ACCT 6620

One of the major problems in a computer system is that incompatible functions may be performed by the same individual. One compensating control is the use of

.A computer access log.

According to the Sarbanes-Oxley Act of 2002, what is the maximum number of years an audit partner can perform audit services for an issuer before the auditor rotation is required?

5 years.

An entity has the following invoices in a batch: Invoice Number. Product. Quantity. Unit Price 201. F10 150 $ 5.00 202 G15 200. 10.00 203 H20. 250. 25.00 204. K35 300 30.00 Which of the following most likely represents a hash total?

810

An entity with a large volume of customer remittances by mail most likely can reduce the risk of employee misappropriation of cash by using

A bank lockbox system.

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

A bank lockbox system.

An auditor who performed analytical procedures that compared current-year financial information to the comparable prior period noted a significant increase in net income. Given this result, which of the following expectations of recorded amounts would be unreasonable?

A decrease in retained earnings.

Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as

A discipline that attests to financial information presented by management.

Independent auditing can best be described as

A discipline that enhances the

The primary purpose of obtaining an understanding of the entity and its environment, including its internal control, is to provide an auditor with

A frame of reference within which to plan the audit.

Which of the following statements correctly defines the term "reasonable assurance"?

A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

In which of the following situations would an auditor who is rendering an audit opinion on the financial statements of an employee benefit plan that will be filed with the Department of Labor be considered independent?

A member of the auditor's firm was a voting trustee of the plan in a prior year but has since disassociated from the plan and did not participate in auditing the financial statements of the plan.

Which of the following violates the AICPA's Code of Professional Conduct?

A member shares offices with another member. Their joint letterhead implies that a partnership exists when each member is in fact practicing individually.

Which of the following situations represents a limitation, rather than a failure, of internal control?

A purchasing employee and an outside vendor participate in a kickback scheme.

Attestation standards apply when a CPA is engaged to issue a practitioner's report on

A review of an assertion about subject matter that is the responsibility of another party.

An entity has many employees who access a database with numerous access points. The database contains sensitive information about the customers of the entity. Access controls prevent employees from entry to those areas of the database for which they have no authorization. All salespersons have certain access permission to customer information. Which of the following is a true statement about the nature of the controls and risks?

A salesperson's access to customer information should extend only to what is necessary to perform his or her duties.

Which of the following is a requirement of the Sarbanes-Oxley Act of 2002?

A second partner review and approval is required of audit reports.

So that the essential control features of a client's computer system can be identified and evaluated, the auditor of a nonissuer must, at a minimum, have

A sufficient understanding of the entire computer system.

Fact Pattern: A sales transaction record designed to contain the information presented below. Column Information 1-10 Customer account number 11-30. Customer name 31-38 Amount of sale 39-44 Sales date 45-46 Store code number 47-49 Sales clerk number 50-59 Invoice number If a record is rejected during computer processing because the sales clerk whose identification number appears on the record does not work at the store indicated by the numbers in columns 45 and 46, the error was probably detected by which of the following?

A validity check.

Which of the following controls is most likely to detect an invalid customer number entered into the sales order entry screen?

A validity check.

Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's auditing practice?

Acceptance of a client relationship.

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the

Actual fee would be substantially higher.

The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the

Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.

A mail-order retailer has just modified its processing programs to charge each customer the appropriate sales tax. The best approach for detecting whether sales taxes are applied correctly is to

Add the program code that will sort orders by area, compute taxes in the aggregate, and compare the amount with the sum of individual taxes charged for each area.

In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control

Affects management's financial statement assertions.

Audit risk is

An aggregate of the risk of material misstatement and detection risk.

Which of the following is required documentation in an audit in accordance with auditing standards?

An audit plan documenting the procedures to be used to reduce audit risk.

One difference between an examination and a review is that

An examination results in the issuance of an opinion.

Which of the following statements is correct regarding internal control?

An inherent limitation of internal control is that controls can be circumvented by management override.

Which of the following is ordinarily designed to detect possible material dollar misstatements in the financial statements?

Analytical procedures.

Williams & Co. is a medium-sized CPA firm enrolled in the Private Companies Practice Section (PCPS). The firm is to have a peer review under the AICPA Peer Review program. The review will most likely be performed by

Another CPA firm.

