CH 19,CH 17, CH 16, CH 13, CH 12,CH 11
Auditor's tests of controls around management's use of a chart of accounts, proper codes for recording inventory transactions and the financial reporting process should provide adequate assurance for the _____ assertion.
presentation
Misunderstandings between management and the auditor are reduced by the ____.
representation letter
Determining the materials cost requires examining the_____ of materials included in the product.
type price quantity
When a CPA performs his or her duties with competence and diligence, the CPA is said to be ______.
using due care
Which of the following is not one of the four columns used on a proof of cash?
Balance of cash per general ledger.
The settlement of a lawsuit after the balance sheet date but before the financial statements are issued for an amount different from the amount recorded in the year-end financial statements is considered a Type ______ subsequent event.
I
Which of the following is specifically enforceable?
Rules of Conduct only
To consider the overall reasonableness of the financial statement amounts, the auditor performs final ____ ____.
analytical procedures
The Preface of the Code of Professional Conduct ____.
applies to all CPAs defines ideal principles of professional conduct
Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the _____ ____ in particular.
audit committee
The control activities for the _____ assertion relate to recording inventory that has been received.
completeness
If the entity holds inventory on _____, such inventory should not be included in the physical inventory.
consignment
The successful functioning of nearly every aspect of society, from law to medicine, family life to government is underpinned by _____.
ethics
The observation of physical inventory provides evidence on the ______ assertions.
existence valuation accuracy
An auditor perform analytical procedures to help evaluate overall financial statement presentation during the _____ stage of the audit.
final review
When products are completed by the manufacturing function, they are transferred to _____ _____ stores.
finished goods
Valuable evidence on unrecorded inventory or fictitious inventory may be provided by comparing the current _____ _____ percentage to previous years or industry data.
gross profit
Accrual of liabilities for salaries and wages, payroll taxes, and various employee benefit programs is a principal objective of the ____ _____ management process
human resource
A proof of cash cannot detect ______.
if there was a theft of cash before it was recorded in the entity's books
Gains and losses on derivatives and hedging instruments are reported _____.
in Other Comprehensive Income. in a footnote to the financial statements
Contingent liabilities include _____.
income tax disputes product warranties
Contingent liabilities include______
income tax disputes product warranties
In a manufacturing company, the _____ _____ file usually contains the standard costs used to value the inventory at various stages of production.
inventory master
A private, nongovernmental association which only has the authority to require its members to comply with the Code of Professional Conduct as a condition of continued membership is the _____.
AICPA
A voucher register normally ______.
contains a column for a credit to accounts payable
A vendor invoice_____.
contains the quantity shipped and price is the bill from the supplier
Substantive audit procedures for Level 2 or Level 3 valuations, such as complicated derivatives, include ______.
testing whether the assumptions appropriately reflect observable market assumptions testing that the underlying data used in the model are accurate, complete and relevant developing an independent point estimate or range for corroborative purposes
Which of the following entity's standards of professional conduct are considered to provide the broadest map of areas in which professionalism is expected from auditors?
AICPA
Which of the following is not a SFAC 5 expense category?
Amortized expenses
Which of the following are characteristics of a contingent liability?
An existing condition or set of circumstances. Ultimate resolution when some future event occurs or fails to occur. Uncertainty about the amount of loss.
When utilized as part of planning, preliminary ______ can effectively identify payroll expense accounts and accrual accounts that may be misstated.
Analytical procedures
Cash includes ______.
Currency on hand Certificates of deposit Savings accounts
True or false: Employers do not have to have employee authorization in order to deduct withholding tax from an employee's pay.
False
Which of the following statements is correct?
It is expected that all known misstatements will be corrected.
Important disclosure issues related to inventory include _____.
LIFO liquidation. the components of inventory. the cost method used for valuation
Which of the following items that occurred after the balance sheet date but prior to issuance of the financial statements are considered Type II subsequent events.
Losses on receivables caused by conditions arising such as a business failure. A capital stock or bond issuance. Purchase or disposal of a business by the entity.
In a small organization, human resource activities may be combined with other duties. As a result, control over human resource activities ______ when such activities are centralized.
May not be as strong as
The auditor wants assurance that payments for payroll-related services are being made to valid employees for time actually worked to satisfy the ______ assertion.
Occurrence
FASB
Permitted by the SEC to set standards, but does not oversee the profession
Auditor's test of control around management's use of a chart of accounts, proper codes for recording payroll transactions, and the financial reporting process, should provide adequate assurance for the _____assertion
Presentation
Which of the following part(s) of the ICPA Code of Professional Conduct apply to all CPAs?
The Preface only
To satisfy the occurrence assertion, the auditor wants assurance that payments for payroll-related services are being made to ______ employees for time actually worked.
Valid
The first two principles of the Code of Professional Conduct reinforce that ______
a CPA's role is to serve the public
The auditor must understand how management weighs the risks that are relevant to the purchasing process, estimates their significance, assess the likelihood of occurrence and decides what actions to take to address them in order to understand the entity's risk _____ process.
assessment
The auditor's concern with _____ in the inventory system is that purchase or production activities could occur that may lead to excess levels of certain types of finished goods.
authorization
Organizations can control requisitioning authorization by _____.
authorization dollar limits for different levels of employees
When a reliance strategy for the payroll system is followed, the auditor must identify the ______ that ensure that material misstatements are either prevented or detected and corrected.
control activities
The entity's organizational structure and its methods of assigning authority and responsibility are two factors that are particularly important when the auditor considers the_____ _____ and the purchasing process.
control environment
The auditor can examine a sample of receiving documents for a few days before and after year-end for recording of inventory to test the _____ assertion.
cutoff
The cash disbursements journal usually has columns for _____.
debits to accounts payable credits to cash
The intended purpose of substantive tests of transactions is to ______ in the individual transactions processed through the payroll application.
detect monetary misstatements
Generally, the purchasing process and its related accounts _____.
do not result in contentious accounting issues. are not difficult to audit
Part 2 of the AICPA Code of Professional Conduct applies to___.
does not require independence applies to CPAs who are working in business but who are not issuing assurance reports on which the public will rely
Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this includes the ____.
entity's board of directors entity's audit committee
When a CPA has such a close, long-standing relationship with a client that it has become difficult to maintain objectivity it is called a(n) ______ threat.
familiarity
The period from the date of the financial statements to the date of the auditor's report is sometimes referred to as the _____ subsequent-events period.
formal
The main cash account for most entities is called _______ cash account.
general
Reconciliation of the perpetual inventory records to the inventory accounts is an important control performed by the _____ _____ function.
general ledger
Individuals involved in the inventory management and inventory stores functions should not have access to _____.
general ledger. cost accounting records. inventory records
The auditor has a responsibility to evaluate whether there is substantial doubt about an entity's ability to keep doing business or, in other words, whether or not the entity considered to be a(n) _____ _____.
going concern
When the tests of controls do not support the planned level of control risk, the auditor must set a ______ level of control risk and a ______ level of detection risk.
higher, lower
When an auditor reviews the minutes of the board of directors meetings and makes inquiries of entity personnel during the audit of the revenue and purchasing processes, (sh)he is most likely trying to ______.
identify long-term commitments
A CPA is required to avoid relationships that would impair his or her objectivity under the principle of ______.
independence
The legal letter routinely requests that the attorney ____.
indicate if his or her response is limited in any way. comment on unasserted claims where his or her views differ from management.
