AUD Mock Final exam

d) Option D

Audit Data Analytics (ADA) allow the auditor to test/analyze 100% of the data rather than a sample. What is the benefit of being able to test the entire population of data? a) Option A b) Option B c) Option C d) Option D

Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be: A) an assurance service engagement. B) an attestation engagement. C) a review engagement. D) a compilation engagement.

B) an attestation engagement.

d) $200,000

Bruno is using monetary unit sampling to conduct the audit of a client's accounts receivable with a recorded balance of $10 million. Based on the expected misstatement, tolerable misstatement, and risk of incorrect acceptance, you have determined a sample size of 200 items. After selecting the sample items and confirming the accounts with customers, you have identified the following discrepancies: a) $35,000 b) $50,000 c) $75,000 d) $200,000

The primary difference between a financial forecast and a financial projection is: A) The extent of financial information included in the presentation. B) The level of accountant involvement with the financial information. C) The accounting principles used to generate the financial information. D) The nature of the assumptions used to generate the financial information.

D) The nature of the assumptions used to generate the financial information.

An accountant's examination report on a financial forecast expresses: a) An opinion on the presentation of the financial information and the reasonableness of the assumptions. b) An opinion on the presentation of the financial information and limited assurance on the reasonableness of the assumptions. c) Limited assurance on the presentation of the financial information and an opinion on the reasonableness of the assumptions. d) Limited assurance on the presentation of the financial information and the reasonableness of the assumptions.

a) An opinion on the presentation of the financial information and the reasonableness of the assumptions.

Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated? a) Increase the tolerable misstatement and examine additional items. b) Increase the sample size and examine additional items. c) Recommend adjustment of the client's account balance. d) All of these choices are acceptable courses of action.

a) Increase the tolerable misstatement and examine additional items.

Which of the following is NOT included in the Integrity and Objectivity Rule? a) Prudent assessment of facts b) Free of conflict of interests c) Not knowingly misrepresent facts d) Not subordinate judgment to others

a) Prudent assessment of facts

Which of the following is not true with respect to the use of nonstatistical sampling? a) The use of nonstatistical sampling generally results in a smaller sample size. b) The use of nonstatistical sampling is permissible under generally accepted auditing standards. c) Auditors may use block and haphazard selection methods when using nonstatistical sampling. d) The use of nonstatistical sampling does not permit the auditor to control exposure to the risk of overreliance.

a) The use of nonstatistical sampling generally results in a smaller sample size.

The purpose of tests of controls is to determine that: a) internal control policies and procedures are functioning as prescribed. b) the extent of further audit procedures can be reduced. c) errors and irregularities are prevented or detected in a timely manner. d) the auditor has an understanding of internal control.

a) internal control policies and procedures are functioning as prescribed.

In performing a financial statement audit in accordance with government auditing standards, an auditor is required to report on the entity's compliance with laws and regulations. This report should: a) state that compliance with laws and regulations is the responsibility of the entity's management. b) describe the laws and regulations with which the entity must comply. c) provide an opinion on overall compliance with laws and regulations. d) indicate that the auditor does not possess legal skills and cannot make legal judgments.

a) state that compliance with laws and regulations is the responsibility of the entity's management.

In an audit of a municipality the auditor is most important audit objective is: a) the municipality is in compliance with laws, regulations, and the municipality's policy and procedures. b) the municipality's internal controls are operating effectively. c) the municipality as sufficient documentation to support all purchases. d) purchases made by the municipality have sufficient encumbrances.

a) the municipality is in compliance with laws, regulations, and the municipality's policy and procedures.

The audit team is using monetary unit sampling to examine an entity's accounts receivable balance, which is recorded at $500,000. The team has determined the tolerable misstatement to be $25,000, the risk of incorrect acceptance to be 5 percent, and the expected misstatement to be 2 percent. Using the monetary unit sampling sample size table, what is the appropriate sample size? a) 75 b) 162 c) 231 d) 300

b) 162

The AICPA Council has designated the following bodies to pronounce accounting principles under the Accounting Principles Rule except the a) Financial Accounting Standards Board. b) Auditing Procedures Board. c) Federal Accounting Standards Advisory Board. d) Governmental Accounting Standards Board.

b) Auditing Procedures Board.

