ACC 450 Ch 17, Ch 16, Ch 14

Which of the following information need not be reported in the auditors' report of a nonpublic company if the information is considered to be properly stated after performing appropriate procedures? Other information in documents containing audited financial statements. FASB-required supplementary information. GASB-required supplementary information. Supplementary information in relation to the financial statements as a whole.

Other information in documents containing audited financial statements.

Auditors may choose not to confirm accounts payable because:

Other reliable external evidence to support the balances is likely to be available.

Which of the following is the best control procedure to prevent the payment of an invoice twice?

Review of supporting documentation by the person signing the check.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

An approach that quantifies the total of uncorrected misstatement as of the current year-end based on the effects of reflecting misstatements during the current year (and not considering any unadjusted previous year misstatements) is referred to as the: Projected misstatement approach. Rollover approach. Iron curtain approach. Evaluation materiality approach.

Rollover approach.

Of the following, a public company audit report is most likely to be addressed to the: Management. Shareholders. Internal audit team. Company itself.

Shareholders.

For good internal control, a copy of a receiving report should be sent to all of the following departments except:

Shipping.

Which of the following is least likely to be included in a public company audit report with an unqualified opinion? A basis for opinion paragraph. A section on critical matters. The name of the engagement partner. A title with the word "Independent."

The name of the engagement partner.

The review of audit working papers by the audit partner is normally completed: Near the completion of the audit. After issuance of the audit report, but prior to required subsequent event review procedures. Immediately as each working paper is completed. Prior to year-end.

Near the completion of the audit.

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Observation and inquiry.

An audit report on a public company is least likely to include a paragraph titled: Opinion on the Financial Statements. Auditor responsibility Basis for Opinion. Critical Audit Matters.

Auditor responsibility

Which of the following procedures for detecting unrecorded transactions at the client's December 31 year-end is least likely to result in discovery of an unrecorded year-end account payable?

Examination of January receiving reports prepared for goods shipped FOB destination in December to the client

Specific misstatement in one of a client's 2,000 accounts receivable is referred to as a(n): Projected misstatement. Redundancy effect misstatement. Extrapolation difference. Factual misstatement.

Factual misstatement.

In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: Factual, judgmental and projected misstatements and an allowance for undetected misstatements in the financial statements. Factual and judgmental misstatements in the financial statements. Factual misstatements in the financial statements. Judgmental misstatements in the financial statements.

Factual, judgmental and projected misstatements and an allowance for undetected misstatements in the financial statements

To which of the following matters would materiality limits not apply when obtaining written client representations? Information about related party transactions. Disclosure of line-of-credit arrangements. Violations of state labor regulations. Instances of fraud involving management.

Instances of fraud involving management.

Which of the following is an example of an accrued liability?

Interest payable.

Which of the following auditing procedures is ordinarily performed last? Reading of the minutes of the directors' meetings. Obtaining a management representation letter. Confirming accounts payable. Testing of the purchasing function.

Obtaining a management representation letter.

Which of the following manipulations would understate accounts payable on the financial statements?

Omission of expenses.

The first section of a public company audit report is the: Basis for opinion section. Critical audit matters section. Introductory paragraph. Opinion section.

Opinion section.

The form typically used to confirm accounts payable:

Requires the vendor to indicate the amount of the payable.

Which of the following best describes the specific accounts payable that are selected for confirmation?

Accounts with a large amount of activity regardless of their balance.

Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000. The factual misstatement in this situation is: $0. $30,000. $50,000. $40,000.

$0.

An auditor believes that a client's warranty liability is between $100,000 and $130,000, with each amount in that interval equally likely. The financial statements show a liability of $90,000. $20,000 judgmental misstatement. $20,000 projected misstatement. $10,000 projected misstatement. $10,000 judgmental misstatement.

$10,000 judgmental misstatement. 100-90 = 10

A client's previous two years of financial statements understated estimated warranty payable by $30,000 and $50,000 respectively, both immaterial amounts. This year, the auditors estimate that the accrual is understated by an additional $60,000. In this year's audit, $100,000 represents a material amount. Assuming that the entire understatement is to be recorded, the decrease in this year's income due to these understatements is: $60,000. $140,000. $0. $110,000.

$140,000 60 < 140 60+30+50 = 140

Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000, with all points in that interval equally likely. The judgmental misstatement in this situation is: $0. $40,000. $30,000. $50,000.

$30,000.

Which of the following accounting changes requires an emphasis-of-matter paragraph regarding consistency in a nonpublic company auditors' report? A change in calculating bad debt expense from one percent to two percent of credit sales. A write-off of a patent because future benefits do not appear to exist. A change from the straight-line method of depreciation to an accelerated method for a class of fixed assets. A change in the estimated useful lives of a class of fixed assets.

