Final flash cards
Assume that you are interested in determining if the average weight of students in your class exceeds 140 pounds. Which of the following sets of conditions would expose you to sampling risk? A. Sample estimate = 130 pounds; true average = 139 pounds. B. Sample estimate = 145 pounds; true average = 142 pounds. C. Sample estimate = 135 pounds; true average = 145 pounds. D. (b) and (c) above.
. C. Sample estimate = 135 pounds; true average = 145 pounds.
Which of the following is a reasonable definition of a public blockchain? A. A cryptographic, decentralized, distributed ledger B. A cryptographic, centralized, non-distributed ledger C. A cryptographic, centralized, distributed ledger D. A chain of gold blocks that are linked together by metal rope (or twine).
A. A cryptographic, decentralized, distributed ledger
Which of the following is not prohibited by the AICPA code of professional conduct? A. Advertising in newspapers. B. Payment of commission to obtain an audit client. C. Acceptance of a contingent fee for an audit of financial statements. D. Engagement in discriminatory employment practices.
A. Advertising in newspapers
Procedures used by auditors near the end of the audit to identify unusual or unexpected relationships not previously identified during the audit are referred to as: A. Analytical procedures B. Interim testing. C. Roll-forward work. D. Subsequently discovered facts.
A. Analytical procedures
An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the A. Auditor's report. B. Final review of the audit working papers. C. Public issuance of the financial statements. D. Delivery of the auditor's report to the client.
A. Auditor's report
Which of the following statements is a correct statement? A. Bitcoin is a cryptocurrency B. Blockchain is a cryptocurrency C. Bitcoin and blockchain are both cryptocurrencies D. Blockchains need cryptocurrencies to operate
A. Bitcoin is a cryptocurrency
A method of sample selection in which a series of contiguous units are selected is referred to as: A. Block selection. B. Haphazard selection. C. Systematic random selection. D. Unrestricted random selection
A. Block selection
Which of the following is an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable? A. Combining negative and positive monetary misstatements in the appraisal of a sample B. Using a sampling technique in which the same account balance could be selected more than once C. Selecting a random starting point and then sampling every nth monetary unit (systematic sampling) D. Defining the sampling unit in the population as an individual monetary unit and not as an individual account balance
A. Combining negative and positive monetary misstatements in the appraisal of a sample
When management will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a(n) A. Disclaimer of opinion. B. "Except for" qualified opinion. C. "Subject to" qualified opinion. D. Unmodified opinion with a separate emphasis-of-matter paragraph.
A. Disclaimer of opinion.
A distinguishing characteristic of random number sample selection is that A. Each item in the population has a known and nonzero chance of being selected B. Each stratum in the population has an equal number of items selected C. Each item is selected from a stratum having minimum variability D. Each item's chance for selection is proportional to its dollar value
A. Each item in the population has a known and nonzero chance of being selected
Which of the following factors is most likely established based on the results of prior years' audit examinations? A. Expected misstatement. B. Population size. C. Risk of incorrect acceptance. D. Tolerable misstatement.
A. Expected misstatement.
5. If all other sample size planning factors were exactly the same in attribute sampling, changing the confidence level from 90% to 95% and changing the desired precision from 5% to 2% would result in a revised sample that is A. Larger B. Smaller C. Unchanged
A. Larger
Which of the following events that occurred after a client's calendar-year end, but before the audit report date, would require disclosure in the notes to the financial statements, but no adjustment in the financial statements? A. New convertible bonds are issued to expand the company's product line. B. A loss is reported on uncollectible accounts of an acknowledged distressed customer. C. A fixed asset used in operations is sold at a substantial profit. D. Negotiations have resulted in compensation adjustments for union employees retroactive to the fourth quarter.
A. New convertible bonds are issued to expand the company's product line.
An auditor is using statistical sampling in testing whether cash disbursements were properly authorized. The sample results indicate that the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate. Under these circumstances, the auditor most likely would reduce the A. Planned reliance on the prescribed control. B. Assessed level of control risk. C. Planned reliance on substantive tests. D. Tolerable rate of deviations.