Which of the following is not a condition that must be met for an attestation engagement related to compliance: a) Management must accept responsibility for compliance. b) Auditors must also conduct an audit engagement on the client's financial statements. c) Compliance must be capable of evaluation and measurement against reasonable criteria. d) Sufficient evidence must be available to support management's evaluation of compliance.

b) Auditors must also conduct an audit engagement on the client's financial statements.

SCA is auditing a client's accounts receivable balance recorded at $10 million using MUS. The following parameters have been established for this account: Tolerable misstatement = $500,000 Expected misstatement = $100,000 Risk of incorrect acceptance = 10 percent Which of the following statements would not be true with respect to the sample size in this situation? a) The correct sample size is 69 customer accounts. b) Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts. c) If SCA wishes to reduce its exposure to the risk of incorrect acceptance to 5 percent (holding all other factors constant), sample size will be increased by 24 accounts. d) Increasing expected misstatement to $200,000 (holding all other factors constant) will increase the sample size to 115 customer accounts.

b) Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts.

Fraud examiners have four main objectives in performing an investigation. Which of the following is not one of those objectives? a) Determine whether a fraud exists. b) Determine who was involved in the fraud. c) Determine how the fraud occurred. d) Determine the effect on financial statement users.

b) Determine who was involved in the fraud.

Which of the following claims concerning the quality of auditors' work would least likely result in civil liability for damages? a) Gross negligence amounting to constructive fraud. b) Failure to investigate possible fraud when other entities in the industry have experienced frauds. c) Reckless disregard of evidence that the financial statements do not conform to generally accepted accounting principles. d) Issuing an unqualified auditors' opinion when evidence suggests that the financial statements were not prepared according to generally accepted accounting principles.

b) Failure to investigate possible fraud when other entities in the industry have experienced frauds.

Having an audit charter is important for internal audit departments. Which of the following items is generally not a reason to have an audit charter? a) It provides a commitment from management to support the internal audit department's activities. b) It defines the skills and competencies required by the internal audit department. c) It defines the department's authority and responsibility. d) It defines the reporting requirements for internal audit departments.

b) It defines the skills and competencies required by the internal audit department.

The fundamental principle behind Benford's Law is: a) Numbers occur in normal distribution about a mean value for account numbers. b) Naturally occurring numbers are not randomly distributed. c) Given a sufficient sample size the population of an account can be accurately approximated. d) Accounts with large balances are more significant to account balances.

b) Naturally occurring numbers are not randomly distributed.

How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law? a) Purchasers only have to prove loss caused by reliance on audited financial statements. b) Privity with purchasers is not a necessary element of proof. c) Purchasers have to prove either fraud or gross negligence as a basis for recovery. d) Auditors are held to a standard of care described as professional skepticism.

b) Privity with purchasers is not a necessary element of proof.

Which of the following sampling risks is associated with the use of attributes sampling? a) Risk of underreliance: Yes; Risk of incorrect rejection: Yes b) Risk of underreliance: Yes; Risk of incorrect rejection: No c) Risk of underreliance: No; Risk of incorrect rejection: Yes d) Risk of underreliance: No; Risk of incorrect rejection: No

b) Risk of underreliance: Yes; Risk of incorrect rejection: No

Which of the following is not an example of a general control? a) The organization's use of the systems development life cycle when implementing or modifying computerized processing systems. b) The organization's use of check digits to ensure accurate input of transaction data. c) Periodic and preventative maintenance performed on the computer and related equipment. d) The existence of appropriate separation of duties within the computer department.

b) The organization's use of check digits to ensure accurate input of transaction data.

Which of the following factors has a direct relationship with sample size in a variables sampling application? a) Tolerable misstatement: Yes; Expected misstatement: Yes b) Tolerable misstatement: No; Expected misstatement: Yes c) Tolerable misstatement: Yes; Expected misstatement: No d) Tolerable misstatement: No; Expected misstatement: No

b) Tolerable misstatement: No; Expected misstatement: Yes

The definition of administrative control does not include reference to: a) operational efficiency. b) accounting errors. c) adherence to managerial policies. d) plan of organization.

b) accounting errors.

