ACCT 2520- Final Exam
A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the: A) customer list. B) aged trial balance. C) accounts receivable ledger. D) schedule of accounts receivable
B) aged trial balance.
A document prepared to initiate shipment of the goods sold by an independent shipper is the: A) sales order. B) bill of lading. C) sales invoice. D) customer order.
B) bill of lading.
The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the: A) existence objective. B) completeness objective. C) ownership objective. D) valuation objective.
B) completeness objective.
An audit procedure that compares the name, amount, and dates shown on remittance advices, either paper of electronic via direct deposit, with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting: A) kiting. B) lapping. C) illicit write-offs of customers as uncollectible accounts. D) sales without proper credit authorization.
B) lapping.
The document that accompanies the customer's payment is the: A) credit memo. B) remittance advice. C) vendor invoice. D) monthly statement.
B) remittance advice.
A sample in which the characteristics of the sample are the same as those of the population is a(n): A) variables sample. B) representative sample. C) attributes sample. D) random sample
B) representative sample.
The process which requires the calculation of an interval and then selects the items based on the size of the interval is: A) statistical sampling. B) random sample selection. C) systematic sample selection. D) computerized sample selection
C) systematic sample selection.
The highest estimated exception rate in the population at a particular acceptable risk of assessing control risk too low is: A) the upper exception rate. B) estimated population exception rate. C) the computed upper exception rate. D) the tolerable exception rate
C) the computed upper exception rate.
For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve: A) employee overtime wages. B) credit granted to customers. C) write-offs of customer accounts. D) cash disbursements.
C) write-offs of customer accounts.
If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be: A) increased. B) reduced. C) unaffected. D) modified.
A) increased.
The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is: A) inverse. B) direct. C) proportional. D) indeterminate.
A) inverse.
When auditors wish to evaluate a sample statistically, an acceptable selection method is: A) probabilistic selection. B) judgmental selection. C) haphazard selection. D) block sample selection
A) probabilistic selection.
A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a: A) random sample. B) statistical sample. C) judgment sample. D) representative sample
A) random sample.
A type of positive confirmation known as a blank confirmation: A) requests the recipient to fill in the amount of the balance. B) is considered less reliable than the regular positive confirmation. C) generates as high a response rate as the regular positive confirmation form. D) is used when the auditor is confirming several small balances.
A) requests the recipient to fill in the amount of the balance.
The exception rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk is called the: A) tolerable exception rate. B) estimated population exception rate. C) acceptable risk of overreliance. D) sample exception rate
A) tolerable exception rate.
The process which postpones entries for the collection of receivables to conceal an existing cash shortage is referred to as: a. kiting. b. lapping. c. floating. d. shorting.
b. lapping.
One objective of an operational audit is to: a. determine whether the financial statements fairly present the entity's operation. b. make recommendations for improving performance. c. report on the entity's relative success in attaining profit maximization. d. determine if the auditee is in compliance with GAAP.
b. make recommendations for improving performance.
The organization that is responsible for providing oversight for auditors of public companies is called the a. Public Oversight Board. b. Auditing Standards Board. c. American Institute of Certified Public Accountants. d. Public Company Accounting Oversight Board.
d. Public Company Accounting Oversight Board.
When determining whether an exception is "highly material," the extent to which the exception affects different elements of the financial statements must be considered. This concept is called: a. materiality. b. pervasiveness. c. financial analysis. d. ratio analysis.
b. pervasiveness.
The Sarbanes-Oxley Act applies to which of the following companies? a. all companies. b. public companies. c. all public companies and privately held companies with assets greater than $500 million. d. privately held companies.
b. public companies.
To test for recorded sales for which there were no actual shipments, the auditor traces from the: a. bill of lading to the sales journal. b. sales journal to the bill of lading. c. sales journal to the accounts receivable subsidiary ledger. d. bill of lading to the supporting customer order and sales order
b. sales journal to the bill of lading.
