ACCT 403 Exam 4

A CPA's legal license to practice public accounting can be revoked by the Multiple Choice Auditing Standard Board. State board of accountancy. American Institute of Certified Public Accountants. State society of CPAs.

State board of accountancy

In which of the following circumstances would auditors be most likely to express an adverse opinion? The chief executive officer refuses the auditors access to minutes of board of directors' meetings The entity's internal control is so poor that control risk must be assessed at the maximum level The financial statements are not in accordance with generally accepted accounting principles regarding the valuation of marketable securities The entity has filed for bankruptcy and appears to be subject to going-concern uncertainties

The financial statements are not in accordance with generally accepted accounting principles regarding the valuation of marketable securities

Loan covenants are used for which of the following reasons? To protect the borrower from the lender's calling the loan early To protect the lender from the borrower's financial position substantially weakening To protect shareholders from management taking on too much debt To protect the auditors from false information by the borrower

To protect the lender from the borrower's financial position substantially weakening

Which of the following best describes the role of analytical procedures near the end of the audit engagement? To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement Together evidence to support one or more assertion(s) related to the account balance or class of transactions To identify accounts that appear to be misstated with the intention of planning the nature, timing, and extent of other substantive procedures. To identify possible deficiencies in the client's internal control over financial reporting

To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement

Which of the following assertions is more likely to have the highest risk of material misstatement for the goodwill account? Existence Completeness Valuation Rights & obligations

Valuation

The phrase "Trust services" refers to: Multiple Choice WebTrust and SysTrust Services. XBRL and SysTrust Services. WebTrust and XBRL Services. All AICPA designated assurance services.

WebTrust and SysTrust Services.

What is the appropriate name for an assurance service provided by a CPA regarding a client's commercial Internet site with reference to the principles of privacy, security, processing integrity, availability, and confidentiality? Multiple Choice WebTrust. SysTrust. XBRL. WebSecure.

WebTrust.

Compensating controls in the finance and investment cycle: feature separation of duties by upper management feature involvement of two or more persons handling all important responsibilities include involvement by the external auditor include all the above

feature involvement of two or more persons handling all important responsibilities

Related party transactions must be valued as if they were arm's length must be assumed to be valued differently than if they were arm's length must be disclosed in the financial statements must be disclosed in the financial statements and the auditor's report

must be disclosed in the financial statements

Tests of controls in the finance and investment cycle: normally focus on tests of transactions primarily involve observing physical security of assets typically amount to inquiries and observations related to management involvement can significantly reduce the extent of substantive tests

typically amount to inquiries and observations related to management involvement

Goodwill impairment refers to Loss of trust from customers The amount of amortization A decline in value of recorded goodwill A need for increased professional skepticism

A decline in value of goodwill

Ambrose is auditing the financial statements of Mays (dated December 31, 2020). The date of the auditor's report is February 17, 2021, and the audit report release date is February 20, 2021. For which of the following matters would Ambrose have the least responsibility? A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2021. The obsolescence of inventory held on December 31, 2021, that was identified on January 20, 2021 A customer's deteriorating financial condition that was identified on February 19, 2021 A merger that was announced by Mays and known by Ambrose on February 12, 2021

A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2021.

If the auditors decide to present separate reports on the entity's financial statements and ICFR in the audit of an issuer, which of the following would be modified to refer to the other report? A. reported on financial statements and ICFR B. reported on financial statements but not ICFR c. not reported on financial statements but on ICFR d. not reported on financial statements and not on ICFR

A. reported on financial statements and ICFR

What does the auditor need to document when there is substantial doubt that a client will continue as a going concern? The conditions or events that suggest there is a going concern uncertainty Management's plant (or lack thereof) to mitigate the conditions and to continue as a going concern The auditor's conclusion on whether, after evaluating management's plan, substantial doubt exists regarding the company's ability to continue as a going concern and whether any report modifications are needed All of the choices are correct

All of the choices are correct

Which of the following best describes what audit data analytics are? Multiple Choice Discovering and analyzing patterns in data Identifying anomalies in data Extracting useful information in data All of these choices are correct.

