Principles of Auditing-Ch 12-14, 16, 17, 18 Exam

The aggregated misstatement in the financial statements is made up of: (Chapter 16)

Factual Misstatements, Projected Misstatements, and Judgemental Misstatements.

Auditors generally consider the evidence regarding accounts payable in the client's possession as less reliable than that for accounts receivable. (True or False) (Chapter 14)

False.

Confirmation of accounts payable is a required auditing procedure. (True or False) (Chapter 14)

False.

For effective internal control over accounts payable, the purchasing department should approve invoices for payment. (True or False) (Chapter 14)

False.

The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis. (True or False) (Chapter 14)

False.

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 (Chapter 16)

February 10, 20X9.

Operational auditing is primarily oriented toward: A) Future improvements to accomplish the goals of management. B) Ensuring the accuracy of the data in management's financial reports. C) Determination of the fairness of the entity's financial statements. D) Compliance with laws and regulations. (Chapter 21)

Future improvements to accomplish the goals of management.

An audit report for a public client indicates that the financial statements were prepared in conformity with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board). (Chapter 17)

Generally accepted accounting principles (United States)

Projected Misstatements

Misstatements identified by the auditors during the course of the audit that are due to extrapolation of sample results to the entire population. (Chapter 16)

A continuing audit client's property, plant, and equipment and accounts payable accounts have approximately the same year-end balance. In this circumstance, when compared to property, plant and equipment, one would normally expect the audit of accounts payable to require: A) More audit time. B) Less audit time. C) Approximately the same amount of audit time. D) Similar confirmation procedures. (Chapter 13)

More audit time.

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 to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. B) Not in accordance with generally accepted auditing standards. C) A qualification that lessens the collective responsibility of both CPA firms. D) An example of a dual opinion requiring the signatures of both auditors. (Chapter 17)

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

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by: A) Confirmation and observation. B) Observation and inquiry. C) Analytical procedures and confirmation. D) Inquiry and analytical procedures. (Chapter 14)

Observation and inquiry.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? A) Compare the physical quantities of slow-moving items with corresponding quantities in the prior year. B) Observe merchandise and raw materials during the client's physical inventory taking. C) Review the management's inventory representations letter for accuracy. D) Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average. (Chapter 12)

Observe merchandise and raw materials during thr client's physical inventory taking.

The primary objective of a CPA's observation of a client's physical inventory count is to: A) Discover whether a client has counted a particular inventory item or group of items. B) Obtain direct knowledge that the inventory exists and has been properly counted. C) Provide an appraisal of the quality of the merchandise on hand on the day of the physical count. D) Allow the auditor to supervise the conduct of the count in order to obtain assurance that inventory quantities are reasonably accurate. (Chapter 12)

Obtain direct knowledge that the inventory exists and has been properly counted.

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? (Chapter 17)

Only Adverse

Which of the following procedures is most likely to be included near completion of an audit? A) Obtaining an understanding of internal control. B) Confirmation of receivables. C) Observation of inventory. D) Performing analytical procedures. (Chapter 16)

Performing analytical procedures.

Compliance Auditing

Performing procedures to test compliance with laws and regulations. (Chapter 21)

An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the following is most likely? A) The estimated remaining useful lives of equipment were increased. B) Plant assets were retired during the year. C) The prior year's depreciation expense was erroneously understated. D) Overhead allocations were revised at year-end. (Chapter 13)

Plant assets were retired during the year.

Factual Misstatements

Misstatements about which there is no doubt as to amount. (Chapter 16)

The auditors may expect a proper debit to goodwill due to: A) Purchase of a trademark. B) Establishment of an extraordinarily profitable product. C) A business combination. D) Capitalization of human resources. (Chapter 13)

A business combination.

Commitment

A contractual obligation to carry out a transaction at specified terms in the future. Material commitments should be disclosed in the financial statements. (Chapter 16)

Internal auditing can best be described as: A) An accounting function. B) A compliance function. C) An activity primarily to detect fraud. D) A control function. (Chapter 21)

A control function.

Iron Clad Approach

An approach to making materiality judgments that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting all misstatements (including projecting misstatements where appropriate) existing in the balance sheet at the end of the current year, irrespective of whether the misstatements occurred in the current year or previous years. (Chapter 16)

Which of the following is least likely to result in an additional paragraph being added to an audit report? A) The company is a component of a larger business enterprise. B) An unusually important significant event. C) A decision not to confirm accounts receivable. D) A risk or uncertainty. (Chapter 17)

A decision not to confirm accounts receivable.