Members of the Public Company Accounting Oversight Board are appointed and overseen by: a. the U.S. Congress. b. the Securities and Exchange Commission. c. the Auditing Standards Board. d. the American Institute of Certified Public Accountants.
b. the Securities and Exchange Commission.
Negative confirmations of receivables are less effective than positive confirmations of receivables because: a. they do not produce evidence that is statistically quantifiable. b. the auditor cannot infer that all non-respondents have verified their account information. c. some recipients may report incorrect balances that require extensive follow-up. d. a majority of recipients usually lack the willingness to respond objectively.
b. the auditor cannot infer that all non-respondents have verified their account information.
When the auditor evaluates the effect of a change in accounting principle, the materiality of the change should be evaluated based on: a. the prior years presented. b. the current year effect of the change. c. guidelines included in GAAS. d. the effect on total assets.
b. the current year effect of the change.
An auditor need not abide by a particular auditing standard if the auditor believes that: a. the requirement of the standard has not been addressed by the PCAOB. b. the issue in question is immaterial in amount. c. more expertise is needed to fulfill the requirement. d. any of the above three are correct.
b. the issue in question is immaterial in amount.
If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following services? a. Statements on Standards for Accounting and Review Services. b. the AICPA Code of Professional Conduct. c. regulations issued by the Securities and Exchange Commission. d. Statements on Auditing Standards.
d. Statements on Auditing Standards.
Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures? a. considering audit risk and materiality. b. using statistical sampling techniques. c. complying with laws and regulations. d. assigning personnel to engagements.
d. assigning personnel to engagements
An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): a. operational audit. b. production audit. c. audit of financial statements. d. compliance audit.
d. compliance audit.
In "auditing" financial accounting data, the primary concern is with: a. analyzing the financial information to be sure that it complies with government requirements. b. determining if fraud has occurred. c. determining if taxable income has been calculated correctly. d. determining whether recorded information properly reflects the economic events that occurred during the accounting period.
d. determining whether recorded information properly reflects the economic events that occurred during the accounting period.
The audit report date on a standard unqualified report indicates: a.) the last day of the fiscal period. b.) the date on which the financial statements were filed with the Securities and Exchange Commission. c.) the last date on which users may institute a lawsuit against either client or auditor. d.) the last day of the auditor's responsibility for the review of significant events that occurred subsequent to the date of the financial statements.
d.) the last day of the auditor's responsibility for the review of significant events that occurred subsequent to the date of the financial statements.
Statements on Standards for Accounting and Review Services are issued by: a. Securities and Exchange Commission. b. Financial Accounting Standards Board. c. Accounting and Review Services Committee. d. Professional Ethics Executive Committee.
c. Accounting and Review Services Committee.
If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to: a. December 31, 2009. b. January 1, 2010 c. February 8, 2010 d. February 15, 2010.
c. February 8, 2010
If an auditor performs an audit of a public company, the scope paragraph should make reference to which standards? a. Accounting standards. b. Generally accepted auditing standards. c. Standards issued by the PCAOB (U.S.). d. Any of the above standards.
c. Standards issued by the PCAOB (U.S.).
The trait that distinguishes auditors from accountants is the: a. auditor's education beyond the Bachelor's degree. b. auditor's ability to interpret FASB Statements. c. auditor's accumulation and interpretation of evidence related to a company's financial statements. d. auditor's ability to interpret accounting principles generally accepted in the United States.
c. auditor's accumulation and interpretation of evidence related to a company's financial statements.
Generally accepted accounting principles require that material sales returns and allowances a. be recorded in the period when the merchandise is returned. b. be recorded in the period when the credit memo is issued. c. be matched with related sales. d. be recorded as a debit to the sales account.
c. be matched with related sales.
The necessity to issue a disclaimer of opinion may arise because of: a. a severe limitation on the scope of the audit. b. a lack of independence between the auditor and client. c. either a or b. d. neither a nor b.
c. either a or b.
If accounts receivable accounts with credit balances are significant, they should be a. written off. b. moved to the debit side. c. reclassified as accounts payable. d. corrected by making adjusting entries.
c. reclassified as accounts payable.