The purpose of test data is to determine whether a) the audit team's test data are consistent with the client's normal transactions. b) controls operate as described in responses to internal control questionnaire items and program flowcharts. c) every possible error is prevented or detected by the client's computer controls. d) all possible combinations of valid data are correctly processed.

b) controls operate as described in responses to internal control questionnaire items and program flowcharts.

An auditor is testing control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher: a) constitutes a deviation. b) has been properly voided. c) cannot be located. d) represents an immaterial dollar amount.

b) has been properly voided

An interpretation of the Independence Rule allows members to a) hold a material indirect interest in a client. b) have loans from a client that are collateralized by cash deposits held by the client. c) have home mortgages with a client even if they are on the engagement. d) be a trustee of a client pension or profit sharing trust.

b) have loans from a client that are collateralized by cash deposits held by the client.

Under the liability provisions of Section 11 of the Securities Act of 1933, auditors may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the registration statement. Under Section 11, auditors usually will not be liable to the purchaser a) if auditors can show contributory negligence on the part of the purchaser. b) if auditors can demonstrate due diligence. c) unless the purchaser can prove privity with auditors. d) unless the purchaser can prove scienter on the part of auditors.

b) if auditors can demonstrate due diligence.

Jones, CPA, used a classical variables sampling application to examine the inventory balance of XYZ Company. The recorded balance of the inventory was $240,000, and Jones determined a tolerable misstatement of $12,000. Jones' sampling procedures resulted in a precision interval of $224,000 to $236,000. As a result, Jones should conclude that the a) inventory balance is fairly stated. b) inventory balance is materially misstated. c) tolerable misstatement should be increased. d) risk of incorrect acceptance is below the desired level.

b) inventory balance is materially misstated.

If an audit is performed for the benefit of a specific person or organization, that person or organization is known as a(n) a) party to the contract. b) primary beneficiary. c) foreseeable third party. d) prime benefactor.

b) primary beneficiary.

As part of assessing the risk of material misstatement, the audit team must assess the control risk in the computerized processing system. Initially, the audit team must identify the overall processing scope of the system(s), which would include each of the following considerations except a) the types of transactions that are processed through the system. b) the specific control procedures that have been implemented by the client to prevent or detect misstatements that could occur based on the audit team's analysis. c) the programs and files that are accessed by the system in processing transactions. d) the type of output that is created as a result of processing transactions through the system.

b) the specific control procedures that have been implemented by the client to prevent or detect misstatements that could occur based on the audit team's analysis.

Through the evaluation of the results of an Audit Data Analytic (ADA), the auditor concludes that the original objectives of the ADA were not reached. What should the auditor do next? a) Issue an adverse opinion b) Adjust the original objective c) Plan and perform alternative procedures d) Issue a disclaimer of opinion

c) Plan and perform alternative procedures

Which of the following would not be included in an accountant's report on the examination of a financial forecast? a) An indication that the engagement was conducted in accordance with Statements on Standards for Attestation Engagements. b) An indication that differences between forecasted and actual results may occur. c) A limitation on the use of the accountant's report. d) An indication that the accountant is not responsible to update the report for subsequent events and occurrences.

c) A limitation on the use of the accountant's report.

Which of the following statements are true regarding the use of a systems generated report as audit evidence? a) The auditor should test the accuracy and completeness of the information. b) The auditor should evaluate whether the information is sufficiently precise and detailed for purposes of the audit. c) Both A and B are correct. d) Neither of the above answers are actions the auditors should take for systems generated reports.

c) Both A and B are correct.

Which of the following is not important when considering the reliability of client data? a) The source reliability b) Client controls over data preparation c) If the auditor's information system has been subject to reliability testing d) All of the above are important

c) If the auditor's information system has been subject to reliability testing

Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law? a) The loss was caused by factors other than the materially misstated financial statements. b) Lack of proper standing (relationship) to bring suit in that jurisdiction. c) Lack of a privity relationship with auditors. d) Third parties did not rely upon the financial statements.

c) Lack of a privity relationship with auditors.