A. Planned reliance on the prescribed control.
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the A. Population. B. Attribute of interest. C. Sample. D. Sampling unit
A. Population
In evaluating an attribute sample, the estimated range that is expected to contain the population characteristics is the A. Precision B. Confidence level C. Upper deviation limit D. Expected deviation rate
A. Precision
When financial statements are materially but not pervasively misstated, an auditor may express a A. Qualified Opinion (YES); Disclaimer of an Opinion (NO) B. Qualified Opinion (YES); Disclaimer of an Opinion (YES) C. Qualified Opinion (NO); Disclaimer of an Opinion (YES) D. Qualified Opinion (NO); Disclaimer of an Opinion (NO)
A. Qualified Opinion (YES); Disclaimer of an Opinion (NO)
When the financial statements contain a misstatement, the effect of which is material but not pervasive, the auditor should A. Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification. B. Qualify the opinion and describe the misstatement within the opinion paragraph. C. Disclaim an opinion and explain the effect of the misstatement in a disclaimer of opinion paragraph. D. Disclaim an opinion and describe the misstatement within the opinion paragraph.
A. Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification
Which of the following procedures would not be performed by auditors to identify subsequent events? A. Review prior-year financial statements and disclosures. B. Inquire of officers and other executives about various matters. C. Read minutes of meetings of shareholders, directors, and appropriate committees. D. Obtain attorney letters from legal counsel engaged by the entity.
A. Review prior-year financial statements and disclosures.
When using variables sampling, auditors are primarily concerned with: A. Risk of incorrect acceptance. B. Risk of incorrect rejection. C. Risk of overreliance D. Risk of underreliance
A. Risk of incorrect acceptance
Which of the following is the most logical reason for the use of sampling to answer a question of interest? A. Sampling results in a time savings, particularly if the size of the population is large. B. Sampling provides a more accurate response to the question of interest. C. Sampling restricts certain items from being selected. D. Sampling allows more sophisticated measurement and evaluation techniques to be utilized.
A. Sampling results in a time savings, particularly if the size of the population is large
. An auditor wishes to sample 200 sales receipts from a population of 5,000 receipts issued during the last year. The receipts have preprinted serial numbers and are arranged in chronological (and thus serial number) order. The auditor randomly chooses a receipt from the first 25 receipts and then selects every 25th receipt thereafter. The sampling procedure described here is called A. Systematic random sampling B. Monetary-unit sampling C. Judgment interval sampling D. Variables sampling
A. Systematic random sampling
The date of the audit report is important because A. The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained. B. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect this date. C. Auditing standards require all audits to be performed on a timely basis. D. It should coincide with the date of the financial statements.
A. The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained.
2. The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk? A. The auditor selecting inappropriate auditing procedures B. The internal control being more effective than the auditor believes. C. The auditor concluding the account balance is not materially misstated, but is, in fact, materially misstated. D. The internal control not being as effective as the auditor believes
A. The auditor selecting inappropriate auditing procedures
To which of the following matters would materiality limits not apply in obtaining written management representations? A. The availability of minutes of shareholders' and directors' meetings. B. Losses from purchase commitments at prices in excess of fair value. C. The disclosure of compensating balance arrangements involving related parties. D. Reductions of obsolete inventory to net realizable value.
A. The availability of minutes of shareholders' and directors' meetings.
Statistical sampling may be used to test the effectiveness of controls. The auditor's procedures should result in a statistical conclusion about A. The relation of the population deviation rate to the tolerable rate. B. Population characteristics occurring at least once in the population. C. The population value not being misstated by more than a fixed amount. D. Monetary precision exceeding a certain predetermined amount.
A. The relation of the population deviation rate to the tolerable rate
Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than monetary-unit (MUS) sampling? A. The selection of negative balances requires no special design considerations. B. The sampling process can begin before the complete population is available. C. The auditor need not consider the preliminary judgments about materiality. D. The sample will result in a smaller sample size if few misstatements are expected
A. The selection of negative balances requires no special design considerations.
Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of field work made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(n) A. Unmodified opinion. B. Unmodified opinion with an emphasis-of-matter paragraph. C. Qualified opinion because of a scope limitation. D. Qualified opinion because of a departure from auditing standards
A. Unmodified opinion
Which of the following sampling methods would an auditor use to estimate a numerical measurement of a population, such as the dollar value of inventory? A. Variable sampling. B. Discovery sampling. C. Attribute sampling. D. Random-number sampling.
