the audit report
c. number of audit personnel to be assigned to the engagment
which of the following is least likely to be a test of controls? a. inquiries of client personnel b. inspection of documents c. observation of confirmations d. reperformance of controls
c. observation of confirmations
Which of the following is least likely when an auditor performs an integrated audit of a public company's financial statements? A) Issuing an audit report on internal control over financial reporting. B) Issuing an audit report on the financial statements. C) Omitting tests of controls for several major accounts. D) Performing tests of internal control design effectiveness.
c. omitting tests of controls for several major accounts
Pickens and Perkins, CPAs, decided to incorporate their parctice of accountancy. According to the AICPA code of professional conduct, voting shares in the corporation can be issued a. to general public b. only to employees and officers of the firm c. only to persons qualified to practice public accounting d. only to persons qualified to practice as CPAs and members of their immediate families
c. only to persons qualified to practice public accounting
Which is correct concerning the external auditors' use of the work of others in an audit of internal control performed for a public company? A) It is not allowed. B) The work of internal auditors may be used, but only when those internal auditors report directly to the audit committee. C) Ordinarily the work of internal auditors and others is used primarily in low-risk areas. D) There is no limitation and is likely to reduce auditor liability since the auditors will then share legal responsibility with those who have performed the service.
c. ordinarily the work of internal auditors and others is used primarily in low-risk areas
Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use? a. The positive form for small balances, and the negative form for large balances. b. The positive form used for trade receivables and the negative form for other receivables. c. The positive form used for large balances and the negative form for the small balances. d. The positive form when controls related to receivables are satisfactory, and the negative form when controls related to receivables are unsatisfactory.
c. positive form for large balances and negative form for small balances
Contingency fee based pricing of accounting services is: A) Always strictly prohibited in public accounting practice. B) Never restricted in public accounting practice. C) Prohibited if associated with the type of audit opinion received. D) Considered an act discreditable to the profession.
c. prohibited if associated with the type of audit opinion received
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.
c. purchases
In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable? A) Sales and Cost of Goods Sold B) Interest and Bad Debt Expense C) Sales and Bad Debt Expense D) Interest and Cost of Goods Sold
c. sales and bad debt expense
When a company has a probable and material loss contingency, and the company has accrued the loss in the financial statements, the appropriate audit opinion is ordinarily which of the following? A) Adverse opinion B) Qualified opinion C) Standard unmodified opinion D) Unmodified opinion with an emphasis of matter paragraph
c. standard unmodified opinion
in order to adequately provide for the segregation of duties, purchase requisitions should be initiated by which of the following departments? A) Purchasing department B) Sales department C) Stores or warehouse D) Shipping
c. stores or warehouse
Which of the following would not be an appropriate procedure for testing the general control activities of an information system? A) Inquiries of client personnel. B) Inspecting computer logs. C) Testing for the serial sequence of source documents. D) Examination of the organizational chart to determine the segregation of duties.
c. testing for the serial sequence of source docs
Which of the following statements should not be included in an accountant's standard report based on the compilation of a client's financial statements? A) The compilation was performed in accordance with standards established by the AICPA. B) The accountant has not audited or reviewed the financial statements. C) The accountant expresses only limited assurance on the financial statements. D) The compilation is limited to representing in the form of financial statements, information that is the representation of management.
c. the accountant expresses only limited assurance on the financial statements
Which of the following modifications of the auditors' report does not include an additional paragraph? a. The report includes an emphasis of a matter. b. The report is qualified because the financial statements contain a material departure from generally accepted accounting principles. c. The audit report indicates a division of responsibility between two CPA firms. d. The report is qualified because the scope of the auditors' work was limited.
c. the audit report indicates a division of responsibility between two CPA firms
If the projected misstatement in nonstatistical sampling is $95,000, while the tolerable misstatement is $100,000, what would an auditor likely conclude? A) Since the projected misstatement is less than the tolerable misstatement, the auditor would conclude the account is not misstated. B) Since the projected misstatement is less than the tolerable misstatement, the auditor would conclude the account is misstated. C) The auditor would conclude that the risk is high that the account is materially misstated. D) There is not enough information to answer this question.
