Audit Exam 2 MC Questions

The auditor is required to express an opinion on the effectiveness of the company's internal control over financial reporting for a nonissuer. - True - False

- False

The design or operation of a control may not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, financial statement misstatements on a timely basis. This circumstance is which of the following? - A control deficiency - A material weakness - A critical deficiency - A significant deficiency

- A control deficiency

Which of the following describes the process of collective additional evidence necessary to update interim date testing of management assertions to the end of the entity's period? - The top-down approach - A walk-through - Risk assessment - A roll-forward

- A roll-forward

Management representations would MOST likely include which of the following? - A statement that the effects of all known or possible litigation and claims have been accounted for and disclosed. - A statement that all material internal control weaknesses have been corrected. - An evaluation of the litigation that has been filed against the entity. - An assessment of the risk factors concerning non-financial fraud.

- A statement that the effects of all known or possible litigation and claims have been accounted for and disclosed.

Journal entries and reconciliations are best categorized as which of the following? - Internal controls - Analytical procedures - Financial statements - Accounting records

- Accounting records

Which of the following is an example of information obtained from a source "independent" of the entity? - Period-end accounting records - Minutes from the annual board of directors' meeting - The management representation letter - Accounts receivable confirmations

- Accounts receivable confirmations

If an auditor discovers a material weakness in internal control during an integrated audit, what type of opinion is the auditor most likely to express? - Unmodified opinion on internal control. - Adverse opinion on internal control. - Disclaimer of opinion on internal control. - Qualified opinion on internal control

- Adverse opinion on internal control.

Which of the following statements about an auditor's communication of significant control deficiencies is MOST appropriate? - A significant control deficiency previously communicated during the prior year's audit that remains uncorrected causes a scope limitation. - An auditor should communicate significant control deficiencies after tests of controls, but before commencing substantive tests. - An auditor should perform tests of controls on significant control deficiencies before communicating them to the client. - An auditor's report on significant control deficiencies should include a restriction on the use of the report.

- An auditor's report on significant control deficiencies should include a restriction on the use of the report.

An external auditor may use the internal auditor function to perform which of the following audit procedures? - Determine the adequacy of the allowance for doubtful accounts. - Assist in performing tests of details. - Determine materiality levels. - Assess inherent risk.

- Assist in performing tests of details.

An auditor who uses the work of an auditor's external specialist may refer to the specialist in the auditor's report if the which of the follow is CORRECT? - Auditor expresses a qualified opinion as a result of the specialist's findings. - Specialist is also management's specialist. - Specialist's work provides the auditor greater assurance of reliability. - Auditor indicates a division of responsibility related to the work of the specialist.

- Auditor expresses a qualified opinion as a result of the specialist's findings.

The date of the written representations should be as of the date of which of the following? - Balance sheet - Latest related party transaction - Auditor's report - Latest interim financial information

- Auditor's report

Under which of the following circumstances may an auditor refer to the findings of an external specialist in the auditor's report? - Auditor is not familiar with the professional certification, personal reputation, or particular competence of the specialist. - Auditor, as a result of the specialist's findings, decides to indicate a division of responsibility with the specialist for the audit opinion. - Auditor's report contains a qualified opinion. - Auditor, as a result of the specialist's findings, adds a paragraph emphasizing an unqualified opinion.

- Auditor's report contains a qualified opinion.

A component auditor has performed part of the audit. The group auditor may name the component auditor only if which condition(s), if any, is(are) satisfied? 1. The component auditor gives express permission. 2. The component auditor's report is referenced - Both 1 and 2. - 1 only. - Neither 1 nor 2. - 2 only.

- Both 1 and 2.

Regardless of whether the group auditor will reference the component auditor's report, the group engagement team should obtain an understanding of which, if any, of the following? 1. The component auditor's competence. 2. The component auditor's regulatory environment. - 1 only. - Neither 1 nor 2. - 2 only - Both 1 and 2.

- Both 1 and 2.

A written representation letter from a client's management should be signed by whom? - Chief financial officer and the chair of the board of directors. - Chief executive officer and the chief financial officer. - Chair of the audit committee. - Chief executive officer, the chair of the board of directors, and the client's legal counsel

- Chief executive officer and the chief financial officer

Which of the following is NOT a responsibility of a group engagement team? - Establish an overall audit strategy. - Develop a group audit plan. - Determine materiality for the group as a whole. - Choose one member to be the group engagement partner.

- Choose one member to be the group engagement partner.

