Wiley test set 1
A PRIMARY purpose of performing analytical procedures as risk assessment procedures is to identify the existence of a) unusual transactions and events b) illegal acts that went undetected because of internal control weaknesses c) related-party transactions d) recorded transactions that were not properly authorized
A
A client uses a suspense account for unresolved questions whose final accounting has not been determined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about a) suspense debits that management believes will benefit future operations b) suspense debits that the auditor verifies will have realizable value to the client c) suspense credits that management believes should be classified as "current liability" d) suspense credits that the auditor determines to be customer deposits
A
According to the standards of the profession, which of the following activities would most likely NOT impair a CPAs independence? a) providing advisory services for a client b) contracting with a client to supervise the client's office personnel c) signing a client's checks in emergency situations d) accepting a luxurious gift from a client
A
An auditor may achieve audit objectives related to particular assertions by a) performing analytical procedures b) adhering to a system of quality control c) preparing auditor working papers d) increasing the level of detection risk
A
As the acceptable level of detection risk decreases, the assurance directly provided from a) substantive tests should increase b) substantive tests should decrease c) tests of controls should increase d) tests of controls should decrease
A
Audits of financial statements are designed to obtain assurance of detecting misstatement due to a) errors, fraudulent financial reporting, and misappropriation of assets b) errors and fraudulent financial reporting c) errors and misappropriation of assets d) fraudulent financial reporting
A
Financial statement assertions are established for account balances, a) classes of transactions and disclosures b) classes of transactions c) disclosures d) None
A
For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent a) in the risk assessment stage, and near-audit completion b) as a substantive procedure c) as a substantive procedure, and near-audit completion d) in the risk assessment stage
A
If specific information comes to an auditor's attention that implies noncompliance with laws that could result in a material, but indirect effect of the financial statements, the auditor should next a) apply audit procedures specifically directed to ascertaining whether noncompliance has occurred b) seek the advice of an informed expert qualified to practice law as to possible contingent liabilities c) report the matter to an appropriate level of management at least one level above those involved d) discuss the evidence with the client's audit committee, or others with equivalent authority and responsibility
A
In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are a) susceptible to bias b) consistent with prior periods c) insensitive to variations d) similar to industry guidelines
A
Individuals who commit fraud are ordinarily able to rationalize the act and also have an a) incentive and opportunity b) incentive c) opportunity d) neither
A
On an audit engagement performed by a CPA firm with one office, at the minimum, knowledge of the relevant professional accounting and auditing standards should be held by a) the auditor with final responsibility for the audit b) all professionals working upon the audit c) all professionals working upon the audit and the partner in charge of the CPA firm d) all professionals working in the office
A
The audit plan generally is modified when a) results of tests of control differ from expectations b) an engagement letter has been signed by the auditor and the client c) a significant deficiency has been communicated to the audit committee of the board of directors d) the search for unrecorded liabilities has been performed and obtained results as had been expected during the planning of the audit
A
To exercise due professional care an auditor should a) critically review the judgement exercised by those assisting in the audit b) examine all available corroborating evidence supporting managements assertions c) design the audit to detect all instances of illegal acts d) attain the proper balance of professional experience and formal education
A
Which of the following factors or conditions is an auditor LEAST likely to plan an audit to discover? a) financial pressures affecting employees b) high turnover of senior management c) inadequate monitoring of significant controls d) inability to generate positive cash flows from operations
A
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 financial reporting operations controlled by and limited to 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
Which of the following is MOST likely to be an example of fraud? a) defalcations occurring due to invalid electronic approvals b) mistakes in the application of accounting principles c) mistakes in processing data d) unreasonable accounting estimates arising from oversight
A
Which of the following is an example of fraudulent financial reporting? a) company management changes inventory count tags and overstates ending inventory, while understating cost of goods sold b) the treasurer diverts customer payments to his personal due, concealing his actions by debiting an expense account, thus overstating expenses c) an employee steals inventory and the "shrinkage" is recorded in cost of goods sold d) an employee steals small tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense
A
Which of the following is correct concerning performance materiality on an audit? a) it will ordinarily be less than financial statement materiality b) it should be established at beginning of an audit and not be revised thereafter c) it should be established at separate amounts for the various financial statements d) it need not be documented in the working papers
