Exam 2 Review
43. The audit time budget is an example of: A. A supporting schedule. B. An administrative working paper. C. A lead schedule. D. A corroborative working paper.
B
18. Which of the following would be least likely to be considered an audit planning procedure? A. Use an engagement letter. B. Develop the overall audit strategy C. Perform the risk assessment. D. Develop the audit plan.
C
19. While assessing the risks of material misstatement auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks and A. Assess the risk of misstatements due to illegal acts. B. Consider the complexity of the transactions involved. C. Consider the likelihood that the risks could result in material misstatements. D. Determine materiality levels.
C
38. Which of the following is a basic approach often used by auditors to evaluate the reasonableness of accounting estimates? A. Confirmation. B. Observation. C. Reviewing subsequent events or transactions. D. Analyzing corporate organizational structure.
C
17. Tests of controls do not ordinarily address: A. By whom a control was applied. B. How a control was applied. C. The consistency with which a control was applied. D. The cost effectiveness of the way a control was applied.
D
20. A client's internal control appears strong, but the CPA has elected not to perform any tests of controls. The planned assessed level of control risk is at what level? A. Zero. B. Low. C. Moderate. D. Maximum.
D
34. Which of the following is not a basic procedure used in an audit? A. Risk assessment procedures. B. Substantive procedures. C. Tests of controls. D. Tests of direct evidence.
D
38. If the auditors do notperform tests of controls for certain assertions: A. They have performed a substandard audit. B. They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors. C. They must issue a qualified opinion. D. They must assess control risk at the maximum level for those assertions.
D
59. A material weakness involves an amount that could result in a misstatement that is A. Smaller than inconsequential. B. Larger than inconsequential. C. Tolerable. D. Material.
D
76. In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are A. Prepared in a satisfactory control environment. B. Consistent with industry guidelines. C. Based on verifiable objective assumptions. D. Reasonable in the circumstances.
D
14. Which of the following is correct concerning a "fraud risk factor"? A. It may affect the auditor's assessment of fraud risk. B. It requires modification of planned audit procedures. C. It is also a material weakness in internal control. D. If it involves senior management, it is likely to result in resignation of the auditor.
A
14. Which of the following matters is generally included in an auditor's engagement letter? A. Limitations of the engagement. B. Factors to be considered in establishing preliminary judgments about materiality. C. Management's liability for illegal acts committed by its employees. D. The auditor's responsibility to obtain negative assurance relating to the occurrence of illegal acts.
A
15. When performing a financial statement audit, auditors are required to explicitly assess the risk of material misstatement due to: A. Fraud. B. Misappropriation. C. Illegal Acts. D. Business risk.
A
15. Which of the following would heighten an auditor's concern about the risk of fraudulent financial reporting? A. Inability to generate positive cash flows from operations, while reporting large increases in earnings. B. Management's lack of interest in increasing the dividend paid on common stock. C. Large amounts of liquid assets that are easily convertible into cash. D. Inability to borrow necessary capital without obtaining waivers on debt covenants.
A
16. As planning materiality is decreased, the auditor should plan more work on individual accounts to. A. Find smaller misstatements. B. Find larger misstatements. C. Increase the tolerable misstatement in the accounts. D. Decrease the risk of assessing control risk too low.
A
16. To best test existence, an auditor would sample from the: A. General Ledger to source documents. B. General Ledger to the financial statements. C. Source documents to the general ledger. D. Source documents to journals.
A
19. Which of the following must the auditor communicate to the audit committee? A. Significant deficiencies and material weaknesses. B. Only significant deficiencies. C. Only material weaknesses. D. Neither significant deficiencies nor material weaknesses.
A
21. Which of the following would be least likely to be regarded as a test of a control? A. Tests of the additions to property by physical inspection. B. Comparisons of the signatures on cancelled checks to the authorized check signer list. C. Tests of signatures on purchase orders. D. Recalculation of payroll deductions.
A
31. Which of the following is an example of fraudulent financial reporting? A. Company management falsifies inventory count tags thereby overstating ending inventory and understating cost of goods sold. B. An employee diverts customer payments to his personal use, concealing his actions by debiting an expense account, thus overstating expenses. C. An employee steals inventor and the "shrinkage" is recorded in cost of goods sold. D. An employee "borrows" tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense.
A
33. Which of the following is not ordinarily considered a factor indicative of increased financial reporting risk when an auditor is considering a client's risk assessment policies? A. Salaried sales personnel. B. Implementation of a new information system. C. Rapid growth of the organization. D. Corporate restructuring.
A
42. Which of the following is not a basic approach often used by auditors to evaluate the reasonableness of accounting estimates? A. Confirmation of amounts. B. Review of management's process of development. C. Independent development of an estimate. D. Review of subsequent events.
A
46. A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statement, is referred to as a: A. Working trial balance. B. Lead schedule. C. Summarizing schedule. D. Supporting schedule.
A
47. Tests for unrecorded assets typically involve tracing from: A. Source documents to recorded journal entries. B. Source documents to observations. C. Recorded journal entries to documents. D. Recorded journal entries to observations.
A
47. Which of the following is least likely to be considered a risk assessment procedure relating to internal control? A. Counting marketable securities at year-end. B. Inquiries of client personnel. C. Inspecting documents and reports. D. Observing the application of specific controls.
A
48. Tracing from source documents forward to ledgers is most likely to address which assertion related to posted entries: A. Completeness. B. Existence. C. Rights. D. Valuation.