Which of the following is MOST likely an additional written management representation obtained by the auditor? - Sufficient audit evidence has been made available to permit the issuance of an unmodified opinion. - Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. - Management acknowledges responsibility for illegal actions committed by employees. - Management acknowledges that there are no material weaknesses in internal control.

- Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.

Which of the following should the external auditor assess about the internal audit function, if the external auditor plans to use the work of the internal auditors to obtain audit evidence or to provide direct assistance? - Efficiency and experience. - Independence and review skills. - Competence and objectivity. - Training and supervisory skills.

- Competence and objectivity.

If the group auditor decides to refer in the report to the audit made by a component auditor, the - Group auditor assumes responsibility for the report of the component auditor - Component auditor is relieve of responsibility for his or her report but not his or her work - Component auditor is relieved of responsibility for his or her work but no his or her report - Component auditor is responsible for both his or her report and his or her work

- Component auditor is responsible for both his or her report and his or her work

When management hires a specialist, the auditor should do which of the following? - Disclaim an opinion. - Consider engaging an external specialist to evaluate management's specialist's findings. - Gather more than usual information about the qualifications of the specialist. - Modify the opinion because of the scope limitation.

- Consider engaging an external specialist to evaluate management's specialist's findings.

Which of the following is the LEAST appropriate procedure to employ when the auditor is confronted with inconsistent audit evidence? - Consider the effect of the inconsistency on the auditor's opinion on the financial statements - Determine what additional audit procedures are necessary to resolve the inconsistency - Consider obtaining audit evidence from similar sources to resolve the inconsistency - Determine what modifications to audit procedures are necessary to resolve the inconsistency

- Consider obtaining audit evidence from similar sources to resolve the inconsistency

Which of the following would MOST likely be included in a service auditor's report when the service auditor is engaged to express an opinion on a description of a service entity's internal controls placed in operation as of a specific date? - State whether the service organization's controls were suitably designed to achieve the user entity's objectives - Identify the service organization's controls relevant to specific financial statement assertions - Disclose the service auditor's assessed level of control risk for the service organization - Contain a disclaimer of opinion on the operating effectiveness of the service organization's controls

- Contain a disclaimer of opinion on the operating effectiveness of the service organization's controls

Which of the following is NOT a suitable criteria used to evaluate the ICFR? - Criteria are relevant to ICFR. - Criteria are sufficient to provide absolute assurance for ICFR. - Criteria permit consistent measurements of ICFR. - Criteria are free from bias when assessing ICFR

- Criteria are sufficient to provide absolute assurance for ICFR.

Which of the following procedures should an external auditor perform to assess the objectivity of internal auditors? - Determine the organizational level to which the internal auditors report. - Test a sample of the transactions and balances that the internal auditors examined. - Examine documentary evidence of the work performed by the internal auditors. - Evaluate the quality control program in effect for the internal auditors.

- Determine the organizational level to which the internal auditors report.

Which of the following is NOT an audit procedure for obtaining audit evidence to draw reasonable conclusions on which to base the auditor's opinion? - Substantive procedures. - Analytical procedures. - Risk assessment procedures. - Disclaimer procedures

- Disclaimer procedures

Which of the following is the LEAST LIKELY source of information regarding the capabilities of a management's specialist? - Personal experience with the work of the specialist - Knowledge of the specialists license to practice - Published papers written by the specialist - Discussions with individuals who are not familiar with the specialist

- Discussions with individuals who are not familiar with the specialist

Which of the following is MOST likely considered an auditor's external specialist? - Component auditor - Attorney engaged by the client to provide litigation services. - Engineer. - Accountant who is a member of the auditor's staff.

- Engineer.

If information to be used as audit evidence has been prepared using the work of a management's specialist, the auditor is LEAST LIKELY required to do which of the following? - Obtain an understanding of the work of the specialist. - Evaluate the appropriateness of the work of the specialist. - Evaluate the objectivity of management. - Evaluate the capabilities of the specialist.

- Evaluate the objectivity of management.

If the user auditor plans to use a Type 2 Report as audit evidence that service organization controls are operating effectively, the user auditor should determine whether the report provides sufficient appropriate evidence by all of the following procedures EXCEPT which of the following procedures? - Evaluate whether the report period is appropriate. - Determine whether the service auditor's tests of controls relate to user entity assertions. - Evaluate whether the service organization achieved its operating goals. - Determine whether the user entity implemented required complementary controls.

- Evaluate whether the service organization achieved its operating goals.