The first section in Part 1 of the AICPA Code of Profession Conduct includes the Code's ______ rule.
integrity and objectivity
The auditor's understanding of internal control for the payroll system should be documented in the working papers using ______.
internal control questionnaires flowcharts memoranda
The inventory status report _____.
is basically a summary of the perpetual inventory records. can be used to determine the status of goods in process
Equity, fairness, and impartiality are central to the ___.
justice-based approach
The determination of labor costs requires evidence about the type and amount of labor needed for production and the _____.
labor rate
A letter of audit inquiry sent to the entity's attorneys is often referred to as a(n) _____ ____.
legal letters
When considering important financial statement disclosures for cash, primary documents an auditor might review include ______.
line-of-credit arrangements loan agreements minutes of board of director's meetings
The most complex or troublesome area(s) of inventory auditing include _____.
lower-of-cost-or-market assigning costs obsolescence
The auditor must communicate, in writing, all control deficiencies identified including those that are of a lesser magnitude than significant deficiencies to the _____.
management
The auditor obtains the representation letter from ____.
management
The auditor makes recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues by preparing a(n) ____.
management letter
When companies operate in multiple locations branch accounts ______.
may be used as imprest or general cash accounts
The auditor ____ require all proposed adjustments to be booked.
may or may not
Inventory is often difficult to audit, and its valuation _____.
may result in disagreements with the entity
Professions establish rules that define ethical behavior so that _____.
members of the profession know what's acceptable users of the professional services know what to expect when they purchase services
Factors particularly important when the auditor considers the control environment and the purchasing process are _____
methods of assigning authority and responsibility organizational structure
The intended purpose of substantive tests of transactions is to detect monetary _____ in the inventory account.
misstatements
Auditing standards identify four conditions and events which may indicate going concern issues including:
negative financial trends internal problems external matters
An auditor has ______ to conduct audit procedures after the financial statements and the accompanying audit report have been issued.
no obligation
If the auditor follows a substantive strategy when auditing inventory, the auditor places _____ on the control activities in the inventory management process and sets the level of control risk at the _____.
no reliance; maximum
The auditor can examine the costs included in _____ to be sure that such costs can be appropriately assigned to the product.
overhead
Excess levels of finished goods can become obsolete, which can result in ending inventory being _____.
overstated
If purchase transactions that do not occur are recorded, assets or expenses will be ____
overstated
The quantity of goods needed and the time at which goods must be ready in order to meet demand is determined on the ______ _____.
production schedule
A Type II subsequent event:
provides evidence about conditions that did not exist at the balance sheet date. is usually accounted for by disclosure in the notes to the financial statements
Part 1 of the AICPA Code of Professional Conduct applies to all ______
public practice CPAs
The professional conduct requirements established by the SEC and PCAOB must be followed when auditing _____.
publicly held companies only
The person who approved the purchase and the authorization to buy a good or service is included on the _____ _____.
purchase order
A purchase transaction usually beings with a(n) _____ _____ being generated by a department or support function.
purchase requisition
A receiving report _____.
records the receipt of goods contains the date and description of goods
The auditor is _____
required to observe inventory that is material
Professions establish rules that define ethical behavior _____.
so the profession can use the rules to monitor the action of its members so the profession can use the rules to apply discipline when members violate the rules or codes of conduct
For accuracy and proper valuation, _____ costs should approximate actual costs.
standards
For entities that do not require an audit of internal controls over financial reporting, it is more efficient for the auditor to follow a(n)______ strategy for auditing investment securities at year-end.
substantive
For payroll expenses, additional detail testing is only necessary only when ______.
tests indicate that material misstatements may be present control weaknesses exist
An auditor has the burden of justifying departures from _____.
the Interpretations of Rules of Conduct only
The representation letter is addressed to ____.
the auditor
The auditor has determined that previously issued financial statements are in error and the audit report is affected. If possible, the auditor should notify regulatory agencies that the auditor's report can no longer be relied upon when ____.
the entity refuses to cooperate and make the necessary disclosures
A voucher is _____.
used to control payment for purchases attached to the purchase requisition, PO, receiving report, and invoice
When auditing the purchasing process, the auditor should consider important industry-related factors in assessing inherent risk including _____.
whether the supply of raw materials is adequate. how volatile raw material prices are
Management is required to make disclosures when it is determined that the entity ____ within the forward looking period.
will probably be unable to meet its obligations. has developed a plan that reduces the doubt of meeting obligations to less than probable
Management's refusal to provide a representation letter is ordinarily sufficient to cause an auditor to ____.
withdraw from the engagement disclaim an opinion
There should be a review by an audit team member who is senior to the person in charge of preparing the _____ _____.
working paper
Controls to prevent misclassification of payroll include ______.
review of assigned payroll categories by the timekeeping function the use of an adequate chart of accounts comparing actual payroll costs to budget by category
To identify contingent liabilities an auditor might _____.
review tax returns and IRS reports review contracts, loan agreements and leases read the minutes of board of directors meetings
Integrity means that a CPA should make judgments that are consistent with the theories of ______.
rights justice
Individuals responsible for ______ should be segregated from the personnel, payroll-processing, and general ledger functions.
supervision and timekeeping
True or false: Segregation of duties is a particularly important control in the inventory management process because of the potential for product costing errors.
False
Which of the following statements are correct?
Internal auditors often document and perform tests of controls over petty cash. External auditors seldom perform substantive procedures on the petty cash fund.
AICPA
Is a private, nongovernmental association with no legal authority.
True or false: The major difference between a voucher register and a purchases journal is the way individual vouchers or vendor invoices are summarized.
True
Disadvantages in applying the utilitarian theory to ethical dilemmas include _____
balancing the interests of all parties involved difficulty in measuring potential costs and benefits
A major control that directly affects the audit of cash is the completion of a monthly to ensure the entity's books reflect the same balance as the bank's after required adjustments have been considered.
bank reconciliation
Major reconciling items in bank reconciliation working papers include ______.
bank service charges deposits in transit outstanding checks
If oversight by the audit committee is ineffective, the auditor must communicate significant deficiencies and material weaknesses to the _____.
board of directors
Accuracy is important assertion because inventory transactions that are not properly recorded result in misstatements that directly affect _____.
both cost of goods sold and inventory
Industry factors that may indicate the presence of material misstatements in inventory include __
changes in technology intense competition drop in customer demand
To be a credible source of objective and independent assurance, a profession must have a solid reputation for _____.
character competence integrity
Due care requires that the CPA perform his or her professional responsibilities with ______.
competence diligence
If sufficient evidence can be gathered through an understanding of internal control, tests of controls, substantive tests of transactions, and substantive analytical procedures, then the auditor does not need to ______.
conduct detailed tests of the payroll expense accounts
The primary purpose of a legal letter is to _____.
corroborate information provided by management about litigation, claims and assessments
The receiving function is responsible for ______ goods.
counting inspecting receiving
In gathering evidence on the _____ assertion for inventory, the auditor attempts to determine whether all sales of finished goods and purchases of raw materials are recorded in the proper period.
cuttoff
When preparing a bank reconciliation, NSF checks are ______.
deducted from the balance per bank
The cost accumulation report aggregates _____.
direct labor direct materials manufacturing overhead
The principal objectives of the human resource management process are to ______.
ensure that payroll costs are for legitimate entity activities record production and other types of payroll costs in accounts accrue liabilities for wages, payroll taxes, and employee benefit programs
The accounts payable department _____.
ensures that an appropriate liability is recognized. ensures that all goods received are recorded as assets or expenses. processes invoices
A Treasury bill is an example of a cash _______.
equivalents.