A
50. Which of the following would be least likely to be considered a benefit of effective internal control? A. Eliminating all employee fraud. B. Restricting access to assets. C. Detecting ineffectiveness. D. Ensuring authorization of transactions
A
52. Which of the following would not necessarily be considered a related party transaction? A. Payment of a bonus to the president. B. Purchases from another corporation that is controlled by the corporation's chief stockholder. C. Loan from the corporation to a major stockholder. D. Sale of land to the corporation by the spouse of a director.
A
54. An example of an analytical procedure is the comparison of: A. Financial information with similar information regarding the industry in which the entity operates. B. Recorded amounts of major disbursements with appropriate invoices. C. Results of a statistical sample with the expected characteristics of the actual population. D. EDP generated data with similar data generated by a manual accounting system.
A
57. Which of the following statements is generally correct about audit evidence? A. The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. B. To be appropriate, audit evidence must be sufficient. C. Accounting data alone may be considered sufficient appropriate audit evidence to issue an unqualified opinion on financial statements. D. Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained.
A
69. If the independent auditors decide that the work performed by the internal auditors may have a bearing on their own procedures, they should consider the internal auditors': A. Competence and objectivity. B. Efficiency and experience. C. Independence and review skills. D. Training and supervisory skills.
A
72. In assessing the competence of a client's internal auditor, an independent auditor most likely would consider the A. Internal auditor's compliance with professional internal auditing standards. B. Client's policies that limit the internal auditor's access to management salary data. C. Evidence supporting a further reduction in the assessed level of control risk. D. Results of ratio analysis that may identify unusual transactions and events.
A
73. What type of transactions ordinarily have high inherent risk because they involve management judgments or assumptions in formulating accounting balances? A. Estimation. B. Nonroutine. C. Qualified. D. Routine.
A
76. An auditor's purpose for performing tests of controls is to provide reasonable assurance that: A. Controls are operating effectively. B. The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized. C. Transactions are executed in accordance with management's authorization and access to assets is limited by a segregation of functions. D. Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with generally accepted accounting principles.
A
70. An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective of: A. Accuracy. B. Completeness. C. Control. D. Existence.
B
73. Auditors must assess fraud risk on every audit and respond to the risks that are identified. Which of the following is not a procedure required to further address the fraud risk of management override of internal control? A. Reviewing accounting estimates for biases. B. Examining physical controls over assets. C. Evaluating the business rationale for significant unusual transactions. D. Examining journal entries and other adjustments for evidence of fraud.
B
73. Which of the following factors would most likely be considered an inherent limitation to an entity's internal control? A. The complexity of the information processing system. B. Human judgment in the decision making process. C. The ineffectiveness of the board of directors. D. The lack of management incentives to improve the control environment.
B
75. The date on which no information may be deleted from audit documentation is the A. Client's year-end. B. Documentation completion date. C. Last date of significant fieldwork. D. All of the above are incorrect in that no information may ever be deleted from audit documentation.
B
75. Which of the following is intended to detect deviations from prescribed controls? A. Substantive procedures specified by a standardized audit program. B. Tests of controls designed specifically for the client. C. Analytical procedures as set forth in an industry audit guide. D. Computerized analytical procedures tailored for the configuration of the computer equipment in use.
B
80. The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States: A. All companies. B. SEC registrants. C. Only those companies included in the Fortune 500. D. All nonpublic companies.
B
19. Which of the following is not an assertion relating to classes of transactions? A. Accuracy. B. Sufficiency. C. Cutoff. D. Classification.
B
22. Which of the following is not considered one of the five major components of internal control? A. Risk assessment. B. Segregation of duties. C. Control activities. D. Monitoring.
B
23. An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed? A. Test of transactions. B. Analytical procedures. C. Test of controls. D. Test of details.
B
24. The effectiveness of controls is not generally tested by: A. Inspection of documents and reports. B. Performance of analytical procedures. C. Observation of the application of accounting policies and procedures. D. Inquiries of appropriate client personnel.
B
25. On financial statement audits, it is required that the auditors obtain an understanding of internal control, including: A. Its operating effectiveness. B. Whether it has been implemented (placed in operation). C. Performing tests of controls for all material controls. D. Its ability to provide reasonable assurance.
B
25. The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent. They believe that inherent risk is 100%, and there is a 40% risk that material misstatement could have bypassed the client's system of internal control. What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable? A. 5%. B. 12.5%. C. 42.7%. D. 60%.
B
27. During financial statement audits, auditors seek to restrict which type of risk? A. Control risk. B. Detection risk. C. Inherent risk. D. Account risk.
B
27. This organization developed a set of criteria that provide management with a basis to evaluate controls not only over financial reporting, but also over the effectiveness and efficiency of operations and compliance with laws and regulations: A. Foreign Corrupt Practices Corporation. B. Committee of Sponsoring Organizations. C. Cohen Commission. D. Financial Accounting Standards Board.
B
29. Which statement is correct concerning the definition of internal control developed by the Committee of Sponsoring Organizations (COSO)? A. Its applicability is largely limited to internal auditing applications. B. It is recognized in the Statements on Auditing Standards. C. It emphasizes the effectiveness and efficiency of operations over the reliability of financial reporting. D. It suggests that it is important to view internal control as an end product as contrasted to a process or means to obtain an end.
B
32. Which of the following is not a component of the control environment? A. Integrity and ethical values. B. Risk assessment. C. Commitment to competence. D. Organizational structure.
B
33. Which of the following best describes the reason that auditors are concerned with the detection of related party transactions? A. The financial statements must often be adjusted for the effects of material related party transactions. B. Material related party transactions must be disclosed in the notes to the financial statements. C. The substance of related party transactions will differ from their form. D. In a related party transaction one party has the ability to exercise significant influence over the other party.