In which of the following situations would the auditor be more likely to use monetary unit sampling as opposed to classical variables sampling? a) Larger expected misstatement: Yes; Concern with overstatements: Yes b) Larger expected misstatement: Yes; Concern with overstatements: No c) Larger expected misstatement: No; Concern with overstatements: Yes d) Larger expected misstatement: No; Concern with overstatements: No

c) Larger expected misstatement: No; Concern with overstatements: Yes

Which of the following statements is correct regarding nonstatistical sampling? a) Nonstatistical sampling must use random selection techniques. b) The sample size when using nonstatistical sampling methods is generally not comparable to that determined using statistical sampling methods. c) Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk. d) When using nonstatistical sampling, the audit team is not required to select a sample that is representative of the population.

c) Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk.

Which of the following is not addressed in an SOC 1 Type 1 report? a) Description of the service organization's internal controls. b) Design of the service organization's internal controls. c) Operating effectiveness of the service organization's internal controls. d) All of these choices are addressed in an SOC 1 Type 1 report.

c) Operating effectiveness of the service organization's internal controls.

Which of the following is a common use of ADA in performing tests of controls? a) The auditor performs an aging of accounts payable b) The auditor conducts trend analysis on inventory turnover c) The auditor performs exception testing for proper approval of purchase transactions d) All of these choices are correct.

c) The auditor performs exception testing for proper approval of purchase transactions

Which of the following is not part of the definition of proportionate liability adopted by the Private Securities Litigation Reform Act? a) The total responsibility for loss is divided among all parties responsible for the loss. b) Defendants who knowingly committed a violation of securities laws remain jointly and severally liable. c) The full amount of damages may be recovered from any defendants involved in the action. d) A solvent defendant's liability may be increased by 50 percent if other defendants are insolvent.

c) The full amount of damages may be recovered from any defendants involved in the action.

According to the Accounting Principles Rule requires the auditor to adhere to official pronouncements except when a) complying would violate client confidentiality. b) pending legislation may change the reporting requirements of the client. c) adherence to a pronouncement would be misleading. d) it has been established that financial statement users prefer an alternative presentation of information.

c) adherence to a pronouncement would be misleading.

Data from which of the following sources is most likely to be unreliable? a) Data obtained directly from the client with strong internal controls b) Data obtained from a third-party sent directly to the auditor c) Data obtain through direct personal observation of the auditor d) Data obtained directly from the client with weak internal controls

d) Data obtained directly from the client with weak internal controls

As part of the assessment of control risk, the auditor decided to use audit sampling. After specifying the audit objectives, what would the auditor most likely do next? a) Determine the sample size. b) Select the sample. c) Perform tests of control procedures. d) Define the deviation conditions.

d) Define the deviation conditions.

Which of the following forms of organization would NOT be allowed under the Form of Organization and Name Rule of the Professional Code of Conduct? a) Limited liability partnership; all partners are CPAs. b) Limited liability partnership; 70 percent of partners are CPAs. c) Limited liability corporation; all shareholders are CPAs. d) Partnership; 40 percent of partners are CPAs.

d) Partnership; 40 percent of partners are CPAs.

Which of the following input controls would not be effective in identifying the erroneous input of numeric fields in a transaction? a) Batch totals. b) Hash totals. c) Check digits. d) Record counts.

d) Record counts.

In a compilation engagement, the accountant: a) provides reasonable assurance that no material misstatements exist. b) provides assurance that no material misstatement came to the auditors attention. c) provides a list of procedures performed and results found. d) does not express an opinion.

d) does not express an opinion.

Your organization has selected you to develop an internal audit activity. Your approach will most likely be to hire: a) internal auditors each of whom possess the skills required to handle all engagements. b) inexperienced personnel and train them the way the organization wants them trained. c) degreed accountants because most internal audit work is accounting related. d) internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities.

d) internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities.

Lauren hires Humphrey, a CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements are needed for a filing with a regulatory body. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves a loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming: a) it was in privity of the contract. b) it was a primary beneficiary. c) it was a foreseen party. d) it was a foreseeable party.

d) it was a foreseeable party.

The AICPA has developed sample size tables for attributes sampling that specifically incorporate all of the following factors except for the: a) expected population deviation rate. b) risk of overreliance. c) tolerable rate of deviation. d) sample rate of deviation.

d) sample rate of deviation.