A change from the straight-line method of depreciation to an accelerated method for a class of fixed assets.

Which of the following will result in emphasis-of-matter as to consistency in a nonpublic company auditor's report, regardless of whether the item is fully disclosed in the financial statements? A change from an unacceptable accounting principle to a generally accepted one. Correction of an immaterial error not involving a change in accounting principle. A change in accounting estimate. A change in classification.

A change from an unacceptable accounting principle to a generally accepted one.

An audit client has refused to allow the auditors to perform an auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of: A standard unmodified opinion with a qualified scope paragraph. An adverse opinion. A disclaimer of opinion. An unmodified report with an emphasis-of-matter paragraph.

A disclaimer of opinion.

Which of the following best describes a voucher prepared under good internal control?

A document prepared by Accounts Payable authorizing a cash disbursement.

When an adverse opinion is expressed on the financial statements of a nonpublic company, the opinion paragraph should include a direct reference to: A note to the financial statements which discusses the basis for the opinion. The consistency in the application of generally accepted accounting principles. A separate basis for modification paragraph (section). The auditor's responsibility section of the audit report which discusses the basis for the opinion rendered.

A separate basis for modification paragraph (section).

Ray, an independent auditor, was engaged to perform an audit of the financial statements of Zena Incorporated one month after its fiscal year had ended. Although the inventory count was not observed by Ray, the auditors were able to obtain sufficient appropriate audit evidence by applying alternative auditing procedures. Rays audit report will probably contain: A standard unmodified opinion. Either a qualified opinion or a disclaimer of opinion. An unmodified opinion and an emphasis-of-matter paragraph. An "except for" qualification.

A standard unmodified opinion.

Which of the following is not explicitly included in an audit report for a nonpublic company? A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance. A statement that the financial statements are the responsibility of management. A title with the word "independent." A statement that the auditor's responsibility is to express an opinion on the financial statements.

A statement that the auditor believes that the audit provides a reasonable basis for expressing negative assurance.

For clients that distribute checks or cash payments and have significant payroll control weakness, which of the following audit procedures is aimed at determining whether every name on the company payroll is a bona fide employee actually on the job?

A surprised observation of a paycheck distribution, while establishing the identity of each employee receiving payment.

Shortly after year-end, Allen Corporation was informed of the bankruptcy of Quest. Allen Corporation showed a receivable of $20,000 (a material amount) due from Quest as of year-end—none of which seems recoverable. The receivable had been questionable for some time as Quest had been experiencing financial difficulties for the past several years. Yet, Quest's bankruptcy did not occur until after Allen Corporation's year-end. Under these circumstances: The financial statements should be adjusted Column A The event requires financial statement disclosure, but no adjustment Column B The auditor's report should be modified for a lack of consistency Column C A. Yes No No B. Yes No Yes C. No Yes Yes D. No Yes No Option A Option B Option C Option D

A. Yes No No

Ordinarily, a public company must be addressed to: Shareholders Board of Directors A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

A. Yes Yes

An auditor's report on comparative financial statements should be dated as of the date of the: Accumulation of sufficient appropriate audit evidence. Issuance of the report. Last related-party transaction disclosed in the statements. Latest financial statements being reported on.

Accumulation of sufficient appropriate audit evidence.

A scope restriction is least likely to result in a(an): Standard unmodified opinion. Adverse opinion. Qualified opinion. Disclaimer of opinion.

Adverse opinion.

Most of the audit work on accounts payable is typically performed:

After the balance sheet date.

Which of the following is least likely to be a critical audit matter in a public company audit report? A significant risk identified by the auditor. Matters relating to the company's accounting policies. An audit team member lacking experience in the client's industry. A related party transaction.

An audit team member lacking experience in the client's industry.

Which of the following audit procedures is least likely to detect an unrecorded liability?

Analysis and recomputation of depreciation expense.

If group auditors make no reference to component auditors whose work they have relied on as a part of the basis for their report, the group auditors: Are assuming responsibility for the work of the component auditors. Are not required to investigate the professional reputation of the component auditors. Are issuing an inappropriate report. Are issuing a qualified opinion.

Are assuming responsibility for the work of the component auditors.

Accrued liabilities generally differ from accounts payable in that accrued liabilities:

Are often based on estimates.

On February 9, Brown, CPA, expressed an unmodified (unqualified) opinion on the financial statements of Web Co. On October 9, during a peer review of Brown's practice, the reviewer informed Brown that engagement personnel failed to perform a search for subsequent events for the Web engagement. Brown should first: Assess the importance of the omitted procedures to Brown's present ability to support the opinion. Request Web's permission to perform substantive procedures that would provide a satisfactory basis for the opinion. Inquire of Web whether there are persons currently relying, or likely to rely, on the financial statements. Take no additional action because subsequent events have no effect on the financial statements that were reported on.