A. Variable sampling
In the Alpine Cupcake case, the auditors improperly A. computed materiality B. safeguarded cash C. prepared the financial statements D. designed internal controls
A. computed materiality
Which of the following factors has a direct relationship with sample size in a variables sampling application? A. A. Tolerable misstatement(YES) ; Expected misstatement (YES) B. B. Tolerable misstatement(NO) ; Expected misstatement (YES) C. C. Tolerable misstatement(YES) ; Expected misstatement (NO) D. D. Tolerable misstatement(NO) ; Expected misstatement (NO)
B. B. Tolerable misstatement(NO) ; Expected misstatement (YES)
Which of the following components of the audit risk model is most closely associated with attributes sampling? A. Audit risk B. Control risk C. Detection risk D. Inherent risk
B. Control risk
. The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with A. The probable outcome of asserted claims and pending or threatened litigation B. Corroboration of the information furnished by management about litigation, claims, and assessments C. Legal counsel's opinion of the client's historical experiences in recent similar litigation D. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date
B. Corroboration of the information furnished by management about litigation, claims, and assessments
Which of the following statements is true concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately B. Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements C. There is an inverse relationship between the expected population deviation rate and the sample size D. In determining the tolerable deviation rate, an auditor considers detection risk and the sample size
B. Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements
29. When an auditor uses monetary-unit sampling to examine the total value of invoices, each invoice A. Has an equal probability of being selected B. Has a probability proportional to its monetary value of being selected C. Can be represented by no more than one monetary unit D. Has an unknown probability of being selected
B. Has a probability proportional to its monetary value of being selected
If you were selecting 20 names from two pages in a local telephone directory (which contains approximately 250 names per page), which of the following approaches would be most illustrative of systematic random selection? A. Identifying 20 random numbers and selecting the corresponding name from the telephone directory. B. Identifying a random starting point and selecting every 25th name for examination. C. Selecting the first and last five names on each of the two pages. D. Identifying the first 20 names on these two pages that have the letter "a" in the last name.
B. Identifying a random starting point and selecting every 25th name for examination.
19. An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks? A. Incorrect rejection. B. Incorrect acceptance C. Overreliance D. Underreliance
B. Incorrect acceptance
Which of the following activities is ordinarily performed prior to the date of the financial statements? A. Audit documentation review. B. Interim testing. C. Roll-forward work. D. Subsequent event review.
B. Interim testing
30. Monetary-unit sampling (MUS) is most useful when the auditor A. Is testing the accounts payable balance. B. Is concerned with overstatements. C. Cannot cumulatively arrange the population items. D. Expects to find several material misstatements in the sample
B. Is concerned with overstatements
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to A. Minimize the failure to detect errors and fraud. B. Measure the sufficiency of the evidence obtained. C. Eliminate the risk of nonsampling errors. D. Reduce the level of audit risk and materiality to a relatively low amount.
B. Measure the sufficiency of the evidence obtained
In the Alpine Cupcake case, members of the Garcia and Foster audit team include adhered to A. FASB auditing standards B. PCAOB auditing standards C. AICPA auditing standards D. GAAP auditing standards
B. PCAOB auditing standards
A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: A. Confirmation of related lawsuits with the claimants. B. Qualification of the audit report. C. An assessment that loss of the litigation is probable. D. An adverse opinion.
B. Qualification of the audit report.
The client includes in the determination of net income certain material items properly classifiable as other comprehensive income (OCI). In this situation, the auditor must express a(n) A. Unmodified opinion B. Qualified opinion C. Adverse opinion D. Qualified or adverse opinion
B. Qualified opinion
When an issuer refuses to include in its audited financial statements any of the segment disclosures that the auditor believes are required, the auditor should express a(n) A. Unmodified opinion with an emphasis-of-matter paragraph B. Qualified opinion because of inadequate disclosure C. Adverse opinion because of a significant uncertainty D. Disclaimer of opinion because of the significant scope limitation
B. Qualified opinion because of inadequate disclosure
The auditor uses variables and attribute sampling to make accounting estimates. These methods estimate, respectively, A. Deviation rate and quantities B. Quantities and deviation rate C. Constants and dollars D. Dollars and constants
B. Quantities and deviation rate
AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are A. Random and nonrandom. B. Statistical and nonstatistical. C. Precision and reliability. D. Risk and nonrisk.