An external auditor would LEAST likely use the internal auditor function to perform which of the following audit procedures? - Performing analytical procedures. - Obtaining an understanding of internal control. - Evaluating accounting estimates. - Performing tests of controls

- Evaluating accounting estimates.

For which of the following is inquiry alone sufficient? - For understanding the likely sources of misstatements. - For testing the operating effectiveness of internal controls. - For supporting a conclusion about the effectiveness of a control. - For a roll-forward when there is a low risk that the controls are no longer effective.

- For a roll-forward when there is a low risk that the controls are no longer effective.

An auditor may issue an unmodified audit report when the - Auditor refers to the findings of an auditor's specialist. - Financial statements are prepared on the cash receipts and disbursements basis of accounting chosen by management. - Group engagement partner assumes responsibility for the work of a component auditor. - Financial statements are derived from audited financial statements but contain less detail.

- Group engagement partner assumes responsibility for the work of a component auditor.

Which of the following issues related to internal control over financial reporting (is) are required to be communicated in writing to management and those charged with governance? I. Deficiencies in internal control II. Significant deficiencies III. Material weaknesses - I, II, and III. - III only. - II only. - II and III only.

- II and III only.

Which of the following is LEAST likely an example of a circumstance that may be a deficiency related to the operation of controls? - Lack of objectivity by those responsible for accounting decisions - Failure in the operation of effectively designed controls over a significant process - Failure of controls designed to safeguard assets from misappropriation - Inadequate design of controls over the preparation of the financial statements

- Inadequate design of controls over the preparation of the financial statements

If the group auditor refers to the audit work of a component auditor in the report, the group auditor must do which of the following? - Review the audit documentation of the component auditor - Identify the component auditor - Visit the component auditor and discuss the audit procedures performed and the results obtained - Indicate the magnitude of the portion of the statements audited by the component auditor

- Indicate the magnitude of the portion of the statements audited by the component auditor

Which of the follow audit procedures, by itself or alone, ordinarily does NOT provide sufficient appropriate audit evidence of the absence of a material misstatement? - Reperformance - Inquiry - Inspection - Analytical procedures

- Inquiry

Which of the following procedures would provide the most reliable audit evidence? - Inspection of bank statements obtained directly from the client's financial institution. - Inspection of prenumbered client purchase orders filed in the accounts payable department. - Inquiries of the client's internal audit function held in private. - Analytical procedures performed by the auditor on the entity's trial balanc

- Inspection of bank statements obtained directly from the client's financial institution.

Examining accounting records is an example of which of the following types of auditing procedures? - Observation. - Inspection. - Recalculation - External confirmation

- Inspection.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission issued a document in 2013 to provide suitable criteria against which management may evaluate and report on the effectiveness of the entity's internal controls over financial reporting. What is the title of this document? - Auditing Internal Control Over Financial Reporting. - Integrated Internal Control Over Financial Reporting. - Internal Control--Integrated Framework. - Communicating Internal Control Related Matters

- Internal Control--Integrated Framework.

Which of the following is LEAST likely considered an auditor's external specialist? - Tax attorney. - Actuary. - Appraiser. - Internal auditor

- Internal auditor

Which of the following best defines "appropriate" audit evidence? - Is obtained by observing people, property, and events. - Is influenced by the purpose of the audit procedure but not the source of the procedures data. - Is the measure of the quantity of audit evidence affected by the assessment of the risks of material misstatement. - Is relevant and reliable in providing support for the conclusions on which the opinion is based.

- Is relevant and reliable in providing support for the conclusions on which the opinion is based.

Orange Corporation processes the payroll for a variety of clients, including Purple Corporation. ABC, CPAs, is Orange's auditor, while XYZ, CPAs, is the auditor for Purple Corporation. Which of the following is NOT required of ABC, CPAs? - Issuing a report that describes the scope and nature of the procedures performed. - Obtaining a letter of representation from the management of Orange Corporation. - Making inquiries regarding the professional reputation of XYZ, CPAs. - Inquiring of management regarding subsequent events that might significantly affect user organizations such as Purple Corporation.

- Making inquiries regarding the professional reputation of XYZ, CPAs.