All of these choices are correct.

Audit independence in fact is most clearly lost when Multiple Choice A public accounting firm issues a standard unmodified report, but the reviewing partner fails to notice that the assistant's observation of inventory was woefully incomplete. An auditor agrees to the argument made by the client's financial vice president that deferring losses on debt refinancing is in accordance with generally accepted accounting principles. A public accounting firm audits competitor companies in the same industry (e.g., Coca-Cola and Pepsi).An audit team fails to discover the client's misleading omission of disclosure about permanent impairment of asset values.

An auditor agrees to the argument made by the client's financial vice president that deferring losses on debt refinancing is in accordance with generally accepted accounting principles.

Procedures used by auditors near the end of the audit to identify unusual or unexpected relationships not previously identified during the audit are referred to as: Analytical procedures interim testing roll-forward work subsequently discovered facts

Analytical procedures

Which of the following would occur during the planning stage of Audit Data Analytics? Multiple Choice Auditor must determine the nature, timing, and extent of the work that will be completed as part of the ADA. Auditor can conclude that no additional risk of material misstatement is present in population items. Auditors may need to subject client systems to reliability testing. Auditor must consider whether the data has a logical connection to the purpose of the audit procedure.

Auditor must determine the nature, timing, and extent of the work that will be completed as part of the ADA

According to Sarbanes-Oxley, the audit committee must pre-approve all audit and non-audit services. This can be done Multiple Choice Case-by-case basis: Yes; Through established policies: No; Delegating the responsibility: Yes Case-by-case basis: Yes; Through established policies: Yes; Delegating the responsibility: No Case-by-case basis: No; Through established policies: Yes; Delegating the responsibility: No Case-by-case basis: No; Through established policies: No; Delegating the responsibility: Yes

Case-by-case basis: Yes; Through established policies: Yes; Delegating the responsibility: No

Which of the following best describes the audit team's responsibility for communication critical audit matters in the audit of an issuer's financial statements? Communication of critical audit matters is strictly prohibited without the client's consent Communication of critical audit matters is optional and based on the issuer's needs Communication of critical audit matter is required in circumstances when the auditor's opinion on the financial statements is modified because of a departure from GAAP Communication of critical audit matters is required in all audits

Communication of critical audit matters is required in all audits

Which ASB balance assertion is of the most importance to auditors for long-term liabilities? Existence Completeness Rights and obligations Valuation

Completeness

A review of unaudited financial statements consists of: Conducting internal control evaluation and obtaining written representations. Conducting inquiry of management and documenting internal controls. Performing analytical procedures and determining compliance with laws and regulations. Conducting inquiry of management, performing analytical procedures, and obtaining written representations.

Conducting inquiry of management, performing analytical procedures, and obtaining written representations.

Which of the following would not be a typical feature of management's control over the production of estimates? Accumulated of relevant, sufficient, and reliable data Preparation of estimates by qualified personnel Review by the independent auditor Consideration by management of whether particular accounting estimates are consistent with the company's operational plans

Consideration by management of whether particular

Which of the following is not a reason for data cleansing? Multiple Choice Fields that should contain dates may have letters Data may be too large in volume Fields may contain data outside preset acceptable values All of the above are reasons for data cleansing

Data may be too large in volume

Which of the following would not be considered when planning an Audit Data Analytic (ADA)? Multiple Choice Determine the overall purpose and specific objectives of the ADA Determine the relevant financial statement assertions Determine the sample of the population to be analyzed

Determine the sample of the population to be analyzed

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate? Perform the omitted procedure or an alternative procedure Engage another public accounting firm to conduct a quality assurance review Notify the board of directors and regulatory agencies that are currently relying on auditors' reports Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements

Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements

Which of the following is not a restriction placed on audit partners by Sarbanes-Oxley? Multiple Choice Limits engagement partners to a five-year term as the engagement partner. Limits other partners associated with the engagement to a seven-year term. Engagement partners must review nonaudit work to ensure that independence has not been compromised. Partners that engage in selling services, other than audit, review, and attestation services, to an audit client are not independent with respect to that client.