A
Which of the following pairs of accounts would an auditor MOST likely analyze on the same working paper? a) notes receivable and interest income b) accrued interest receivable and accrued interest payable c) notes payable and notes receivable d) interest income and interest expense
A
Which of the following relatively small misstatements MOST likely could have a material effect on an entity's financial statements? a) an illegal payment to a foreign official that was not recorded b) a piece of obsolete office equipment that was not retired c) a petty cash fund disbursement that was not properly authorized d) an uncollectible account receivable that was not written off
A
Which of the following statements is correct relating to the auditor's consideration of fraud? a) the auditor's interest in fraud consideration relates to fraudulent acts that cause a material misstatement of financial statements b) a primary factor that distinguishes fraud from error is that fraud is always intentional, while errors are, generally, but not always, intentional. c) fraud always involves a pressure or incentive to commit fraud, and a misappropriation of assets d) while an auditor should be aware of the possibility of fraud, management, and not the auditor, is responsible for detecting fraud
A
Which of the following types of audit evidence is the LEAST persuasive? a) pre-numbered purchase order forms b) bank statements obtained from the client c) test counts of inventory performed by the auditor d) correspondence from the client's attorney about litigation
A
A company's gross margin percentage increased in 20X2. This is consistent with which of the following occurring in 20X2? a) an increase in the tax rate on income b) an increase in units sold c) a decrease in the rate of sales commissions paid to sales personnel d) outsourcing of a part of the manufacturing process which resulted in no additional costs
B
An attitude that includes questioning mind and a critical assessment of audit evidence is referred to as a) due professional care b) professional skepticism c) reasonable assurance d) supervision
B
An auditor who discovers that client employees have committed an illegal act that has a material effect in the client's financial statements MOST likely would withdraw from the engagement if a) the illegal act is a violation of generally accepted accounting principles b) the client does not take the remedial action that the auditor considers necessary c) the illegal act was committed during a prior year that was not audited d) the auditor has already assessed control risk at the maximum level
B
An auditor's analytical procedures MOST likely would be facilitated if the entity a) segregates obsolete inventory before the physical inventory count b) uses a standard cost system that produces variance reports c) corrects material weaknesses in internal control before the beginning of the audit d) develops its data from sources solely within the entity
B
As the acceptable level of detection risk decreases, an auditor may a) reduce substantive testing by relying on the assessments of inherent risk and control risk b) postpone the planned timing of substantive tests from interim dates to the year-end c) eliminate the assessed level of inherent risk from consideration as a planning factor d) lower the assessed level of control risk from the maximum level to below the maximum
B
Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts MOST likely would yield the highest level of evidence? a) accounts receivable b) interest expense c) accounts payable d) travel and entertainment expense
B
Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions that an auditor could tolerate MOST likely would cause the auditor to a) apply the planned substantive tests prior to the balance sheet date b) perform the planned auditing procedures closer to the balance sheet date c) increase the assessed level of control risk for the relevant financial statement assertions d) decrease the extent of auditing procedures to be applied to the class of transactions
B
On the basis of the audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would a) decrease substantive testing b) decrease detection risk c) increase inherent risk d) increase materiality levels
B
Relationship between control risk and detection risk is ordinarily a) parallel b) inverse c) direct d) equal
B
The MOST likely explanation why the auditor's examination cannot reasonably be expected to bring noncompliance with all laws by the client to the auditor's attention is that a) illegal acts are perpetrated by management override of internal control b) illegal acts by clients often relate to operating aspects rather than accounting aspects c) the client's internal control may be so strong that the auditor performs only minimal substantive testing d) illegal acts may be perpetrated by the only person in the client's organization with access to both assets and the accounting records
B
The most difficult type of misstatement to detect is fraud based on a) the over-recording of transactions b) the non-recording of transactions c) recorded transactions in subsidiaries d) related-party receivables
B
The risk that an auditor will conclude, based on substantive tests, that a material misstatement does NOT exist in an account balance when, in fact, such misstatement does exist is referred to as a) sampling risk b) detection risk c) non-sampling risk d) inherent risk
B
To obtain an understanding of a continuing client's business, an auditor MOST likely would a) perform tests of details of transactions and balances b) review prior year working papers and the perm file for the client c) read current issues of specialized industry journals d) reevaluate the client's internal control environment