Historically auditing standards have been organized into three categories, including: a. proper planning and authorization. b. responsibilities of the auditor. c. standards of field work. d. Purpose of an audit.
c. standards of field work.
The use of the Certified Public Accountant title is regulated by: a. the Securities and Exchange Commission. b. the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. c. state law through a licensing department or agency of each state. d. the federal government.
c. state law through a licensing department or agency of each state.
When assessing the risk of material misstatements in the financial statements, a. GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. b. company management is responsible for determining materiality levels. c. the auditor must have an understanding of the client's business and industry. d. inadequate internal control procedures will mitigate client business risk.
c. the auditor must have an understanding of the client's business and industry.
An auditor determines the financial statements include a material departure from GAAP. Which type of opinion may be issued? Disclaimer Qualified Adverse
Disclaimer NO Qualified YES Adverse YES
A) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales Yes Yes B) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales No No C) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales Yes No D) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales No Yes
A) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales Yes Yes
As the acceptable risk of incorrect acceptance is reduced, the required sample size: A) Increases B) Increases or decreases C) Decreases D) Is unaffected
A) Increases
One cause of nonsampling risk is: A) Ineffective use of audit procedures B) Use of extensive tests of controls C) Testing less than the entire population D) The possibility that a properly selected sample still may not be representative.
A) Ineffective use of audit procedures
Which of the following is not generally considered in determining sample size for test controls: A) Population size B) Expected population exception rate C) Tolerable exception rate D) Risk of assessing control risk too low
A) Population size
For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related audit objectives? A) Realizable value and cutoff. B) Timing and realizable value. C) Completeness and existence. D) Existence and accuracy
A) Realizable value and cutoff.
In a probability proportional to size (PPS) sample, all population physical audit units with amount equal to or greater than the amount of the interval will automatically be included in the sample if the auditor uses: A) Systematic selection B) Block selection C) Random selection D) Stratified selection
A) Systematic selection
The final step in the evaluation of the audit results is the decision to: A) accept the population as fairly stated or to require further action. B) determine sampling error and calculate the estimated total population error. C) project the point estimate. D) determine the error in each sample.
A) accept the population as fairly stated or to require further action.
One key internal control to prevent fictitious transactions in the sales and collection cycle is: A) assign a specific customer number for each customer in the computer files. B) to account for the integrity of the numerical sequence of sales orders. C) to include the sales price list of all products in the computer files. D) having bank reconciliations prepared by one who is independent of the treasury function.
A) assign a specific customer number for each customer inthe computer files.
In the evaluation of the results of an attributes sample, the fact that the exception rate in the sample was 2% rather than the estimated population exception rate of 4% would cause the computed upper exception rate to: A) be less than the tolerable exception rate. B) equal the tolerable exception rate. C) exceed the tolerable exception rate. D) cannot be determined from the information given
A) be less than the tolerable exception rate.
Which of the following is likely to be determined first when performing tests of details for accounts receivable? A) Recorded accounts receivable exist. B) Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. C) Accounts receivable are owned. D) Existing accounts receivable are included.
B) Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger.
What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected? A) Determination of correct delivery address B) Credit approval C) Matching of shipping document with sales invoice D) Receipt of sales order from the customer
B) Credit approval
The variables sampling method which generally results in smaller sample sizes than any other method is: A) Monetary-unit sampling B) Difference estimation C) Mean-per-unit estimation D) Ratio estimation
B) Difference estimation
When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called: A) Block sample selection B) Haphazard selection C) Statistical selection D) Systematic sample selection
B) Haphazard selection
The relationship of acceptable risk of assessing control risk (ARACR) to sample size is: A) Direct (larger ARACR = larger sample) B) Inverse (larger ARACR = smaller sample) C) Variable (sometimes larger, sometimes smaller) D) Nonexistent
B) Inverse (larger ARACR = smaller sample)
Which of the following is the risk that audit tests will not uncover existing exceptions in a sample? A) Sampling risk B) Nonsampling risk C) Audit risk D) Detection risk
B) Nonsampling risk
Monetary-unit sampling is most commonly used when: A) Several exceptions are expected B) The auditor is searching for understatements only C) a dollar result is desired D) The population data are maintained on manual files
B) The auditor is searching for understatements only
Smith Manufacturing Company's accounts receivable clerk has a friend who is also a Smith's customer. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to: A) prenumber and account for all credit memorandums. B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved. C) have independent sales and accounts receivable departments. D) mail monthly statements to customers.