c. the auditor would conclude that the risk is high that the account is materially misstated
The accounting functions and the cash receipts functions should be handled by which department(s)? A) Both functions should be under the control of the company Treasurer B) Both functions should be under the control of the company Controller C) The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions. D) The Treasurer should have control of accounting functions and the Controller should have control of cash receipt functions.
c. the controller should have control of accounting function and treasurer should have control of cash receipts functions
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 the loss.
c. the outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated
Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? A) Supplies of relatively little value are expensed when purchased. B) The cycle basis is used for physical counts. C) The storekeeper is responsible for maintenance of perpetual inventory records. D) Perpetual inventory records are maintained only for items of significant value.
c. the storekeeper is responsible for maintenance of perpetual inventory records
which of the following audit procedures is most effective in testing credit sales for understatement? a. trace sample of recorded sales from ledger to initial sales slip b. confirm accounts receivable c. trace sample of initial sales slips through summaries to recorded general ledger sales d. age accounts receivable
c. trace sample of initial sales slips through summaries to recorded general ledger sales
in planning and performing an audit, auditors are concerned about risk factors for 2 distinct types of fraud: fraudulent financial reporting and misappropriation of assets. which of the following is a risk factor for misappropriation of assets? a. generous performance based compensation system b. management preoccupation with increased financial performance c. an unreliable accounting system d. strained relationship between management and the auditors
c. unreliable accounting system
an auditor most likely would analyze inventory turnover rates to obtain evidence about a. rights b. completeness c. valuation d. existence
c. valuation
When would an auditor typically not perform additional tests of a computer systems controls? A) When the assessed level of control risk is at a minimum. B) When computer controls appear to be strong and risk is at a minimum. C) When controls appear to be weak. D) When inherent risk is at a maximum.
c. when control appears to be weak
When are the ratio estimation and difference estimation techniques most likely to be preferable to the mean-per-unit estimation method? A) The choice between any of the methods method is irrelevant, since they all provide similar results. B) When differences between book and audited values are infrequent. C) When differences between book and audited values are frequent. D) When differences between book and projected misstatement is estimated to be small.
c. when differences between book and audited values are frequent
you are planning the timing of audit procedures relating to cash. you decide that it would be preferable to
coordinate the count of cash with the count of marketable securities and other negotiable assets some marketable securities are so liquid that it can be sold or pledged to cover shortage of cash
(Acc rec) second requests are ordinarily sent for positive forms when the first request is not returned
correct
(acc rec) auditors may ignore individually immaterial accounts when confirming accounts receivable
correct
An audit report on financial statements that are prepared using a special-purpose framework must, in some, but not all circumstances indicate that the financial statements are intended solely for certain specified users.
correct
there ordinarily is presumption that the auditor will confrim acc rec
correct
Auditor responsibility for identifying "direct effect" illegal acts differs from their responsibility for detecting: A) Errors. B) Fraud. C) Management fraud. D) Other illegal acts.
d) other illegal acts
A client's previous two years of financial statements understated estimated warranty payable by $15,000 and $25,000 respectively, immaterial amounts. This year the auditors estimate that the accrual is understated by an additional $30,000. In this year's audit $50,000 represents a material amount. Assuming that the entire understatement is to be recorded, following SEC SAB 108 the decrease in this year's income due to these understatements is: A) $0. B) $30,000. C) $55,000. D) $70,000.
d. 70,000
Which of the following is not correct concerning a type I and a type II subsequent event? A) A type I may require adjustment to financial statements while a type II will not. B) Both a type I and a type II subsequent event may require note disclosure. C) A type I is an event that occurred prior to year end, but was discovered after, while a type II is one that arose subsequent to year end. D) A type II event may require adjustment to the financial statements and a type I may require note disclosure.
d. a type II event may require adjustment to the financial statements and a type I may require note disclosure
for effective internal control, the billing function should be performed by the a. shipping b. credit & collection c. sales d. accounting
d. accounting department
Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant and equipment for a continuing nonpublic client? a. Audit of changes in the accounts since inception of the company. b. Direct audit of the ending balance. c. Audit of selected purchases and retirements for the last few years. d. Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts.
d. agreement of beg balance to prior year's working papers and audit of significant changes in the accounts
which of the following organizations can revoke the right of an individual to practice as a CPA? a. PCAOB b. AICPA c. SEC d. applicable state board of accountancy
d. applicable state board of accountancy
If an auditor is using test data in a client's computer system to test the integrity of the systems output, which of the following type of controls is the auditor testing: A) General controls. B) User controls. C) Quantitative test controls. D) Application controls.