A code of conduct based on moral duties and obligations that indicate how an individual should interact with others in society is known as _____.
ethics
When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be ____.
evaluated using the "iron curtain" approach evaluated using the "rollover" approach
With respect to the ______ assertion, the auditor should also be concerned that goods may be stolen.
occurrence
The engagement quality reviewer is a(n) ____.
partner not associated with the details of the engagement
Once an individual has been hired as an employee, the main transaction that affects the financial statement accounts is a(n)___ transactions
payroll
After hiring, the main human resource process that affects the financial statements is ______.
payroll expense
The engagement partner generally reviews working papers _____.
prepared by the manager related to critical audit areas
If management determines it is _____ that the entity will be unable to meet its obligations within the look-forward period, management is required to make appropriate disclosures.
probable
The conduct, aims, or qualities that characterize a vocation is the definition of ____.
professionalism
The Sarbanes-Oxley Act of 2002 requires the CEO and the CFO to certify the appropriateness of the financial statements and related disclosures for _____.
quarterly filings with the SEC annual filings with the SEC
When goods are requested for production through the issuance of a materials requisition, the _____ _____ _____ function issues the goods to the appropriate manufacturing department.
raw materials stores
The auditor gathers evidence regarding overhead costs by reviewing the entity's method of overhead allocation for _____.
reasonableness compliance with GAAP consistency
When a contingent liability exists, the likelihood that the future event will result in a loss is assessed using the categories ____
remote probable reasonably possible
A Type I subsequent event ____.
requires adjustment of the numbers in the financial statements
The purchasing function can achieve its objectives by _____.
requiring competitive bidding using multiple vendors
The important issue in the _____ unction of the purchasing process it that the request meets the authorization procedures implemented by the entity
requisitioning
Which of the following is NOT a principal business objective of the purchasing process?
Efficiently using cash resources to pay for goods and services
The auditor's concern regarding the assertion is whether the recorded payroll liabilities are valid obligations of the entity.
Existence
Which of the following entities has been allowed to set accounting and auditing standards?
FASB ASB SEC
The auditor obtains information regarding ______ by observing inventory items in the entity's warehouse and understanding and testing the entity's count procedures addressing validity, and through the auditor's test counts.
existence
The observation of the physical inventory is the primary audit step used to verify the _____ assertion.
existence
Outflows or other using up of assets from delivering or producing goods, rendering services, or carrying out other activities that constitute an entity's ongoing major or central operations are _____.
expense
Audit firms develop ______ to help audit teams ensure that an entity is appropriately accounting for stock-based compensation.
extensive audit programs
The pattern of a significant _____ in inventory coupled with a substantially _____ inventory turnover may indicate the presence of obsolete inventory.
increase; slower
A profession must have a solid reputation for competence, and for unquestioned character and integrity to be a credible source of _____, independent _____.
objective, assurance
According to auditing standards, analytical procedures are required during the ____ stages of an audit.
planning final review
When performed as part of audit planning, _____ can effectively identify whether the inventory and cost of goods sold accounts contain material misstatements.
preliminary analytical procedures
Reviewers evaluate whether the work was performed and documented and whether the objectives of the procedure were achieved when reviewing the _____ _____.
working paper
Possible misstatements due to improper authorization include ______
purchase of unauthorized goods purchase of services at unauthorized prices
Possible reasons for book-to-physical differences in inventory include _____.
theft cutoff errors unreported spoilage
When an entity purchases inventory, _____ of the inventory can normally be accomplished by vouching the costs to vendors' invoices.
valuation
When the model used by management is complex, the markets for the assets or liabilities are not currently active, or a high degree of estimation uncertainty exists the auditor often engages a(n) _____to help obtain audit evidence regarding fair value.
valuation Specialist
The main concern related to the ______assertion is that an employee's gross pay and payroll deductions may be incorrectly computed.
Accuracy
True or false: In general, prior year misstatements of inventory are not indicative of potential misstatements in the current year
False
rue or false: Labor costs included in inventory are often tested in conjunction with payroll expense.
True
The quantity and type of materials for production are tested by reviewing _____
material lists engineering specifications blueprints
For an entity with a large investment portfolio, the auditor is likely to follow a(n) ______strategy in which internal control is formally evaluated and tests of controls are performed.
reliance
To audit a payroll or branch bank account the auditor uses a(n) ______.
standard bank confirmation bank reconciliation cutoff bank statement
When a purchase journal is utilized, the accounts payable _____ _____ records the transactions with, and the balances owed to, a vendor.
subsidiary ledger
When a voucher register system is utilized, the accounts payable _____ _____ is a listing of unpaid vouchers.
subsidiary ledger
Occurrence and authorization controls for investments help ensure ______.
the purchase of an investment is properly initiated by appropriate individuals
The beginning step in the purchase process is usually _____.
the purchase requisition
The judgment process followed for setting control risk in the inventory management process is ______ the process used with other processes.
the same as
If an auditor is inspecting securities held by an entity, the auditor should insist that a representative of the entity be present during the physical examination in order to ______.
acknowledge that all securities inspected are returned
Safeguards to threats to a CPA's integrity and objectivity include ______. additional training
additional training Involvement of an otherwise uninvolved third party hotlines on ethical matters
The engagement quality control reviewer _____.
considers the appropriateness of the audit report evaluates significant judgments made by the engagement team reads the financial statements
Once the controls in the inventory system have been tested, the auditor sets the level of _____ risk.
control
The auditor needs to evaluate the likelihood and magnitude of the potential weakness if ____deficiencies are detected in the payroll system at a public company.
control
With respect to the audit of internal control over financial reporting, the auditor must communicate all significant deficiencies and material weaknesses in writing to management and the ____ ____.
audit committee
When control risk is low or the amounts in the accounts are relatively small, an example of procedure the auditor can use to verify accrued payroll liabilities is ______.
comparing accrual to prior year balance accounting for changing conditions
With respect to _____ of inventory, the major control activity for preventing fictitious inventory transactions from being recorded is proper segregation of duties.
occurrence
Understanding how management assesses the design and operation of controls is part of understanding the entity's _____ process over the purchasing process.
monitoring
According to the Code of Professional Conduct, members employed in industry ______.
must be candid and not knowingly misrepresent facts to the external accountants
True or false: The purchasing process is generally a source of contentious accounting issues.
False -The purchases process may contain material misstatements, but is unlikely a source of contentious accounting issues.