Management representations would MOST likely include which of the following? - Management plans to expand into international operations during the next few years - Management believes the company is the premier company in its industry regarding service to customers - Management acknowledges its responsibilities for the design and implementation of programs and controls to detect fraud - Management believes the financial statements are accurately stated in accordance with generally accepted auditing standards

- Management acknowledges its responsibilities for the design and implementation of programs and controls to detect fraud

Which of the following is true concerning integrated audit of internal control over financial reporting? - Management is responsible for implementing internal controls over financial reporting - The auditor relies on management's assessment about the effectiveness of internal control over financial reporting - Management and the auditor use different criteria to evaluate the effectiveness of the entity's internal control over financial reporting - Management relies on the auditor's audit to assess the effectiveness of internal control over financial reporting

- Management is responsible for implementing internal controls over financial reporting

Which of the following is LEAST likely an example of a circumstance that may be a deficiency related to the design of controls? - Management override of an internal control - Absence of an internal process to report deficiencies in internal control to management on a timely basis. - Inadequate segregation of duties within a significant account. - Ineffective response to identified significant risks of material misstatement.

- Management override of an internal control

Which of the following is LEAST likely an example of a circumstance that may be a deficiency related to the design of controls? - Management override of an internal control - Ineffective response to identified significant risks of material misstatement - Absence of an internal process to report deficiencies in internal control to management on a timely basis - Inadequate segregation of duties within a significant account

- Management override of an internal control

Management representations should NOT be obtained about which of the following? - The absence of unrecorded transactions. - Uncorrected misstatements identified by the auditor. - Management's consultation with other accountants. - Instances of immaterial fraud involving employees who have significant roles in internal control.

- Management's consultation with other accountants.

A service auditor's Type I report expressing an opinion on a service organization's internal controls placed in operation as of a specific date should contain which of the following? - The service auditor's description of the service organization's system. - A paragraph indicating the basis for a user auditor to reduce the assessment of control risk below maximum. - Management's description of the service organization's system. - The service auditor's opinion on the operating effectiveness of the service organization's internal controls.

- Management's description of the service organization's system.

Maroon, CPA, is the group auditor of Blue Corporation. A component auditor has audited a wholly owned subsidiary of Blue and expressed a qualified opinion. Which of the following is TRUE concerning Maroon, CPA? - Maroon may express only a qualified opinion, an adverse opinion, or a disclaimer of opinion. - Maroon may still express an unmodified opinion but must refer to the component auditor's opinion. - Maroon may still express an unmodified opinion without referring to the component auditor's opinion. - Maroon must, whatever her opinion, refer to the component auditor's qualified opinion.

- Maroon may still express an unmodified opinion without referring to the component auditor's opinion.

May Dey, CPA, is the group auditor of Baron Corp. A component auditor has audited a wholly owned subsidiary of Baron and expressed a qualified opinion. Dey: - May express only a qualified or an adverse opinion. - May still express an unmodified opinion but must refer to the component auditor's opinion. - May still express an unmodified opinion without referring to the component auditor's opinion. - Must, whatever her opinion, refer to the component auditor's qualified opinion.

- May still express an unmodified opinion without referring to the component auditor's opinion

Written management representation letter should included which of the following beliefs? - The auditor is responsible for the fair presentation of the financial statements in conformity with generally accepted accounting principles. - The financial statements are completely accurate in all respects. - Misstatements identified by the auditor and corrected are material. - Misstatements identified by the auditor and not corrected are immaterial.

- Misstatements identified by the auditor and not corrected are immaterial.

A group auditor has decided to assume responsibility for the component auditor's work. The report of the component auditor expressed a qualified opinion, but the group auditor believes the qualification to be immaterial in regard to the consolidated financial statements. Which of the following is correct concerning the group auditor? - Must express a qualified opinion but need not refer to the audit of the component auditor - Must express a qualified opinion and refer to the audit of the component auditor - May express an unmodified opinion but must include a separate paragraph describing the component auditor's report - Need not refer to the audit of the component auditor

- Need not refer to the audit of the component auditor

A management representation letter would MOST likely include which of the following statements? - No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements - Certain computer files and other required audit evidence may exist only for a short period of time and only in computer-readable form - There are no significant deficiencies in internal control identified during the prior-year's audit of which those charged with governance are unaware - We do not intend to provide any information that may be construed to constitute a waiver of the attorney-client privilege

- No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements

When obtaining written client representations, which of the following matters would materiality limits NOT apply? - Fraud involving employees without internal control roles - Contingent claims and assessments - Losses from sales commitments - Noncompliance with laws affecting the financial statements

- Noncompliance with laws affecting the financial statements

Most of the auditor's work in forming and expressing an opinion on financial statements consists of which of the following? - Obtaining and evaluating audit evidence - Assessing the risk of material misstatement - Understanding internal controls - Comparing recorded accountability with assets

- Obtaining and evaluating audit evidence

Which of the following statements is CORRECT concerning management's written representations? - They are not deemed to be part of the evidential matter that the auditor obtains. - They replace other audit procedures. - Obtaining representations from management is required. - They include the company's financial statements.