Engagement partners must review nonaudit work to ensure that independence has not been compromised.

Which of the following best describes the auditors' responsibility with respect to management's estimates? Verifying the mathematical accuracy of management estimates Assessing the likelihood that actual results will be consistent with management's estimates Evaluating the reasonableness of management's estimates Identifying how the failure of the entity to achieve management's estimates will influence users' decisions

Evaluating the reasonableness of management's estimates

Inspecting marketable securities provides primary evidence about the ASB balance assertion of Existence Rights and obligations Valuation All of the choices are correct

Existence

Which of the following approaches is most suitable for auditing the finance and investment cycle? Perform extensive tests of controls and limit substantive procedures to analytical procedures Ignore internal controls and perform extensive substantive procedures Gain an understanding of internal controls and perform extensive procedures Ignore internal controls and limit substantive procedures to analytical procedures

Gain an understanding of internal controls and perform extensive procedures

Which of the following are key issues that the auditor faces when assessing a client's data? Data Completeness Data format Data Integrity Data Collection Data Accuracy Multiple Choice I and V I, II, and V I, II, III, and V I, III, IV, and V

I, II, III, and V

Select the proper order in performing Audit Data Analytics: Evaluate the results and conclude on whether the purpose and specific objectives of performing the ADA have been achieved Consider the relevance and reliability of the data used Plan the ADA Perform the ADA Access and prepare the data for purposes of the ADA Multiple Choice V, III, II, IV, I II, III, V, IV, I II, V, III, IV, I III, V, II, IV, I

III, V, II, IV, I

Which of the following is typically the auditors' initial procedure performed to identify litigation, claims, and assessments? Perform analytical procedures Confirm litigation, claims, and assessments with third-party litigants Obtain an attorney letter from the entity's legal counsel Inquire of the entity regarding the existence of litigation, claims, and assessments

Inquire of the entity regarding the existence of litigation, claims, and assessments

Which of the following is true of audit data analytics? Multiple Choice It is used gain insights and improve audit quality It is most appropriate when used on unpredictable relationships It is typically performed on a small sample of the population All of these choices are correct.

It is used gain insights and improve audit quality

Which aspect of data is not important for data used in Audit Data Analytics (ADA)? Multiple Choice Reliability Relevance Completeness None of these choices are correct.

None of these choices are correct.

Which of the following would probably not be considered an "act discreditable to the profession"? Multiple Choice Refusing to hire Asian Americans in an accounting practice. Numerous moving traffic violations. Filing a fraudulent tax return for a client in a severe financial difficulty. Failing to file the CPA's own tax return.

Numerous moving traffic violations.

Which of the following is ordinally performed last in the audit examination? Securing a signed engagement letter from the client Performing a review for subsequent events Performing tests of controls Obtaining signed written representations

Obtaining signed written representations

For which of the following types of clients are audit teams required to express an opinion on internal control over financial reporting A. Issuer and non-issuer b. issuer but not non-issuer c. not issuer but non-issuer d. neither issuer nor non-issuer

Option B

The auditors conclude that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditors' report is required to include an additional section that refers to a disclose its financial difficulties, the auditors' report is required to include an additional section that refers to a disclosure in the financial statements that references A. management's plans and material misstatements B. management's plans but not material misstatements C. not management's plans but material misstatements D. neither management's plans nor material misstatements

Option B

Which of the following best describes the scope of audit and compilation engagements compared to a review engagement? Audit Compilation a.Lesser than review; Lesser than review b.Greater then review; Lesser than review c.Lesser than review; Greater than review d.Greater than reviewGreater than review Multiple Choice Option A Option B Option C Option D

Option B

Audit techniques that take full advantage of big data offer the potential to improve: Audit Efficiency // Audit Effectiveness a. Yes No b. No No c. No Yes d. Yes Yes Multiple Choice Option A Option B Option C Option D