B
34. Which of the following statements is accurate about "fraud risk factors" considered when conducting an audit? A. Factors whose presence indicates that fraud exists. B. Factors whose presence often have been observed in circumstances where frauds have occurred. C. Factors whose presence will require modification to planned audit procedures. D. Factors obtained during the audit which lead to required communications with the audit committee.
B
35. When tests of controls reveal that controls are operating as anticipated, it is most likely that the assessed level of control risk will: A. Be less than the preliminary assessed level of control risk. B. Equal the preliminary assessed level of control risk. C. Equal the actual control risk. D. Be less than the actual control risk.
B
39. During financial statement audits, the auditors' consideration of their clients' internal control is integral to both assess the risk of material misstatement and to: A. Assess inherent risk. B. Design further audit procedures. C. Assess compliance with the Foreign Corrupt Practices Act. D. Provide a reasonable basis for an opinion on compliance with applicable laws.
B
40. Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits? A. An understanding of the control environment, information and communication, risk assessment and monitoring is necessary; an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls. B. The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit. C. When tests of controls have been performed, control risk must be assessed at a level less than the maximum. D. An understanding of the control environment is necessary, but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum.
B
42. Which of the following statements is correct regarding the auditor's determination of materiality? A. The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement. B. The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts. C. Auditors may use various rules of thumb to arrive at an evaluation level of materiality, but not for determining the planning level of materiality. D. The amount used for the planning should equal that used for evaluation.
B
44. A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a: A. Supporting schedule. B. Lead schedule. C. Corroborating schedule. D. Reconciling schedule.
B
44. Which of the following is not a responsibility that should be assigned to a company's internal audit department? A. Evaluating internal control. B. Approving disbursements. C. Reporting on the effectiveness of operating segments. D. Investigating potential merger candidates.
B
45. Which of the following is not a function of working papers? A. Provide support for the auditors' report. B. Provide support for the accounting records. C. Aid partners in planning and conducting future audits. D. Document staff compliance with generally accepted auditing standards.
B
54. After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely: A. Cease to perform further substantive procedures. B. Reduce substantive procedures in areas where the internal control was found to be effective. C. Increase the extent of anticipated analytical procedures. D. Perform all tests of controls to the extent outlined in the preplanned audit program.
B
56. The first standard of field work recognizes that early appointment of the independent auditors has many advantages to the auditors and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditors? A. The auditors will be able to plan the audit work so that it may be done expeditiously. B. The auditors will be able to complete substantive procedures prior to year-end. C. The auditors will be able to better plan for the observation of the physical inventories. D. The auditors will be able to perform the examination more efficiently and will be finished at an early date after the year-end.
B
56. The independent auditors might consider the procedures performed by the internal auditors because: A. They are employees whose work must be reviewed during substantive testing. B. They are employees whose work might affect the independent auditors' work. C. Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations. D. Their degree of independence may be inferred by the nature of their work.
B
57. In the consideration of internal control, the operating effectiveness of controls is tested by: A. Flowcharts verification. B. Tests of controls. C. Substantive procedures. D. Decision tables.
B
57. Preliminary arrangements agreed to by the auditors and the client should be reduced to writing by the auditors. The best place to set forth these arrangements is in: A. A memorandum to be placed in the permanent section of the auditing working papers. B. An engagement letter. C. A client representation letter. D. A confirmation letter attached to the constructive services letter.
B
35. Which of the following is not a financial statement assertion relating to account balances? A. Completeness B. Existence. C. Rights and obligations. D. Valuation and allowances.
D
39. A successor auditor is required to attempt communication with the predecessor auditor prior to A. Performing test of controls. B. Testing beginning balances for the current year. C. Making a proposal for the audit engagement. D. Accepting the engagement.
D
74. Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both A. Journalize cash receipts and disbursements and prepare the financial statements. B. Monitor internal controls and evaluate whether the controls are operating as intended. C. Adopt new accounting pronouncements and authorize the recording of transactions. D. Record and conceal fraudulent transactions in the normal course of assigned tasks.
D
79. Which of the following would be least likely to be included in an auditor's tests of controls? A. Inspection. B. Observation. C. Inquiry. D. Analytical procedures.
D
85. When performing an internal control audit under PCAOB standards, one or more material weaknesses in internal control that exist at year-end may result in what type of report(s): Qualified / Disclaimer A. Option A - Yes / Yes B. Option B - Yes / No C. Option C - No / Yes D. Option D - No / No
D
83. When performing an audit of internal control under PCAOB requirements, auditors evaluate control: Design Effectiveness / Operating Effectiveness A. Option A - Yes / Yes B. Option B - Yes / No C. Option C - No / Yes D. Option D - No / No
A
20. Which of the following is correct concerning requirements about auditor communications about fraud? A. Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. B. All fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. C. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. D. The auditor has no responsibility to disclose fraud outside the entity under any circumstances.
A
21. Which of the following is not considered to be an analytical procedure? A. Comparisons of financial statement amounts with source documents. B. Comparisons of financial statement amounts with nonfinancial data. C. Comparisons of financial statement amounts with budgeted amounts. D. Comparisons of financial statement amounts with comparable prior year amounts.
A
26. Which of the following is not one of the assertions made by management about an account balance? A. Relevance. B. Existence. C. Valuation. D. Rights and obligations.
A
27. When a company has changed auditors, according to the Professional Standards: A. The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management. B. The predecessor must respond fully to all inquiries made by the successor auditor. C. The successor must discuss with the predecessor matters bearing on the engagement prior to accepting the engagement. D. The successor may choose not to attempt any communication with the predecessor auditor.
A
29. CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so: A. Violates professional standards. B. Is acceptable, but should only be done when cost justified. C. Is acceptable, but only for non-public clients. D. Is acceptable and desirable under all conditions.