The auditor assesses the entity's ability to continue as a going concern ______.
near the end of the engagement. during the planning of the engagement
A profession must have a solid reputation for competence, and for unquestioned character and integrity to be a credible source of ____, independent ____.
objective, assurance
To ensure accuracy, inventory management personnel should periodically review inventory on hand for _____ inventory.
obsolete excess slow-moving
With respect to the valuation assertion for inventory, the auditor must consider _____.
obsolete inventory costs or standard costs lower-of-cost-or-market
Transactions processed through the purchasing process are the _____.
return of goods to suppliers for cash or credit purchase of goods and services for cash or credit payment of the liabilities arising from purchases
The major source of cash receipts for the general cash account is the ______ process.
revenue
Because the inventory management process interacts with the _____ processes, transactions involving the receipt of goods, shipment of goods, and assignment of labor costs are normally tested as part of those process
revenue purchasing human resource management
A procedure to provide assurance over accuracy of inventory is _____.
reviewing the entity's procedures for identifying excess inventory
The auditor must be sure that the inventory on hand belongs to the entity to satisfy the ______ assertion.
rights and obligations
Audit procedures likely to identify conditions and events that indicate going concern problems include ____.
risk assessment review of subsequent events inquiry of legal counsel
The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the _____ approach.
rollover
When misstatements are quantified based only on the amount of the error that originates in the current year income statement, the _____ method us being used.
rollover
The auditor needs to be sure that the raw materials store _____.
safeguards the assets
The major control for preventing fictitious purchases is proper _____.
segregation of duties
A copy of the _____ _____ is used to remove goods from the entity's perpetual inventory records.
shipping order
Usually, the finished goods inventory master file is updated when a receiving report is processed or when a ______ is generated.
shipping order
Reasons the audit testing of a payroll or branch account is less extensive than testing for the general account include ______.
these types of accounts generally contain a minimal balance the types of disbursements from the account are homogeneous
The vendor's statement may differ from the entity's records because of:
timing differences in shipping goods errors timing differences in supplier recording cash receipts
During the observation of the physical inventory count, the auditor should ____.
obtain tag control information for testing inventory compilation. inquire about goods held on consignment
The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the _____ ____.
audit evidence
The PCAOB requires that audit documentation be retained for 7 years from the date of the ____.
auditor's report
he date of the representation letter is generally the date of the _____.
auditor's report
For CPAs who are neither functioning as auditors or working in business, only Part(s) _____ of the AICPA Code of Professional Conduct is applicable.
3
True or false: Refusal by an entity's attorney to furnish information in a legal letter is a limitation on the scope of the audit, but not sufficient to preclude an unqualified opinion
False (It is both a limitation on the scope of the audit and potentially sufficient to preclude an unqualified opinion)
Which of the following is NOT an assertion the auditor is concerned with when auditing accrued payroll liabilities?
Occurrence
Accounting standards on derivatives and hedging require such commitments to be disclosed in a footnote to the financial statements with an adjustment to _____ _____ ____ for any gains or losses.
Other Comprehensive Income
If the auditor determines that previously issued financial statements are in error, the audit report is affected and the effect on the financial statements cannot be immediately determined, the entity should ____.
contact appropriate regulatory agencies. contact the SEC. notify persons relying on the statements and audit report
An auditor may obtain a legal letter when trying to address ____.
contingent liabilities
An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a(n) ______ ______.
contingent liability
Pending or threated litigation is an example of a(n) _____ ____.
contingent liability
The "nitty gritty" details in implementing the rules in Part 1 of the Code of Professional Conduct are found in the ______ of each rule.
interpretations
The FASB standard relating to going concern issues requires a "look-forward" period of ____.
1 year from the financial statement issuance date
Few inherent risk factors directly affect the human resource management process and its related accounts for ______.
Non-officers
True or false: The entity's balance sheet date is December 31, 2016, the date of the auditor's report is February 8, 2017, and the financial statements are issued on March 2, 2017. The auditor is not responsible for making any inquiries or conducting any audit procedures in the period between February 8, 2017 and March 2, 2017.
True. (The auditor is not responsible for making inquiries or conducting audit procedures after the date of the audit report)
The auditor's concern with respect to the _____assertion is whether they are included in the financial statements at the appropriate amount.
Valuation
A valuation specialist is often engaged to help obtain audit evidence when ______.
a high degree of estimation uncertainty exists the valuation model used by management is complex the markets for the assets or liabilities are not currently active
From an auditing perspective for the manufacturing area, there must be _____.
adequate control over the physical flow of the goods. proper accumulation of the costs attached to inventory
Occurrence and authorization controls for investments include ______.
adequate documentation of proper initiation and approval of purchases and sales proper approval of the commitment of resources to investment activities general policies to guide the entity's investment activities established by the board of directors
An auditor includes an explanatory paragraph that describes the event and its effects if a subsequent event related to internal control reveals ____.
adverse information about an internal control condition that did not exist as of the end of the reporting period
Controls over the aggregation or disaggregation of transactions are important to properly _____.
allocate costs to appropriate classes of inventory
In order to be considered a Type I subsequent event, the condition must have ______ existed at the balance sheet date.
already
If a misstatement is considered material to the financial statements, the registrant's financial statements need to be adjusted so that any remaining misstatement is considered immaterial under _____ approach.
both the "iron curtain" and "rollover"
Controls that ensure the _____ assertion is being met for purchases include accounting for the numerical sequences of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices.
completeness
The principle of objectivity requires the CPA to be ______.
free of conflicts of interest impartial
Contingent liabilities judged to be remote are _____.
not accrued not disclosed in the footnotes
The auditor has determined that previously issued financial statements are in error, and the audit report is affected. If the entity refuses to cooperate and make the necessary disclosures, the auditor's next step is to notify the board of directors and ____.
notify each person known to the auditor to be relying on the financial statements that the auditor's report can no longer be relied upon
If the auditor decides to rely on controls to reduce control risk for the authorization assertion, then to verify that this control is operating effectively the auditor must _____.
perform tests of controls
The accurate processing of inventory transactions involves _____.
removing the actual number of items shipped from inventory. applying the correct price to the actual quantity received. recording the proper cost to cost of goods sold
Complying with the AICPA Code of Professional Conduct is ____.
required by courts at the state and federal levels a condition of membership in the AICPA required by most state-level boards of accountancy
Complying with the AICPA Code of Professional Conduct is _____.
required by courts at the state and federal levels required by most state-level boards of accountancy a condition of membership in the AICPA
FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. A valuation based on directly or indirectly observable market data for similar or comparable assets or liabilities best describes Level ______.
2
Which of the following entity's standards of professional conduct are the least stringent?
AICPA
If a CPA works both as an auditor and in another business capacity, which of the following statements is true regarding the AIPCA's Code of Professional Conduct?
Both Parts 1 and 2 apply to this CPA.
True or false: If a client uses an outside payroll service, there is no need to document internal control for the payroll system.
False
True or false: In order to ensure proper testing, the existence and valuation assertions for payroll should generally be tested separately.
False
True or false: Most firms typically have adequate segregation of duties for investment activities.
False
True or false: Observing that count teams have placed count tags on all inventory items provides evidence regarding the cutoff assertion.
False
True or false: The auditor's treatment of subsequent events relating to internal control is similar to the engagement quality review performed at the conclusion of the audit
False (The auditor treats subsequent events related to internal control in a manner similar to those that relate to financial statement account balances - Type I and Type II)
True or false: In most manufacturing companies, proper valuation can be achieved by determining which manufacturing processing department has control of the inventory on the date of the physical count.