The internal control objectives of the revenue cycle include all of the following except

Appropriate goods are ordered so that sales can be made.

Which of the following matters does an auditor usually communicate to management?

Arrangements involving a predecessor auditor.

Which of the following activities is not an element of a CPA firm's quality control system to be considered in establishing quality control policies and procedures?

Assessing a client's ability to establish effective internal controls

Personal financial planning services include those that are limited to

Assisting the client to act on personal financial planning decisions.

Assurance and advisory services differ from consulting services because

Assurance and advisory services usually involve situations in which one party wants to monitor another and focus on improving information.

The acceptable level of detection risk is inversely related to the

Assurance provided by substantive procedures.

Discovering patterns and identifying anomalies in audit data using visualization is

Audit data analytics.

Quality control for a CPA firm, as referred to in Statements on Quality Control Standards (SQCS), applies to

Auditing and accounting and review services.

An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

Auditor's determination about whether audit risk can be sufficiently reduced.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?

Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash

Proper segregation of functional responsibilities to achieve effective internal control calls for separation of the functions of

Authorization, recording, and custody.

An auditor's decision whether to apply analytical procedures as substantive procedures usually is determined by the

Availability of documentary evidence that should be verified.

Fact Pattern:Sales procedures that were encountered during the regular annual audit of Marvel Wholesale Distributing Company are described below. Customer orders are received by the sales-order department. A clerk computes the dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and returned to the sales-order department. An invoice is prepared in two copies, and the order is filed in the customer order file. The customer copy of the invoice is sent to the billing department and held in the pending file, awaiting notification that the order has been shipped. The shipping copy of the invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and prepare a three-copy bill of lading: The original copy is mailed to the customer, the second copy is sent with the shipment, and the other is filed in sequence in the bill of lading file. The invoice shipping copy is sent to the billing department. The billing clerk matches the received shipping copy with the customer copy from the pending file. Both copies of the invoice are priced, extended, and footed. The customer copy is then mailed directly to the customer, and the shipping copy is sent to the accounts receivable clerk. The accounts receivable clerk enters the invoice data in a sales-accounts receivable journal, posts the customer's account in the subsidiary customers' accounts ledger, and files the shipping copy in the sales invoice file. The invoices are numbered and filed in sequence. To determine whether Marvel Company's internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor should select a sample of transactions from the population represented by the

Bills of lading file.

Ann Able, CPA, is considering forming a partnership with Ben Brown for the purpose of practicing public accounting. Which of the following is true?

Brown need not be a CPA if the partnership does not represent itself as a partnership of CPAs.

How should differences of opinion between the engagement partner and the quality control reviewer be resolved?

By following the firm's policies and procedures.

A customer intended to order 100 units of product Z96014 but incorrectly ordered nonexistent product Z96015. Which of the following controls most likely would detect this error?

Check digit verification.

An auditor using a transaction cycle approach to assessing control risk is testing controls related to transactions involving the sale of goods to customers. The auditor most likely is testing controls over

Collection of receivables.

Which of the following factors most likely would be considered an inherent limitation to an entity's internal control?

Collusion of employees in circumventing internal controls.

Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

Compare recorded financial information with anticipated results from budgets and forecasts.

Which of the following analytical procedures most likely would be used during the planning stage of an audit?

Comparing current-year to prior-year sales volumes

Which of the following services provides the least assurance regarding the fairness of financial statements?

Compilation.

An employee in the receiving department keyed in a shipment from a remote terminal and inadvertently omitted the purchase order number. The best systems control to detect this error is

Completeness test

Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded?

Completeness.

The auditor's understanding of internal control is documented to substantiate

Compliance with generally accepted auditing standards.

Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's auditing practice?

Computer information processing.

As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should

Consider the possibility of a misstatement in the financial statements.

An auditor's response to the assessment of the risks of material misstatement due to fraud takes various forms. A response with an overall effect on the conduct of the audit is to

Consider whether management's applications of accounting principles indicates a bias.

Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

During the audit of a new client, the auditor determined that management had given illegal bribes to municipal officials during the year under audit and for several prior years. The auditor notified the client's board of directors, but the board decided to take no action because the amounts involved were immaterial to the financial statements. Under these circumstances, the auditor should

Consider withdrawing from the audit engagement and disassociating from future relationships with the client.