A
30. The definition of internal control developed by the Committee of Sponsoring Organizations (COSO) includes controls related to the reliability of financial reporting, the effectiveness and efficiency of operations, and: A. Compliance with applicable laws and regulations. B. Effectiveness of prevention of fraudulent occurrences. C. Safeguarding of entity equity. D. Incorporation of ethical business practice standards.
A
30. Which of the following best describes the problem with the use of published industry averages for analytical procedures? A. Lack of comparability. B. Lack of sufficiency. C. Lack of accuracy. D. Lack of availability.
A
30. Which of the following is least likely to be considered a financial statement audit risk factor? A. Management operating and financing decisions are dominated by top management. B. A new client with no prior audit history. C. Rate of change in the entity's industry is rapid. D. Profitability of the entity relative to its industry is inconsistent.
A
31. In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence? A. A price for a similar asset obtained from an active market. B. An appraisal obtained discounting future cash flows. C. Management's judgment of the cost to purchase an equivalent asset. D. The historical cost of the asset.
A
36. Which of the following is generally true about the sufficiency of audit evidence? A. The amount of evidence that is sufficient varies inversely with the risk of material misstatement. B. The amount of evidence concerning a particular account varies inversely with the materiality of the account. C. The amount of evidence concerning a particular account varies inversely with the inherent risk of the account. D. When evidence is appropriate with respect to an account it is also sufficient.
A
41. An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as: A. Vertical analysis. B. Horizontal analysis. C. Cross-sectional analysis. D. Comparison analysis.
A
44. Which of the following topics is not normally included in an engagement letter? A. The auditors' preliminary assessment of internal control. B. The auditors' estimate of the fee for the engagement. C. Limitations on the scope of the engagement. D. A description of responsibility for the detection of fraud.
A
46. Which of the following is an advantage of describing internal control through the use of a standardized questionnaire? A. Questionnaires highlight weaknesses in the system. B. Questionnaires are more flexible than other methods of describing internal control. C. Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. D. Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control.
A
50. Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by: A. Performing substantive procedures. B. Performing tests of controls. C. Assessing control risk. D. Obtaining a client representation letter.
A
51. After documenting the client's prescribed internal control, the auditors will often perform a walk-through of each transaction cycle. An objective of a walk-through is to: A. Verify that the controls have been implemented (placed in operation). B. Replace tests of controls. C. Evaluate the major strengths and weaknesses in the client's internal control. D. Identify weaknesses to be communicated to management in the management letter.
A
53. A form filed with the SEC when a company changes auditors is a: A. Form 8-K. B. Form 10-K. C. Form S-1. D. Form B-1.
A
53. The date of the management representation letter should coincide with the: A. Date of the auditor's report. B. Balance sheet date. C. Date of the latest subsequent event referred to in the notes to the financial statements. D. Date of the engagement agreement.
A
55. The use of fidelity bonds protects a company from embezzlement loses and also: A. Minimizes the possibility of employing persons with dubious records in positions of trust. B. Reduces the company's need to obtain expensive business interruption insurance. C. Allows the company to substitute the fidelity bonds for various parts of internal control. D. Protects employees who made unintentional errors from possible monetary damages resulting from such errors.
A
55. When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations: A. Complement, but do not replace, substantive procedures designed to support the assertion. B. Constitute sufficient evidence to support the assertion when considered in combination with a moderate assessed level of control risk. C. Are generally sufficient audit evidence to support the assertion regardless of the assessed level of control risk. D. Replace the assessed level of control risk as evidence to support the assertions.
A
61. A situation in which the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect material misstatements on a timely basis is referred to as a: A. Control deficiency. B. Material weakness. C. Reportable condition. D. Significant deficiency.
A
66. In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit? A. The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation. B. The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers. C. The working papers are the property of the client after the client pays the fee. D. The working papers must be retained by the CPA firm for a period of ten years.
A
66. The auditor faces a risk that the audit will not detect material misstatements in the financial statements. In regard to minimizing this risk, the auditor primarily relies on: A. Substantive procedures. B. Tests of controls. C. Internal control. D. Statistical analysis.
A
69. Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud? A. Are all financial reporting operations at one location? B. Does it have knowledge of fraud or suspect fraud? C. Does it have programs to mitigate fraud risks? D. Has it reported to the audit committee the nature of the company's internal control?
A
63. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should: A. Engage financial experts familiar with the nature of the business entity. B. Obtain a knowledge of matters that relate to the nature of the entity's business. C. Refer a substantial portion of the audit to another CPA who will act as the principal auditor. D. First inform management that an unqualified opinion cannot be issued.
B
13. Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement? A. Lack of understanding of the potential client's internal auditors' computer-assisted audit techniques. B. Management's disregard for internal control. C. The existence of related party transactions. D. Management's attempt to meet earnings per share growth rate goals.
B
15. Which of the following is least likely to be evidence of operating effectiveness of controls? A. Cancelled supporting documents. B. Confirmations of accounts receivable. C. Records documenting usage of computer programs. D. Signatures on authorization forms.
B
17. The auditors' understanding established with a client should be established through a(an) A. Oral communication with the client. B. Written communication with the client. C. Written or oral communication with the client. D. Completely detailed audit plan.
B
28. Which of the following groups are not considered a specialist by AICPA Professional Standards: A. Appraisers. B. Internal auditors. C. Engineers. D. Geologists.
B
31. Which statement is correct concerning the relevance of various types of controls to a financial statement audit? A. An auditor may ordinarily ignore the consideration of controls when a substantive audit approach is used. B. Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but other controls may also be relevant. C. Controls over safeguarding assets and liabilities are of primary importance, while controls over the reliability of financial reporting may also be relevant. D. All controls are ordinarily relevant to an audit.