False (Proper classification, not valuation can be achieved.)
True or false: If an auditor suspects cash was stolen without being recorded in the entity's books, (s)he should perform a proof of cash.
False: A proof of cash will not detect the theft of unrecorded cash.
True or false: A proof of cash is often referred to as a two-column proof of cash.
False; (Four Column)
The human resource management process and its related accounts for non-officers has ______ inherent risk factors.
Few
Which of the following is a test of transactions for cash receipts to provide evidence regarding accuracy?
For a sample of weeks, foot the cash receipts journal and agree posting to the general ledger.
Individuals responsible for supervision and timekeeping should be segregated from the personnel, payroll-processing, and ___ ___functions.
General ledger
Which of the following categories is a particularly important issue for going concern assessment because it could impact the ability to meet cash requirements?
Other financial difficulties
Which of the following parts of the AICPA Code of Professional Conduct applies only to CPAs in public practice?
Part 1
Accounts affected by accrued payroll liability transactions include ______.
Payroll taxes Cash Pension costs
Legal authority to oversee the accounting profession rests with the ______.
SEC
True or false: When an entity uses a third party to process payroll, there is no need to obtain evidence or do any testing regarding the payroll process.
True
True or false: When the auditor is evaluating the effects of detected misstatements in the financial statements, the auditor must consider both quantitative and qualitative aspects of the account and transaction involved.
True (Both types of issues may materially affect the users of financial statements.)
True or false: The Code of Professional Conduct places responsibility for ethical behavior squarely on the professional.
True (Responsibility is clearly on the professional, regardless of whether there are specific interpretations in place to add the situation.)
FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. Which of the following best describes Level 3?
Valuations are based on management's best judgment and involve management's assumptions.
Which of the following is an important control over cash disbursements?
Voucher packages have been independently approved.
In a legal letter management should request the attorneys provide information including _____.
a list of pending or threatened litigation. an indication of the attorney's response is limited in any way. the amount or range of potential loss for any pending or threated litigation
The inventory compilation is footed, and the mathematical extensions of quantity multiplied by price are verified to test the _____ assertion.
accuracy
The inventory compilation is footed, and the mathematical extensions of quantity multiplied by price are verified. Additionally, test counts made by the auditor during the physical inventory and tag control information are traced into the compilation to test the ____ assertion.
accuracy
For accuracy and proper valuation, standard costs should approximate _____.
actual costs
Regarding responsibility for reporting changes in internal controls that might adversely affect financial reporting between the end of the reporting period and the date of the auditor report, auditors are ______.
always responsible for reporting these types of changes in internal controls
Examples of disclosure issues for cash include ______
an accounting policy for defining cash and cash equivalents letters of credit cash balances restricted by foreign exchange contracts
Part 3 of the AICPA Code of Professional Conduct applies to CPA who work _____
as accounting instructors
When an entity uses a third party to process payroll, the auditor must consider the third-party services ______.
as part of the entity's information system
Audit procedures occurring after the balance sheet date that may detect subsequent events include _____.
asking legal counsel about any developments related to litigation, claims and assessments reading any available interim financial statements that are available after year end
To understand the entity's risk assessment process, the auditor must understand how management _____.
assesses the likelihood of purchasing process risk occurrence weighs the risks that are relevant to the purchasing process decides what actions to take to address purchasing process risks estimates purchasing process risk significance
Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ____.
auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures. management to first evaluate the entity's ability to continue in existence as a going concern
When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be evaluated using ____ approach.
both the "iron curtain" and "rollover"
An auditor's use of substantive analytical procedures for auditing cash can include comparing the ______.
cash balance with budgeted amounts. cash balance with the prior year's balance
Commitments entered into to obtain a favorable or predictable pricing agreement or to secure the availability of raw materials are known as _____ _____ hedges.
cash flows
The human resource activities in most large organizations are ______.
centralized in a human resource department
An important assertion for a manufacturer, but not for a merchandiser is _____.
classification
Control activities to ensure that inventory is recorded as raw materials, work in process or finished goods is important for the _____ assertion.
classification
In most manufacturing companies, proper _____ can be achieved by determining which manufacturing processing department has control of the inventory on the date of the physical count.
classification
Companies often enter into long-term agreements to purchase raw materials or sell products at a fixed price. Such agreements are called _____.
commitments
Inquiry of entity personnel during the audit of the revenue and purchasing processes and a review of the minutes of the board of directors meetings is usually done to identify long-term ____.
commitments
The objectives of communication with the audit committee is to ____.
communicate an overview of the overall audit strategy and timing. establish an understanding of the terms of the audit engagement with the. committee communicate the auditor's responsibilities
Controls to prevent misclassification of payroll include ______
comparing actual payroll costs to budget by category the use of an adequate chart of accounts review of assigned payroll categories by the timekeeping function
The tests related to the observation of the physical inventory count provide assurance that all goods on hand are included in inventory, which is the _____ assertion.
completeness
The auditor develops an understanding of the purchasing process by _____.
conducting a walkthrough. reviewing prior year documentation
Important disclosure issues related to inventory include _____
consigned inventory. related party purchases. long-term purchase contracts
If the results of tests of controls for the inventory system do not support the planned level of control risk, the auditor sets _____ risk higher and _____ risk lower, leading to increased _____ procedures
control, detection, substantive
All financial statements, including related notes, have been prepared and all significant audit documentation have reviewed and approved by the _____
date of the auditor's report
When tests of controls support the planned level of control risk, no modifications are normally necessary to the planned level of _____ _____ and the auditor may proceed with the planned substantive procedures.
detection risk
If the results of control tests for payroll do not support the planned level of control risk for the payroll system, the ____risk will have to be set lower, which increases the nature and extent of _______testing of payroll-related accounts.
detection, substantive
The auditor should request that the entity issue an immediate revision to the financial statements when the auditor ____.
determines that previously issued financial statements are in error and the audit report is affected
Scope and nature of services requires that a CPA ______.
determines that services rendered are consistent with acceptable professional behavior firm ensures no conflict of interest exists firm ensures services are delivered competently
Preparing and signing checks for paying vendors and authorizing electronic funds transfers is the responsibility of the _____ function
disbursement
Imprest accounts are frequently used for ______.
disbursing payroll disbursing dividend checks
If an auditor is unable to determine the effects of a subsequent event on the effectiveness of the company's internal controls, the auditor should _____ opinion with respect to the entity's ICFR.
disclaim any
A common control to assure compensation disclosures are complete, relevant, and understandable is a(n)
disclosure checklist
A common control to ensure inventory disclosures are complete, relevant, and understandable is a(n) _____ _____
disclosure checklist
To ensure all required footnotes have been properly included, most public accounting firms use some type of financial statement _____ ____.
disclosure checklist
The PCAOB requires that the auditor retains all ____.
documents that "form the basis of the audit or review" documents inconsistent with the final conclusion for significant matters
Cash ______ a predictable relationship with other financial statement accounts.
does not have
When an auditor using wording in his or her report such as "February 19, 2019 except for Note 4 which is as of March 3, 2019" the audit report is said to be _____ _____.
dual date
The CPA is required to perform his or her professional responsibilities with competence and diligence under the principle of ______ _____.
due care
The principal business objectives of the purchasing process are ______.
effectively using cash resources to pay for goods and services acquiring goods and services at the desired quality acquiring goods and services at the lowest cost
The final evaluation of audit evidence from the financial statement audit is primarily concerned with ____.
effects of detected misstatements in the financial statements sufficiency of the audit evidence
Concerns related to the accuracy of payroll include ______
employees may be paid at an improper rate payroll deductions may be incorrectly computed
The justice-based approach emphasizes _____.
equity, fairness, and impartiality. social and economic actions should be to everyone's advantage and the benefits available to all. each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others.
