Audit 403W Exam 2 - Homework and exam questions
When performing a review of a nonpublic company, which is least likely to be included in auditor inquiries of management members with responsibility for financial and accounting matters?
(3) communication with related parties
Which assertion is generally most difficult to attest to with respect to personal financial statements
(3) completeness
The auditors identified a material weakness in internal control in August. The client was informed and the client corrected the material weakness prior to year-end December 31, the auditors concluded that management eliminated the material weakness prior to year- end. The appropriate audit report on internal is (EXAM QUESTION)
(3) unqualified
Which of the following should not normally be included in the engagement letter for an audit?
(4) a listing of clients' branch offices selected for testing
Assume an auditor is focusing on two weaknesses relating to internal control. Although neither is a material weakness, the two together represent a material weakness. One is taken off by year end and the other is not. This would result in
An unqualified report (Will be on exam)
An auditor identified a material weakness in internal controls in August. The client was informed and corrected it prior to year end. What kind of opinion can the auditor issue
B: auditor can issue unqualified opinion
Which of the following must be included in managements report internal control under section 404 of Sarbanes Oxley act?
identification of the framework used for evaluating internal control
In planning and performing an audit, auditors are concerned about risk factors for two distinct types of fraud: fraudulent financial reporting and misappropriation of assets. Which of the following is a risk factor for misappropriation of assets?
(3) an unreliable accounting system
Which of the following is NOT a primary approach to auditing an accounting estimate?
(3) confirm the amounts (EXAM QUESTION)
The primary objective of tests of details of transactions performed as substantive procedures is to
(3) detect material misstatements in the financial statements
a proper compilation report on financial statements that omit note disclosures should
(3) indicate that management has omitted such information (Exam question)
Which of the following elements underlies the application of generally accepted auditing standards particularly the standards of fieldwork and reporting
(3) materiality and audit risk
Which portion of an audit is least likely to be completed before the balance sheet date?
(3) substantive procedures
The risk that the auditors will conclude based on substantive procedures that a material misstatement does not exist in an account balance when, in fact, such a misstatement does exist is referred to as
(4) Detection risk (Know for EXAM)
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 disassociated from the resolution of the matter. The working papers would probably
(4) Document the assistant auditor's position and how the difference of opinion was resolved
Which of the following need not be included in managements report on internal control under section 404(a) of the Sarbanes Oxley Act of 2002?
(4) Managements acknowledgement of its responsibilities to establish and maintain internal control that detects all significant deficiencies
A procedure that involves tracing a transaction from origination through the company's information systems until it is reflected in the company's financial report is referred to as a(n):
(4) Walk-through
A material weakness is a control deficiency (or combination of control deficiencies) that results in a reasonable possibility that a misstatement of at least what amount will not be prevented or detected?
(4) a material amount
Which of the following forms of accountant association is least likely to result in issuance of an accountancy report on financial statements or financial information
(4) agreed upon procedures
Which of the following is not a financial statement assertion made by management?
(4) effectiveness of internal control
Which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement?
(4) facts that bear on integrity of management
Which of the following business characteristics is NOT indicative of high inherent risk?
(4) large amount of assets
The audit committee of a company must be made up of:
(4) members of the board of directors who are not officers or employees
As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether
(4) recorded sales have been properly posted to customer accounts
A primary purpose of the audit working papers is to:
(4) support the auditors' opinion
financial statements prepared following which of the following are most likely to be considered a special purpose financial reporting framework?
(4) the cash basis of accounting
A circumstance caused a scope limitation related to Sarbanes Oxley section 404 regarding internal control audits. This is most likely to result in a
Disclaimer of opinion
An accountings standard report is issued after compiling the financial statements of a nonpublic ___.
Entity
To be effective, analytical procedures performed near the end of the audit should be performed by
Experienced managers and partners with a history with the client
Which of the following need not be included in management's report on internal control under section 404(a) of the Sarbanes Oxley Act of 2002?