Assess the importance of the omitted procedures to Brown's present ability to support the opinion.

The primary objective of analytical procedures used near the end of an audit is to: Identify areas that represent specific risks relevant to the audit. Satisfy doubts when questions arise about a client's ability to continue in existence. Obtain evidence from details tested to corroborate particular assertions. Assist the auditor when forming overall conclusions about the financial statements.

Assist the auditor when forming overall conclusions about the financial statements.

If, after issuing an audit report, the auditors find that they have failed to perform certain significant audit procedures they should first: Attempt to determine whether their report is still being relied upon by third parties. Wait until the beginning of the next year's audit to determine whether misstatements have occurred. Notify legal counsel. Notify regulatory agencies.

Attempt to determine whether their report is still being relied upon by third parties.

Which of the following is not included in PCAOB Form AP? Name of each accounting firm whose work constituted at least 5% of total audit hours. Audit staff investments in each particular client. Aggregate participation of accounting firms whose individual work was less than 5% of total audit hours. The engagement partner for audits.

Audit staff investments in each particular client.

An example of an internal control weakness is to assign the payroll department the responsibility for: Authorizing increases in pay. Preparing the payroll checks. Preparing the payroll expense distribution. Preparing journal entries for payroll expense.

Authorizing increases in pay.

When auditing the statement of cash flows of a profitable, growing company which combination is most likely? Cash flows from operations Column A Cash flows from investing Column B A. Positive Positive B. Positive Negative C. Negative Positive D. Negative Negative Option A Option B Option C Option D

B. Positive Negative

For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected: Present information in the financial statements that is classified and summarized in a reasonable manner. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. Be appropriate in the circumstances for the particular entity. Be applied on a basis consistent with those followed in the prior year.

Be applied on a basis consistent with those followed in the prior year.

Which of the following statements is correct regarding accounts payable and the auditor's procedures?

Because it can be difficult to discover a transaction that has not been recorded, the audit objective of completeness drives many of the substantive procedures applied to these balances.

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of:

Canceled checks.

The audit of which of the following balance sheet accounts does not normally result in verification of an income statement account? Property, plant, and equipment. Cash. Accounts receivable. Intangible assets.

Cash.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited?

Cash.

Which of the following is an analytical procedure that should be applied to the income statement? Ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the income statement. Select sales and expense items and trace amounts to related supporting documents. Obtain from the proper client representatives, the beginning and ending inventory amounts that were used to determine costs of sales. Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.

Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?

Completeness

The assertion most directly addressed when performing the search for unrecorded liabilities is:

Completeness.

Which of the following is not a procedure that is designed to provide evidence about the existence of loss contingencies? Reviewing the minutes of board of directors' meetings. Confirming accounts payable. Obtaining a lawyers' letter. Review correspondence with banks.

Confirming accounts payable.

When an auditor of a nonpublic company has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the date the financial statements will be released (1/26/X2), the auditor's responsibility includes: Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern. Preparing prospective financial information to verify whether management's plans can be effectively implemented. Projecting conditions and events from one year prior to this year's date (12/31/X0) to 12/31/X1. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements.

Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Auditors often request that the audit client send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, or assessments. The primary reason for this request is to provide the auditors with: Corroborative audit evidence. Information concerning the progress of cases to date. An estimate of the dollar amount of the probable loss. An expert opinion as to whether a loss is possible, probable, or remote.

Corroborative audit evidence.

Which of the following representations does an auditor make explicitly and which implicitly when issuing a standard unqualified opinion on a public company's financial statements? Conformity with PCAOB Standards (column A) Going Concern Status (column B) A. Explicitly Explicitly B. Implicitly Implicitly C. Implicitly Explicitly D. Explicitly Implicitly Option A Option B Option C Option D

D. Explicitly Implicitly

Critical audit matters are included in a public company audit report with a(n): Adverse Opinion Disclaimer of Opinion A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

D. No No

To minimize the opportunities for fraud, unclaimed cash payroll should be: Held by the payroll custodian. Held by the controller. Deposited in a special bank account. Deposited in a safe deposit box.

Deposited in a special bank account.

The confirmation of accounts payable is most closely associated with:

Detection risk

When the auditor is unable to determine the amounts associated with noncompliance with a law by client personnel due to a scope limitation, the auditor should issue a(an): Disclaimer of opinion. Unmodified opinion with a separate emphasis-of-matter paragraph. Standard unmodified opinion. Adverse opinion.

Disclaimer of opinion.

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be: Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. Disclosed in the notes to the financial statements of the current year. Referred to in the auditor's report for the current year. Treated as a subsequent event.

Disclosed in the notes to the financial statements of the current year.

A CPA reviews a client's payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for: Hiring subordinate employees. Initiating requests for salary adjustments for subordinate employees. Distributing payroll checks to employees. Reviewing and approving time reports for subordinate employees.

