AUD: Gleim Review 1
A CPA serving as a bank director should not be concerned with a. The compatibility of serving as a bank director and the possibility of soliciting clients. b. A possible conflict of interest between the bank and the CPA's clients. c. Disclosure of confidential client information to the bank. d. The CPA's independence with respect to a client's receiving a large loan from the bank.
a
A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would a. Perform tests several times during the year, rather than only at year end. b. Increase the sample of transactions to be selected for cutoff tests. c. Compare a sample of paid vendors' invoices to the receiving records at year end. d. Plan for a large measure of tolerable misstatement in substantive procedures.
a
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee? a. Seeking a private letter ruling. b. Performing an examination of prospective financial information. c. Performing a review of a financial statement. d. Performing an audit of a financial statement.
a
Adams is the executive partner of Adams & Co., CPAs. One of its smaller clients is a large nonprofit charitable organization. The organization has asked Adams to be on its board of directors, which consists of a large number of the community's leaders. Membership on the board is honorary. Adams & Co. would be considered to be independent a. As long as Adams does not perform or give advice on management functions of the organization. b. As long as Adams' directorship was disclosed in the organization's financial statements. c. Under no circumstances. d. As long as Adams was not directly in charge of the audit.
a
The AICPA Code of Professional Conduct a. Expects the CPA to honor the public trust. b. Prohibits offers of employment to employees of another CPA without notice. c. Prohibits encroachment on the practice of another CPA. d. Encourages but does not require CPAs to refrain from advertising or engaging in other forms of solicitation.
a
The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is a. Payable after a specified finding is attained in a review of financial statements. b. Based on a price quotation submitted in competitive bidding. c. Based on the results of judicial proceedings in a tax matter. d. Fixed by a public authority.
a
The strongest criticism of the reliability of audit evidence that the auditor physically observes is that a. The auditor may not be qualified to evaluate the items (s)he is observing. b. Such evidence is too costly in relation to its reliability. c. The observation must occur at a specific time, which is often difficult to arrange. d. The client may conceal items from the auditor.
a
When compared with a nineteenth-century auditor, today's auditor places less relative emphasis upon a. Examination of documentary support. b. External confirmation. c. Overall tests of ratios and trends. d. Physical observation.
a
Which of the following is a management assertion regarding account balances at the period end? a. The entity holds or controls the rights to assets, and liabilities are obligations of the entity. b. Transactions and events that have been recorded have occurred and pertain to the entity. c. Amounts and other data related to transactions and events have been recorded appropriately. d. Transactions and events have been recorded in the proper accounts.
a
Which of the following reports may be issued only by an accountant who is independent of a client? a. Standard report on an examination of a financial forecast. b. Compilation report on a financial projection. c. Compilation report on historical financial statements. d. Report on consulting services.
a
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA firm if the information concerns suspected tax return irregularities II. A state CPA society voluntary peer review board a. Both I and II. b. II only. c. I only. d. Neither I nor II.
b
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be a. Expanded to note that the assistant auditor is completely dissociated from responsibility for the auditor's opinion. b. Expanded to detail the assistant auditor's position and how the difference of opinion was resolved. c. Silent on the matter because it is an internal matter of the auditing firm. d. Expanded to record the additional work required because all disagreements of this type will require expanded substantive testing.
b
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? a. Anyone on the engagement team. b. The firm, if it designed the responsible party's information system. c. The supervisor of an engagement partner. d. Anyone who consulted with the engagement team about technical matters specific to the engagement.
b
A member of the AICPA must not commit an act discreditable to the profession. Which of the following most likely is not considered such an act? a. Failure to provide the client with client records prepared by the member. b. Withholding as a result of nonpayment of fees for a completed engagement adjusting and closing journal entries not reflected in the client's books. c. After the relationship of a nonowner member with the firm is terminated, the member takes copies from the firm's client files without permission. d. Retention of client-provided records after a demand is made for them in a state that specifically grants the CPA a lien on all client records.