Which of the following best describes a voucher prepared under good internal control? A) A document prepared by Stores that indicates 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. (Chapter 14)

A document prepared by Accounts Payable authorizing a cash disbursement.

Government Auditing Standards

A document that contains standards for audits of government organizations, programs, activities, and functions and of government assistance received by contractors and other nonprofit organizations. These standards, often referred to as generally accepted government auditing standards (GAGAS), are to be followed by auditors when required by law or other requirement. (Chapter 21)

Contingent Liability

A possible liability, stemming from past events, that will be resolved as to existence and amount by some future event. (Chapter 16)

Loss Contigency

A possible loss, stemming from past events, that will be resolved as to existence and amount by some future event. (Chapter 16)

Compliance Supplement

A publication of the U.S. Office of Management and Budget that specifies audit procedures for federal financial assistance programs. (Chapter 21)

Major Federal Financial Assistance Program

A significant federal assistance program as determined by the auditors based on a risk-based approach. In a single audit, the auditors must provide an opinion on compliance related to major programs. (Chapter 21)

Rollover Approach

An approach to making materiality judgments that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting misstatements (including projecting misstatements where appropriate) only during the current year. (Chapter 16)

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) Direct audit of the ending balance. B) Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts. C) Audit of changes in the accounts since inception of the company. D) Audit of selected purchases and retirements for the last few years. (Chapter 13)

Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts.

General Risk Liability

An element of the business environment that involves some risk of a future loss. Examples include the risk of accident, strike, price fluctuations, or natural catastrophe. General risk contingencies should not be disclosed in financial statements. (Chapter 16)

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: A) An emphasis-of-matter paragraph to the auditors' report. B) A footnote to the financial statements. C) The body of the financial statements. D) The "summary of significant accounting policies" section of the financial statements. (Chapter 17)

An emphasis-of-matter to the auditors' report.

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: A) An unmodified opinion. B) A disclaimer of opinion. C) An "except for" opinion. D) An improper type of reporting. (Chapter 17)

An improper type of reporting.

In testing for unrecorded retirements of equipment, an auditor might: A) Analyze miscellaneous revenue. B) Compare depreciation expense with the prior year's depreciation expense. C) Trace equipment items observed during the plant tour to the equipment subsidiary ledger. D) Scan the general journal for unusual equipment retirements. (Chapter 13)

Analyze miscellaneous revenue.

Which of the following is used to obtain evidence that the client's equipment accounts are not understated? A) Analyzing repairs and maintenance expense accounts. B) Vouching purchases of plant and equipment. C) Recomputing depreciation expense. D) Analyzing the miscellaneous revenue account. (Chapter 13)

Analyzing repairs and maintenance expense accounts.

The independence of the internal auditing department will most likely be assured if it reports to the: A) Audit committee of the board of directors. B) President. C) Controller. D) Treasurer. (Chapter 21)

Audit committee of the board of directors.

The auditors' report should be dated as of the date the: A) Report is delivered to the client. B) Auditors have accumulated sufficient appropriate evidence. C) Fiscal period under audit ends. D) Peer review of the working papers is completed. (Chapter 17)

Auditors have accumulated sufficient appropriate evidence.

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: A) Bill of lading. B) Job time shipping. C) Production order. D) Production schedule. (Chapter 12)

Bill of lading.

McPherson Corporation does not make an annual physical count of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client's procedures. In reporting on the results of her examination, Mullins: A) Can issue an unqualified opinion without disclosing that she did not observe year-end inventories. B) Should comment in the scope paragraph as to her inability to observe year-end inventories, but can nevertheless issue an unqualified opinion. C) Is required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole. D) Should, if the inventories are material, qualify her opinion. (Chapter 12)

Can issue an unqualified opinion without disclosing that she did not observe year-end inventories.

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: A) Purchase orders. B) Canceled checks. C) Receiving reports. D) Approved vouchers. (Chapter 14)

Canceled checks.

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? A) Capitalization. B) Financing. C) Investing. D) Operations. (Chapter 16)

Capitalization.

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) Existence. D) Valuation. (Chapter 12)

Completeness.

In a compliance attestation engagement, CPAs may address an organization's: A) Compliance with specified requirements and internal control over compliance with specific laws and regulations. B) Compliance with specified requirements only. C) Internal control over compliance with specific laws and regulations only. D) Neither compliance with specified requirements nor internal control over compliance with specific laws and regulations. (Chapter 21)

Compliance with specified requirments and internal control over compliance with specific laws and regulations.