B. Statistical and nonstatistical
The tolerable deviation rate for a test of controls depends primarily on which of the following? A. The cause of the deviations B. The effect on substantive procedures of the auditor's assessment of the risks of material misstatement C. The amount of any substantive misstatement D. The limit used in audits of similar clients
B. The effect on substantive procedures of the auditor's assessment of the risks of material misstatement
In selecting a sample using monetary-unit sampling, the dollar is the sampling unit. For example, if the 300th dollar of invoices is selected, A. Only that dollar is audited B. The invoice containing the 300th dollar is audited C. Only an invoice with exactly $300 is audited D. An invoice of less than $300 cannot be selected
B. The invoice containing the 300th dollar is audited
A confidence level of 90% means that A. The point estimate obtained is within 10% of the true population value. B. The probability is 90% that the sample results will not vary from the true characteristics of the population by more than a specified amount. C. The expected deviation rate is equal to 10%. D. A larger sample size is required than if the desired confidence level were equal to 95%
B. The probability is 90% that the sample results will not vary from the true characteristics of the population by more than a specified amount.
An auditor's statistical sample drawn from a population of invoices indicates a mean value of $150 and sampling precision of ± $30 at a 95 % confidence level. Which of the following statements correctly interprets these sample data? A. In repeated sampling, the point estimate of the true population mean will be $150 about 95% of the time. B. The probability is 95% that the range $120 to $180 contains the true population mean. C. The probability is 95% that the true population mean is $150. D. In repeated sampling, intervals with precision ± $30 around the sample mean will always contain the true population mean.
B. The probability is 95% that the range $120 to $180 contains the true population mean
Which of the following sampling methods is used to estimate a numerical measurement of a population, such as a dollar value? A. Attribute sampling B. Variables sampling C. Stop-or-go sampling D. Random-number sampling
B. Variables sampling
The ultimate purpose of control risk assessment is to A. estimate the overall risk of failing to detect material misstatements. B. decide the nature, timing, and extent of further audit procedures. C. determine the risk of incorrect acceptance. D. determine the probability that errors entered the accounts.
B. decide the nature, timing, and extent of further audit procedures.
Sampling risk has a(n) relationship with sample size; that is, as the sampling risk increases, sample size . A. direct; increases. B. inverse; decreases. C. direct; decreases. D. inverse; increases.
B. inverse; decreases.
Blocks in a blockchain contain A. transactional data that is thrashed B. transactional data that is hashed C. transactional data that is bashed D. transactional data that is thrashed, hashed and bashed.
B. transactional data that is hashed
Under the Code's Independence Rule, which of the following must be independent in the performance of an audit? A. Only the partners of the audit firm. B. Only individuals on the attest engagement team. C. All individuals on the attest engagement team, except those performing routine clerical functions. D. All professional employees of the audit firm.
C. All individuals on the attest engagement team, except those performing routine clerical functions
Audit sampling used for tests of controls is known as: A. Random selection. B. Statistical selection. C. Attributes selection. D. Haphazard selection.
C. Attributes selection
Subsequent events are defined as events that occur subsequent to the A. Release of the financial statements B. Date of the auditor's report C. Balance sheet date but prior to the auditor's report date. D. Date of the auditor's report and concern contingencies that are not reflected in the financial statements
C. Balance sheet date but prior to the auditor's report date
If the auditor determines that an inquiry of a client's external legal counsel is necessary, who should make the inquiry? A. The auditor. B. The stockholders. C. Client management. D. The auditor's attorney.
C. Client management
The use of monetary-unit sampling (MUS) is inefficient if A. Bank accounts are being audited. B. Statistical inferences are to be made. C. Each account is of equal importance. D. The number of sampling units is large.
C. Each account is of equal importance
Which of the following procedures would typically not be performed prior to the audit report release date? A. Conducting analytical review procedures to identify unusual and unexpected relationships. B. Evaluating whether evidence obtained during the audit provides evidence of going-concern uncertainties. C. Evaluating the effect of an omitted audit procedure on the auditors' ability to support a previouslyexpressed opinion. D. Interim tests of controls to evaluate the operating effectiveness of the client's internal control.
C. Evaluating the effect of an omitted audit procedure on the auditors' ability to support a previouslyexpressed opinion
In which of the following situations would the use of variables sampling be least appropriate? A. Confirming accounts receivable with the client's customers. B. Observing inventory items to determine if recorded quantities are correct. C. Examining purchase orders for evidence of proper approval. D. Selecting items of property, plant and equipment for physical inspection
C. Examining purchase orders for evidence of proper approval.
In which of the following circumstances would an auditor usually choose between expressing a qualified opinion or disclaiming an opinion? A. Material misstatement B. Inadequate disclosure of accounting policies C. Inability to obtain sufficient appropriate audit evidence D. Unreasonable justification for a change in accounting principle
C. Inability to obtain sufficient appropriate audit evidence
Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling? A. An estimate of the standard deviation of the population's recorded amounts is not required B. The auditor rarely needs the assistance of a computer program to design an efficient sample C. Inclusion of zero and negative balances usually does not require special design considerations D. Any amount that is individually significant is automatically identified and selected.