Extended audit procedures that auditors typically use to detect fraudulent activities in the cash account include ______.
extended bank reconciliation procedures tests for kiting proof of cash
Match each of the following threats to a CPA's integrity and objectivity with its description.
familiarity threat: CPA has close, long-standing relationship with client and it becomes difficult to remain objective management participation threat: CPA becomes involved in decision-making for the client and loses objectivity self-review threat: CPA is in a position to be evaluating his or her own judgments undue influence threats: CPA is pressured due to another party's aggressiveness or dominant personality
The sufficiency of the audit evidence and the effects of detected misstatements in the financial statements are the primary concerns of the _____ _____ of audit evidence.
final evaluation
The cycle for inventory begins when goods are purchased and stored and ends when the _____.
finished goods are shipped to customers
When an order is placed by a customer, a shipping order is produced by the revenue process and forwarded to the _____ _____ _____ department.
finished goods stores
If the final analytical procedures indicate material misstatements, exist the auditor should ____.
gather additional audit evidence
Ensuring that all inventory and costs of production are properly accumulated, classified, and summarized in accounts is the main objective of the _____ _____ function.
general ledger
Ensuring that all purchases, cash disbursements, and payables are properly accumulated, classified and summarized in the accounts is the main objective of the _____ _____ function for the purchasing process.
general ledger
If the entity uses IT for monitoring the flow of goods and accumulating costs, the auditor will need to evaluate both the _____ IT controls and the inventory _____ controls.
general, application
A conflict of interest may occur if a CPA ______.
has a financial interest in a product he or she is recommending
Audit research has shown there is a relatively ______ risk that inventory contains material misstatements.
high
Integrity requires that a CPA ______.
honor both the form and spirit of ethical standards be candid be honest
The establishment of sound policies for hiring, training, evaluating, counseling, promoting, compensating and taking remedial actions for employees is the start of the ___ ___ process
human resource
An auditor is reviewing tax returns and the minutes of the board of directors meetings. The auditor is most likely trying to _____.
identify contingent liabilities
When a reliance strategy is adopted for the purchasing process, the auditor needs to _____.
identify controls that assure assertions are met
A stipulated amount of money to be used for a specific purpose is contained in a(n)___cash account.
imprest
If the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ____.
include an explanatory paragraph in the audit report. consider the adequacy of the disclosures about the entity's ability to continue as a going concern
A purchase order _____.
indicates the authorization to purchase the goods or services. includes the description, quality and quantity of the goods being purchased
The production schedule provides the auditor _____.
information on the planned level of operating activity
Whether the supply of raw materials is adequate and how volatile raw material prices are two important industry-related factors in assessing _____ risk when auditing the purchasing process.
inherent
During the subsequent period, AS 22021 states the public company auditor should ____.
inquire about and examine regulatory agency reports on ICFR. inquire about and examine relevant internal audit reports
When facts are encountered that may affect the auditor's previously issued report, the auditor should ____.
inquire how management intends to address the issue. determine whether the facts are reliable. discuss the matter with those charged with governance
A CPA who is honest and candid and honors both the form and the spirit of ethical standards is said to have ______.
integrity
The bedrock of the profession of public accountancy are ______.
integrity and objectivity
The most common situation where an auditor becomes aware that previously issued financial statements contain material misstatements is due to_____.
intentional or unintentional acts by management
According to the rights-based theory, when an auditor has a disagreement with management over an accounting or reporting issue, the auditor should emphasize the ____.
interests of the investors and creditors
If payroll expense is not properly classified between direct and indirect labor ______.
inventory and cost of goods sold may not be valued properly
All the important information related to the entity's inventory, including the perpetual inventory records is contained in the _____ _____ file.
inventory master
The type and amount of product on hand is shown on the _____ _____ report.
inventory status
The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. Regarding the period between February 8, 2019 and March 2, 2019, the auditor _____.
is not responsible for making any inquiries or conducting any audit procedures
The amount of loss associated with a contingent liability is accrued by a charge to income when it _____.
is probable and can be reasonably estimated
If the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern even after considering management's plans, the auditor will normally _____.
issue a modified audit report describing the going concern issue
The first principle of the _____ posits that each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others.
justice-based approach
Determining the quantity of inventory on hand is usually _____ complex when compared to assigning costs to value inventory.
less
If the likely misstatement is _____ the tolerable misstatement, the auditor may accept the inventory account as _____.
less than; fairly presented
"Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." is the definition of _____.
liabilities
To make recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues, the auditor normally prepares a(n) _____ ____.
management letter
The invoice processing function is responsible for _____.
matching purchase orders to receiving reports. comparing account distributions with established account classifications. purchased goods returned to vendors
The document that authorizes the release of raw materials from the raw materials department is the _____ ______.
material requisition
To release raw materials from the raw materials department, personnel prepare a:
materials requisition
The observation of inventory ____
may be done by the internal auditor
Understanding how supervisory personnel within the purchasing process review the personnel who perform and controls and evaluating the performance of the entity's IT system is part of the auditor's understanding of the entity's _____ process over purchasing.
monitoring
Supervisors within operating and support departments are responsible for ______
monitoring labor productivity and labor cost variances computing variance information to upper management reviewing and approving employees' attendance and time information
The first two principles of the Code of Professional Conduct address a CPA's responsibility to exercise ______.
moral judgment professional judgment
Auditors must be willing to see issues through the eyes of others and put the interest of other stakeholders ahead of their own self-interest and those of the CPA firm according to the concept known as the ____.
moral point of view
Any misstatements detected during the audit process _____ that exceed the planned level of detection risk are considered material and must be corrected by management
must be considered in terms of the materiality of their effects on the financial statements
A CPA who works for a company as its controller or CFO, but not as an auditor _____.
must comply with Part 2 of the AIPCA Code of Professional Conduct must be objective
Regarding changes in internal control between the end of the reporting period and the date of the auditor's report that might adversely affect financial reporting, the auditor ____
must make inquires of management about these types of changes
Poor results from operations and adverse financial ratios are the basis of _____.
negative financial trends
When it comes to methods or theories of ethical behavior that the guide the analysis of ethical issues in accounting, ______.
no single approach is necessarily better than another
A CPA is required to be impartial and free of conflicts of interest under the principle of ______.
objectivity
For accrued payroll liability accounts for which the control risk is high or whose amounts are material, the auditor can ______
obtain a detailed account analysis schedule
When evaluating management's plans regarding going concern issues, the auditor should ____
obtain evidence about plan elements. examine assumptions used in developing the plan
If, during the planning, performance or completion of the audit there is substantial doubt about the entity's ability to continue as a going concern, the next step for the auditor is to ____.