B
Under Statements on Auditing Standards, which of the following would be classified as an error? a) misappropriation of assets for the benefit of management b) misinterpretation by management of facts that existed when the financial statements were prepared c) preparation of records by employees to cover a fraudulent scheme d) intentional omission of the recording of transactions to benefit a third party
B
Under the Private Securities Litigation Reform Act of 1995, Baker, CPA, reported certain uncorrected illegal acts to Supermart's board of directors. Baker believed that failure to take remedial action would warrant a qualified audit opinion because the illegal acts had a material effect on Supermart's financial statements. Supermart failed to take appropriate remedial action and the board of directors refused to inform the SEC that it had received such notification from Baker. Under these circumstances, Baker is required to a) resign from the audit engagement within ten business days b) deliver a report concerning the illegal acts to the SEC within one business day c) notify the stockholders that the financial statements are materially misstated d) withhold an audit opinion until Supermart takes appropriate remedial action
B
When issuing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied that the a) amount of known misstatement is documented in the management representation letter b) estimate of the total likely misstatement is less that a material amount c) amount of known misstatement is acknowledged and recorded by the client d) estimate of the total likely misstatement includes the adjusting entries already recorded by the client
B
When performing a financial statement audit, auditors are required to explicitly assess the risk of material misstatement due to a) errors b) fraud c) illegal acts d) business risk
B
Which of the following BEST describes what is meant by the term "fraud risk factor?" a) factors whose presence indicates that the risk of fraud is high b) factors whose presence often have been observed in circumstances where frauds have occurred c) factors whose presence requires modification of planned audit procedures d) material weaknesses identified during an audit
B
Which of the following comparisons would an auditor MOST likely make in evaluating an entity's costs and expenses? a) the current year's accounts receivable with the prior year's accounts receivable b) the current year's payroll expense with the prior year's payroll expense c) the budgeted current year's sales with the prior year's sales d) the budgeted current year's warranty expense with the current year's contingent liabilities
B
Which of the following factors would most likely cause a CPA to decide NOT to accept a new audit engagement? a) the CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques b) management's disregard of its responsibility to maintain an adequate internal control environment c) the CPA's inability to determine whether related-party transactions were consummated on terms equivalent to arm's-length transactions d) management's refusal to permit the CPA to perform substantive tests before the year-end
B
Which of the following illegal acts should an audit be designed to obtain reasonable assurance of detecting? a) securities purchased by relatives of management based on knowledge of inside information b) accrual and billing of an improper amount of revenue under government contracts c) violations of antitrust laws d) price fixing
B
Which of the following is MOST likely presumed to represent fraud risk on an audit? a) capitalization of repairs and maintenance into the property, plant and equipment asset account b) improper revenue recognition c) improper interest expense accrual d) introduction of significant new products
B
Which of the following is NOT an assertion relating to classes of transactions? a) accuracy b) consistency c) cutoff d) occurrence
B
Which of the following is required documentation in an audit in accordance with generally accepted auditing standards? a) a flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting b) the overall audit strategy and audit plan c) a memo summarizing all major stakeholder groups d) an internal control questionnaire identifying controls that assure specific objectives will be achieved
B
Which of the following statements is NOT correct about materiality? a) the concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important b) an auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements c) materiality judgements are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgements d) an auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements
B
Which of the following would NOT be considered an analytical procedure? a) estimating payroll expense by multiplying the number of employees by the average hourly wage rate and the total hours worked b) projecting an error rate by comparing the results of a statistical sample with the actual population characteristics c) computing accounts receivable turnover by dividing credit sales by the average net receivables d) developing the expected current year sales based on the sales trend of the prior five years
B
Which of the following would an auditor MOST likely use in determining the auditor's preliminary judgement about materiality? a) the anticipated sample size of the planned substantive tests b) the entity's annualized interim financial statements c) the results of the internal control questionnaire d) the contents of the management representation letter
B
A basic premise underlying the application of analytical procedures is that a) the study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations b) statistical tests of financial information may lead to the discovery of material misstatements in the financial statements c) plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary d) these procedures cannot replace tests of balances and transactions