b
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? a. The client's controller was a staff accountant on the audit for 2 weeks during Year 2. b. The client's CFO was the lead partner on the audit until December 31, Year 1. c. The client's chief accounting officer was the concurring partner on the audit until April 15, Year 2. d. The client's CEO was a manager on the audit until June 30, Year 2.
b
Competence as an independent auditor includes all of the following except a. Having the technical qualifications to perform an engagement. b. Warranting the infallibility of the work performed. c. Possessing the ability to supervise assistants. d. Consulting others if additional technical information is needed.
b
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 a. AICPA, but not SEC, provisions pertaining to auditors' independence. b. SEC, but not AICPA, provisions pertaining to auditors' independence. c. Both SEC and AICPA provisions pertaining to auditors' independence. d. Neither AICPA nor SEC provisions pertaining to auditors' independence.
b
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the a. Audit procedures performed are approved in the professional standards. b. Results are consistent with the conclusions to be presented in the auditor's report. c. Audit has been performed by persons having appropriate competence and capabilities. d. Auditor's system of quality control has been maintained at a high level.
b
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 a. Fee was a competitive bid. b. Actual fee would be substantially higher. c. CPA would not be independent. d. Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.
b
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to a. Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. b. Minimize the likelihood of associating with clients whose management lacks integrity. c. Document objective criteria for the CPA firm's responses to peer review comments. d. Monitor the risk factors concerning misstatements arising from the misappropriation of assets.
b
Under the ethical standards of the profession, which of the following is a "permitted loan" regardless of the date it was obtained? a. Home mortgage loan. b. Secured automobile loan. c. Personal loan. d. Student loan.
b
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to provide a reasonable basis for an opinion? a. Materiality. b. Auditor judgment. c. Reasonable assurance. d. Audit risk.
b
Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures? a. Using statistical sampling techniques. b. Managing human resources. c. Complying with laws and regulations. d. Considering audit risk and materiality.
b
Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its letterhead? a. The firm must be a dues-paying member. b. All CPA owners must be members. c. At least one of the owners must be a member. d. The owners whose names appear in the firm name must be members.
b
Which of the following procedures would provide the most reliable audit evidence? a. Inspection of prenumbered client purchase orders filed in the vouchers payable department. b. Inspection of bank statements obtained directly from the client's financial institution. c. Analytical procedures performed by the auditor on the entity's trial balance. d. Inquiries of the client's internal audit staff held in private.
b
Which of the following statements about audit evidence is true? a. The difficulty and expense of obtaining audit evidence about an account balance is a valid basis for omitting the test. b. The sufficiency and appropriateness of audit evidence is a matter of professional judgment. c. To be appropriate, audit evidence should be either persuasive or relevant but need not be both. d. A client's accounting records can be sufficient audit evidence to support the financial statements.
b
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 a. Create unjustified expectations of favorable results. b. Imply the ability to influence a court. c. Indicate the CPA's educational and professional attainments. d. Claim to be able to save the taxpayer 20% of a determined tax liability.
c
After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of Rights and obligations; Valuation and allocation a. Yes; No b. No; No c. No; Yes d. Yes; Yes
c
An auditor must obtain professional experience primarily to a. Receive a favorable peer review. b. Earn a specialty designation by the AICPA. c. Exercise professional judgment. d. Receive a positive employment evaluation.
c
Each of the following might, by itself, form a valid basis for an auditor to decide to omit a procedure except for the a. Inherent risk involved. b. Assessment of the risks of material misstatement at a low level. c. Difficulty and cost involved in testing a particular item. d. Relationship between the cost of obtaining evidence and its usefulness.
c
In connection with the element of monitoring, a CPA firm's system of quality control ordinarily should provide for the maintenance of a. Documentation to demonstrate compliance with peer review directives. b. Updated personnel files. c. Documentation to demonstrate compliance with its policies and procedures. d. A file of minutes of staff meetings.
c
In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control element is this procedure most likely to satisfy? a. Advancement. b. Experience requirements. c. Relevant ethical requirements. d. Professional relationship.