d. application controls
statement on auditing standards have been issued by a. federal bureau of investigation b. SEC c. financial accounting standards board d. auditing standard board
d. auditing standard board
Which of the following is true about the auditors' observation of the client's physical inventory? a. The count must be made at year-end. b. The auditors should justify any omission of the observation in the audit report. c. The auditors should supervise the client's personnel. d. The auditors' observation addresses the existence assertion.
d. auditors' observation addresses the existence assertion
when a threat to independence arises an auditor should consider a. alternative threats to lack of independence b. required lack of independence approaches c. global independence rules d. available safeguards to independence
d. available safeguards to independence
For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected: a. present information in the financial statements that is classified and summarized in a reasonable manner. b. be appropriate in the circumstances for the particular entity. c. reflect transactions in a manner that presents the financial statements within a range of acceptable limits. d. be applied on a basis consistent with those followed in the prior year.
d. be applied on a basis consistent with those followed in the prior year
A primary use by the auditor of a bank cutoff statement is to compare: A) Bank service charges on the cutoff statement to deposits in the cash receipts journal. B) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. C) Deposits listed on the cutoff statement to disbursements in the cash disbursements journal. D) Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.
d. checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation
the auditors' working papers will generally be least likely to include documentation showing how the a. client's internal control structure had been considered b. engagement had been planned c. unusual matters were resolved d. client's schedules were prepared
d. client's schedules were prepared
Which of the following best explains why accounts payable confirmation procedures are not always used? A) Inclusion of representations on accounts payable in the client representation letter eliminates the need in most situations. B) Accounts payable generally are immaterial and may be audited through using analytical procedures. C) Creditors will press for payment when they receive the confirmation. D) Confirmations are better at identifying overstatements than understatements, and overstatements are not typically the major concern with accounts payable.
d. confirmations are better at identifying overstatements than understatements, and overstatements are not typically the major concern with accounts payable
Which of the following is not a procedure that is designed to provide evidence about the existence of loss contingencies? a. Reviewing the minutes of board of directors' meetings. b. Review correspondence with banks. c. Obtaining a lawyers' letter. d. Confirming accounts payable.
d. confirming accounts payable
An auditor examining check disbursements discovered a missing check number. Upon inquiry to the person responsible for disbursements and reconciliation of the cash account, she is told that the check number is missing because the check was voided. What is the auditor's next step? A) Prepare a bank transfer schedule at to identify the check. B) Examine the bank confirmation to determine whether the check cleared. C) Since the person responsible for disbursements also reconciles the account, no additional procedures are necessary. D) Examine the voided checks file to determine whether the check is in the file.
d. examine the voided checks file to determine whether the checks is in the file
What is ordinarily the preferable course of action when an auditor finds a higher than expected deviation rate when sampling controls? A) Triple the size of the sample to further analyze potential problems. B) Project the level of deviation to the entire sample, and if material qualify the audit opinion. C) Continue to selection items from the population until the error rate diminishes to a tolerable level. D) Expand substantive procedures.
d. expand substantive procedures
to gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except a. cutoff bank statement b. year-end bank statement c. bank confirmation d. general ledger
d. general ledger
In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: A) Likely misstatements in the financial statements. B) Known misstatements in the financial statements. C) Known, projected and other estimated misstatements in the financial statements. D) Known, projected and potential misstatements in the financial statements.
d. known, projected, other estimated misstatements in the financial statements
a client's internal control appears strong, but CPA has elected not to perform any tests of controls. The planned assessed level of control risk is at what level? a. moderate b. zero c. low d. maximum
d. maximum since control risk is at maximum, they would perform more substantive test
an entity's ongoing monitoring activities often include a. periodic audits by internal auditors b. audit of annual financial statements c. approval of cash disbursement d. mgmt review of weekly performance reports
d. mgmt review of weekly performance reports
further audit procedures include a. risk assessment and tests of controls b. risk assessment c. test of controls d. none of the above
d. none of the above only substantive test is considered a further audit procedure
An inventory turnover analysis is most likely to help the auditors to detect: A) Inadequacies in inventory pricing. B) Methods of avoiding cyclical holding cost. C) Optimum automatic reorder points. D) Obsolete merchandise.