Distributing payroll checks to employees.

For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to: Either one or both years at the option of the auditors. Each of the two years plus the preceding year. Each of the years in the two-year period. Only the current year under audit.

Each of the years in the two-year period.

A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that: Only bonafide employees worked and their pay was properly computed. Internal control relating to payroll disbursements are operating effectively. Employees worked the number of hours for which their pay was computed. Jobs on which employees worked were charged with the appropriate labor cost.

Employees worked the number of hours for which their pay was computed.

The accounts payable department receives the purchase order form to accomplish all of the following except:

Ensure the goods had been received by the party requesting the goods.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices.

Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable?

Examining underlying documentation for cash disbursements in the period after year-end.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?

Examining vendor statements for amounts not reported as purchases.

Which of the following is a term used in public company audit reports? Other matter paragraph. Explanatory paragraph. Disclaimer of qualification. Unmodified opinion.

Explanatory paragraph.

The Rotter Company, a nonpublic company, changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should: Express an adverse opinion regarding the 20X4 financial statements, without a basis for modification paragraph since the reason will be included in the notes to the statements. Disclaim an opinion and explain all of the reasons therefore. Express an unmodified opinion with an emphasis-of-matter paragraph and disclose the accounting change from 20X3 and its effect on the financial statements. Express an adverse opinion with the basis for modification paragraph disclosing the reason (the accounting change) for the opinion.

Express an adverse opinion with the basis for modification paragraph disclosing the reason (the accounting change) for the opinion.

An auditor's decision concerning whether or not to "dual-date" the audit report is based upon the auditor's willingness to: Assume responsibility for resolving all events subsequent to the issuance of the auditor's report. Accept responsibility for year-end adjusting entries. Extend auditing procedures. Permit inclusion of a note captioned: event (unaudited) subsequent to the date of the auditor's report.

Extend auditing procedures.

Which of the following is a "registration statement" that is filed with the SEC by a company planning to issue securities to the public? Form S-1. Form 10-K. Form 10-Q. Form 8-K.

Form S-1.

Which of the following could most likely be performed efficiently with data analytics?

Identification of payables from purchases of goods that do not have evidence of receipt of the goods.

An auditor will ordinarily examine invoices from lawyers primarily in order to: Estimate the dollar amount of contingent liabilities. Substantiate accruals. Identify possible unasserted litigation, claims, and assessments. Assess the legal ramifications of litigation in progress.

Identify possible unasserted litigation, claims, and assessments.

Material loss contingencies should be recorded in the financial statements if available information indicates it is probable that a loss had been sustained prior to the balance sheet date and the amount of such loss can be reasonably estimated. For a public company these considerations will affect the audit report as follows: If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but is required to point out the contingency in an explanatory paragraph of the report. If a loss meets these criteria, the auditor may issue an unqualified opinion but is required to point out the contingency in an explanatory paragraph of the report. If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion. If a loss meets these criteria and is disclosed in the financial statement notes, the auditor may issue an unqualified opinion, but should consider adding an explanatory paragraph as a means of emphasizing the disclosure.

If a loss is probable but the amount cannot be reasonably estimated and is disclosed in the notes to the financial statements, the auditor may issue an unqualified opinion.

CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct? Such assumption of responsibility violates the profession's standards. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved. In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report.

In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report.

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to: Purchase assets formerly leased. Increase current dividend distributions. Reduce existing lines of credit. Increase ownership equity.

Increase ownership equity.

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified or adverse opinion if: The effects of the adverse financial conditions are likely to be negative. Negative trends and recurring operating losses appear to be irreversible. Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. Management has no plans to reduce or delay future expenditures.

Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.

Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? Inspecting title documents to verify whether any real property is pledged as collateral. Performing cutoff tests of sales transactions with customers with long-standing receivable balances. Evaluating the entity's procedures for identifying and recording related party transactions. Inquiring of the entity's legal counsel about litigation, claims, and assessments.

Inquiring of the entity's legal counsel about litigation, claims, and assessments.

Which of the following is a general purpose financial reporting framework? Auditing Standards of the Public Company Accounting Oversight Board. International Financial Reporting Standards. International Standards of Auditing. Generally accepted auditing standards.

International Financial Reporting Standards.

To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a separation of which of the following functions?

Invoice verification and merchandise ordering.

An approach that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting all misstatements existing in the balance sheet at the end of the current year including those that occurred in prior years is referred to as: Rollover approach. Evaluation materiality approach. Iron curtain approach. Projected misstatement approach.

Iron curtain approach.

The auditors include an emphasis-of-matter paragraph in a nonpublic company audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph: Is considered a qualification of the opinion. Is appropriate and would not negate the unmodified opinion. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." Is a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements.

Is appropriate and would not negate the unmodified opinion.