c
The concept of materiality is least important to an auditor when considering the a. Decision whether to use positive or negative confirmations of accounts receivable. b. Adequacy of disclosure of a client's illegal act. c. Effects of a direct financial interest in the client on the CPA's independence. d. Discovery of weaknesses in a client's internal control.
c
The most reliable forms of documentary evidence are those documents that are a. Internally generated. b. Prenumbered. c. Authorized by a responsible official. d. Easily duplicated.
c
The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of a. Costs. b. Cutoffs. c. Transactions. d. Authorizations.
c
Under the AICPA's conceptual framework for independence, the member-client relationship is evaluated to determine whether independence in fact and appearance is jeopardized. This is considered a. An avoidance approach. b. A sufficiency of safeguards approach. c. A risk-based approach. d. A professional skepticism approach.
c
Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest? a. An investment held through participation in an investment club. b. An investment held in a blind trust. c. An investment held through a regulated mutual fund. d. An investment held in a retirement plan of which the CPA is a trustee.
c
Various situations create threats to auditor independence. Which type of threat most likely results from an auditor's financial interest in a client? a. Management participation threat. b. Advocacy threat. c. Self-interest threat. d. Self-review threat.
c
When is the independence of the CPA auditor of a client company's financial statements most likely to be impaired because of involvement in litigation? a. A creditor of the client sues the CPA alleging reliance on materially misstated financial statements. b. An underwriter of securities is a co-defendant with the client and the CPA. It files a cross-claim against the CPA, but the client does not. c. Shareholders of the client bring a class action against the client, its management, and the CPA. The CPA files a cross-claim against management alleging fraud. d. A director of another client is a co-defendant with the client and the CPA. This person files a cross-claim against the CPA.
c
Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? a. Reviewing industry benchmarking data. b. Evaluating the most recent peer review of the client's previous auditor. c. Evaluating the CPA's ability to properly service the client. d. Considering the client's compensation methods.
c
Which of the following documents are examples of audit evidence generated by the client? a. Customer purchase orders and bank statements. b. Vendor invoices and packing slips. c. Shipping documents and receiving reports. d. Bills of lading and accounts receivable confirmations.
c
Which of the following is a false statement about the relationship of financial statement assertions and audit procedures? a. Selection of tests of financial statement assertions should depend upon the understanding of internal control. b. Audit procedures should be developed in light of financial statement assertions about the financial statement components. c. The relationship between financial statement assertions and audit procedures should be one-to-one. d. The auditor should resolve any substantial doubt about any of management's relevant financial statement assertions.
c
Which of the following types of audit evidence is the most persuasive? a. Prenumbered client purchase order forms. b. Client representation letter. c. Bank statements obtained from the client. d. Client worksheets supporting cost allocations.
c
AU-C 500 describes five generalizations about the reliability of evidence. The situations given below indicate the relative degrees of assurance provided by two types of evidence obtained in different situations. Which describes an exception to one of the generalizations? a. The schedule of insurance coverage obtained from the company's insurance agent provides greater assurance than one prepared by the internal audit staff. b. The auditor's computation of interest payable on outstanding bonds provides greater assurance than reliance on the client's calculation. c. The auditor has obtained greater assurance about the balance of sales at Plant A, where (s)he has made limited tests of details because of effective internal control, than at Plant B, where (s)he has made extensive tests of details because of ineffective internal control. d. The report of an auditor's specialist regarding the valuation of a collection of paintings held as an investment provides greater assurance than the auditor's physical observation of the paintings.
d
According to the ethical standards of the profession, a CPA's independence would most likely be impaired if the CPA a. Prepared a tax return for a client. b. Became a member of a trade association that is a client. c. Accepted any gift from a client. d. Contracted with a client to supervise the client's office personnel.
d
According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent? a. Obtaining a collateralized automobile loan from a financial institution client. b. Litigation with a client relating to billing for consulting services for which the amount is immaterial. c. Acting as an honorary trustee for a not-for-profit organization client. d. Employment of the CPA's spouse as a client's director of internal audit.