Option D

In which of the following engagements would an accountant be required to be independent of the client? Compilation engagement// Preparation engagement a.Yes, Yes b.Yes,No c.No,Yes d.No,No Multiple Choice Option A Option B Option C Option D

Option D

Auditors may express a qualified opinion because of a. Yes, departure from GAAP, no last of consistency, yes scope of limitation b. No departure from GAAP, yes lack of consistency, and no scope of limitation c. yes departure from GAAP, no lack of consistency, no scope of limitation d. no departure from GAAP, yes lack of consistency, yes scope of limitation

Option a

The focus of controls in the finance and investment cycle is on: Proper authorizations and competent personnel computer controls over transactions physical security of assets prenumbered documents

Proper authorizations and competent personnel

Which of the following agencies issues independence rules for the auditors of public companies? Multiple Choice AICPA Accounting and Review Services Committee (ARSC).Government Accountability Office (GAO). Public Company Accounting Oversight Board (PCAOB).

Public Company Accounting Oversight Board (PCAOB).

A paragraph in the Opinion on the Financial Statements section of the auditors' report states: "In our opinion, with the exception of the effects of not observing inventory in one of the client's Siberian warehouses,... the financial statements present fairly, in all material respects.." This paragraph expresses a(n) Unqualified opinion Adverse opinion Qualified opinion Opinion modified because of an uncertainty

Qualified opinion

Which of the following procedures would not be performed by auditors to identify subsequent events? Review prior-year financial statements and disclosures Inquire of officers and other executives about various matters Read minutes of meetings of shareholders, directors, and appropriate committees Review the entity's latest interim financial statements

Review prior-year financial statements and disclosures

Accountants are permitted to express limited assurance in which of the following reports? Multiple Choice Standard unmodified report on audited financial statements. Compilation report on unaudited financial statements. Review report on unaudited financial statements. Adverse opinion on audited financial statements.

Review report on unaudited financial statements.

What is an auditor's primary method to corroborate information on litigation, claims, and assessments? Reviewing the written representation letter obtained from management Examining legal invoices sent by the client's attorney Verifying attorney-client privilege through interviews Reviewing the response from the client's lawyer to a letter of audit inquiry

Reviewing the response from the client's lawyer to a letter of audit inquiry

Which of the following is not a typical problem found by auditors when cleansing client data for the purposes of performing an ADA? Multiple Choice Some fields may be empty and thus cause errors during analysis. Some fields may not be sorted in numerical order and require sorting for identification of outliers. Some date fields may contain letters or be in the wrong format. Some fields may have country-specific differences such as currency.

Some fields may not be sorted in numerical order and require sorting for identification of outliers.

An auditor imports a client's purchasing cycle transactions for the purposes of testing authorization controls. Which of the following is true regarding the implementation of this audit data analytic? Multiple Choice The use of statistical sampling in the performance of the ADA increases the auditor's confidence. The use of ADA for purchasing transactions often significantly increases audit risk relative to traditional auditing procedures. A disadvantage of implementation is the increased costs associated with ADA. Testing can be more efficiently conducted across 100% of transactions.

Testing can be more efficiently conducted across 100% of transactions.

What agency has the ultimate authority in defining independence for public companies? Multiple Choice The AICPA The SEC The Department of Justice The U.S. Congress

The SEC

Which of the following information is not included in the attorney letter? A listing of pending or threatened litigation, claims, or assessments A description of each item identified by management, including the nature of the case and management responses or intended responses to the case The attorney's expert opinion as to the probability of an unfavorable judgement against the entity An estimate of the range of potential loss

The attorney's expert opinion as to the probability of an unfavorable judgement against the entity

Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the external auditor? Multiple Choice The CPA firm's engagement partner. The CPA firm's quality control partner. The client's senior management. The audit committee.

The audit committee.

Under Sarbanes-Oxley and PCAOB rules, ensuring that the auditor is independent in appearance is the responsibility of Multiple Choice Senior management. The public accounting firm. The PCAOB. The audit committee.

The audit committee.