d. obsolete merchandise
To have strong internal control over payroll, which of the following functions does not need to be separated from the others? A) Personnel B) Timekeeping C) Payroll preparation D) Personnel verification
d. personnel verification
a search for overstated property, plant, ad equipment purchases would most likely include a. purchase discounts b. repairs and maintenance expense c. accounts rec d. property, plant, and equipment
d. pp&e
which of the following nonattest services may be performed by the auditors of a public company? a. internal audit outsourcing b. tax planning for all company officers c. bookkeeping services d. preparation of the company's tax return
d. preparation of the company's tax return
auditing standards board's guidance on matters such as the purpose of an audit, premise of an audit, and auditor personal responsibilities is included in a. code of professional conduct b. 10 generally accepted auditing standards c. accounting series releases d. principles underlying audit conducted in accordance with GAAS
d. principles underlying an audit conducted in accordance with GAAS
When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: a. provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. b. issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. c. issue an unmodified opinion, but inform the reader by including the omitted information in the audit report. d. provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.
d. provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP
To assure that all purchases are authorized before payment is made, accounting department personnel should match the vendor's invoice to: a. The purchase requisition. b. The receiving report. c. The voucher. d. The purchase order.
d. purchase order
The auditors' best course of action with respect to "other financial information" included in a client prepared annual report containing the auditors' report is to: A) Indicate in the auditors' report that the "other financial information" is unaudited. B) Consider whether the "other financial information is accurate by performing a review. C) Obtain written representations from management as to the material accuracy of the "other financial information." D) Read and consider the manner of presentation of the "other financial information."
d. read and consider the manner of presentation of the other financial information
The use of a "blind" purchase order is designed to prevent errors by the: a. Stores department. b. Accounting department. c. Purchase department. d. Receiving department.
d. receiving dept
Which of the following ordinarily is considered the weakest form of evidence? A) Actual physical evidence B) Documentary evidence obtained from outside the company C) Documentary evidence obtained from inside the company D) Replies by company employees to auditor oral inquiries
d. replies by company employees to auditor oral inquiries
Which of the following best describes the auditors' approach to the audit of accrued liabilities? A) Confirmation B) Observation C) Plan a low assessed level of control risk D) Test computations
d. test of computation
Which of the following is least likely to be considered a substantive procedure relating to payroll? a. Investigate fluctuations in salaries, wages, and commissions. b. Test computations of compensation under profit sharing for bonus plans. c. Test commission earnings. d. Test whether employee time reports are approved by supervisors.
d. test of control
All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in a client's annual report except: A. The auditor is under no obligation to perform audit procedures on this other information. B. The auditor must consider whether the other information is consistent with the information contained in the audited financial statements. C. The auditor must request that material inconsistencies be corrected. D. The auditor must perform audit procedures on this other information
d. the auditor must perform audit procedures on this other info
It is most likely to be efficient to test the controls over financial investments when: A) Controls are thought to be weak. B) Substantive tests may be performed. C) Analytical procedures are possible. D) The company trades or holds a large number of securities.
d. the company trades or holds a large number of securities
In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? a. The chief executive officer refuses the auditor access to minutes of board of directors' meetings. b. Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. c. Tests of controls show that the entity's internal control is so poor that it can not be relied upon. d. The statements are not in conformity with FASB requirements regarding the capitalization of leases.
d. the statements are not in conformity with FASB requirements regarding the capitalization of leases
Which of the following is correct concerning cash confirmation requests? A) They ask for information on kiting activities. B) They should be sent quarterly by the auditors to financial institutions the client has accounts with. C) They should be sent by the client to financial institutions the client has accounts with. D) They may be sent electronically or non-electronically.
