Auditing final quiz

An audit provides reasonable assurance of detecting material Fraudulent Financial Reporting and/or Misappropriation of Assets (1) Yes Yes (2) Yes No (3) No Yes (4) No No

(1) Yes Yes fraudulent financial reporting and misappropriation of assets

A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions?Qualified and/ or Unmodified with Emphasis-of-Matter (1) Yes Yes ( 2) Yes No (3) No Yes (4) No No

(2) Yes No - qualified and not unmodified with emphasis of matter

Financial statement audits performed under PCAOB requirements are designed to provide which type(s) of assurance with respect to the detection of material misstatements due to errors or fraud? Reasonable and/ or Absolute (1) Yes Yes (2) Yes No (3) No Yes (4) No No

(2) Yes No reasonable but not absolute

When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified and/or Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No

(3) No Yes - not qualified but unmodified with emphasis of matter

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?Qualified and/ or Adverse A. Yes Yes B. Yes No C. No Yes D. No No

C. No Yes - not qualified but adverse

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts? a. Plant assets were retired during the year. b. The prior year's depreciation expense was erroneously understated. c. The estimated remaining useful lives of plant assets were revised upward. d. Overhead allocations were revised at year-end.

a. Plant assets were retired during the year.

Which of the following is an internal control weakness related to factory equipment? a. Proceeds from sales of fully depreciated equipment are credited to other income. b. All purchases of factory equipment are required to be made by the department in need of the equipment. c. Factory equipment replacements are generally made when estimated useful lives, as indicated in depreciation schedules, have expired. c. Checks issued in payment of purchases of equipment are not signed by the controller

b. All purchases of factory equipment are required to be made by the department in need of the equipment.

Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? a. Accounts Payable. b. Repairs. c. Cash. d. Depreciation.

b. Repairs.

An effective procedure for identifying unrecorded retirements of equipment is to: a. Foot related property records. b. Select items of equipment in the accounting records and then locate them in the plant. c. Recalculate depreciation on the related equipment. d. Select items of equipment and then locate them in the accounting records.

b. Select items of equipment in the accounting records and then locate them in the plant.

Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? a. The assets involved with property, plant, and equipment ordinarily have relatively longer lives. b. Relatively few transactions occur in property, plant, and equipment during the year. c. A property, plant, and equipment cutoff error near year-end has a more significant effect on net income. d. Property, plant, and equipment accounts typically have a higher dollar value.

c. A property, plant, and equipment cutoff error near year-end has a more significant effect on net income.

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: a. Not in accordance with generally accepted auditing standards b. An example of a dual opinion requiring the signatures of both auditors. c. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. d. A qualification that lessens the collective responsibility of both CPA firms

c. Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.

For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on: a. All transactions resulting in the ending balance. b. Tests of controls over disposals. c. Transactions that occurred during the year. d. Performing analytical procedures on beginning balances of the accounts.

c. Transactions that occurred during the year.

The auditor's analytical procedures will be facilitated if the client: a. Corrects material weaknesses in internal control before the beginning of the audit. b. Reduces inventory balances to the lower of cost or market. c. Uses a standard cost system that produces variance reports. d. Segregates obsolete inventory before the physical inventory count.

c. Uses a standard cost system that produces variance reports.

To assure accountability for fixed-asset retirements, management should implement an internal control that includes: a. Periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired. b. Periodic observation of plant assets by the internal auditors. c. Utilization of serially numbered retirement work orders. d. Continuous analysis of miscellaneous revenue to locate any cash proceeds from the sale of plant assets.

c. Utilization of serially numbered retirement work orders.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? a. Establish the completeness of inventories. b. Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. c. Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold. d. Establish that the client includes only inventory on hand at year-end in inventory totals.

d. Establish that the client includes only inventory on hand at year-end in inventory totals.

Which of the following is not an overall test of the annual provision for depreciation expense? a. Compare rates used in the current year with those used in prior years. b. Test computation of depreciation provisions for a representative number of units. c. Perform analytical procedures. d. Test deductions from accumulated depreciation for assets purchased during the year.

d. Test deductions from accumulated depreciation for assets purchased during the year.