If the auditors discover that the carrying amount of a client's investments is overstated because of a loss that is other than a temporary decline in market value, they should insist that The approximate market value of the investments be shown in parentheses on the face of the balance sheet The loss in value be recognized in the financial statements The equity section of the balance sheet separately show a charge equal to the amount of the loss The investments be classified as long term for balance-sheet purposes with full disclosure in the footnotes

The loss in value be recognized in the financial statements

For documentation of an ADA to be considered sufficient, all the following should be recorded except? Multiple Choice Who reviewed work performed within the output of the ADA. Who performed the work and created the output of the ADA. The process used to produce the data examined. Identifying characteristics of specific items or matters

The process used to produce the data examined.

Why should auditors be particularly concerned with "miscellaneous", "others", and "clearing" accounts classified as revenues or expenses? These accounts are likely to relate to going-concern matters These accounts are often more difficult to audit using normal substantive procedures These accounts may represent attempts of earnings management These accounts are likely to require the assistance of a specialist

These accounts may represent attempts of earnings management

Auditors are interested in having independence in appearance because Multiple Choice They need to comply with the fundamental principles of GAAS. They want the public at large to have confidence in the profession. They want to impress the public with their independence in fact. Audits should be planned and properly supervised.

They want the public at large to have confidence in the profession.

What is the primary objective of analytical procedures performed during the planning stages of an audit? Multiple Choice To identify existing material misstatements To identify unusual or unexpected relationships To uncover management fraud All of these choices are correct.

To identify unusual or unexpected relationships

If the audit team is restricted from performing procedures to evaluate the effectiveness of an issuer's internal control over financial reporting, their report would express: an unqualified opinion, with an other-matter paragraph describing the scope of limitation Either a qualified opinion or disclaimer of opinion, depending on the pervasiveness of the scope limitation a disclaimer of opinion an adverse opinion

a disclaimer of opinion

Many individuals are apprehensive about using the Internet to purchase items. This apprehension mainly arises from users' concerns about: Multiple Choice the reliability of computer technology. the time delays in Internet purchases. a lack of security for information transmitted over the Internet. the lack of CPA involvement in Internet company financial information.

a lack of security for information transmitted over the Internet.

Which of the following pairings of engagements and levels of assurance is not correct? Examination engagement, opinion review engagement, limited assurance agreed-upon procedures engagement; limited assurance complilation engagement, no assurance

agreed-upon procedures engagement; limited assurance

To whom should written representations be addressed? auditors board of directors client stakeholder

auditors

Interim testing normally occurs between the ___________ and the ______________. beginning of the year under audit; audit report release date date of the financial statements, audit report release date beginning of the year under audit, date of the financial statements end of the year under audit; date of the auditors' report

beginning of the year under audit, date of the financial statements

A related party is a person or entity that can exert significant influence over or be influenced by the company Is a member of the company's management team or board of directors does business with the company has a family tie to a management member

can exert significant influence over or be influenced by the company

Which party should request a letter regarding litigation, claims, and assessments from the client's attorney? attorney auditors client securities and exchange commission or other regulatory body

client

When accountants are not independent, which of the following reports can they issue: compilation report on historical financial statements. standard unmodified audit report on historical financial statements. examination report on a financial forecast. examination of internal control over financial reporting for an issuer.

compilation report on historical financial statements.

"Are interest payments and accruals monitored for due dates and financial statement dates" is an internal control questionnaire item that is related to the ASB transaction assertion of: occurrence completeness cutoff accuracy

cutoff

Roll-forward work normally occurs between the ______________ and the __________________. beginning of the year under audit; audit report release date date of the financial statements; audit report release date beginning of the year under audit; date of the financial statements date of interim work; date of the auditors' report

date of interim work; date of the auditors' report

The first step of planning an ADA is: Multiple Choice select techniques and tools used for performing the ADA. document the objective of the ADA. determine the overall purpose and specific objectives of the ADA. select the ADA that is best suited for the purpose.

determine the overall purpose and specific objectives of the ADA.