A basis for modification paragraph in the audit of the financial statements of a nonpublic company: Is only included with qualified, adverse, or disclaimers of opinion. Has a section title: Emphasis-of-Matter. Must be included in all nonpublic company audit reports. Is presented only in audit reports with unmodified opinions.

Is only included with qualified, adverse, or disclaimers of opinion.

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: Issue an "except for" qualification or a disclaimer of opinion. Issue an "except for" qualification or an adverse opinion. Withdraw from the engagement. Issue an unmodified opinion with a basis for modification paragraph.

Issue an "except for" qualification or an adverse opinion.

When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: Issue an adverse opinion. Issue an unmodified opinion, but disclose elsewhere in the report this departure from a customary procedure. Issue an unmodified opinion with no reference to this omission. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables

Issue an unmodified opinion with no reference to this omission.

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if:

It is difficult to reconcile vendors' monthly statements.

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a: Confirmation of claims and assessments from the other parties to the litigation. Letter of corroboration from the auditor's lawyer upon review of the legal documentation. Confirmation of claims and assessments from an officer of the court presiding over the litigation. Letter of audit inquiry to the client's lawyer.

Letter of audit inquiry to the client's lawyer.

The auditors' primary means of obtaining corroboration of management's information concerning litigation is a: Letter of audit inquiry to the client's lawyer. Letter of corroboration from the auditor's lawyer upon review of the legal documentation. Confirmation of claims and assessments from an officer of the court presiding over the litigation. Confirmation of claims and assessments from the other parties to the litigation.

Letter of audit inquiry to the client's lawyer.

The auditor will most likely perform extensive tests for possible understatement of:

Liabilities.

Which of the following is least likely to result in an adverse opinion? Limitation in the scope of the audit. Uncertainty. Change in accounting principle. Related party transaction.

Limitation in the scope of the audit.

An example of an internal control weakness is to assign the human resource department responsibility for: Maintaining time cards. Interviewing employees for jobs. Hiring personnel. Authorizing deductions from pay.

Maintaining time cards.

An auditor should obtain written representations from the company's attorney concerning litigation claims and assessments, which may be limited to matters that are considered either individually or collectively material. An understanding on the limits of materiality for this purpose has been reached by: The auditor and the client's lawyer. Management, the client's lawyer, and the auditor. Management and the auditor. The auditor independently of management.

Management and the auditor.

Hall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZ completed the preparation of the year 1 financial statements on February 13, year 2, and Hall began the audit work on February 17, year 2. Hall completed the audit work on March 24, year 2, and completed the report on March 28, year 2. The client's representation letter normally would be dated: February 13, year 2. March 24, year 2. February 17, year 2. March 28, year 2.

March 24, year 2.

Which of the following is a control procedure that is usually applied to accounts payable?

Matching invoices with receiving documents before disbursements are authorized.

An attorney responding to an auditor as a result of the client's letter of audit inquiry may appropriately limit the response to: Legal matters subject to unsettled points of law, uncorroborated information, or other complex judgments. Asserted claims and pending or threatened litigation. Matters to which the attorney has given substantive attention in the form of legal consultation or representation. Items which have high probability of being resolved to the client's detriment.

Matters to which the attorney has given substantive attention in the form of legal consultation or representation.

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: May accept the engagement but must disclaim an opinion because of an inability to apply the procedures considered necessary. Should refuse the engagement because there is a client-imposed scope limitation. May accept the engagement. Should refuse the engagement because of a departure from generally accepted auditing standards.

May accept the engagement.

Morgan, CPA, is the group auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the component auditor, as well as the quality of the component auditor's audit. With respect to Morgan's report on the consolidated financial statements, taken as a whole, Morgan: May refer to the audit of the component auditor. Must refer to the audit of the component auditor. May refer to the audit of the component auditor, in which case Morgan must include in the audit report on the consolidated financial statements a qualified opinion with respect to the audit of the component auditor. Must not refer to the audit of the component auditor.

May refer to the audit of the component auditor.

When a nonpublic audit client has omitted required supplementary information, the audit report should include a(n)? Disclaimer of opinion. Statement indicating that the financial statements should not be relied upon. Qualified opinion. Other-matter paragraph.

Other-matter paragraph.

The auditors have calculated the total uncorrected identified misstatements as $445,000; materiality for the audit is $450,000. The client has declined to record the related journal entries. In this situation it is most likely that the auditors will: Issue a disclaimer of opinion. Perform additional audit procedures to reduce audit risk to an appropriately low level. Resign from the audit. Conclude that the financial statements are not materially misstated.

Perform additional audit procedures to reduce audit risk to an appropriately low level.

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? Review the latest available interim financial statements. Review minutes of board of directors' meeting. Inquire about any unusual adjustments made subsequent to the balance sheet date. Perform analytical procedures in the period subsequent to the balance sheet date.