C
According to the ethical standards of the profession, which of the following acts is generally prohibited? a) purchasing a product from a third party and reselling it to a client b) writing a financial management newsletter promoted and sold by a publishing company c) accepting a commission for recommending a product to an audit client d) accepting engagements obtained through the efforts of third parties
C
According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent? a) obtaining a collateralized automobile loan from a financial institution client b) litigation with a client relating to billing for consulting for which the amount is immaterial c) employment of the CPA's spouse as a client's director of internal audit d) acting as an honorary trustee for a not-for-profit organization client
C
An auditor should design the audit plan so that a) all material transactions will be selected for substantive testing b) substantive tests prior to the balance sheet date will be minimized c) the audit procedures selected will achieve specific audit objectives d) each account balance will be tested under either tests of controls or tests of transactions
C
An auditor who discovers that a client's employees have paid small bribes to public officials MOST likely would withdraw from the engagement if the a) client receives financial assistance from a federal government agency b) evidence that is necessary to prove that the illegal acts were committed does not exist c) employees' actions affect the auditor's ability to rely on management's representations d) notes to the financial statements fail to disclose the employees' actions
C
Analytical procedures performed near the end of an audit suggest that several accounts have unexpected relationships. The results of these procedures MOST likely would indicate that a) irregularities exist among the relevant account balances b) internal control activities are not operating effectively c) additional tests of details are required d) the communication with the audit committee should be revised
C
Analytical procedures used during risk assessment in an audit should focus on a) reducing the scope of tests of controls and substantive tests b) providing assurance that potential material misstatements will be identified c) enhancing the auditor's understanding of the client's business d) assessing the adequacy of the available evidence
C
Analytical procedures used in the overall review stage of an audit generally include a) gathering evidence concerning account balances that have not changed from the prior year b) retesting control procedures that appeared to be ineffective during the assessment of control risk c) considering unusual or unexpected account balances that were not previously identified d) performing tests of transactions to corroborate management's financial statement assertions
C
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of a) objective judgement b) independent integrity c) professional skepticism d) impartial conservatism
C
During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts involved were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the a) letter of audit inquiry to the client's attorney b) prior years' audit plan c) management representation letter d) preliminary judgement about materiality levels
C
Generally accepted auditing standards are a) required procedures to be used to gather evidence to support financial statements b) policies and procedures designed to provide reasonable assurance that the CPA firm and its personnel comply with professional standards. c) pronouncements issued by the Auditing Standards Board d) rules acknowledged by the accounting profession because of their universal application
C
In testing the existence assertion for an asset, an auditor ordinarily works from the a) financial statements to the potentially unrecorded items b) potentially unrecorded items to the financial statements c) accounting records to the supporting evidence d) supporting evidence to the accounting records
C
Inherent risk and control risk differ from detection risk in that they a) arise from the misapplication of auditing procedures b) may be assessed in either quantitative or non-quantitative terms c) exist independently of the financial statement audit d) can be changed at the auditor's discretion
C
Professional skepticism requires that an auditor assume that management is a) honest, in the absence of fraud risk factors b) dishonest until completion of audit tests c) neither honest nor dishonest d) offering reasonable assurance of honesty
C
The accounts receivable turnover ration increased during 20X2. This is consistent with: a) items shipped on consignment during December were recorded as credit sales; no cash receipts have yet been received on these consignments b) the company increased credit sales by 10% by allowing more lenient credit terms - 30 days are now allowed whereas previously only 20 days were allowed c) a major credit sale on which title passed as of December 31, 20X2, was recorded in January of 20X3 d) sales for each month are approximately 25% higher than those of the preceding year
C
The following summarizes your client's inventory turnover for years 1 and 2: Year 1: 7.00 Year 2: 6.00 This change is most consistent with a) a number of expense items were erroneously included in cost of goods sold (but not in ending inventory) b) while inventory levels remained the same in year 2, total sales increased and a higher percentage of customers are paying their accounts c) although sales for year 2 were the same as for year 1, inventory is a bit higher than normal because the last month of year 2's sales were lower than anticipated d) the year-end physical count omitted a number of significant items. A periodic accounting inventory system is in use.