d. they may be sent electronically or non-electronically
Which of the following is not a function of generalized audit software? A) To aid in the random selection of transactions for substantive testing B) To run in parallel with the client's application software and compare the output C) To test the mathematical accuracy by footing and cross-foot items in the accounting system D) To keep an independent log of access to the computer application software
d. to keep an independent log of access to the computer application software
which is most likely when the assessed level of control risk increases? a. change from performing substantive procedures at year-end to an interim date b. use the max number of dual purpose tests c. perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity d. use larger sample sizes for substantive procedures
d. use larger sample sizes for substantive procedures
Which method of analytical procedure analysis is most useful because many expenses, such as cost of goods sold, might be expected to bear a predictable relationship to net sales? A) Horizontal analysis B) Reasonableness analysis C) Trend analysis D) Vertical analysis
d. vertical analysis
effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by
direct participation by the owner in key record keeping and control activities of the business
in which of the following circumstances is it least likely that tests of controls will be performed?
expected deviation rate exceeds the tolerable deviation rate. this is because in such a situation testing is only likely to reveal to the auditors that the system is not operating effectively as they expected.
when issuing an unmodified opinion on public company financial statements, auditors make representation of conformity with PCAOB _____ and adequacy of disclosure _____
explicitly, implicitly
A special-purpose financial reporting framework is any framework other than GAAP.
incorrect
An audit report on financial statements that are prepared using a special-purpose framework must in all circumstances include a description of the purposes for which the statements are prepared.
incorrect
An audit report on financial statements that are prepared using a special-purpose framework will indicate that the audit was conducted in accordance with the special-purpose financial reporting framework auditing standards.
incorrect
The Statements on Standards for Attestation Engagements, not the Statements on Auditing Standards, apply to engagements involving special-purpose frameworks.
incorrect
if all other factors specified in an attributes sampling plan remain constant, decreasing tolerable rate and decreasing the risk of assessing risk too low would have what effect on sample size?
increase sample size
in testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also
is responsible for mailing the checks signed checks must not be returned to the accounting dept. this is to avoid a situation in which the acc pay dept fabricates documents, and then collects the checks
when an online real time (ORLT) IT processing system is in use, internal control can be strengthened by
making a validity check of an id number before a user can obtain access to the computer files. In OLRT system, users enter individual transactions from remote terminals and files are updated immediately. Therefore, it is important to implement user id system for validity check
Provide actuarial services related to certain liabilities, as well as perform the audit; the audit subjectively determined liabilities relate to material portion of the financial statement
not allowable for public and non public allowable for nonpublic if immaterial
the primary objective of CPA's observation of a client's physical inventory count is to
obtain direct knowledge that the inventory exists and has been properly counted
tests of controls ordinarily are designed to provide evidence of
operating effectiveness not control implementation
the preliminary assessments of control risk are often referred to as:
planned assessed level of control risk
aicpa conceptual framework for independence standards suggests that cpas evaluate whether a particular threat would lead which type of person to conclude that an unacceptable risk of non-independence exists?
reasonably informed third party
for effective internal control, the acc pay dept should compare the info on each vendor's invoice with
receiving report and purchase order
in order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities?
require that safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent
The primary section of the Sarbanes-Oxley Act dealing with management and auditor reporting on internal control over financial reporting
section 404
when confirming acc pay, the approach is most likely to be one of
selecting acc of companies with whom the client has previously done the most bus plus a sample of other acc
to provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is
stamped paid by the check signer
reliability
the complement of the risk of incorrect acceptance
auditor confirmation of acc pay balances at the balance sheet date may be unnecessary because
there is likely to be other reliable external evidence aviailable to support the balance (i.e. vendors' invoices, statements that substantiate the acc pay) no such external evidence is on hand to support acc rec.
what is an advantage of generalized audit software packages?
they can be used for audits of clients that use differing computing equipment and file formats
write-offs of acc rec are approved by the cnotroller
this is control deficiency for the revenue cycle. Write-offs of accounts receivable should be approved by a management official independent of the record keeping function, not by the controller who is responsible for record keeping. Frequently, the treasurer approves write-offs.
auditors often make use of computer programs that perform routine processing functions such as sorting and merging. these programs are made available by IT companies and others and are referred to as
utility programs
to assure accountability for fixed asset retirements, management should implement an internal control that include
utilization of serially numbered retirement work orders
after documenting the client's prescribed control, the auditors will often perform a walk-through of each transaction cycle. an objective of a walk-through is to
verify that the controls have been implemented (placed in operation)
instead of taking a physical count of inventory on the balance sheet date, the client may take physical counts prior to year end if internal control is adequate and
well kept records of perpetual inventory are maintained