- Obtaining representations from management is required.

The level of detail of the audit evidence obtained is MOST related to which of the following? - Accuracy. - Cutoff. - Completeness. - Precision.

- Precision.

Which of the following would an external CPA MOST likely obtain information in order to assess the competence of an internal auditor? - Influence of management on the scope of the internal auditor's duties. - Quality of the internal auditor's documentation. - Organization's commitment to integrity and ethical values. - Organizational levels to which the internal auditor reports.

- Quality of the internal auditor's documentation.

Which of the following procedures would an auditor LEAST likely perform when considering using the work of a specialist? - Refuse to use the work of a specialist engaged by the client - Obtain an understanding of the work to be performed by the specialist. - Evaluate the specialist's competence. - Evaluate the specialist's objectivity.

- Refuse to use the work of a specialist engaged by the client

Management doing which of the following will ALWAYS result in a limitation on the scope of an auditor's examination sufficient to preclude an unmodified opinion? - Prevents the auditor from reviewing the audit documentation of the predecessor auditor. - Refuses to furnish a management representation letter to the auditor. - Engages the auditor after the year-end physical inventory count is completed. - Fails to correct a material internal control weakness that had been identified during the prior year's audit.

- Refuses to furnish a management representation letter to the auditor.

The independent execution of procedures or controls is an example of which of the following types of auditing procedures? - Observation. - Recalculation. - Scanning. - Reperformance.

- Reperformance.

Which of the following procedures can an auditor perform to provide the most reliable evidence of internal control effectiveness for an integrated audit? - Inspection. - Reperformance. - Observation. - Inquiry.

- Reperformance.

When the report of a group auditor refers to the audit by a component auditor, the component auditor may be named if express permission to do so is given and if the - Report of the group auditor names the component auditor in both the introductory and opinion paragraphs. - Report of the component auditor is presented together with the report of the group auditor. - Group auditor accepts responsibility for the work of the component auditor. - Component auditor is not a member of the group engagement team whose work is done at the request of the group engagement team.

- Report of the component auditor is presented together with the report of the group auditor.

Which of the following actions by a user auditor would be most efficient for obtaining information about the service organization's internal controls? - Review reports on internal control placed in operation and its operating effectiveness produced by the service organization's own auditor - Review prior-year workpapers to determine whether the number of transactions processed by the service organization has materially increased - Perform tests of controls on a sample of the user entity's transactions through the service organization - Perform an audit on the internal control function of the service organization

- Review reports on internal control placed in operation and its operating effectiveness produced by the service organization's own auditor

Which of the following procedures should the CPA firm perform when assuming responsibility for the work of the component auditor? - Obtain and attach a copy of the other firm's representation letter and audit report to the opinion that the CPA firm issues. - Reference the reliance on the other firm's work in the first paragraph of the opinion in the audit report. - Review the other firm's audit documentation to validate the firm's conclusions. - Reference the reliance on the other firm's work in a footnote disclosure to the financial statements.

- Review the other firm's audit documentation to validate the firm's conclusions.

Which of the following is NOT a responsibility of a group engagement team? - Select the component auditor - Form an opinion on the group financial statements - Perform work on the consolidation process - Determine component materiality

- Select the component auditor

ABC Partnership is auditing the consolidated financial statements of XYZ Company. Linda is the auditor who has audited and reported on a subsidiary of XYZ Company. ABC Partnership's first concern with respect to the XYZ Company financial statements is to decide whether it could do which of the following? - Refer to the work of Linda in his report on the consolidated financial statements. - Resign from the engagement because an unmodified opinion cannot be expressed on the consolidated financial statements. - Serve as the group auditor and report as such on the consolidated financial statements of XYZ, Inc. - Obtain an understanding of Linda's professional competence.

- Serve as the group auditor and report as such on the consolidated financial statements of XYZ, Inc.

Which of the following is an internal control condition that is less severe than a material weakness yet important enough to merit attention by those charged with governance? - Critical deficiency - Significant deficiency - Control deficiency - Material deficiency

- Significant deficiency

Which of the following provides the most reliable evidence considering the timing and extent of tests of control? - Testing controls over a short period of time. - Testing controls at the beginning of the year. - Testing controls using the internal audit function. - Testing controls closer to the date of management's report.