obtain management's plan to mitigate the going concern problem
Specific steps taken by auditors to identify contingent liabilities include ______
obtaining a legal letter. inquiring of and discussing with management policies for identifying contingent liabilities. obtaining written representations from management
Adequate segregation of duties for all investment activities is generally found _____
only in entities with significant investment activities
If items are recorded as sold in the incorrect period, revenue, cost of goods sold and receivables will be ______ and inventory will be ______ for that period.
overstated, understated
During the observation of the physical inventory count, the auditor should _____.
perform test counts and record a sample of counts in the working papers. ensure inventory tags are issued sequentially to departments. observe the condition of the inventory
If the auditor concludes the audit risk for payroll is unacceptably high, choices the auditor has include ______.
performing additional audit procedures having the entity adjust the payroll-related financial statement accounts to an acceptable level
An auditor has read the minutes of board of directors meetings, inquired of legal counsel regarding litigation, read the interim financial statements, and made inquiries of management. The auditor is most likely ____.
performing audit procedures for subsequent events
Expenses that are recognized when cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter are referred to as _____ costs.
period
Information on each employee's work history, wage rate, payroll deductions and performance evaluations are contained in the ____which are normally maintained in the human resources department.
personnel records
To prevent theft, the entity should maintain ______ over inventory that are consistent with the susceptibility and value of the goods.
physical safeguards
From an auditing perspective for the manufacturing area, there must be adequate control over the _____ flow of the goods and proper accumulation of the costs attached to _____.
physical, inventory
The guidance provided by the Code of Professional Conduct starts at a conceptual level with the ____ and progressively moves to general _____ and then to detailed _____.
principles, rules, interpretations
In general, an attorney is required to disclose an unasserted claim when it is ____ outcome.
probable and there is a reasonable possibility of an unfavorable
In general, an attorney is only required to disclose an unasserted claim when it is ______ that the claim will be asserted and there is a ______ that the outcome will be unfavorable.
probable, reasonable possibility
The utilitarian theory _____.
proposes the interests of all parties should be considered focuses on the consequences of an action on the individuals affected recognizes decision making involves trade-offs between benefits and burdens of actions
Part 1 of the Code of Professional Conduct has the most stringent rules because it applies to CPAs who ______.
provide assurance to the broader public
The _____ is not usually processed through the purchasing process.
purchase of equipment for credit (this would only be true if the company re-sold equipment as their business)
An authorized person in a department requests goods with a _____.
purchase requisition
To request goods or services, an authorized individual completes a(n) _____ _____.
purchase requisition
Typically, the control activities for the completeness assertion over inventory are contained within the _____ process.
purchasing
The inventory management process is affected by the control activities previously discussed for the _____ processes.
purchasing. revenue. human resource management
Most firms have a policy requiring an engagement _____ _____ be performed for publicly traded companies and for privately held companies whose financial statements are expected to be widely distributed.
quality review
The auditor should document the achieved level of control risk using either _____ amounts or _____ terms.
quantitative, qualitative
A copy of the ______ accompanies the goods to the inventory department and is used to update the entity's perpetual inventory records.
receiving report
To ensure an independent count of goods, the _____ _____ is normally a copy of the purchase order with quantities omitted.
receiving report
A typical way to cover cash defalcations is to manipulate the ______.
reconciling items in the bank reconciliation
The auditor needs to understand the controls that exist to assure that management's objectives are being met when a(n) _____ strategy is adopted for the purchasing process.
reliance
The auditor must identify the control activities that ensure that material misstatements are either prevented or detected and corrected when a _______ for the payroll system is followed.
reliance strategy
Part 1 of the AICPA Code of Professional Conduct _____.
requires independence applies to governmental auditors
The FASB recently issued an Accounting Standards Update _____.
requiring an entity's management to evaluate the entity's ability to continue as a going concern
Proper segregation of duties for purchasing include _____.
requisitioning from general ledger receiving from invoice processing requisitioning from invoice processing
The critical segregation of duties for preventing fictitious purchases is the separation of the _____ and _____ functions from the accounts payable and disbursement functions.
requisitioning, purchasing
Because of their public-interest responsibility the _____ approach is important to auditors.
rights-based
With respect to the audit of internal control over financial reporting, the auditor communicates in writing to management and the audit committee ____.
significant deficiencies material weaknesses
Form W-4 authorizes ______.
state income tax withholding federal income tax withholding
Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ____ ____.
subsequent events
When the auditor follows a(n) _____ strategy when auditing inventory, (s)he places no reliance on the control activities in the inventory management process and sets the level of control risk at the maximum.
substantive
Comparing current-year interest and dividend income with the reported income for prior years and with the expected return on investment is a ______.
substantive analytical procedure
Reviewing and approving employees' attendance and time information generally rests with ______.
supervisors within operating and support departments
When an auditor examines the disposition of the reconciling items included on the prior month's reconciliations and the reconciling items included in the current bank reconciliation, the auditor most likely ______.
suspects fraud and is performing extended bank reconciliation procedures
When significant changes are made to the planned audit approach at any point during the audit, the final documentation should indicate ____.
the original plan. rationale for the change in plan. modifications to the plan
In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be _____.
treated as a misstatement
Engagement and operating characteristics that are important to the assessment of inherent risk for inventory include ___
type of product sold related party transactions for inventory purchases difficulty with valuation
If a misstatement is considered material to the financial statements the financial statements need to be adjusted ____.
under both the iron curtain and rollover approaches so that any remaining misstatement would be considered immaterial
The results of inventory processing in terms of actual costs versus standard or budgeted costs is presented in a(n) _____ report.
variance
The PCAOB requires that firms archive their public company audit files for retention within _____.
45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements
The Sarbanes-Oxley Act of 2002 requires the _____ to certify the appropriateness of the financial statements and related disclosures.
CFO CEO
The auditor's understanding of the human resource management process is normally gained by ______.
Conducting a walkthrough of the system
The auditor needs to evaluate the likelihood and magnitude of the potential weakness if _______deficiencies are detected in the payroll system at a public company.
Control
The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. The formal subsequent-events period is:
December 31, 2018 to February 8, 2019
Accounts affected by payroll transactions include ______.
Direct labor expense Cash Inventory
The auditor's concern regarding the ______assertion is whether the recorded payroll liabilities are valid obligations of the entity.
Existence
Changes in technology or a drop in customer demand may result in a material misstatement in inventory due to _____.
obsolescence
True or false: In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount included in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be disclosed in the footnotes.
False (It is treated as a misstatement)
True or false: In a going concern evaluation, "substantial doubt" means is it reasonably possible that the entity will be unable to continue for a reasonable period of time
False (Substantial doubt means it is probable the entity will be unable to continue.)
True or false: Proper segregation of duties for purchasing mean that the individual who can requisition goods should receive the goods but not be responsible for invoice processing.
False -Individuals who can requisition goods should not receive them.
True or false: The main objective of the general ledger function for the purchasing process is to ensure that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.