B
32. Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting? A. Low turnover of senior management. B. Extreme degree of competition within the industry. C. Capital structure including various operating subsidiaries. D. Sales goals in excess of any of the preceding three years.
B
34. The Sarbanes-Oxley Act of 2002 requires that the audit committee: A. Annually reassess control risk using information from the CPA firm. B. Be directly responsible for the appointment, compensation and oversight of the work of the CPA firm. C. Require that the company's CPA firm rotate the partner in charge of the audit. D. Review the level of management compensation.
B
35. Which of the following is not an example of a likely adjustment in the auditors' overall audit approach when significant risk is found to exist? A. Apply increased professional skepticism about material transactions. B. Increase the assessed level of detection risk. C. Assign personnel with particular skill to areas of high risk. D. Obtain increased evidence about the appropriateness of management's selection of accounting principles.
B
36. Which of the following is least likely to be required on an audit? A. Evaluate the business rationale for significant, unusual transactions. B. Make a legal determination of whether fraud has occurred. C. Review accounting estimates for biases. D. Test appropriateness of journal entries and adjustments.
B
39. An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as: A. Vertical analysis. B. Horizontal analysis. C. Cross-sectional analysis. D. Comparison analysis.
B
40. If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts? A. Purchase returns and allowances. B. Allowance for doubtful accounts. C. Common stock. D. Noncontrolling interest of a subsidiary purchased during the year.
B
63. Well-designed internal control that is functioning effectively is most likely to detect an fraud arising from: A. The fraudulent action of several employees. B. The fraudulent action of an individual employee. C. Informal deviations from the official organization chart. D. Management fraud.
B
43. The auditors must consider materiality in planning an audit engagement. Materiality for planning purposes is: A. The auditors' preliminary estimate of the largest amount of misstatement that would be material to any one of the client's financial statements. B. The auditors' preliminary estimate of the smallest amount of misstatement that would be material to any one of the client's financial statements. C. The auditors' preliminary estimate of the amount of misstatement that would be material to the client's balance sheet. D. An amount that cannot be quantitatively stated since it depends on the nature of the item.
B
47. The auditors use analytical procedures during the course of an audit. The most important phase of performing these procedures is the: A. Vouching of all data supporting various ratios. B. Investigation of significant variations and unusual relationships. C. Comparison of client-computed statistics with industry data on a quarterly and full-year basis. D. Recalculation of industry date.
B
49. Which of the following is not a factor that is considered a part of the client's overall control environment? A. The organizational structure. B. The information system. C. Management philosophy and operating style. D. Board of directors.
B
49. Which of the following ultimately determines the specific audit procedures necessary to provide independent auditors with a reasonable basis for the expression of an opinion? A. The audit time budget. B. The auditors' judgment. C. Generally accepted accounting quality standards. D. The auditors' working papers.
B
51. An independent auditor finds that the Simmer Corporation occupies office space, at no charge, in an office building owned by a shareholder. This finding indicates the existence of: A. Management fraud. B. Related party transactions. C. Window dressing. D. Weak internal control.
B
53. Which of the following is correct with respect to control deficiencies discovered during an audit? A. Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. B. All material weaknesses in internal control should be reported to the audit committee. C. All such matters must be communicated to the audit committee and regulatory agencies. D. All control deficiencies are also significant deficiencies.
B
55. A successor auditor has accepted an engagement that was previously performed by a predecessor auditor and, prior to accepting the engagement, has communicated with the predecessor. When the successor believes that the predecessor has performed satisfactory previous audits, which of the following is correct? A. A second communication is required and must include details of previous audits. B. Ordinarily the successor auditors may be able to accept the opening balances of the current year with a minimum of verification work. C. Absent ongoing litigation, a predecessor must provide all working papers requested by the predecessor. D. The client should be informed of the need to perform a detailed audit of all opening balances.
B
60. Which statement is correct relating to a potential successor auditor's responsibility for communicating with the predecessor auditors in connection with a prospective new audit client? A. The successor auditors have no responsibility to contact the predecessor auditors. B. The successor auditors should obtain permission from the prospective client to contact the predecessor auditors. C. The successor auditors should contact the predecessors regardless of whether the prospective client authorizes contact. D. The successor auditors need not contact the predecessors if the successors are aware of all available relevant facts.
B
62. When planning an audit, an auditor should: A. Consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire. B. Make preliminary judgments about materiality levels for audit purposes. C. Conclude whether changes in compliance with prescribed control procedures justifies reliance on them. D. Prepare a preliminary draft of the management representation letter.
B
65. Controls are not designed to provide assurance that: A. Transactions are executed in accordance with management's authorization. B. Fraud will be eliminated. C. Access to assets is permitted only in accordance with management's authorization. D. The recorded accountability for assets is compared with the existing assets at reasonable intervals.
B
66. The scope of substantive procedures as compared to the scope of tests of controls generally vary: A. In a parallel manner. B. Inversely. C. Directly. D. Equally.
B
67. Which of the following is least likely to be a factor that might indicate to an auditor that an identified risk of misstatement requires special audit consideration? A. Complex calculations are involved. B. The rate of technological change is moderate in the industry. C. The potential for fraud seems high. D. Various subjective methods of application of a key accounting policy exist.
B
78. Tests of controls are most likely to be performed when: A. Controls seem weak and must be properly documented. B. Inadequate substantive procedures exist to restrict audit risk to an acceptable level. C. The auditor wishes to assess control risk at the maximum. D. The client's control environment appears weak.
B
61. Concerning retention of working papers, the Sarbanes-Oxley Act: A. Has no provisions. B. Requires permanent retention. C. Requires retention for at least 7 years. D. Requires retention for a period of 4 or less years.