- Testing controls closer to the date of management's report.

Which of the following is FALSE concerning the discussion with management with respect to the determination of whether deficiencies in internal controls have been identified? - Discussions with management may provide an opportunity for auditors to alert management on a timely basis. - It may not be appropriate for the auditor to discuss the auditor's findings about deficiencies directly with management. - Auditors should discuss the relevant facts of the auditor's findings with management. - The appropriate level of management for discussion is the level that is familiar with the control regardless of their authority to take remedial action.

- The appropriate level of management for discussion is the level that is familiar with the control regardless of their authority to take remedial action.

With respect to an audit of an issuer's and a nonissuer's financial statements, which of the following is a requirement of both? - The auditor is required to express an opinion on the effectiveness of the company's internal control over financial reporting. - The auditor is required to refer to a recognized control framework in performing the audit of internal control over financial reporting. - The auditor is required to assess the risk of fraud. - The auditor is required to assess the effectiveness of management's assessment of the company's internal control over financial reporting.

- The auditor is required to assess the risk of fraud.

Concerning internal controls over financial reporting (ICFR), which of the following responsibilities is INCORRECT? - The auditor is responsible for conducting the audit in accordance with acceptable auditing standards - The auditor is responsible for expressing an opinion on the entity's ICFR - The auditor is responsible for designing, implementing, and maintaining effective ICFR - The auditor is responsible for planning the audit to obtain reasonable assurance about the effectiveness of ICFR

- The auditor is responsible for designing, implementing, and maintaining effective ICFR

Considering the use of the work of an auditor's external specialist, which of the following is CORRECT ? - The auditor should obtain an understanding of the methods and assumptions used by the specialist. - The auditor must keep client information confidential, but the specialist is not obligated to do so. - The auditor is required to perform substantive procedures to verify the specialist's assumptions and findings. - The specialist need not agree to the auditor's use of the specialist's findings.

- The auditor should obtain an understanding of the methods and assumptions used by the specialist.

Concerning an integrated audit, which of the following statements concerning management's responsibility to prepare an internal control report or the auditor's requirement to evaluate that report is FALSE? - The auditors should provide recommendations for improving internal control in their assessment. - The auditors should evaluate whether internal controls are effective in accurately and fairly reflecting the firm's transactions. - Management's report should state its responsibility for establishing and maintaining an adequate internal control system. - Management should identify significant deficiencies and material weaknesses in its report.

- The auditors should provide recommendations for improving internal control in their assessment.

Which of the following best describes the responsibility of an auditor with respect to significant deficiencies and material weaknesses in internal controls? - The auditor need not report the conditions if those charged with governance know of them - The communication by the auditor must be in writing - The auditor must express an opinion on the effectiveness of internal control - The auditor's report may be distributed to the shareholders without any restrictions

- The communication by the auditor must be in writing

Which of the following is true concerning a control deficiency that is NEITHER a material weakness NOR a significant deficiency that is communicated orally to management? - The communication is appropriate because the deficiency is not important - The communication is only appropriate when previously communicated by the internal control function. - The communication is inappropriate because all control deficiencies must be communicated in writing. - The communication should also be included in the audit documentation.

- The communication should also be included in the audit documentation.

The group engagement partner may decide to name a component auditor in the group auditor's report if which, if any, of the following conditions is satisfied? - The correct answer is not provided. - The component auditor gives permission to reference report. - The component auditor expresses an unqualified opinion. - The component auditor expresses a modified opinion

- The component auditor gives permission to reference report.

In which of the following situations can the group auditor reference the component auditor's audit report? - The group auditor assumes responsibility for the component auditor's work but expresses a modified opinion on the group's financial statements. - The group auditor reads the component's financial statements and gains an understanding that the component auditor is competence. - The group auditor assumes responsibility for the component auditor's work and expresses an unqualified opinion on the group's financial statements. - The group auditor does not assume responsibility for the component auditor's work because the component auditor does not perform the audit in accordance with appropriate auditing standards.

- The group auditor reads the component's financial statements and gains an understanding that the component auditor is competence.

When the group auditor assumes responsibility for the work of a component auditor of a non-significant component, which of the following is true? - The group engagement team or component auditor should perform audit procedures in response to the risk of material misstatement for the group financial statements. - The group engagement team or component auditor should perform an audit of financial information for the component. - The group engagement team should perform analytical procedures at the group level. - The group engagement team or component auditor should perform an audit of one or more account balances for the component.