C
The permanent file of an auditor's working papers generally would NOT include a) bond indenture agreements b) lease agreements c) working trial balance d) flowchart of internal control
C
To be effective, analytical procedures performed near the end of an audit engagement should be performed by a) the staff accountant who performed the substantive auditing procedures b) the managing partner who has responsibility for all audit engagements at that practice office c) a manager or partner who has a comprehensive knowledge of the client's business and industry d) the CPA firm's quality control manager or partner who has responsibility for the firm's peer review program
C
What type of analytical procedure would an auditor MOST likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonpublic entity? a) trend analysis b) regression analysis c) ratio analysis d) risk analysis
C
Which of the following audit risk components may be assessed in non-quantitative terms? a) control risk and detection risk b) control risk and inherent risk c) control risk, detection risk and inherent risk d) detection risk and inherent risk
C
Which of the following is MOST likely to be considered a risk factor relating to fraudulent financial reporting? a) domination of management by top executives b) large amounts of cash processed c) negative cash flows from operations d) small high-dollar inventory items
C
Which of the following is MOST likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions? a) due professional care b) competence c) independence d) complex body of knowledge
C
Which of the following is a general principle relating to the reliability of audit evidence? a) audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor b) audit evidence provided by copies is more reliable than that provided by facsimiles c) audit evidence obtained from knowledge independent sources outside the client company is more reliable than audit evidence obtained from non-independent sources d) audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls
C
Which of the following most accurately summarizes what is meant by the term "material misstatement?" a) fraud and direct-effect illegal acts b) fraud involving senior management and material fraud c) material error, material fraud, and certain illegal acts d) material error and material illegal acts
C
Which of the following nonfinancial information would an auditor MOST likely consider in performing analytical procedures during risk assessment? a) turnover of personnel in the accounting department b) objectivity of audit committee members c) square footage of selling space d) management's plans to repurchase stock
C
Which of the following procedures would an auditor LEAST likely perform while obtaining an understanding of a client in a financial statement audit? a) coordinating the assistance of entity personnel in data preparation b) discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity c) selecting a sample of vendors' invoices for comparison to receiving reports d) reading the current year's interim financial statements
C
Which of the following statements is correct regarding an accountant's working papers? a) the accountant owns the working papers and generally may disclose them as the accountant sees fit b) the client owns the working papers but the accountant has custody of them until the accountant's bill is paid in full c) the accountant owns the working papers but generally may not disclose them without the client's consent or a court order d) the client owns the working papers but, in the absence of the accountant's consent, may not disclose them without a court order.
C
Which of the following tends to be MOST predictable for purposes of analytical procedures applied as substantive procedures? a) relationships involving balance sheet accounts b) transactions subject to management discretion c) relationships involving income statement accounts d) data subject to audit testing in the prior year
C
Which of the following types of audit evidence is the MOST persuasive? a) pre-numbered client purchase order forms b) client work sheets supporting cost allocations c) bank statements obtained from the client d) client representation letter
C
Which of the following would an auditor MOST likely use in determining the auditor's preliminary judgement about materiality? a) the results of the initial assessment of control risk b) the anticipated sample size for planned substantive tests c) the entity's financial statements of the prior year d) the assertions that are embodied in the financial statements
C
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 risk assessment d) develop the audit plan
C
According to the ethical standards of the profession, which of the following acts is generally prohibited? a) issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client b) revealing confidential client information during a quality review of a professional practice by a team from the state CPA society c) accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent d) retaining client records after an engagement is terminated prior to completion and the client had demanded their return.