B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved.
The audit procedure referred to as proof of cash receipts is particularly useful to test: A) time lags in making deposits. B) whether all recorded cash receipts have been deposited in the bank. C) whether there are cash receipts that have not been recorded in the journals. D) the client's reconciliation between cash receipts and bank deposits.
B) whether all recorded cash receipts have been deposited in the bank.
To prevent fraud, management should deny cash access to anyone responsible for: A) Opening mail from customers Entering sales transactions Entering cash receipts transactions Yes Yes Yes B) Opening mail from customers Entering sales transactions Entering cash receipts transactions No No Yes C) Opening mail from customers Entering sales transactions Entering cash receipts transactions No Yes Yes D) Opening mail from customers Entering sales transactions Entering cash receipts transactions Yes No No
C) Opening mail from customers- No Entering sales transactions- Yes Entering cash receipts transactions - Yes
Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable? A) A review of the minutes of the board of directors' meetings B) Discussions with the client C) Confirmation of receivables D) Examination of correspondence files
C) Confirmation of receivables
Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program? A) Review sales transactions for large and unreasonable amounts. B) Observe whether the duties of the accounts receivable clerk are separate from handling cash. C) Examine a sample of duplicate sales invoices for credit approval by the credit manager. D) Review the aged schedule of accounts receivable to determine if receivables from officers are included.
C) Examine a sample of duplicate sales invoices for credit approval by the credit manager.
What is an auditors evaluation of a statistical sample for attributes when a test of 100 documents results in four exceptions if the tolerable exception rate is 5%, the expected population exception rate is 3%, and the allowance for sampling risk is 2%? A) Accept the sample results as support for planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. B) Modify planned reliance on the control because the tolerable rate plus the allowance for sampling risk exceeds the expected population exception rate. C) Modify planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable rate. D) Accept the sample results as support for planned reliance on the control because the tolerable rate less the allowance for sampling risk equals the expected population exception rate.
C) Modify planned reliance on the control because the sample exception rate plus the allowance for sampling risk exceeds the tolerable rate.
Which of the following statements regarding block sampling is least likely to be true? A) Block sampling is the selection of several items in sequence. B) It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks is used. C) Only one block should be selected to increase the probability of a representative sample. D) Once the first item in the block is selected, the remainder of the block is chosen automatically.
C) Only one block should be selected to increase the probability of a representative sample.
Which of the following is not a business function within the "Sales" class of transactions? A) Processing customer orders B) Granting credit C) Processing and recording sales returns and allowances D) Shipping goods
C) Processing and recording sales returns and allowances
If the auditor believes that there will be more than just a few exceptions discovered, and desires an accurate estimate of the dollar value of the exceptions, he or she will use: A) Monetary-unit sampling B) Attributes sampling C) Variables sampling D) Block sampling
C) Variables sampling
For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash: A) is detected and correct when cash is separately audited. B) is unlikely to have a material impact on the balance sheet or the income statement. C) affects items on the balance sheet but does not affect net income. D) rarely occurs given the control consciousness of most entities.
C) affects items on the balance sheet but does not affect net income.
Confirmation of accounts receivable balances normally provides evidence concerning the: A) valuation of the balances. B) rights of the balances. C) existence of the balances. D) completeness of the balances.
C) existence of the balances.
Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system. A) direct deposit B) funds transfer C) lockbox D) interbank transfer
C) lockbox
What is the purpose of applying stratified sampling to a population? A) To avoid items that may contain misstatements To emphasize certain items and deemphasize others Yes Yes B) To avoid items that may contain misstatements To emphasize certain items and deemphasize others No No C) To avoid items that may contain misstatements To emphasize certain items and deemphasize others Yes No D) To avoid items that may contain misstatements To emphasize certain items and deemphasize others No Yes
D) To avoid items that may contain misstatements - No To emphasize certain items and deemphasize others - Yes
Which of the following is not a type of statistical method that provides results in dollar terms? A) Monetary-unit sampling B) Sampling with probability proportional to size c) Variables sampling D) Attributes sampling
D) Attributes sampling
Which of the following is not a likely item on which to apply stratification techniques? A) dollar value of accounts receivable B) Aging of accounts receivable C) Number of sales per customer in a period D) Customer names of accounts receivables
D) Customer names of accounts receivables
Which of the following is an advantage of systematic selection over random number selection? A) It provides a stronger basis for statistical conclusions. B) It enables the auditor to use the more efficient "sampling with replacement" tables. C) There may be correlation between the location of items in the population, the feature of sampling interest, and the sampling interval. D) It does not require establishment of correspondence between random numbers and items in the population.
D) It does not require establishment of correspondence between random numbers and items in the population.
The acceptable risk of assessing control risk too low will normally be assessed at a _________ level. A) Higher B) Compensating C) Nominal D) Lower
D) Lower
One of the ways to eliminate nonsampling risk is through: A) Proper supervision and instruction of the client's employees. B) Controls which ensure that the sample drawn is random and representative. C) The use of attributes sampling rather than variables sampling. D) Proper supervision and instruction of the audit team.
D) Proper supervision and instruction of the audit team.
An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the: A) sales register to the accounts receivable ledger. B) sales register to the meter department records. C) accounts receivable ledger to the sales register. D) meter department records to the sales register.
D) meter department records to the sales register.
When errors are found in a sample, auditors in practice generally make the assumption: A) of a 100% assumption for all errors. B) that the population errors are larger than the sample errors. C) that the population errors are smaller than the sample errors. D) that the actual sample errors are representative of the population errors.
D) that the actual sample errors are representative of the population errors.
Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern? a. A client's lawsuit against another company which claims the other company has infringed on its patent. b. Loss of major customers. c. Significant recurring operating losses. d. Working capital deficiencies.
a. A client's lawsuit against another company which claims the other company has infringed on its patent.
When positive confirmations are used, SAS No. 67 requires follow-up procedures for confirmations not returned by the customer. In such a situation, which of the following would not be classified as an alternative procedure? a. Send a second confirmation request. b. Examine subsequent cash receipts to determine if the receivable has been paid. c. Examine shipping documents to verify that the merchandise was shipped. d. Examine duplicate sales invoice to determine that the merchandise was ordered.
a. Send a second confirmation request.
Which of the following is not true for audit firms who audit publicly traded companies? a. They must have an AICPA peer review on all audit clients. b. They must undergo a PCAOB inspection on an annual basis if they audit more than 100 issuers. c. They must have an AICPA peer review on all non-publicly traded clients. d. The audit firm can choose which CPA firm they wish to conduct their AICPA peer review.
a. They must have an AICPA peer review on all audit clients.
Three common types of attestation services are: a. audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting. b. reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls. c. audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls. d. audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.
a. audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.
An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? a. operational audit. b. production audit. c. financial statement audit. d. compliance audit.
a. operational audit.
The methods used by a CPA firm to ensure that the firm meets its professional responsibilities to clients and others is: a. quality control. b. continuing professional education. c. compliance with generally accepted reporting standards. d. peer review.
a. quality control.
PCAOB Auditing Standard No. 2 requires the audit of internal control over financial reporting to be integrated with: a. the audit of the financial statements. b. the quarterly review of financial information. c. the review of annual financial statements. d. none of the above.
a. the audit of the financial statements.
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include: a. the use of other auditors. b. material uncertainties. c. substantial doubt about the audited company (or the entity) continuing as a going concern. d. lack of consistent application of GAAP.
a. the use of other auditors.