Perform analytical procedures in the period subsequent to the balance sheet date.

It would be appropriate for the payroll accounting department to be responsible for which of the following functions? Preparation of periodic governmental reports as to employees' earnings and withholding taxes. Maintenance of records of employment, discharges, and pay increases. Approval of employee time records. Distribution of paychecks to employees.

Preparation of periodic governmental reports as to employees' earnings and withholding taxes.

With properly designed internal control, the same employee should not be permitted to:

Prepare disbursement vouchers and sign checks.

Analytical procedures are required as a part of the: Internal control assessment. Substantive testing. Procedures performed near the end of the audit. Detailed tests of balances.

Procedures performed near the end of the audit.

The auditors used statistical sampling for the audit of inventory and calculated an estimated total audited value of $1,100,000; the client's book value for inventory is $1,200,000. This misstatement is properly classified as a: Factual misstatement. Judgmental misstatement. Relevance misstatement. Projected misstatement.

Projected misstatement.

When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. Issue an unmodified opinion, but inform the reader by including the omitted information in the audit report. Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.

Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP.

A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to:

Purchases.

A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: Confirmation of related lawsuits with the claimants. An assessment that loss of the litigation is probable. An adverse opinion. Qualification of the audit report.

Qualification of the audit report.

The auditors' best course of action with respect to "other information (not including required supplemental information)" included in an annual report containing the auditors' report is to: Indicate in the auditors' report, that the "other financial information" is only compiled. Consider whether the "other financial information" is accurate by performing a limited review. Obtain written representations from managements as to the material accuracy of the "other financial information." Read and consider the manner of presentation of the "other financial information."

Read and consider the manner of presentation of the "other financial information."

A client recorded a payable for a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

When the auditors select a sample from the vouchers payable register at the end of the period and trace them to underlying documents, the auditors are gathering evidence primarily to support that:

Recorded obligations occurred prior to year-end.

If the predecessor auditors do not reissue their audit report on comparative financial statements, the successor auditors should: Refer to the report of the predecessor auditors. Reproduce the predecessor auditors' report and include it with the new set of financial statements. Have the client omit the comparative financial statements. Express a qualified opinion on the comparative financial statements audited by the predecessor auditors.

Refer to the report of the predecessor auditors.

An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to: Accelerate the due date of an existing mortgage. Refinance debt to lower loan payments. Repurchase the entity's stock at a price below its book value. Issue stock options to key executives.

Refinance debt to lower loan payments.

Which of the following is least likely to result in a qualification of the auditors' opinion due to a scope limitation? Inability to obtain sufficient appropriate audit evidence. Scope limitations imposed by the client. Inadequate accounting records. Reliance placed upon the report of component auditors.

Reliance placed upon the report of component auditors.

The date the auditor grants the client permission to use the audit report in connection with the financial statements is the: Representation date. Report release date. Last day of significant field work. Report cutoff date.

Report release date.

In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable? Sales and Bad Debt Expense. Interest and Cost of Goods Sold. Sales and Cost of Goods Sold. Interest and Bad Debt Expense.

Sales and Bad Debt Expense.

Which of the following procedures is least likely to be completed before the balance sheet date?

Search for unrecorded liabilities.

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

The purpose of segregating the duties of distributing payroll checks and hiring personnel is to: Separate the authorization of transactions from the custody of related assets. Separate duties within the accounting function. Establish clear lines of authority and responsibility. Separate the custody of assets from the accounting for those assets.

Separate the authorization of transactions from the custody of related assets.

Which of the following is the best reason why the auditors should consider observing a client's distribution of regular payroll checks? Total payroll costs are a significant part of total operating costs. Employee turnover is excessive. Separation of payroll duties is less than adequate for effective internal control. The auditors did not observe the distribution of the entire regular payroll during the audit in the prior year.

Separation of payroll duties is less than adequate for effective internal control.

A client has changed the salvage values of a number of its fixed assets. The auditors of the public company believe that the revised salvage values are realistic. The appropriate report on the financial statements is: Qualified for consistency. Standard unqualified. Unqualified with explanatory language as to consistency. Disclaimer.

Standard unqualified.

The auditors' search for unrecorded liabilities is completed:

Subsequent to the balance sheet date.

Which of the following ledger accounts would be least likely to be analyzed in detail by auditors? Professional fees. Miscellaneous revenue. Supplies expense. Repairs and maintenance.

Supplies expense.

The proper use of prenumbered termination forms by the payroll department should provide assurance that all: Uncashed payroll checks were issued to employees who have not been terminated. Employees who have not been terminated receive their payroll checks. Terminated employees are removed from payroll. Personnel files are kept up to date.

Terminated employees are removed from payroll.

Which of the following best describes the auditors' approach to the audit of accrued liabilities?