With regard to assignment of personnel to an engagement team, a CPA firm's policies and procedures should include

Consideration of the team's understanding of similar engagements through training and participation.

Which of the following strategies would a CPA most likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?

Continuous monitoring and analysis of transaction processing with an embedded audit module.

Which of the following components of internal control would be considered the foundation for the other components?

Control environment.

Some data processing controls relate to all computer processing activities (general controls) and some relate to specific tasks (application controls). General controls include

Controls for documenting and approving programs and changes to programs.

In which of the following instances is the independence of the CPA most likely not considered to be impaired? The CPA has been retained as the auditor of a

Credit union of which the CPA is a member.

Which result of an analytical procedure suggests the existence of obsolete merchandise?

Decrease in the inventory turnover rate.

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is

Detection risk.

Which of the following types of risk increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date?

Detection.

In an audit of financial statements in accordance with generally accepted auditing standards, an auditor should

Document the auditor's understanding of the entity's internal control

In an audit of financial statements of a nonissuer in accordance with GAAS, an auditor is required to

Document the auditor's understanding of the entity's internal control components.

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to

Document the details of the disagreement with the conclusion reached.

An online sales order processing system most likely would have an advantage over a batch sales order processing system by

Enabling shipment of customer orders to be initiated as soon as the orders are received.

Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's auditing practice?

Engagement Performance

The objective of analytical procedures performed as risk assessment procedures is to

Enhance the auditor's understanding of the client's business.

Analytical procedures used in planning an audit should focus on

Enhancing the auditor's understanding of the client's business.

Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatements arising from fraudulent financial reporting?

Equipment is often sold at a loss before being fully depreciated.

An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to

Express an opinion as to the fairness of Camden's financial statements.

A violation of the profession's ethical standards most likely occurred when a CPA in public practice

Expressed an unmodified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid.

The act by a member of the AICPA that is discreditable to the accounting profession is

Failing to file a personal tax return.

If accounts receivable turned over 7.1 times in Year 1 as compared with only 5.6 times in Year 2, it is possible that there were

Fictitious sales in Year 2.

Under the Sarbanes-Oxley Act of 2002, exactly how many consecutive years may an audit partner lead an audit for an issuer?

Five years.

Fact Pattern:Management discovers that a supervisor at one of its restaurant locations removes excess cash and resets sales totals throughout the day on the point-of-sale (POS) system. At closing, the supervisor deposits cash equal to the recorded sales on the POS system and keeps the rest. The supervisor forwards the close-of-day POS reports from the POS system along with a copy of the bank deposit slip to the company's revenue accounting department. The revenue accounting department records the sales and the cash for the location in the general ledger and verifies the deposit slip to the bank statement. Any differences between sales and deposits are recorded in an over/short account and, if necessary, followed up with the location supervisor. The customer food order checks are serially numbered, and it is the supervisor's responsibility to see that they are accounted for at the end of each day. Customer checks and the transaction journal tapes from the POS system are kept by the supervisor for 1 week at the location and then destroyed. Which of the following audit procedures would have detected the fraud?

For selected days, reconciling the total of customer food checks to daily bank deposits.

The engagement partner responsible for coordinating the field work usually schedules a pre-audit conference with the audit team primarily to

Give guidance to the staff regarding both technical and personnel aspects of the audit.

The billing department matches the invoice copy of the sales order to the shipping copy. This procedure ensures that all

Goods shipped are invoiced to customers.

According to the PCAOB, an accounting firm's independence is least likely to be impaired if the firm

Has an audit client that employs a former firm professional.

Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable?

Have customers send payments directly to the company's depository bank.

A CPA firm is reasonably assured of meeting its responsibility to provide services that conform with professional standards by

Having an appropriate system of quality control.

The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants

How the results of various auditing procedures performed by the assistants should be evaluated.

Which of the following services may a CPA perform in carrying out a consulting service for a client?Analysis of the client's accounting systemReview of the client's prepared business planPreparation of information for obtaining financing

I, II, and III.

Obtaining an understanding of an internal control involves evaluating the design of the control and determining whether the control has been

Implemented

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control?

Incompatible duties.