C. Inclusion of zero and negative balances usually does not require special design considerations
While performing a test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of A. Overreliance B. Underreliance C. Incorrect rejection D. Incorrect acceptance
C. Incorrect rejection
Which of the following combinations results in a decrease in sampling size in attribute testing? A. Increase in the allowable risk of overreliance; Decrease in the tolerable rate; Increase in the expected population deviation rate B. Derease in the allowable risk of overreliance; Increase in the tolerable rate; Decrease in the expected population deviation rate C. Increase in the allowable risk of overreliance; Increase in the tolerable rate; Decrease in the expected population deviation rate D. Increase in the allowable risk of overreliance; Increase in the tolerable rate; Increase in the expected population deviation rate
C. Increase in the allowable risk of overreliance; Increase in the tolerable rate; Decrease in the expected population deviation rate
In connection with the annual audit, which of the following is not a subsequent events procedure? A. Review the latest subsequent interim financial statements. B. Read available minutes of meetings of shareholders, directors, and committees. With regard to meetings for which minutes are not available, inquire about matters dealt with at such meetings. C. Make inquiries with respect to the financial statements covered by the auditor's previously issued report if new information has become available during the current audit that might affect that report. D. Discuss with officers the current status of items in the financial statements that were accounted for on the basis of preliminary or inconclusive data
C. Make inquiries with respect to the financial statements covered by the auditor's previously issued report if new information has become available during the current audit that might affect that report
If the auditor obtains satisfaction with respect to the accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the auditor's report should be unmodified and could be expected to A. Disclose that alternative procedures were used because of a management-imposed scope limitation. B. Disclose in the opinion paragraph that confirmation of accounts receivable was impracticable. C. Not mention the alternative procedures. D. Refer to a note that discloses the alternative procedures.
C. Not mention the alternative procedures
The precision interval is that range of values that has a likelihood of containing the . A. Sampling risk; true population value. B. Sampling risk; sample estimate. C. One minus sampling risk; true population value. D. One minus sampling risk; sample estimate.
C. One minus sampling risk; true population value
An auditor has found that the notes to the financial statements do not mention that, 15 days after the balance sheet date, the company issued a substantial amount of debentures. According to the company's attorney, the debenture agreement restricts the payment of future cash dividends. The client has declined to include the matter of the debentures in the notes because the issuance occurred after the balance sheet date. The auditor should A. Add the note to the financial statements B. Provide the missing information in the report and express an adverse opinion. C. Provide the missing information in the report and express a qualified opinion. D. Provide the missing information in the report and disclaim an opinion
C. Provide the missing information in the report and express a qualified opinion
A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result when management A. Engages the auditor after the year-end physical inventory count is completed B. Fails to correct a material internal control weakness that had been identified during the prior year's audit. C. Refuses to furnish a management representation letter to the auditor. D. Prevents the auditor from reviewing the audit documentation of the predecessor auditor.
C. Refuses to furnish a management representation letter to the auditor.
A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result when management A. Asks the auditor to report on the balance sheet and not on the other basic financial statements B. Discloses material related party transactions in the notes to the financial statements C. Refuses to permit its lawyer to respond to the letter of audit inquiry D. Knows that confirmation of accounts receivable is not feasible
C. Refuses to permit its lawyer to respond to the letter of audit inquiry
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses the risk of overreliance too low. The most likely explanation for this situation is that A. The deviation rates of both the auditor's sample and the population exceed the tolerable rate B. The deviation rates of both the auditor's sample and the population are less than the tolerable rate C. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate D. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate
C. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate
In which of the following situations would the use of sampling ordinarily be considered most appropriate? A. The population is comprised of a relatively small number of items. B. It is important that a very precise response is provided in answering the question of interest. C. The population is comprised of a large number of relatively homogeneous items. D. The selection of a subset of items is a difficult and time-consuming process.