Auditing standards require that the audit report must be titled and that the title must: a.) include the word "independent." b.) indicate if the auditor is a CPA. c.) indicate if the auditor is a proprietorship, partnership, or incorporated. d.) not include any discriminatory language
a.) include the word "independent."
For privately held companies who is responsible for establishing auditing standards? a. National Association of Accounting. b. Auditing Standards Board. c. Public Company Accounting Oversight Board. d. Securities and Exchange Commission.
b. Auditing Standards Board.
Which of the following audits can be regarded as generally being a compliance audit? a. GAO auditor's evaluation of the computer operations of governmental units. b. IRS agents' examinations of taxpayer returns. c. an internal auditor's review of a company's payroll authorization procedures. d. a CPA firm's audit of a public company.
b. IRS agents' examinations of taxpayer returns.
Conditions requiring a departure from an unqualified audit report include all but which of the following? a. Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed. b. Management decided not to allow the auditor to confirm significant accounts receivable, but the auditor obtained sufficient appropriate evidence by examining subsequent cash receipts. c. The audit partner's dependent child received a gift of 100 shares of a client's stock for her birthday from a grandparent. d. Management has determined that fixed assets should be reported in the balance sheet at their replacement values rather than historical costs. The auditors do not concur.
b. Management decided not to allow the auditor to confirm significant accounts receivable, but the auditor obtained sufficient appropriate evidence by examining subsequent cash receipts.
In many audits of sales transactions, no substantive tests of transactions are performed for the completeness objective because: a. Understatements of assets and income are a greater concern than overstatements. b. Overstatements of assets and income are a greater concern than understatements. c. It doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct. d. The unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading
b. Overstatements of assets and income are a greater concern than understatements
A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. a. This is a cutoff misstatement. b. This is a timing difference. c. Both a and b. d. Neither a nor b.
b. This is a timing difference.
The purpose of the introductory paragraph in the standard unqualified report is: a. To identify that the type of opinion issued is unqualified. b. To identify the financial statements audited and the dates and time periods covered by the report. c. To indicate the CPA followed applicable audit standards. d. To indicate all the financial statements are in accordance with GAAP.
b. To identify the financial statements audited and the dates and time periods covered by the report.
Which of the following services provides the lowest level of assurance on a financial statement? a. an audit. b. a review. c. neither service provides assurance on financial statements. d. each service provides the same level of assurance on financial statements.
b. a review.
Which of the following is considered audit evidence? I. Oral statements made by management II. Written communications III. Auditor observation a. II and III. b. all three. c. III only. d. I only.
b. all three.
Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n): a. tax service. b. attestation service. c. accounting and bookkeeping service. d. assurance service.
b. attestation service.
The legal right to perform audits is granted to a CPA firm by regulation of a. the Audit Standards Board. b. each state. c. the American Institute of Certified Public Accountants (AICPA). d. the Financial Accounting Standards Board (FASB).
b. each state.
The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company? a. reviews of quarterly financial statements. b. tax services. c. preparation of corporate tax returns. d. most consulting services.
d. most consulting services.
Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a a. dunning letter. b. negative confirmation. c. bank confirmation. d. positive confirmation.
d. positive confirmation.
An adverse opinion is issued when the auditor believes: a. some parts of the financial statements are materially misstated or misleading. b.the financial statements would be found to be materially misstated if an investigation were performed. c. the auditor is not independent. d. the overall financial statements are so materially misstated that they do not present fairlythe financial position or results of operations and cash flows in conformity with GAAP.
d. the overall financial statements are so materially misstated that they do not present fairlythe financial position or results of operations and cash flows in conformity with GAAP.
As a result of management's refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to conclude whether financial statements are stated in accordance with GAAP. The auditor must depart from the unqualified audit report because: a. the financial statements have not been prepared in accordance with GAAP. b. the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. c. the auditor has lost independence. d. the scope of the audit has been restricted.
d. the scope of the audit has been restricted.