Advertising or other forms of solicitation that are false, misleading, or deceptive are not in the public interest, and AICPA members in public practice shall not seek to obtain clients in such a manner. Such activities include all the following except those that

Indicate the CPA's educational and professional attainments.

Which of the following is a component part of the COSO's internal control framework?

Information Systems

The PCAOB has the power to

Inspect large firms annually.

A violation of the profession's ethical standards would most likely occur when a CPA

Is the sole shareholder in a professional accountancy corporation and uses the designation "and company" in the firm title.

Among other things, the Integrity and Objectivity Rule prohibits knowing, material misrepresentation in the preparation and presentation of financial statements and records. A member of the AICPA violates this element of the rule when (s)he

Knowingly makes false and misleading journal entries in the records if some are material.

For the audit of a nonissuer, the primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with

Knowledge necessary to plan the audit.

Decision tables differ from program flowcharts in that decision tables emphasize

Logical relationships among conditions and actions.

An auditor is concerned with controls designed to safeguard assets that are relevant to the reliability of financial reporting. Adequate safeguards over access to and use of assets means protection from

Losses arising from access by unauthorized persons.

An auditor strives to achieve independence in appearance to

Maintain public confidence in the profession.

A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by

Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.

Users of an issuer's financial statements demand independent audits because

Management may not be objective in reporting.

When an office supply company is unable to fill an order completely, it marks the out-of-stock items as back ordered on the customer's order and enters these items in a back order file that management can view or print. Customers are becoming disgruntled with the company because it seems unable to keep track of and ship out-of-stock items as soon as they are available. The best approach for ensuring prompt delivery of out-of-stock items is to

Match the back order file to goods received daily.

The ultimate purpose of assessing control risk in a financial statement audit is to contribute to the auditor's evaluation of the risk that

Material misstatements may exist in the financial statements.

The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to

Minimize the likelihood of associating with clients whose management lacks integrity.

According to PCAOB quality control standards applying to audits, the engagement quality reviewer most likely

Must be an associated person of a registered public accounting firm.

Richard, CPA, performs compilation services for Norton Corporation, a nonpublic entity. The compilation reports issued by Richard disclose lack of independence and are not used by third parties. Richard has accepted a commission from a software company for recommending its products to Norton. The commission agreement was disclosed to Norton. Richard also refers Norton to Cruz, CPA, who is more competent with respect to engagements involving the industry in which Norton operates. Cruz performs an audit of Norton's financial statements and subsequently remits to Richard a portion of the fee collected. The referral fee agreement was likewise disclosed to Norton. Richard accepts the fee. Who, if anyone, has violated the Code of Professional Conduct?

Neither Richard nor Cruz.

Which of the following ratios would be the least useful in reviewing the overall profitability of a manufacturing company?

Net income to working capital.

Which of the following statements regarding auditor documentation of the understanding of the client's internal control components obtained to plan the audit is correct?

No one particular form of documentation is necessary, and the extent of documentation may vary.

A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARSs) when Assisting in Adjusting the Books of Accounting Consulting on of Account Accounting Matters

No, No

For which of the SSARS services must a practitioner be independent? Preparation Complication Review

No, No, Yes

Assurance services differ from consulting services in that assurance services. Focus on Providing Advice Involve Monitoring of One Party by Another

No, Yes

Evidence concerning the proper segregation of duties for receiving and depositing cash receipts ordinarily is obtained by

Observing the employees who are performing the control activities.

Which of the following procedures would an auditor most likely perform before auditing the balance sheet?

Obtain an understanding of the client's internal control activities.

A financial statement audit is designed to

Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.

In developing an audit plan, an auditor should

Perform risk assessment procedures.

Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Performing analytical procedures to identify areas that may represent specific risks.

A CPA most likely does not violate the Code's Integrity and Objectivity Rule, if the CPA

Performs expert witness services for a nonissuer attest client that is one of many plaintiffs in a class action lawsuit.

Proper segregation of duties reduces the opportunities to allow persons to be in positions both to

Perpetrate and conceal fraud and error.

As the acceptable level of audit risk decreases, an auditor may

Postpone the planned timing of substantive tests from interim dates to the year end.

An auditor's decision whether to apply analytical procedures as substantive procedures usually is determined by the

Precision and reliability of the data used to develop expectations.