C. The population is comprised of a large number of relatively homogeneous items.
Which of the following statements is not true with respect to the risk of incorrect acceptance? A. The risk of incorrect acceptance occurs when the audit team's evidence suggests that the account balance is not materially misstated. B. The risk of incorrect acceptance is normally of greater concern to the audit team than the risk of incorrect rejection. C. The risk of incorrect acceptance occurs when the client's true (but unknown) account balance is not materially misstated. D. The risk of incorrect acceptance results in an effectiveness loss to the audit team.
C. The risk of incorrect acceptance occurs when the client's true (but unknown) account balance is not materially misstated.
Billie J. King, CPA, was engaged to audit the financial statements of Newton Co. after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors, but was satisfied concerning both after applying alternative procedures. King's auditor's report most likely contained a(n) A. Qualified opinion. B. Disclaimer of opinion. C. Unmodified opinion. D. Unmodified opinion with an emphasis-of-matter paragraph.
C. Unmodified opinion.
Which of the following statements is true with respect to written representations? A. Written representations may serve as a substitute for various types of substantive procedures. B. Written representations are signed by auditors and delivered to the entity's officers. C. Written representations are dated on the audit completion date, which is the date of the auditor's report. D. Written representations are dated as of the date of the financial statements.
C. Written representations are dated on the audit completion date, which is the date of the auditor's report.
interim testing normally occurs between the and the . A. beginning of the year under audit; audit report release date B. date of the financial statements; audit report release date C. beginning of the year under audit; date of the financial statements D. end of the year under audit; date of the auditors' report
C. beginning of the year under audit; date of the financial statements
. Several changes to the audit opinion letter have recently been approved. One of these changes will require auditors to: A. disclose the name of the lead audit partner on the opinion letter B. disclose his/her political affiliation C. disclose any critical audit matters D. disclose any prior professional disciplinary actions/violations
C. disclose any critical audit matters
. In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $3,000. If this were the only error discovered by the auditor, the projected misstatement of this sample would be A. $1,000 B. $2,000 C. $3,000 D. $4,000
D. $4,000
Which of the following is not a covered member for an attest engagement under rule 101 of the AICPA code of professional conduct? A. An individual assigned to the attest engagement. B. A partner in the office of the partner in charge of the test engagement. C. A manager who was in charge of providing 19 hours of tax services to the attest client. D. A partner in the National Office of the firm that performs Marketing Services
D. A partner in the National Office of the firm that performs Marketing Services
A client is a defendant in a patent infringement lawsuit against a major competitor. Which of the following items would least likely be included in legal counsel's response to the auditor's letter of inquiry? A. A description of potential litigation in other matters unrelated to the patent infringement lawsuit. B. A discussion of case progress and the strategy currently in place by client management to resolve the lawsuit C. An evaluation of the probability of loss and a statement of the amount or range of loss if an unfavorable outcome is reasonably possible D. An evaluation of the ability of the client to continue as a going concern if the verdict is unfavorable and maximum damages are awarded
D. An evaluation of the ability of the client to continue as a going concern if the verdict is unfavorable and maximum damages are awarded
The appropriate date for the client to specify as the effective date in the audit inquiry to legal counsel is A. The balance-sheet date B. Seven working days after the request is received by legal counsel C. The date of the audit inquiry itself D. As close to the date of the auditor's report as possible
D. As close to the date of the auditor's report as possible
In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? A. Variables B. Stratified C. Ratio D. Attributes
D. Attributes
The primary source of information to be reported about litigation, claims, and assessments is the A. Client's legal counsel. B. Court records C. Independent auditor. D. Client's management.
D. Client's management.
In testing payroll transactions, an auditor discovers that 4 out of a statistical sample of 100 selected time cards were not signed by the appropriate supervisor. To evaluate the materiality or significance of this control deficiency, the auditor should A. Compare the tolerable deviation rate with the expected deviation rate. B. Evaluate the dollar amount of the four time cards in relation to the financial statements. C. Report the deviations and let management assess the significance because they are in the best position to know. D. Compute an upper precision limit and compare with the tolerable deviation rate.
D. Compute an upper precision limit and compare with the tolerable deviation rate
Which of the following is not an audit procedure that the auditor performs with respect to litigation, claims, and assessments? A. Inquire of and discuss with management the policies and procedures adopted for litigation, claims, and assessments. B. Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date. C. Obtain assurance from management that it has disclosed all unasserted claims that legal counsel has advised are probable of assertion and must be disclosed. D. Confirm directly with the client's legal counsel that all claims have been recorded in the financial statements.