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: A) Express an opinion that is qualified due to the inability of the client company to continue as a going concern. B) Evaluate management's performance in causing this decline. C) Require note disclosure. D) Consider the possibility of a misstatement in the financial statements. (Chapter 16)

Consider the possibility of a misstatement in the financial statements.

The organization established by Congress to narrow the options in cost accounting that are available under generally accepted accounting principles is the: A) Cost Accounting Standards Board. B) Financial Accounting Standards Board. C) Public Company Accounting Oversight Board. D) Securities and Exchange Commission. (Chapter 12)

Cost Accounting Standards Board.

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 that 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. (Chapter 16)

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

The search for unrecorded liabilities for a public company includes procedures usually performed through the: A) Day the audit report is issued. B) End of the client's year. C) Date of the auditors' report. D) Date the report is filed with the SEC. (Chapter 16)

Date of the auditors' report.

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. (Chapter 16)

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 should be included as a part of inventory costs of a manufacturing company? A) Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes B) Direct Labor: Yes, Raw Materials: No, Factory Overhead: No C) Direct Labor: No, Raw Materials: Yes, Factory Overhead: No D) Direct Labor: No, Raw Materials: No, Factory Overhead: No (Chapter 12)

Direct Labor: Yes, Raw Materials: Yes, Factory Overhead: Yes

The accounts payable department receives the purchase order form to accomplish all of the following except: A) Compare invoice price to purchase order price. B) Ensure the purchase had been properly authorized. C) Ensure the goods had been received by the party requesting the goods. D) Compare quantity ordered to quantity purchased. (Chapter 14)

Ensure the goods had been received by the party requesting the goods.

Which of the following is least likely to be among the auditors' objectives in the audit of inventories and cost of goods sold? A) Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. B) Determine the existence of inventories and the occurrence of transactions affecting cost of goods sold. C) Establish that the client includes only inventory on hand at year-end in inventory totals. D) Establish the completeness of inventories. (Chapter 12)

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

Which of the following is not one of the auditors' objectives in auditing depreciation? A) Establishing that the methods used are appropriate. B) Establishing that the methods are consistently applied. C) Establishing the cash outflows due to depreciation. D) Establishing the reasonableness of depreciation computations. (Chapter 13)

Establishing the cash outflows due to depreciation.

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 ownership documents registered and on file at a public hall of records. C) Examination of corporate minutes and resolutions concerning the approval to acquire property, plant, and equipment. D) Examination of deeds and title guaranty policies on hand. (Chapter 13)

Examination of deeds and title guaranty policies on hand.

Which of the following is the best evidence of continuous ownership of property? A) Examination of the deed. B) Examination of the client's property tax bills.Correct C) Examination of the title policy. D) Examination of canceled check in payment for the property. (Chapter 13)

Examination of the client's property tax bills.

Of the following, which is likely to be the most effective audit procedure to identify unrecorded accounts payable? A) Recalculate the total of the list of accounts payable as of year-end. B) Examine cash disbursements recorded immediately prior to year-end. C) Examine cash disbursements in the subsequent period following year-end. D) Examine cash receipts recorded immediately prior to year-end. (Chapter 14)

Examine cash disbursements in the subsequent period following year-end.

Miller Company erroneously capitalized the cost of painting its warehouse. The auditors examining Miller's financial statements would most likely detect this when: A) Discussing capitalization policies with Miller's controller. B) Examining maintenance expense accounts. C) Observing, that the warehouse had been painted. D) Examining the construction work orders supporting items capitalized during the year. (Chapter 13)

Examining the construction work orders supporting items capitalized during the year.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? A) Examining reported purchase returns that appear too low. B) Examining vendor statements for amounts not reported as purchases. C) Search for customer-returned goods that were not reported as returns. D) Reviewing bank transfers recorded as cash received from customers. (Chapter 14)

Examining vendor statements for amounts not reported as purchases.

Aplant manager would be most likely to provide information on which of the following? A) Adequacy of the provision for uncollectible accounts. B) Appropriateness of physical inventory valuation techniques. C) Existence of obsolete production equipment. D) Deferral of certain purchases of office supplies. (Chapter 13)

Existence of obsolete production equipment.

An auditor selects items from the client's inventory listing and identifies the items in the warehouse. This procedure is most likely related to: A) Rights. B) Completeness. C) Existence. D) Valuation. (Chapter 12)

Existence.

When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: A) Existence. B) Completeness. C) Clarity. D) Presentation. (Chapter 12)

Existence.