Test computations.

Auditors must communicate internal control "significant deficiencies" to: The SEC. The audit committee. The Federal Trade Commission. The shareholders.

The audit committee.

Which of the following modifications of the auditors' report does not include an additional paragraph? The report is qualified because the scope of the auditors' work was limited. The audit report of a nonpublic company indicates a division of responsibility between two CPA firms. The report includes an emphasis of a matter. The report is qualified because the financial statements contain a material departure from generally accepted accounting principles.

The audit report of a nonpublic company indicates a division of responsibility between two CPA firms.

The unmodified standard audit report of a nonpublic company does not explicitly state that: The financial statements are the responsibility of the company's management. The auditors believe that the audit provides a reasonable basis for their opinion. The audit was conducted in accordance with accounting principles generally accepted in the United States of America. An audit includes evaluating the appropriateness of accounting policies used.

The audit was conducted in accordance with accounting principles generally accepted in the United States of America.

The statement that best expresses the auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit is that: The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date. The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period. The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of field work. The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred.

The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.

Which of the following circumstances generally results in the issuance of a report that includes an opinion that is modified? The group auditors for the engagement are relying on the work of component auditors. The auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client. The financial statements are affected by a change in accounting principle due to a new FASB pronouncement. The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.

The auditor is unable to obtain the financial records of a foreign subsidiary which is material to the client.

Under which of the following set of circumstances might the auditors disclaim an opinion? The group auditors decide to make reference to the report of component auditor who audited a subsidiary. There has been a material change between periods in the method of application of accounting principles. The financial statements contain a departure from generally accepted accounting principles, the effect of which is material. The auditors cannot observe ending inventory nor confirm accounts receivable and cannot obtain sufficient evidence using alternative procedures.

The auditors cannot observe ending inventory nor confirm accounts receivable and cannot obtain sufficient evidence using alternative procedures.

If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows: The auditors may still issue an unmodified opinion. The auditors should issue a qualified report for the departure from generally accepted accounting principles. The auditors should issue a qualified report indicating a scope limitation in that no statement of cash flows is presented. The auditors should disclaim an opinion on the overall financial statements.

The auditors should issue a qualified report for the departure from generally accepted accounting principles.

PCAOB Form AP involves disclosure of: Audit firm's liability for accounts payable to the audit client. Audit client executives. The engagement partner for the audit. Names of all staff members on the audit.

The engagement partner for the audit.

Which of the following is correct concerning a public company audit report with a disclaimer of opinion? The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title. The title of the Opinion section will be changed to Basis for Disclaimer of Opinion. It must include in a section on critical audit matters the circumstances that led to the disclaimer. It will ordinarily be issued in situations in which financial statements are materially and pervasively misstated.

The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title.

Which of the following is not a difference between the audit report of a nonpublic and public company? The public company report has an additional paragraph referring to the client's fraud prevention procedures. The public company report is more likely to refer to a critical audit matter. The public company report includes the word "Registered" in the title. The public company report refers to standards of the PCAOB.

The public company report has an additional paragraph referring to the client's fraud prevention procedures.

Which of the following would most likely be an appropriate addressee for an audit report? A third party who requested that a copy of the audit report be sent to her. The president of the corporation whose financial statements were examined. The chief financial officer. The shareholders of the corporation whose financial statements were examined.

The shareholders of the corporation whose financial statements were examined.

In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? The statements are not in conformity with FASB requirements regarding goodwill impairment. Tests of controls show that the entity's internal control is so poor that it cannot be relied upon. Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. The chief executive officer refuses the auditor access to minutes of board of directors' meetings.

The statements are not in conformity with FASB requirements regarding goodwill impairment.

In which of the following circumstances will it be most likely that an adverse opinion is considered appropriate? The statements are not in conformity with generally accepted accounting principles due to a departure from GAAP with an immaterial effect on the financial statements. A client-imposed scope limitation prevents the auditor from obtaining sufficient appropriate audit evidence. The auditor is not independent with respect to the enterprise being audited. The statements are not in conformity with generally accepted accounting principles regarding pension plans.

The statements are not in conformity with generally accepted accounting principles regarding pension plans.

When reporting on comparative financial statements where the financial statements of the prior period have been examined by a predecessor auditor whose report is not presented, the successor auditor should indicate in the report: Whether the predecessor auditor's review of the current year's financial statements revealed any matter that might have a material effect on the successor auditor's opinion. The identity of the predecessor auditor who examined the financial statements of the prior year. The reasons why the predecessor auditor's report is not presented. The type of opinion expressed by the predecessor auditor.

The type of opinion expressed by the predecessor auditor.

Which statement is correct with respect to accounts payable confirmations?

They are more frequently used in situations in which some vendors don't send monthly statements.