d
Accounting records alone do not provide sufficient appropriate evidence on which to base an opinion on the financial statements. Thus, the auditor should obtain other information. Which of the following is audit evidence other than accounting records? a. Worksheets supporting cost allocations. b. General and subsidiary ledgers. c. Journal entries. d. Confirmations of accounts receivable.
d
An accountant has an immaterial direct financial interest in a nonpublic entity. The accountant is a. Not independent and may not perform a compilation. b. Independent because the financial interest is immaterial. c. Not independent and may perform a review but not an audit. d. Not independent and may not perform a review.
d
An accounting firm's independence is most likely to be impaired when a. In an agreed-upon procedures engagement, the firm is independent of the responsible party but not the party that engaged the firm. b. The firm has a material financial interest in a nonclient but does not know of the client's material financial interest in the investee. c. An immediate family member is employed by the client in other than a key position. d. The firm and the client have a material cooperative arrangement.
d
An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to a. Certify the correctness of Camden's financial statements. b. Make a 100% examination of Camden's records. c. Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions. d. Express an opinion as to the fairness of Camden's financial statements.
d
An external auditor is not permitted to discuss confidential client information without the specific consent of the client. This ethical proscription a. Is often used by a client to blunt the auditor's efforts to modify the standard auditor's report. b. Is unenforceable. c. Will prevent the auditor from engaging another auditing firm to conduct a peer review. d. Will not preclude the auditor from complying with a validly issued court subpoena.
d
Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements? a. Performing audit procedures efficiently and within expected time budgets. b. Maintaining a suspicious attitude, presuming that the client is dishonest until evidence proves otherwise. c. Maintaining confidentiality of client information by not including it in the audit documentation. d. Performing professional responsibilities with the highest sense of integrity.
d
In gathering evidence in the performance of substantive procedures, the auditor most likely a. Uses the test month approach. b. Considers the client's documentary evidence less reliable than evidence gathered orally by inquiry of management. c. Expresses an adverse opinion if (s)he has substantial doubt as to any assertion of material significance. d. Relies on persuasive rather than conclusive evidence in the majority of cases.
d
Must a CPA in public practice be independent in fact and appearance when providing the following services? Compilation of personal financial statements; preparation of a tax return; compilation of a financial forecast a. Yes; No; No b. No; No; Yes c. No; Yes; No d. No; No; No
d
Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Hometown Bank. Smith's independence would be impaired under which of the following circumstances? a. Smith has a collateralized automobile loan with Hometown Bank. b. Smith and a Hometown Bank board member belong to the same church. c. Smith had an account with Hometown Bank 2 years ago. d. Smith is a director of Hometown Bank.
d
The AICPA Code of Professional Conduct applicable to members in public practice a. Raises money for the AICPA's lobbying efforts. b. Provides legal protection for external auditors related to their audit engagements. c. Confers universal certification for accountants that can be marketed to clients. d. Establishes standards for auditor independence, integrity, and objectivity.
d
The objective of tests of details of transactions performed as substantive procedures is to a. Evaluate whether management's policies and procedures operated effectively. b. Attain assurance about the reliability of the accounting system. c. Comply with generally accepted auditing standards. d. Detect material misstatements at the relevant assertion level.
d
Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded? a. Accuracy. b. Occurrence. c. Cutoff. d. Completeness.
d
Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's accounting and auditing practice? a. Information processing. b. Professional skepticism. c. Technology selection. d. Engagement performance.
d
Which of the following legal situations would be considered to impair the auditor's independence? a. Actual litigation by the client against the auditor for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for tax services. b. Actual litigation by the auditor against the client for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for consulting services. c. An expressed intention by the current management to commence litigation against the auditor alleging deficiencies in audit work for the client, although the auditor considers that there is only a remote possibility that such a claim will be filed. d. Actual litigation by the auditor against the current management alleging management fraud or deceit.
d