False -This is the responsibility of accounts payable. The GL function is responsible to ensure amounts are properly accumulated, classified and summarized in the accounts.
True or false: Safeguards to identified threats to a CPA's integrity and objectivity should be independent of the specific circumstances.
False (Safeguards to identified threats to a CPA's integrity and objectivity will be highly dependent on the specific circumstances.)
True or false: A CPA has a close family member who owns a computer repair business. Recommending the repair business to a client is not a conflict of interest as long as the CPA is not an owner in the repair business
False (The relationship could be viewed as impairing the CPA's objectivity and is a conflict of interest)
What is meant by saying a going concern opinion can be a "self-fulling prophecy"?
It can interfere with the entity's ability to obtain capital through issuances of debt or equity.
If the results of the control tests do not support the planned level of control risk for the payroll system, the detection risk will have to be set ______, which requires the nature and extent of substantive testing of payroll-related accounts be ______.
Lower; Increased
The framework for the Rules of Conduct is provided by The ____.
Principles of Professional Conduct
Which of the following is used to reconcile the cash receipts and disbursements recorded on the entity's books with the cash deposited into and disbursed from the entity's bank account for a specific period of time?
Proof of cash
Which of the following organizations have established stringent standards of professional conduct, mostly in the area of auditor independence?
SEC PCAOB
Auditors of publicly held companies must follow the ____.
SEC professional conduct requirements PCAOB Code of Professional Conduct
Which of the following principles of professional conduct requires CPAs to determine that services are consistent with acceptable professional behavior.
Scope and nature of services
After obtaining sufficient appropriate evidence though _____tests, the auditor then evaluates whether management's measures and disclosures are in accordance with GAAP.
Substantive
The intended purpose of ____tests of transactions is to detect monetary misstatements in the individual transactions processed through the payroll application.
Substantive
Recomputing current-year interest income using face amount of security, interest rate and time period held is an example of a(n) ______ procedure
Substantive Analytical
Recomputing current-year interest income using face amount of security, interest rate and time period held is an example of a(n) ____procedure.
Substantive; Analytical
If the results of the tests of controls for the payroll system ______ the planned level of control risk, the auditor conducts substantive procedures of payroll-related accounts at ______ level.
Support, the assessed
ASB
The Auditing Standards Board is a technical committee of the AICPA and does not have legal authority
Which of the following is a test of transactions for cash receipts to provide evidence regarding completeness?
Trace a sample of remittance advices to the cash receipts journal and, if necessary, to deposit slips.
Failure to record inventory in the proper period can result in misstatements on the __
balance sheet and income statement
FASB ASC Topic 820 provides a hierarchy of levels that distinguish the types of inputs used to value different types of assets and liabilities are their appropriate fair values. Which of the following best describes Level 1?
Valuations are based on quoted prices in active markets for identical assets or liabilities.
Which of the following are evaluated during a working paper review?
Were the objectives of the procedure achieved? Was the work performed? Was the work documented?
The date of the auditor's report is ____
the date on which management must have explicitly taken responsibility for the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which all significant audit documentation must have been reviewed and approved
Most firms have a policy that publicly traded companies and privately held companies whose financial statements are expected to be widely distributed will _____.
undergo an engagement quality review
It is often difficult to measure the potential costs and benefits of actions to be taken when applying the ____ theory to ethical dilemmas.
utilitarian
S.M. Mintz suggested three overlapping theories of ethical behavior including the _____ theory which recognizes that decision making involves trade-offs between the benefits and burdens of alternative actions.
utilitarian
Theories or methods of ethical behavior that can guide the analysis of ethical issues in accounting are the ____ approaches.
utilitarian justice-based rights-based
The value of an action is determined solely by the consequences of the action on the welfare of individuals under the ____ approach.
utilitarian theory
In order to set the control risk for the inventory management process, the auditor will need a thorough understanding of the process used by the entity to _____.
value inventory
The bill from the supplier is called a _____. receiving report
vendor invoice
The entity verifies the accuracy of its records by comparing _____ _____ with the accounts payable records.
vendor statement
The purchasing function can achieve its objectives by using multiple _____ and requiring competitive _____.
vendors, bidding
The auditor reviews the financial statements to _____.
verify the inclusion of all necessary disclosures ensure compliance with GAAP check proper presentation of accounts
To control payment for acquired goods and services, entities frequently use a(n) _____.
voucher
The auditor develops an understanding of the purchasing process by conducting a(n) _____.
walkthrough
An auditor auditing a privately-held entity must follow ____ standards.
ASB
An auditor auditing a privately-held entity must follow ____.
ASB standards AICPA Code of Professional Conduct
Which of the following parties is most likely involved in the decision to issue a going concern opinion?
Accounting firm's head office Engagement partner Engagement senior manager
Which of the following accounts is affected by all types of purchasing process transactions?
Accounts payable
The main concern related to the ______ assertion is that an employee's gross pay and payroll deductions may be incorrectly computed.
Accuracy
Final analytical procedures provide a "smell test". Which of the following explains the meaning of this phrase?
Do the financial statement amounts make sense?
The loss of an entity's manufacturing facility resulting from an earthquake that occurred after the balance sheet date but before the financial statements are issued is considered a Type ______ subsequent event.
II
Accounting for share-based payments often presents high ______ risk.
Inherent
Additional guidance for applying the Rules of Conduct is provided by The _____.
Interpretations of Rules of Conduct
The entity's balance sheet date is December 31, 2018, the date the auditor obtained sufficient evidence for the report is February 8, 2019, and the financial statements are issued on March 2, 2019. On February 27, 2019, the entity entered into an agreement to purchase a competitor. If the audit report is dated February 27, 2019, the auditor is _____.
accepting responsibility for identifying any material matters that occur up to February 27, 2019
For a disbursement, adequate supporting documentation must verify that the _____.
account distribution is appropriate. transaction was properly authorized. disbursement is for a legitimate business purpose
Only the ______ ______ account is affected by all three types of purchase transactions.
accounts payable
Disbursements made by check or EFT are recorded in the _____.
cash disbursements journal
The auditor analyzes the purchasing process in order to identify controls that ensure material misstatements that are prevented or detected or corrected as they can be relied upon by the auditor to reduce _____ risk
control
An auditor can gain an understanding of the entity's process for determining fair value measurements and disclosures by considering the ______.
extent to which the entity's process relies on a service organization to provide fair value measurements nature and extent of documentation supporting management's assumptions
If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the _____ _____ approach.
iron curtain
When misstatements are quantified based on the amount required to correct the misstatement in the balance sheet at period end, regardless of misstatement's year of origination, the _____ _____ approach is being used.
iron curtain
A CPA who is an accounting instructor ______ subject to the Integrity and Objectivity Rule. is is not
is
Ethics _____.
is a code of conduct based on moral duties and obligations that indicate how an individual should interact with others underpins the successful functioning of nearly every aspect of society
If management concludes it is probable that the entity will not be able to meet its obligations within the look-forward period but develops a plan to mitigate the risk, the plan can be considered sufficient to overcome a substantial doubt conclusion _____.
only if it is probable that the plans can be effectively implemented
When substantive procedures of the payroll-related accounts are completed, the likely misstatement is compared to the ____misstatement allocated to the payroll-related accounts.
tolerable