Which report would not be appropriate for a public accounting firm to provide on the ICFR for issuers? unqualified - no material weaknesses found disclaimer of opinion - unable to perform all necessary procedures disclaimer of opinion - significant deficiencies exist adverse - material weaknesses exist

disclaimer of opinion - significant deficiencies exist

Auditors were unable to obtain sufficient appropriate evidence concerning certain transactions because a fire destroyed all the entity's accounting records. Given these circumstance, auditors would most likely choose between a(n) qualified opinion and an unqualified opinion with an explanatory paragraph unqualified opinion with an explanatory paragraph and an adverse opinion adverse opinion and a disclaimer of opinion disclaimer of opinion and a qualified opinion

disclaimer of opinion and a qualified opinion

Controls over making estimates include all of the following except management communication of the need for proper accounting estimates comparison of prior estimates with subsequent results consideration of whether estimates are consistent with the company's operational plans ensuring the effects of the estimate are in line with analysts forecasts

ensuring the effects of the estimate are in line with analysts forecasts

Attestation engagements include: Multiple Choice only examinations. examinations and assurance services. examinations, reviews, and agreed-upon procedures. examinations, reviews, compilations, agreed-upon procedures, and assurance services.

examinations, reviews, and agreed-upon procedures.

An assurance service is defined as a service that: Multiple Choice reduces the risk in management decision making. expands auditing services to nonfinancial information. reviews unaudited financial information. improves the quality of information for decision makers. reduces the risk in management decision making.

improves the quality of information for decision makers.

A material weakness in ICFR is a situation in which it is reasonably possible that a material misstatement would not be detected on a timely basis it is probably that an immaterial financial statement misstatement would not be detected on a timely basis It is reasonably possible that an immaterial misstatement would not be detected on a timely basis there is a remote likelihood that a material misstatement would be detected on a timely basis

it is reasonably possible that a material misstatement would not be detected on a timely basis

All corporate capital stock transactions should ultimately be traced to the numbered stock certificates minutes of the meetings of the board of directors cash receipts journal cash disbursements journal

minutes of the meetings of the board of directors

An important method used by auditors to learn of material contingencies is examining documents in the client's possession concerning contingencies inquiring and discussing them with management obtaining responses to an attorney letter confirming accounts receivable with the client's customer

obtaining responses to an attorney letter

An audit team would most likely verify the interest earned on bond investments by vouching the receipt and deposit of interest checks confirming the bond interest rate with the issuer of the bonds recomputing the interest earned on the basis of the face amount, interest rate, and period held testing internal controls relevant to cash receipts

recomputing the interest earned on the basis of the face amount, interest rate, and period held

Procedures used to allow auditors to extend their conclusions to the end of the year under audit as referred to as: analytical procedures interim testing roll-forward work tests of controls

roll-forward work

The conclusions provided in an accountants' report on an agreed-upon procedures engagement are in the form of a(n): Multiple Choice limited assurance. summary of findings. opinion. no conclusions are provided in an agreed-upon procedures engagement.

summary of findings.

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until the audit report release date the date of the financial statement the following year's date of the financial statements the date of the auditor's report

the audit report release date

Sales of capital stock and large debt financing transactions are usually authorized by the transfer agent the shareholders the board of directors management

the board of directors

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after the date of the auditor's report the date of the financial statements the date interim audit work was complete the date the fieldwork began

the date of the auditor's report

Which of the following statements is not true with respect to the auditors' report on ICFR? the report may be presented with the report on the entity's financial statements as a combined report the report will be dates as of the date of the financial statements the auditor will issue an adverse opinion if one or more material weaknesses exist the report will express an opinion on the effectives of ICFR

the report will be dates as of the date of the financial statements

When documenting an Audit Data Analytic (ADA), an experienced auditor with no prior connection to the engagement should be able to understand all these elements of the ADA except: Multiple Choice results of procedures performed and evidence obtained .nature, timing, and extent of procedures performed. the software used in performing the ADA. conclusions reached and significant judgments made.

the software used in performing the ADA.

Taking a "big bath" in the financial statements refers to: overstating income overstating revenues understating income an economic downturn

understating income

In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of: valuation existence completeness rights and obligations

valuation