Which of the following is not correct relating to representation letters? They are signed by members of top management. They often serve as a substitute for the application of other procedures. They must be obtained for audits. They are ordinarily dated as of the date of the audit report.

They often serve as a substitute for the application of other procedures.

If management refuses to furnish certain written representations that the auditor believes are essential, which of the following is appropriate? This may have an effect on the auditor's ability to rely on other representations of management. The client's refusal does not constitute a scope limitation that may lead to a modification of the opinion. The auditor should issue an adverse opinion because of management's refusal. The auditor can rely on oral evidence relating to the matter as a basis for an unmodified (unqualified) opinion.

This may have an effect on the auditor's ability to rely on other representations of management.

Auditors should perform audit procedures relating to subsequent events? Through year-end. Through the date of the audit report. Through issuance of the audit report. For a reasonable period after year-end.

Through the date of the audit report.

In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of unadjusted differences for which the auditors did not propose adjustments when they were identified. What is the primary purpose served by this schedule? To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered. To summarize the misstatements made by the company so that corrections can be made after the audited financial statements are released. To point out to the responsible client officials the errors made by various company personnel. To summarize the adjustments that must be made before the company can prepare and submit its federal tax return.

To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered.

Effective internal control over the payroll function would include which of the following? Payroll department employees should be supervised by the management of the personnel department. Payroll department employees should be responsible for maintaining employee personnel records. Total time recorded on time clock cards should be reconciled to job reports by employees responsible for those specific jobs. Total time spent on jobs should be compared with total time indicated on time clock punch cards.

Total time spent on jobs should be compared with total time indicated on time clock punch cards.

Operating control over check signing normally should be the responsibility of the:

Treasurer.

When the auditors discover an understatement of liabilities, they would most likely also expect to find an:

Understatement of assets.

Auditors should be aware that a voucher system may result in which of the following at year-end:

Understatement of liabilities.

An independent auditor has concluded that substantial doubt remains about a nonpublic client's ability to continue as a going concern, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a(an): "Except for" qualified opinion. Adverse opinion. Unmodified opinion with an appropriate emphasis-of-matter paragraph. Standard unmodified opinion.

Unmodified opinion with an appropriate emphasis-of-matter paragraph.

A basis for modification paragraph for a nonpublic company is least likely to relate to which of the following types of opinion? Unmodified. Disclaimer. Adverse. Qualified.

Unmodified.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Unpaid bills.

One reason why the independent auditors perform analytical procedures on the client's operations is to identify: Noncompliance with prescribed control procedures. Weaknesses of a material nature in internal control. Improper separation of accounting and other financial duties. Unusual transactions.

Unusual transactions.

Which of the following is not a procedure normally performed while completing the audit of a public company? Obtain a lawyer's letter. Update internal control questionnaire. Obtain a representations letter. Perform an overall review using analytical procedures.

Update internal control questionnaire.

When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for: Expressing dual dated opinions. Updating the report on the previous financial statements regardless of the opinion previously issued. Updating the report on the previous financial statements only if there has not been a change in the opinion. Updating the report on the previous financial statements only if the previous report was qualified and the reasons for the qualification no longer exist.

Updating the report on the previous financial statements regardless of the opinion previously issued.

Which of the following is least likely to result in an emphasis-of-matter paragraph being added to an unmodified auditor's report on the financial statements of a nonpublic client that sells jewelry through a retail store? Use of an unacceptable method to value inventory with results that differ materially from GAAP. A change from FIFO to specific identification accounting for inventory. A decision by the auditor to emphasize that the client is a part of a larger organization. A question as to whether the client will be able to remain a going concern.

Use of an unacceptable method to value inventory with results that differ materially from GAAP.

After performing all necessary procedures, the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditors should: Use the reissue date. Delete the date of the report. Dual-date the report. Use the date of the previous report.

Use the date of the previous report.

The term "except for" in an audit report is: No longer considered appropriate. Used in a qualified opinion. Used in an adverse opinion. Used for an unmodified opinion when an emphasis-of-matter paragraph is added.

Used in a qualified opinion.

Internal control over accounts payable is improved when:

Vendor statements are reconciled with the accounts payable ledger.

Authorization of which of the following is least likely to be found during a review of the minutes of the board of directors? Dividends. Write-off of trade accounts receivable. New bank accounts. New debt issuance.

Write-off of trade accounts receivable.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? Item Trace from source documents to journals Vouch from journal to source documents A. No No B. No Yes C. Yes No D. Yes Yes

Yes Yes

A nonpublic client has provided required supplementary information with its audited financial statements. The auditor's proper reporting responsibility includes: An adverse opinion on the required supplementary information. A separate report should be issued on the required supplementary information. The required supplementary information should not be referred to. other-matter paragraph should be added to the audit report.

other-matter paragraph should be added to the audit report.