- The group engagement team should perform analytical procedures at the group level.

Concerning the relationship between the internal auditor and the scope of the external audit of financial statements which of the following is INCORRECT? - The external auditor is not required to give consideration to the internal audit function beyond obtaining an understanding sufficient to identify activities relevant to planning the audit. - The nature, timing, and extent of the external auditor's substantive tests may be affected by the work of the internal auditors. - The internal auditors may assist the external auditor in performing substantive tests and tests of controls under certain circumstances. - The internal auditors may determine the extent to which audit procedures should be employed by the external auditor.

- The internal auditors may determine the extent to which audit procedures should be employed by the external auditor.

When a group auditor decides to refer to a component auditor's audit report, the group auditor's report should always indicate which of the following? - The disclaimer of responsibility for the financial statements examined by the component auditor. - The group auditor's opinion is qualified because of the reference to the component auditor's report. - The name of the component auditor. - The magnitude of the portion of the financial statements audited by the component auditor.

- The magnitude of the portion of the financial statements audited by the component auditor.

One purpose of a written management representation letter is to reduce which of the following? - An auditor's responsibility to detect material misstatement only to the extent that the letter is relied on - The scope of an auditor's procedures concerning related party transactions and subsequent events - The possibility of a misunderstanding concerning management's responsibility for the financial statements - Audit risk to an aggregate level of misstatement that could be considered material

- The possibility of a misunderstanding concerning management's responsibility for the financial statements

Which of the following is LEAST likely to be a factor that affects the magnitude of a misstatement that might result from a deficiency in internal control? - The financial statement amounts exposed to the deficiency. - The total number of transactions exposed to the deficiency. - The possibility that the entities controls will fail to prevent a misstatement exposed to the deficiency. - The volume of activity projected for future periods exposed to the deficiency.

- The possibility that the entities controls will fail to prevent a misstatement exposed to the deficiency.

Which of the following should the written communication to management of significant deficiencies and material weaknesses include? - A description of the significant deficiencies and material weaknesses but not their possible effects. - Fraud or errors may occur and not be detected because of the inherent limitations of internal control. - The expression of an unmodified opinion on internal controls may be dependent on corrective follow-up action. - The purpose of the audit was to report on the financial statements, not to provide assurance on internal control.

- The purpose of the audit was to report on the financial statements, not to provide assurance on internal control.

Which of the following matters would management MOST likely include in a representation letter? - Plans to acquire or merge with other entities in the subsequent years - The reasonableness of significant assumptions used in making accounting principles - Management's acknowledgment of its responsibility for the detection of employee fraud. - Communications with those charged with governance concerning weaknesses in internal control.

- The reasonableness of significant assumptions used in making accounting principles

Information obtained from which of the following would an external auditor LEAST likely consider in assessing the competence and objectivity of internal auditors? - The results of analytical procedures. - Previous experience with the internal auditor. - Discussions with management personnel. - External quality reviews of the internal auditor's activities.

- The results of analytical procedures.

A user auditor's assessment of the risk of material misstatement may be based on the effective operation of controls of a nonissuer service organization if which of the following occurs? - The service auditor provides a report on controls placed in operation. - The service auditor provides a report on controls placed in operation and tests of operating effectiveness. - The service auditor's audit report identifies significant deficiencies in internal controls but no material weaknesses. - The service auditor issues an unmodified opinion on the financial statements of the service organization.

- The service auditor provides a report on controls placed in operation and tests of operating effectiveness.

Which of the following is relevant when gathering data for the report on the service organization's internal controls? - Credit limits are established and updated by the client's credit department. - The client's sales manager reviews accounts receivable balances. - The service organization's system calculates accounts receivable balances. - The client's data entry clerk used the sales manager's password to make unauthorized changes to customer prices.

- The service organization's system calculates accounts receivable balances.