Which of the following is prohibited by the AICPA Code of Professional Conduct?

Prematurely expressing an opinion based on an audit because of time pressures from the client.

Immediately upon receipt of cash, a responsible employee should

Prepare a remittance listing.

The auditor's opinion refers to U.S. generally accepted accounting principles (U.S. GAAP). Which of the following best describes U.S. GAAP?

Principles issued by bodies designated by the Council of the AICPA.

Which of the following is not a medium that can normally be used by an auditor to record information concerning internal control?

Procedures manual.

An auditor should obtain an understanding of an entity's information system, including

Process used to prepare significant accounting estimates.

The auditor should document the understanding of internal control. For example, a narrative memorandum may be used to

Provide a written description of the process and flow of documents and of the control points.

The primary objective of consulting services is to

Provide better outcomes.

One purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to

Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned responsibilities.

One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to

Provide reasonable assurance that the integrity of the client is considered.

In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control

Provides adequate safeguards over access to assets.

Risks relevant to financial reporting can arise due to which of the following circumstances?

Rapid growth in the entity's operations.

Sound internal control activities dictate that defective merchandise returned by customers be presented initially to the

Receiving clerk.

Which of the following are not directly involved in the revenue cycle?

Receiving department clerk.

Each of the following types of controls is considered to be an entity-level control, except those

Regarding the company's annual stockholder meeting

Mill Co. uses a batch processing method to process its sales transactions. Data on Mill's sales transaction file are electronically sorted by customer number and are subjected to programmed edit checks in preparing its invoices, sales journals, and updated customer account balances. One of the direct outputs of the creation of this file most likely would be a

Report showing exceptions and control totals.

Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee?

Representation of a nonattest client in an IRS examination.

According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?

Representing a client in an IRS examination of the client's federal income tax return.

For the purpose of effective internal control, postdated checks received from customers should be

Restrictively endorsed.

According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession?

Retaining client records after the client demands their return.

Which of the following actions by a CPA most likely violates the profession's ethical standards?

Retaining client-provided records after the client has demanded their return.

If not already done to form an overall conclusion, the auditor should perform analytical procedures relating to which of the following transaction cycles?

Revenue.

A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for

Reviewing documentation of the work performed and reports issued.

In order to obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the financial statements, an auditor would most likely perform which of the following procedures?

Risk-assessment procedures to evaluate the design of relevant controls.

Fenn & Co., CPAs, has time available on a computer that it uses primarily for its own internal recordkeeping. Aware that the computer facilities of Delta Equipment Co., one of Fenn's audit clients, are inadequate for the company's needs, Fenn offers to maintain on its computer certain routine accounting records for Delta. If Delta were to accept the offer and Fenn were to continue to function as independent auditor for Delta, Fenn most likely would be in violation of

SEC, but not AICPA, provisions pertaining to auditors' independence.

Fact Pattern:Sales procedures that were encountered during the regular annual audit of Marvel Wholesale Distributing Company are described below. Customer orders are received by the sales-order department. A clerk computes the dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and returned to the sales-order department. An invoice is prepared in two copies, and the order is filed in the customer order file. The customer copy of the invoice is sent to the billing department and held in the pending file, awaiting notification that the order has been shipped. The shipping copy of the invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and prepare a three-copy bill of lading: The original copy is mailed to the customer, the second copy is sent with the shipment, and the other is filed in sequence in the bill of lading file. The invoice shipping copy is sent to the billing department. The billing clerk matches the received shipping copy with the customer copy from the pending file. Both copies of the invoice are priced, extended, and footed. The customer copy is then mailed directly to the customer, and the shipping copy is sent to the accounts receivable clerk. The accounts receivable clerk enters the invoice data in a sales-accounts receivable journal, posts the customer's account in the subsidiary customers' accounts ledger, and files the shipping copy in the sales invoice file. The invoices are numbered and filed in sequence. To determine whether Marvel Company's internal control operated effectively to minimize errors of failure to post invoices to the customers' accounts ledger, the auditor should select a sample of transactions from the population represented by the

Sales invoice file

Under the ethical standards of the profession, which of the following is a "permitted loan" regardless of the date it was obtained?

Secured automobile loan.