D
An auditor obtains knowledge about a new client's business and its industry to a) make constructive suggestions concerning improvements to the client's internal control b) develop an attitude of professional skepticism concerning management's financial statement assertions c) evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated d) understand the events and transactions that may have an effect on the client's financial statements
D
An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor MOST likely could have detected this fraudulent financial reporting by a) tracing a sample of journal entries to the general ledger b) evaluating the effectiveness of internal control c) investigating the reconciliations between controlling accounts and subsidiary records d) performing analytical procedures designed to disclose differences from expectations
D
Audit plans should be designed so that a) most of the required procedures can be performed as interim work b) inherent risk is assessed at a sufficiently low level c) the auditor can make constructive suggestions to management d) the audit evidence gathered supports the auditor's conclusions
D
Disclosure of fraud to parties other than a client's senior management and its audit committee or board of directors ordinarily is NOT part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose fraud exist? a) to the SEC when the client reports an auditor change; to a successor auditor when the successor makes appropriate inquiries b) to the SEC when the client reports an auditor change; to a government funding agency from which the client receives financial assistance c) to a successor auditor when the successor makes appropriate inquiries; to a government funding agency from which the client receives financial assistance d) to the SEC when the client reports an auditor change; to a successor auditor when the successor makes appropriate inquiries; to a government funding agency from which the client receives financial assistance
D
In designing written audit plans, an auditor should establish specific audit objectives that relate primarily to the a) timing of audit procedures b) cost-benefit of gathering evidence c) selected audit techniques d) financial statement assertions
D
In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are a) not subject to bias b) consistent with industry guidelines c) based on objective assumptions d) reasonable in the circumstances
D
In evaluating the reasonableness of an accounting estimate, an auditor MOST likely would concentrate on key factors and assumptions that are a) consistent with prior periods b) similar to industry guidelines c) objectives and NOT susceptible to bias d) deviations from historical patterns
D
The PCAOB's standards require that due care is to be exercised in the performance of an audit. This standard is ordinarily interpreted to require a) thorough review of the existing safeguards over access to assets and records b) limited review of the indications of employee fraud and illegal acts c) objective review of the adequacy of the technical training and proficiency of firm personnel d) critical review of the judgement exercised at every level of supervision
D
What assurance does the auditor provide that misstatements due to errors, fraud, and direct effect illegal acts that are material to the financial statements will be detected? a) errors: limited; fraud: negative; direct effect of illegal acts: limited b) errors: limited; fraud: limited; direct effect of illegal acts: reasonable c) errors: reasonable; fraud: limited; direct effect of illegal acts: limited d) errors: reasonable; fraud: reasonable; direct effect of illegal acts: reasonable
D
When considering fraud risk factors relating to management's characteristics, which of the following is LEAST likely to indicate a risk of possible misstatement due to fraud? a) failure to correct known significant deficiency on a timely basis b) nonfinancial management's preoccupation with the selection of accounting principles c) significant portion of management's compensation represented by bonuses based upon achieving unduly aggressive operating results d) use of unusually conservative accounting practices
D
Which of the following is LEAST likely to be required on an audit? a) test appropriateness of journal entries and adjustments b) review accounting estimates for biases c) evaluate the business rationale for significant unusual transactions d) make a legal determination of whatever fraud has occurred
D
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
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 completeness
D
Which of the following is a function of the risks of material misstatement and detection risk? a) internal control b) corroborating evidence c) quality control d) audit risk
D
Which of the following presumptions is correct about the reliability of audit evidence? a) information obtained indirectly from outside sources is the most reliable audit evidence b) to be reliable, audit evidence should be convincing rather than persuasive c) reliability of audit evidence refers to the amount of corroborative evidence obtained d) effective internal control provides more assurance about the reliability of audit evidence
D
Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness? a) develop independent expectations of management's estimates b) consider the appropriateness of the key factors or assumptions used in preparing the estimates c) test the calculations used by management in developing the estimates d) obtain an understanding of how management developed its estimates
D
Which of the following statements reflects an auditor's responsibility for detecting misstatements due to errors and fraud? a) an auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraud involving employee collusion or management override b) an auditor should plan the audit to detect misstatements due to errors and fraud that are caused by departures from GAAP c) an auditor is not responsible for detecting misstatements due to errors and fraud unless the application of GAAS would result in such detection d) an auditor should design the audit to provide reasonable assurance of detecting misstatements due to errors and fraud that are material to the financial statements
D
Which of the following statements relating to the appropriateness of audit evidence is always true? 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) evidence gathered by auditors must be both valid and relevant to be considered appropriate
D