Which of the following bodies promulgates standards for audits of federal financial assistance programs? A) Governmental Accounting Standards Board. B) Financial Accounting Standards Board. C) Government Accountability Office. D) Governmental Auditing Standards Board. (Chapter 21)

Government Accountability Office.

When performing an operational audit, the purpose of a preliminary survey is to: A) Determine the objective of the activity to be audited. B) Determine the scope of the audit. C) Identify areas that should be included in the audit program. D) All of the answers are correct. (Chapter 21)

Identify areas that should be included in the audit program.

The portion of internal control most directly related to a CPA's engagement to attest to compliance with laws and regulations is: A) Internal control over compliance. B) Internal control over financial reporting. C) Internal control over laws and regulations. D) Internal control over operations. (Chapter 21)

Internal control over compliance.

Critical audit matters are most likely to include those matters that: A) Are communicated to the Public Company Accounting Oversight Board. B) Involve challenging, subjective or complex auditor judgment. C) Are material weaknesses in internal control. D) Involve significant risks. (Chapter 17)

Involve challenging, subjective or complex judgement.

As compared to an audit in accordance with GAAS, an audit in accordance with Generally Accepted Government Auditing Standards requires the auditors to: A) Use a lower level of materiality. B) Perform additional tests of internal control. C) Issue an additional report on compliance with laws and regulations and internal control. D) Fulfill all of the above requirements. (Chapter 21)

Issue an additional report on compliance with laws and regulations and internal control.

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if: A) There are usually invoices in an unmatched invoice file. B) Vendors' requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed. C) Partial payments to vendors are continuously made in the ordinary course of business. D) It is difficult to reconcile vendors' monthly statements. (Chapter 14)

It is difficult to reconcile vendors' monthly statements.

Single Audit Act

Legislation passed by the U.S. Congress that establishes uniform requirements for audits of federal financial assistance provided to state and local governments. (Chapter 21)

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): A) Analytical process. B) Loss contingency. C) Probable loss. D) Unasserted claim. (Chapter 16)

Loss Contingency.

An important aspect of performing an audit in accordance with the Single Audit Act is to identify: A) Major federal financial assistance programs. B) Government generally accepted assertions. C) Federal supplemental requirements. D) Title determination sub-acts. (Chapter 21)

Major federal financial assistance programs.

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. (Chapter 16)

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

When issuing an unqualified audit report in a compliance attestation engagement, the CPA may report on: A) Management's assertion and subject matter. B) Management's assertion only. C) Subject matter only. D) Neither management's assertion nor subject matter. (Chapter 21)

Management's assertion and subject matter.

The receiving department is least likely to be responsible for the: A) Determination of quantities of goods received. B) Detection of damaged or defective merchandise. C) Preparation of a shipping document. D) Transmittal of goods received to the store's department. (Chapter 12)

Preparation of a shipping document.

Which of the following would be least likely to address control over the initiation and execution of equipment transactions? A) Requests for major repairs are approved by a higher level than the department initiating the request. B) Prenumbered purchase orders are used for equipment and periodically accounted for. C) Requests for purchases of equipment are reviewed for consideration of soliciting competitive bids. D) Procedures exist to restrict access to equipment. (Chapter 13)

Procedures exist to restrict access to equipment.

When comparing an initial audit with a subsequent year audit for a client, the scope of audit procedures for which of the following accounts would be expected to decrease the most? A) Accounts receivable. B) Cash. C) Marketable securities. D) Property, plant, and equipment. (Chapter 13)

Property, plan, and equipment.

For which of the following accounts is it most likely that much of the audit work can be performed in advance of the balance sheet date? A) Accounts receivable. B) Cash. C) Current marketable securities. D) Property, plant, and equipment. (Chapter 13)

Property, plant, and equipment.

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? (Chapter 17)

Qualified Opinion

The most likely technique for the current year audit of goodwill which was acquired three years ago by a continuing audit client: A) Confirmation. B) Observation. C) Recomputation. D) Inquiry. (Chapter 13)

Recomputation.

When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? A) Repairs have been capitalized to equipment to keep it in normal working order. B) Interest has been capitalized for self-constructed assets. C) Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. D) The cost of freight-in on an acquisition has been capitalized. (Chapter 13)

Repairs have been capitalized to equipment to keep it in normal working order.