What does the group auditor's reference to a component auditor in the report on the group financial statements indicate? - The source of the audit evidence for the referenced components - The group auditor is assuming responsibility for the work of the component audit - An emphasis of matter opinion - A qualified opinion

- The source of the audit evidence for the referenced components

Which of the following is NOT a factor for determining the sufficiency and appropriateness of the audit evidence provided by a type 1 or type 2 report? - The service auditor's independence from the service organization - The service auditor's professional competence - The adequacy of the standards under which the type 1 or type 2 report was issued - The type of opinion expressed by the service auditor

- The type of opinion expressed by the service auditor

What is the user auditor's responsibility concerning making reference to service auditor as a basis, in part, for the user auditor's own opinion? - The user auditor may refer to the service auditor only if the user auditor's report indicated the division of responsibility - The user auditor may refer to the service auditor only if the user auditor relied on the service auditor's report in restricting the extent of substantive tests - The user auditor may not refer to the service auditor under the circumstances described in this question - The user auditor may refer to the service auditor only if the user auditor is satisfied as to the service auditor's professional reputation and independence

- The user auditor may refer to the service auditor only if the user auditor is satisfied as to the service auditor's professional reputation and independence

Which of the following is LEAST likely a risk factor that affect whether there is a reasonable possibility that a deficiency in internal control will result in a misstatement of a disclosure? - The volume of activity in the normal course of business. - The extent of judgment required to determine the amount involved. - The susceptibility of the related asset to fraud. - The interaction of controls with other controls.

- The volume of activity in the normal course of business.

Considering an auditor's use of the work of an external specialist, which of the following is CORRECT? - The reasonableness of the specialist's assumptions and their applications are strictly the auditor's responsibility. - The auditor need not obtain an understanding of the methods and assumptions used by the specialist. - The auditor may not use the work of a specialist in matters material to the fair presentation of the financial statements. - The work of a specialist who has a contractual relationship with the client may be acceptable under certain circumstances.

- The work of a specialist who has a contractual relationship with the client may be acceptable under certain circumstances.

Which of the following is a reason that an independent auditor should understand the internal audit function as it relates to internal control? - The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures. - The procedures performed by the internal audit staff may eliminate the independent auditor's need for considering internal control. - The internal auditor should determine the risk of material misstatement due to fraud based on the internal control structure. - The audit programs, audit documentation, and reports of internal auditors may often be used as a substitute for the work of the independent auditor's staff.

- The work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor's procedures.

Which of the following representations should NOT be included in a written report on internal control related matters identified in an audit of financial statements under the AICPA's auditing standards? - There are no material weaknesses in the design or operation of internal control. - Corrective action is recommended due to the relative significance of material weaknesses discovered during the audit. - The auditor's consideration of internal control would not necessarily disclose all significant deficiencies or material weaknesses that exist. - Significant deficiencies related to the design of internal control exist, but none are deemed to be material weaknesses.

- There are no material weaknesses in the design or operation of internal control.

An auditor's report contains the following: "We did not audit the financial statements of Green Company, a wholly owned subsidiary whose statements reflect total assets and revenues constituting 20% and 25%, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Green Company, is based solely on the report of the other auditors." Which of the following is TRUE concerning the above statements in the auditor's report? - They are an improper form of reporting for Green Company. - They assume no responsibility for the audit of Green Company. - They qualify an opinion for Green Company. - They disclaim an opinion for Green Company.

- They assume no responsibility for the audit of Green Company.

Which of the following is CORRECT concerning a service organization providing services that affect the initiation, execution, processing, or reporting of a user company's transactions? - Those services are considered to be part of the user company's control activities - Those services are considered to be part of the user company's control environment - Those services are considered to be part of the user company's information system - Those services are not considered to be part of the user company's internal control

- Those services are considered to be part of the user company's information system

For an integrated audit of internal controls over financial reporting (ICFR), which of the following statements is LEAST CORRECT regarding the likely sources of potential misstatements? - The controls that management has implemented to address potential sources of misstatements should be identified. - A walk-through is frequently the most effective way of understanding sources of potential misstatements. - An understanding of how transactions are initiated, authorized, processed, and recorded should be achieved. - Understanding an entity's strengths is frequently the most effective way of understanding sources of potential misstatements.

- Understanding an entity's strengths is frequently the most effective way of understanding sources of potential misstatements.

If a group engagement partner refers to a component auditor in an audit that would otherwise result in an unmodified opinion, the type of audit report issued should express a(n) - Adverse opinion. - Disclaimer of opinion. - Qualified opinion. - Unmodified opinion.

- Unmodified opinion.

Which of the following describes the process of following a transaction from its origin to the financial statements? - Risk Assessment - Roll Forward - Top-down approach - Walk-through

- Walk-through

Services provided by service organizations are usually relevant to the audit of user entity financial statements when these services affect all of the following EXCEPT which one of the following? - Classes of transactions. - Waste management services. - Nonstandard journal entries. - Accounting estimates

- Waste management services.

MAccsgiving - Thursday, November 12th Potluck Style

Be there or be square