D. Confirm directly with the client's legal counsel that all claims have been recorded in the financial statements.
As part of the assessment of control risk, the auditor decided to use audit sampling. After specifying the audit objectives, what would the auditor most likely do next? A. Determine the sample size. B. Select the sample. C. Perform tests of control procedures. D. Define the deviation conditions.
D. Define the deviation conditions.
. Sampling ordinarily results in a sacrifice of to gain A. Accuracy; validity. B. Validity; accuracy. C. Efficiency; effectiveness. D. Effectiveness; efficiency.
D. Effectiveness; efficiency.
For which of the following audit tests would an auditor most likely use attributes sampling? A. Making an independent estimate of the amount of a LIFO inventory B. Examining invoices in support of the valuation of fixed asset additions C. Selecting accounts receivable for confirmation of account balances D. Inspecting employee time cards for proper approval by supervisors
D. Inspecting employee time cards for proper approval by supervisors
An auditor is planning to use monetary-unit sampling for testing the dollar value of a large accounts receivable population. The advantages of using monetary-unit sampling (MUS) include all of the following except A. It is an efficient model for establishing that a low error rate population is not materially misstated B. It does not require the normal distribution approximation required by variables sampling C. It can be applied to a group of accounts because the sampling units are homogeneous D. It results in a smaller sample size than classical variables sampling for larger numbers of misstatements
D. It results in a smaller sample size than classical variables sampling for larger numbers of misstatements
Subsequent events that provide evidence of conditions that arose subsequent to the date of the financial statements A. Require adjustment of the financial statements B. Should not be considered for any purposes C. Should ordinarily be disclosed in the auditor's report D. May require disclosure in notes to the financial statements.
D. May require disclosure in notes to the financial statements.
After year end but before completion of the audit, a major investment adviser issued a pessimistic report on Investee Co.'s long-term prospects. The market price for its common stock subsequently declined significantly. What is the effect of this event on the year-end statements? A. Disclosure by means of supplemental, pro forma financial data B. Adjustment of the financial statements C. Disclosure in a note to the financial statements D. No financial statement disclosure necessary
D. No financial statement disclosure necessary
Advertiser Co.'s directors voted immediately after year end to double the advertising budget for the coming year and authorized a change in advertising agencies. What is the effect of this event on the year-end statements? A. Disclosure by means of supplemental, pro forma financial data B. Adjustment of the financial statements C. Disclosure in a note to the financial statements D. No financial statement revision
D. No financial statement revision
The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects A. Statistical risk B. Sampling risk C. Audit risk D. Nonsampling risk
D. Nonsampling risk
Roll-forward work normally occurs between the and the . A. beginning of the year under audit; audit report release date B. date of the financial statements; audit report release date C. beginning of the year under audit; date of the financial statements D. date of interim work; date of the auditors' report
D. date of interim work; date of the auditors' report
The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is A. Fixed by a public authority. B. Based on a price quotation submitted in competitive bidding. C. Based on the results of judicial proceedings in a tax matter. D. Payable after a specified finding is attained in a review of financial statements.
D. Payable after a specified finding is attained in a review of financial statements.
Which of the following non attest services may be performed by the auditors of a large public company? A. Internal audit outsourcing. B. Tax planning for all company officers. C. Bookkeeping services. D. Preparation of the company's tax return.
D. Preparation of the company's tax return.
When single-year financial statements are presented, an auditor ordinarily expresses an unmodified opinion if the A. Auditor is unable to obtain audited financial statements supporting the entity's investment in a foreign affiliate. B. Entity declines to present a statement of cash flows with its balance sheet and related statements of income and retained earnings. C. Auditor is not independent but judges that an unmodified opinion is appropriate. D. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented
D. Prior year's financial statements were audited by another CPA whose report, which expressed an unmodified opinion, is not presented
Which of the following procedures most likely would assist an auditor to identify litigation, claims, and assessments? A. Inspect checks included with the client's cutoff bank statement. B. Obtain a letter of representations from the client's underwriter of securities. C. Apply ratio analysis on the current-year's liability accounts. D. Read the file of correspondence from taxing authorities
D. Read the file of correspondence from taxing authorities
Jaye B. Honest, CPA, was offered the engagement to audit Wicket Corporation for the year ended June 30, Year 3. She had served as a director of Wicket Corporation until June 30, Year 1, and her spouse currently owns 600 of the 10,000 outstanding shares of Wicket Corporation. Jaye disassociated from Wicket prior to being offered the engagement. Moreover, the engagement does not cover any period that includes Jaye's association or employment with Wicket. Under the AICPA Code of Professional Conduct, she should A. Accept the engagement. B. Let a partner from the same office accept and conduct the engagement. C. Refuse the engagement because she had served as a director. D. Refuse the engagement because of her spouse's stock ownership.