Which of the following is not a control that should be established for purchases of equipment? A) Establishing a budget for capital acquisitions. B) Requiring that the department that ordered the equipment is the same that requested the equipment. C) Requiring that the receiving department receive the equipment. D) Establishing an accounting policy regarding the minimum dollar amount of purchase that will be considered for capitalization. (Chapter 13)

Requiring that the department that ordered the equipment is the same that requested the equipment.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? A) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. B) Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. C) Examining unusual relationships between monthly accounts payable balances and recorded cash payments. D) Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. (Chapter 14)

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? A) Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers. B) Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers. C) Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks. D) Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks. (Chapter 14)

Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? A) A business combination. B) Early retirement of bonds payable. C) Settlement of litigation. D) Plant closure due to a strike. (Chapter 16)

Settlement of litigation.

An audit report for a public client indicates that the audit was performed in accordance with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board). (Chapter 17)

Standards of the Public Company Accounting Oversight Board (United States)

When issuing a qualified audit report in a compliance attestation engagement, the CPA may report on: A) Management's assertion and subject matter. B) Management's assertion only. C) Subject matter only. D) Neither management's assertion nor subject matter. (Chapter 21)

Subject matter only.

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. (Chapter 16)

Test whether the employee time reports are approved by supervisors.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: A) Tests of controls and extensive tests of property and equipment balances at the end of the year. B) Analytical procedures for current year property and equipment transactions. C) Tests of controls and limited tests of current year property and equipment transactions. D) Analytical procedures for property and equipment balances at the end of the year. (Chapter 13)

Tests of controls and limited tests of current year property and equipment transactions.

The organization that administers the Certified Internal Auditor program is the: A) American Institute of Certified Public Accountants—Certified Internal Auditor Division. B) The Institute of Internal Auditors. C) American Accounting Association D) Securities and Exchange Commission.

The Institute of Internal Auditors.

Which of the following best describes the auditors' typical observation of plant and equipment? A) The auditors observe a physical inventory of plant and equipment annually. B) The auditors observe all additions to plant and equipment made during the year. C) The auditors observe all major plant and equipment items in the clients' accounts each year. D) The auditors observe major additions to plant and equipment made during the year. (Chapter 13)

The auditors observe major additions to plant and equipment made during the year.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? (Chapter 14)

Trace from source documents to journals AND vouch from journal to source documents.

Operating control over check signing normally should be the responsibility of the: A) Secretary. B) Chief accountant. C) Vice-president of marketing. D) Treasurer. (Chapter 14)

Treasurer.

Overstatement of financial results can involve failure to record a transaction. (True or False) (Chapter 14)

True.

Auditors should be aware that a voucher system may result in which of the following at year-end: A) Understatement of liabilities. B) Overstatement of assets. C) Understatement of owners' equity. D) Overstatement of expenses. (Chapter 14)

Understatement of liabilities.

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? (Chapter 17)

Unmodified with an Additional Paragraph

The auditor's analytical procedures will be facilitated if the client: A) Uses a standard cost system that produces variance reports. B) Segregates obsolete inventory before the physical inventory count. C) Corrects material weaknesses in internal control before the beginning of the audit. D) Reduces inventory balances to the lower of cost or market. (Chapter 12)

Uses a standard cost system that produces variance reports.

An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion is most likely related to presentation and disclosure and: A) Valuation. B) Completeness. C) Existence. D) Rights. (Chapter 12)

Valuation.

An auditor most likely would analyze inventory turnover rates to obtain evidence about: A) Existence. B) Rights. C) Presentation. D) Valuation. (Chapter 12)

Valuation.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: A) Valuation. B) Rights. C) Existence. D) Presentation. (Chapter 12)

Valuation.

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: A) Want the client to schedule the physical inventory count at the end of the year. B) Insist that the client perform physical counts of inventory items several times during the year. C) Increase the extent of tests for unrecorded liabilities at the end of the year. D) Have to disclaim an opinion on the income statement for that year. (Chapter 12)

Want the client to schedule the physical inventory count at the end of the year.

Instead of taking a physical inventory count on the balance-sheet date, the client may take physical counts prior to the year-end if internal control is adequate and: A) Well-kept records of perpetual inventory are maintained. B) Inventory is slow-moving. C) Computer error reports are generated for missing prenumbered inventory tickets. D) Obsolete inventory items are segregated and excluded. (Chapter 12)

Well-kept records of perpetual inventory are maintained.

A material departure from generally accepted accounting principles will result in auditor consideration of: A) Whether to issue an adverse opinion rather than a disclaimer of opinion. B) Whether to issue a disclaimer of opinion rather than a qualified opinion. C) Whether to issue an adverse opinion rather than a qualified opinion. D) Nothing, because none of these opinions is applicable to this type of exception. (Chapter 17)

Whether to issue an adverse opinion rather than a qualified opinion.