C
11. To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by. C. A manager or partner who has a comprehensive knowledge of the client's business and industry.
C
11. Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee? A. Management's failure to renegotiate unfavorable long-term purchase commitments. B. Recurring operating losses that may indicate going concern problems. C. Evidence of a lack of objectivity by those responsible for accounting decisions. D. Management's current plans to reduce its ownership equity in the entity.
C
12. In assessing the objectivity of a client's internal auditors, the CPA would be most likely to consider internal auditor: A. Education levels. B. Experience. C. Organizational status within the company. D. Training and supervisory skills.
C
14. After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that: A. Additional evidence to support a reduction in the assessed level of control risk is not available. B. An increase in the assessed level of control risk is justified for certain financial statement assertions. C. It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures. D. There were many internal control deficiencies that would allow misstatements to enter the accounting system.
C
18. Assertions that have a meaningful bearing on whether an account balance, transaction class or disclosure is fairly stated are referred to as: A. Appropriate assertions. B. Sufficient assertions. C. Relevant assertions. D. Reliable assertions.
C
23. Which of the following statements is correct concerning the understanding of internal control needed by auditors? A. The auditors must understand the information system, not the accounting system. B. The auditors must understand monitoring and all preliminary accounting controls. C. The auditors must have a sufficient understanding to assess the risks of material misstatement. D. The auditors must understand the control environment, risk assessment, and all control activities.
C
24. In using the information on the statement of cash flows while obtaining an understanding of a profitable, growing company, which of the following would ordinarily be least surprising to an auditor? A. Decreases in accounts payable. B. Decreases in accounts receivable. C. Negative cash flows from investing. D. Negative operating cash flows.
C
24. The inspection of a vendor's invoice by the auditors is: A. Direct evidence about occurrence of a transaction. B. Physical evidence about occurrence of a transaction. C. Documentary evidence about occurrence of a transaction. D. Part of the client's accounting system.
C
26. Analytical procedures are required at the planning stage of all audits and as: A. Tests of internal control. B. Substantive procedures. C. A part of the final overall review. D. Computer generated procedures.
C
28. Which of the following procedures is not performed as a part of planning an audit engagement? A. Reviewing the working papers of the prior year. B. Performing analytical procedures. C. Confirmation of all major accounts. D. Designing an audit program.
C
33. Which of the following conditions identified during the audit increases the risk of employee fraud? A. Large amounts of cash in the bank. B. Existence of a mandatory vacation policy for employees performing key functions. C. Inventory items of small size, but high value. D. Presence of reconciling items on a client prepared year-end proof of cash.
C
37. The provisions of the Foreign Corrupt Practices Act apply to: A. All U.S. corporations. B. All U.S. corporations that engage in foreign operations. C. All corporations that must file under the Securities Exchange Act of 1934. D. All U.S. partnerships and corporations.
C
40. An auditor is performing an analytical procedure that involves comparing a client's ratios with other companies in the same industry. This technique is referred to as: A. Vertical analysis. B. Horizontal analysis. C. Cross-sectional analysis. D. Comparison analysis.
C
41. The risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an account balance when in fact such a misstatement does exist is referred to as: A. Account risk. B. Control risk. C. Detection risk. D. Inherent risk.
C
41. Which of the following is not a primary procedure auditors use to obtain sufficient knowledge about the design of the relevant controls and to determine whether they have been implemented (placed in operation)? A. Previous experience with the entity. B. Inquiries of appropriate management personnel. C. Performance of substantive procedures. D. Inspection of document and records.
C
43. For effective internal control, which of the following functions should not be assigned to the company's accounting department? A. Reconciling accounting records with existing assets. B. Recording financial transactions. C. Signing payroll checks. D. Preparing financial reports.
C
45. Which of the following is true about the auditors' consideration of internal control in a financial statement audit? A. The auditors must assess control risk at a level lower than the maximum. B. The auditors must prepare a flowchart description of internal control for their working papers. C. The auditors must obtain an understanding of the steps in processing major types of transactions. D. The auditors must perform tests of controls.
C
46. Which of the following is not an assertion that is made in the financial statements by management concerning each major account balance? A. Completeness. B. Rights and obligations. C. Legality. D. Valuation.
C
48. The auditors must obtain written client representations that normally should be signed by: A. The president and the chairperson of the board. B. The treasurer and the internal auditor. C. The chief executive officer and the chief financial officer. D. The corporate counsel and the audit committee chairperson.
C
48. Which of the following is least likely to be considered a risk assessment procedure? A. Analytical procedures. B. Inspection of documents. C. Observation of the counting of inventory. D. Observation of the performance of certain accounting procedures.
C
49. Determining that receivables are presented at net-realizable value is most directly related to which management assertion? A. Existence. B. Rights. C. Valuation. D. Presentation and disclosure.
C
50. Which of the following is not a general objective for the audit of asset accounts? A. Establishing existence of assets. B. Establishing proper valuation of assets. C. Establishing proper liabilities relating to assets. D. Establishing the completeness of assets.
C
52. The major components of internal control include all of the following, except: A. Risk assessment. B. The control environment. C. Internal auditing. D. Control activities.
C
52. To test for unsupported entries in the journals, the direction of audit testing should be to the: A. Ledger entries. B. Journal entries. C. Original source documents. D. Financial statements.
C
56. Which of the following expressions is least likely to be included in a client's representation letter? A. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. B. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. C. Management acknowledges responsibility for illegal actions committed by employees. D. Management has made available all financial statements, including notes.
C
58. The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the auditors. Which of the following would be the most useful source of information for the auditors during the preliminary planning stage when they are trying to obtain a general understanding of audit problems that might be encountered? A. Client manuals of accounts and charts of accounts. B. AICPA Industry Audit Guides. C. Prior-year working papers of the predecessor auditors. D. Latest annual and interim financial statements issued by the client.