Various situations create threats to auditor independence. Which type of threat most likely results from an auditor's financial interest in a client?

Self-interest threat.

A CPA in charge of the external audit of a nonissuer received an unexpected inheritance that includes 100 shares of the audit client's common stock. Which of the following actions should the CPA take to avoid violating independence rules?

Sell or donate the stock within 30 days after receipt of ownership rights.

Which of the following internal control activities most likely would deter lapping of collections from customers?

Separation of duties between receiving cash and posting the accounts receivable ledger.

Which of the following controls most likely could prevent computer personnel from modifying programs to bypass programmed controls?

Separation of duties for computer programming and computer operations.

The appearance of independence of a CPA, or that CPA's firm, is most likely to be impaired if the CPA

Serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.

An auditor is determining whether internal control over the revenue cycle of a wholesaler is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely will select a sample of transactions from the population represented by the

Shipping document file.

When providing consulting services, the practitioner

Should inform the client of significant engagement findings.

According to AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards, "presumptively mandatory requirements" in the auditing standards use which word?

Should.

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?

Square footage of selling space.

According to the Sarbanes-Oxley Act of 2002, which of the following non-audit services can be provided by a registered public accounting firm to the client contemporaneously with the audit when preapproval is granted by audit committee action?

Tax services.

Which of the following represents an example of an inherent limitation of internal controls?

The CEO can override a control and request a check with no purchase order.

The nature and extent of a CPA firm's quality control policies and procedures depend on

The CPA Firm's Size - Yes The nature of the CPA Firm's Practice - Yes Cost-benefit considerations - Yes

Which of the following statements is true regarding an accountant's working papers?

The accountant owns the working papers but generally may not disclose them without the client's consent or a court order.

Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?

The attestation standards provide a framework for the attest function beyond historical financial statements.

All of the following are audit quality control requirements contained in the Sarbanes-Oxley Act of 2002 except

The audit report must be submitted to the Public Company Accounting Oversight Board prior to issuance.

Which of the following is a true statement about an auditor's responsibility regarding consideration of fraud in a financial statement audit?

The auditor should assess the risks of material misstatement due to fraud.

The auditor should establish an overall audit strategy. Which one of the following statements is most consistent with this requirement?

The auditor should plan the audit so that it will be performed effectively.

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

An auditor is obtaining an understanding of a client's Internet controls. Which of the following is most likely the least effective control?

The client requires users to share potentially useful downloaded programs from public electronic sources with only authorized employees.

A registered public accounting firm is conducting an audit of an issuer and initiated its current-year audit on January 1, Year 3. Many of the firm's former auditors are now employed by the client. Under which of the following circumstances may the firm perform the audit?

The client's CFO was the lead partner on the audit until December 31, Year 1.

A CPA serving as a bank director should not be concerned with

The compatibility of serving as a bank director and the possibility of soliciting clients.

If a statement from the Statements on Standards for Attestation Engagements (SSAEs) provides that a procedure or action is one that the practitioner "should consider," then which of the following interpretations is correct?

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not require

If a statement from the Statements on Standards for Attestation Engagements (SSAEs) provides that a procedure or action is one that the practitioner "should consider," then which of the following interpretations is correct?

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not required.

Internal control can provide only reasonable assurance of achieving an entity's control objectives. The likelihood of achieving those objectives is affected by which limitation inherent to internal control?

The cost of internal control should not exceed its benefits.

Which of the following statements about internal control is correct?

The cost-benefit relationship is a primary criterion that should be considered in designing internal control.

Which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal controls?

The degree to which information technology is used in the accounting function.

According to PCAOB quality control standards applying to an audit, the engagement quality reviewer evaluates

The documentation.

Which of the following is a management assertion regarding account balances at the period end?

The entity holds or controls the rights to assets, and liabilities are obligations of the entity.

Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatements arising from fraudulent financial reporting?

The entity's industry is experiencing declining customer demand.

A firm performed an attest engagement to apply agreed-upon procedures to help KIG Co. determine whether it should acquire FTBL Co. FTBL is responsible for the information to which procedures were applied. Who most likely is not required to be independent of the responsible party?

The firm, if it designed the responsible party's information system.

Regarding employment or association with attest clients, the employment of a former partner by a client in a key position most likely impairs firm independence if

The former partner consults with the accounting firm.