D. Refuse the engagement because of her spouse's stock ownership.
Which of the following is not a procedure that auditors typically perform to search for significant events during the period after year-end but prior to the audit report date? A. Review minutes of board of directors' meeting. B. Review the latest available interim financial statements. C. Inquire about any unusual adjustments made subsequent to the balance sheet date. D. Review changes in internal control during the period subsequent to the balance sheet date.
D. Review changes in internal control during the period subsequent to the balance sheet date.
Which of the following types of audit documentation review is focused on ensuring that the quality of audit work and reporting is consistent with the quality standards of the firm? A. Review of staff work by audit supervisor. B. Review of staff work by audit manager. C. Review of work by audit manager and audit partner. D. Review of work by second (reviewing) partner.
D. Review of work by second (reviewing) partner.
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? A. A lower assessed risk of material misstatement B. Increased use of analytical procedures to obtain evidence about particular assertions C. Smaller expected frequency of deviations D. Smaller measure of tolerable misstatement
D. Smaller measure of tolerable misstatement
Which of the following events or activities may occur following the audit report release date? A. Interim testing B. Roll-forward work C. Subsequent events D. Subsequently discovered facts
D. Subsequently discovered facts
Under which of the following circumstances might an auditor disclaim an opinion? A. The financial statements contain a material misstatement. B. Material related party transactions are disclosed in the financial statements. C. There has been a material change between periods in the method of application of accounting principles. D. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions concerning an uncertainty.
D. The auditor is unable to obtain sufficient appropriate evidence to support management's assertions concerning an uncertainty.
An auditor may not express a qualified opinion when A. A scope limitation prevents the auditor from completing an important audit procedure. B. The auditor's report refers to the work of a specialist. C. An accounting principle at variance with the applicable financial reporting framework is used. D. The auditor lacks independence with respect to the audited entity.
D. The auditor lacks independence with respect to the audited entity.
Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities? A. Management has responsibility for maintaining and adopting sound accounting policies, and the auditor has responsibility for internal control. B. Management has responsibility for the basic data underlying financial statements, and the auditor has responsibility for drafting the financial statements. C. The auditor's responsibility is confined to the audited portion of the financial statements, and management's responsibility is confined to the unaudited portions. D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
Which of the following statements best describes the distinction between the auditor's responsibilities and management's responsibilities? A. Management has responsibility for maintaining and adopting sound accounting policies, and the auditor has responsibility for internal control. B. Management has responsibility for the basic data underlying financial statements, and the auditor has responsibility for drafting the financial statements. C. The auditor's responsibility is confined to the audited portion of the financial statements, and management's responsibility is confined to the unaudited portions. D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
D. The auditor's responsibility is confined to expressing an opinion, but the financial statements remain the responsibility of management.
An auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by the client's internal control. One of the purchase orders in the chosen sample of 20 cannot be found, and the auditor is unable to use alternative procedures to test whether that purchase order was properly approved. The auditor should A. Choose another purchase order to replace the missing purchase order in the sample B. Consider this test of controls invalid and proceed with substantive procedures because internal control is ineffective C. Select a completely new set of 20 purchase orders D. Treat the missing purchase order as a deviation for the purpose of evaluating the sample
D. Treat the missing purchase order as a deviation for the purpose of evaluating the sample
Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is A. Qualified and describe the departure in a separate paragraph. B. Unmodified but not mention the departure in the auditor's report. C. Qualified or adverse, depending on materiality, and describe the departure in an other-matter paragraph. D. Unmodified and describe the departure in an other-matter paragraph
D. Unmodified and describe the departure in an other-matter paragraph
When mining a bitcoin, users are racing to identify the... A. node B. ether C. hash D. nonce
D. nonce
If the auditor were interested in ensuring that all sales have been recorded, the population would be defined as A. entries in the cash receipts journal. B. entries in the general journal. C. remittance advices. D. shipping documents.
D. shipping documents.