C
58. The auditors who become aware of an internal control significant deficiency are required to communicate this to the: A. Client's legal counsel. B. Compensation committee. C. Audit committee. D. Internal auditors.
C
59. Which of the following is not a typical analytical procedure? A. Study of relationships of the financial information with relevant nonfinancial information. B. Comparison of the financial information with similar information regarding the industry in which the entity operates. C. Comparison of recorded amounts of major disbursements with appropriate invoices. D. Comparison of the financial information with budgeted amounts.
C
60. At least what level of probability of a material misstatement is required for a control deficiency to be considered a material weakness? A. More than remote. B. Probable. C. Reasonable possibility. D. Sufficient.
C
60. Which of the following is not a primary purpose of audit working papers? A. To coordinate the examination. B. To assist in preparation of the audit report. C. To support the financial statements. D. To provide evidence of the audit work performed.
C
62. During an audit engagement pertinent data are prepared and included in the audit working papers. The working papers primarily are considered to be: A. A client-owned record of conclusions reached by the auditors who performed the engagement. B. Evidence supporting financial statements. C. Support for the auditors' representations as to compliance with generally accepted auditing standards. D. A record to be used as a basis for the following year's engagement.
C
62. To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most likely should report to the: A. Financial vice-president. B. Corporate controller. C. Audit committee. D. Corporate stockholders.
C
65. Working papers that record the procedures used by the auditor to gather evidence should be: A. Considered the primary support for the financial statements being examined. B. Viewed as the connecting link between the books of account and the financial statements. C. Designed to meet the circumstances of the particular engagement. D. Destroyed when the audited entity ceases to be a client.
C
67. Confirmation would be most effective in addressing the existence assertion for the: A. Addition of a milling machine to a machine shop. B. Payment of payroll during regular course of business. C. Inventory held on consignment. D. Granting of a patent for a special process developed by the organization.
C
68. Which of the following audit tests would be regarded as a test of a control? A. Tests of the specific items making up the balance in a given general ledger account. B. Tests confirming receivables. C. Tests of the signatures on canceled checks to board of director's authorizations. D. Tests of the additions to property, plant, and equipment by physical inspection.
C
70. In the consideration of internal control, the auditor is basically concerned that it provides reasonable assurance that: A. Management can not override the system. B. Operational efficiency has been achieved in accordance with management plans. C. Misstatements have been prevented or detected. D. Controls have not been circumvented by collusion.
C
72. Which of the following is not a required source of information for the auditors' assessment of fraud risk? A. Discussion among audit team members. B. Fraud risk factors. C. Results of tests of controls. D. Inquiry of management and others.
C
74. Assertions with high inherent risk are least likely to involve: A. Complex calculations. B. Difficult accounting issues. C. Routine transactions. D. Significant judgment by management.
C
81. An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and: A. Compliance with laws. B. Internal control over asset safeguarding. C. Internal control over financial reporting. D. Suitable criteria.
C
82. A report on internal control performed in accordance with PCAOB Standard No. 2 includes an opinion on internal control for: A. The entire year. B. The prior quarter. C. The "as of date." D. The end of each quarter.
C
84. When performing an internal control audit under PCAOB requirements, one or more material weaknesses in internal control that exist at year-end may result in what type of report(s): Qualified / Adverse A. Option A - Yes / Yes B. Option B - Yes / No C. Option C - No / Yes D. Option D - No / No
C
26. A significant deficiency: A. Differs from a material weakness in that it involves internal control over operations rather than internal control over financial reporting. B. Involves an amount of discovered misstatements greater than the amount used as the planning measure of materiality. C. Is identical to a material weakness except that it need not be communicated to those responsible for oversight of the company's financial reporting. D. Is less severe than a material weakness.
D
28. Which of the following is most likely to be considered a risk assessment procedure relating to internal control? A. Confirm accounts receivable. B. Perform a test of a control relating to payroll. C. Take test counts of the year-end inventory. D. Trace a transaction through the information system relevant to financial reporting.
D
29. The risk of a material misstatement occurring in an account, assuming an absence of internal control, is referred to as: A. Account risk. B. Control risk. C. Detection risk. D. Inherent risk.
D
11. Which of the following factors most likely would cause a CPA to not accept a new audit engagement? A. The prospective client has fired its prior auditor. B. The CPA lacks a thorough understanding of the prospective client's operations and industry. C. The CPA is unable to review the predecessor auditor's working papers. D. The prospective client is unwilling to make financial records available to the CPA.
D
12. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? A. Large amounts of liquid assets that are easily convertible into cash. B. Low growth and profitability as compared to other entity's in the same industry. C. Financial management's participation in the initial selection of accounting principles. D. An overly complex organizational structure involving unusual lines of authority.
D
13. In a financial statement audit performed following AICPA Professional Standards, how frequently must an auditor test operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to rely upon in the current year? A. Monthly. B. Each audit. C. At least every second audit. D. At least every third audit.
D
16. Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes? A. Checklist. B. Flowchart. C. Questionnaire. D. Confirmation.
D
18. Which is most likely when the assessed level of control risk increases? A. Change from performing substantive procedures at year-end to an interim date. B. Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity. C. Use the maximum number of dual purpose tests. D. Use larger sample sizes for substantive procedures.
D
22. An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the balance sheet date. The auditor should be aware that this practice A. Eliminates the use of certain statistical sampling methods that would otherwise be available. B. Presumes that the auditor will reperform the tests as of the balance sheet date. C. Should be especially considered when there are rapidly changing economic conditions. D. Potentially increases the risk that errors that exist at the balance sheet date will not be detected.