When a former partner of a registered public accounting firm who left the firm 2 years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?

The former partner has no remaining capital balance in the registered public accounting firm.

In which of the following circumstances would a covered member's independence be impaired with respect to a nonissuer client?

The member belongs to a client golf club that requires members to acquire a share of the club's debt securities.

The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?

The nature of the assertion tested.

When conducting an audit of a nonissuer, the auditor's determination of whether the prior period's closing balances have been correctly brought forward to the current period or, when appropriate, have been restated, would most appropriately support the auditor's conclusion of whether

The opening balances contain misstatements that materially affect the current period's financial statements.

When a CPA is associated with financial statements that do not comply with promulgated GAAP because the statements would be misleading without the departure, the CPA is not required to disclose

The reason the departure does not have a material effect on the statements.

Although substantive procedures may support the accuracy of underlying records, these tests frequently provide no affirmative evidence of segregation of duties because

The records may be accurate even though they are maintained by a person who performs incompatible functions.

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

The relationship between financial statement assertions and audit procedures should be one-to-one.

Which of the following is a definition of control risk?

The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls.

Prior to the audit, an auditor usually discusses the general audit strategy with the client's management. Which of the following details do management and the auditor usually agree upon at this time?

The schedules and analyses that the client's staff should prepare.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?

The write-off of receivables by personnel who receive cash permits the misappropriation of cash.

Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately because

There are time delays in processing transactions in a batch system.

The element of the audit-planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the

Timing of inventory observation procedures to be performed.

Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?

Tour the client's facilities.

Analytical procedures enable the auditor to predict the balance or quantity of an item under audit. Information to develop this estimate can be obtained from all of the following except

Tracing transactions through the system to determine whether procedures are being applied as prescribed.

An auditor's flowchart of a client's accounting system is a diagrammatic representation that depicts the auditor's

Understanding of the system.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be shipped that are not invoiced. The inadequate controls could cause an

Understatement of revenues and receivables and an overstatement of inventory.

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales suggests which of the following possibilities?

Unrecorded sales.

One of two office clerks in a small company prepares a sales invoice for $4,300; however, the invoice is incorrectly entered by the bookkeeper in the general ledger and the accounts receivable subsidiary ledger as $3,400. The customer subsequently remits $3,400, the amount on the monthly statement. Assuming there are only three employees in the department, the most effective control to prevent this type of error is

Using predetermined totals to control posting routines.

An auditor is concerned about management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor's concern?

Verifying that approved spending limits are not exceeded.

Competence as an independent auditor includes all of the following except

Warranting the infallibility of the work performed.

Which of the following statements is true concerning analytical procedures?

When expectations are more precise, significant variances are more likely to be due to misstatements.

Which of the following factors has the least influence on an auditor's consideration of the reliability of data for purposes of analytical procedures?

Whether the data were processed in a computer system or in a manual accounting system.

According to the Integrity and Objectivity Rule, a member of the AICPA

Who has a difference of opinion with his or her supervisor about statement preparation has an obligation to act if a material misstatement would otherwise result.

According to the profession's ethical standards, which of the following events may justify a departure from an established accounting principle? New Legislation Evaluation of New Form of Business Transaction

Yes, Yes

In assessing whether to accept a client for an audit engagement, a CPA should consider the Client's Business Risk CPA's Business Risk

Yes, Yes

Which of the following controls is an input control designed to ensure the reliability and accuracy of data processing? Limit Test Validity Check Test

Yes, Yes

The nature and extent of a CPA firm's quality control policies and procedures depend on The CPA Firm's Size The Nature of the CPA Frim's Practice Cost-Benefit Considerations

Yes, Yes, Yes

Which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures? HR Monitoring Engagement Performance

Yes, Yes, Yes

A CPA purchased stock in an audit client corporation and placed it in a revocable educational trust for the CPA's dependent minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Is the independence of the CPA considered to be impaired with respect to the client?

Yes, because the stock is considered a direct financial interest and, consequently, materiality is not a factor.

Which of the following symbolic representations indicates that new payroll transactions and the old payroll file have been used to prepare payroll checks, prepare a printed payroll journal, and generate a new payroll file?

looks like a person