D
23. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted? A. There are significant related party transactions that management claims occurred in the ordinary course of business. B. Internal control activities requiring the segregation of duties are subject to management override. C. Management continues to employ an inefficient system of information technology to record financial transactions. D. It is unlikely that sufficient evidence is available to support an opinion on the financial statements.
D
32. An auditor should expect that fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the: A. Acquisition date of the asset. B. Audit report date. C. Expected replacement date of the asset. D. Measurement date (ordinarily the date of the financial statements).
D
36. Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan? A. The auditors have determined that controls have been implemented (placed in operation) but, in accordance with the audit plan, have performed no tests of controls. B. Certain controls do not leave a trail of documentary evidence. C. Deviation rates were greater than zero and approached anticipated levels. D. The operating effectiveness of certain controls was found to be less than expected, although no material misstatements were identified.
D
37. Which of the following is true about analytical procedures? A. Performing analytical procedures results in the most reliable form of evidence. B. Analytical procedures are tests of controls used to evaluate the quality of a client's internal control. C. Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances. D. Analytical procedures are used in planning, as a substantive procedure for specific accounts, and in the final review of the audited financial statements.
D
38. Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting? A. Several members of management have recently purchased additional shares of the entity's stock. B. Several members of the board of directors have recently sold shares of the entity's stock. C. The entity distributes financial forecasts to financial analysts that predict conservative operating results. D. Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.
D
42. A control deficiency that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company's financial reporting is referred to as a(n): A. Control deficiency. B. Inherent limitation. C. Reportable deficiency. D. Significant deficiency.
D
45. Which of the following is most likely to be an overall response to fraud risks identified in an audit? A. Only use certified public accountants on the engagement. B. Place increased emphasis on the audit of objective transactions rather than subjective transactions. C. Supervise members of the audit team less closely and rely more upon judgment. D. Use less predictable audit procedures.
D
51. Which of the following is not used by auditors to establish the completeness of recorded assets? A. Assessing control risk. B. Tracing from source documents to entries in the accounting records. C. Performing analytical procedures. D. Vouching transactions.
D
54. Which of the following is least likely to render material a quantitatively small misstatement material? A. Affects the registrant's compliance with regulatory requirements. B. Masks a change in earnings or other trends. C. Arises from an item not capable of precise measurement. D. The Transaction involves a related party.
D
58. Which of the following statements relating to audit evidence is the most accurate statement? A. Audit evidence gathered by an auditor from outside an enterprise is reliable. B. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions. C. Oral representations made by management are not valid evidence. D. The auditor must obtain sufficient appropriate audit evidence.
D
59. The auditors will not ordinarily initiate discussion with the audit committee concerning the: A. Extent to which the work of internal auditors will influence the scope of the examination. B. Extent to which change in the company's organization will influence the scope of the examination. C. Details of potential problems which the auditors believe might cause a qualified opinion. D. Details of the procedures which the auditors intend to apply.
D
61. Which of the following situations would most likely require special audit planning by the auditors? A. Some items of factory and office equipment do not bear identification numbers. B. Depreciation methods used on the client's tax return differ from those used on the books. C. Assets costing less than $500 are expensed even though the expected life exceeds one year. D. Inventory is comprised of precious stones.
D
63. Although the quantity, type, and content of working papers will vary with the circumstances, the working papers generally would include the: A. Copies of those client records examined by the auditor during the course of the engagement. B. Evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. C. Auditor's comments concerning the efficiency and competence of client management personnel. D. Auditing procedures followed and the testing performed in obtaining audit evidence.
D
64. The permanent file section of the working papers that is kept for each audit client most likely contains: A. Review notes pertaining to questions and comments regarding the audit work performed. B. A schedule of time spent on the engagement by each individual auditor. C. Correspondence with the client's legal counsel concerning pending litigation. D. Narrative descriptions of the client's accounting procedures and controls.
D
64. The program flowcharting symbol representing a decision is a: A. Triangle. B. Circle. C. Rectangle. D. Diamond.
D
64. With respect to the auditor's planning of a year-end audit, which of the following statements is always true? A. An engagement should not be accepted after the fiscal year-end. B. An inventory count must be observed at the balance sheet date. C. The client's audit committee should not be told of any specific audit procedures which will be performed. D. It is an acceptable practice to carry out parts of the examination at interim dates.
D
65. Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the: A. Adequacy of the preplanned audit program. B. Ability to establish consistency in application of accounting principles between years. C. Apparent scope limitation. D. Integrity of management.
D
67. An abnormal fluctuation in gross profit that might suggest the need for extended audit procedures for sales and inventories would most likely be identified in the planning phase of the audit by the use of: A. Tests of transactions and balances. B. An assessment of internal control. C. Specialized audit programs. D. Analytical procedures.
D
68. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's: A. Awareness of the consistency in the application of generally accepted accounting principles between accounting periods. B. Evaluation of all matters of continuing accounting significance. C. Opinion of any subsequent events occurring since the predecessor's audit report was issued. D. Understanding as to the reasons for the change of auditors.
D
71. Which of the following is least likely to be considered an appropriate response relating to risks the auditors identify at the financial statement level? A. Assign more experienced staff. B. Incorporate additional elements of unpredictability in the selection of audit procedures. C. Increase the scope of auditor procedures. D. Emphasize the need to remain neutral, rather than to exercise professional skepticism.
D
77. Of the following statements about internal control, which one is not valid? A. No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. B. Transactions must be properly authorized before such transactions are processed. C. Because of the cost/benefit relationship, a client may apply control procedures on a test basis. D. Control activities reasonably insure that collusion among employees can not occur.
D