Managements acknowledgement of its responsibilities to establish and maintain internal control that detects all significant deficiencies
In using the information on the statement of cash flows while obtaining an understanding of a profitable, growing company, which of the following would be least surprising to an auditor
Negative cash flows from investing activities
Under PCAOB standards for internal control, which are the auditor's communication responsibilities to the audit committee with respect to material weaknesses of internal control
Notify audit committee of all material weaknesses
According to PCAOB standards, determining the allowance for doubtful accounts is referred to as
Accounting estimate
According to PCAOB standards, determining the allowance for doubtful accounts is
An accounting estimate transaction
An auditor compared this year's gross margin percentage to last year's gross margin percentage. What type of audit procedure is this
Analytical procedure
Walkthroughs provide the auditors with evidence to
B: Confirm the understanding of effectiveness of controls and not substantiate account balances (Will be on exam)
Interim information of public companies
B: must be reviewed by CPAs before it is filed with the SEC (Exam)
Which of the following procedures is usually the first step in reviewing the financial statements of a nonpublic entity
B: obtain a general understanding of the entity organization, its operating characteristics, and its products or services
Which must the auditor communicate to managers
Both known material weaknesses and known significant deficiencies (exam)
An assertion that is particularly difficult to audit with respect to personal financial statements is
C: Completeness
Which of the following would likely be used in a review engagement
Comparison of current year to prior year account balances
Which of the following is not an analytical procedure
Comparison with financial statement accounts to source documents
In which of the following types of reports do accountants provide no explicit assurance
Compilation (Exam question )
Which of the following would be used on a review engagement?
Compilation (or comparison) of current year to prior year account balances (analytical procedures) (Exam)
An assertion that is particularly difficult to audit with respect to personal financial statements is
Completeness
Which of the following is a weakness in internal control that allows a reasonable possibility that a significant but not material misstatement may occur but not be detected
Significant deficiency
Which of the following is not an assertion related to classes of transactions
Sufficiency
Which of the following is NOT a function of audit working papers?
(1) Assist management in illustrating that the financial statements are in accordance with generally accepted accounting principles
Which of the following is most likely to be considered a material weakness in internal control?
(1) Ineffective oversight of financial reporting by the audit committee
As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter?
(1) To increase the efficiency of the audit by eliminating the need for other audit procedures
In which of the following reports should a CPA not Express negative (limited) assurance
(1) a standard compilation report on financial statements of a nonpublic entity
An audit of internal control over financial reporting ordinarily assesses internal control
(1) as of the last day of the fiscal period
Which of the following must be obtained in a review of a nonpublic company?
(1) both an engagement letter and representation letter
In an integrated audit, which of the following must be communicated by management to the audit committee (EXAM QUESTION)
(1) both known material weaknesses and known significant deficiencies
In an integrated audit, which of the following must the auditors communicate to the audit committee
(1) both known material weaknesses and known significant deficiencies
Comfort letter to underwrites are normally signed by the
(1) independent auditor
In using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:
(2) Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements
Which of the following statements best describes why auditors investigate related party transactions?
(2) The substance of related party transaction may differ from their form
A CPA who is not independent may perform which of the following services for a nonpublic company?
(2) a compilation but not a review
Management's documentation of internal control ordinarily should include information on
(2) controls designed to prevent fraud, but not controls designed to ensure employee personal integrity
Which of the following best describes what is meant by the term "Fraud risk factor"
(2) factors often observed in circumstances where frauds have occurred
In an integrated audit, which of the following leads to an adverse opinion on internal control
(2) known material weaknesses but not known significant deficiencies
Which of the following is defined as a weakness in internal control that allows a reasonable possibility of a misstatement is material ?
(2) material weakness
concerning interim quarterly financial statements, management of public companies
(2) must engage CPAs to review the statements
In what section of the audit working papers would a long-term lease agreement be filed?
(2) permanent working paper file
Analytical procedures are most likely to detect:
(2) unusual transactions
Which of the following is most likely to be an overall response to fraud risk identified in an audit
(2) use less predictable audit procedures
Which of the following is not typically performed when the auditors are performing a review of client financial statements?
(3) Confirmation of accounts receivable.
Of the following, which is the least reliable type of audit evidence?
(3) Copies of sales invoices inspected by the auditors
Three conditions general are present when fraud occurs. Select the one below that is not one of those conditions
(3) Supervisory position
Which of the following is not a typical question asked during a walk-through?
(3) What is the largest fraudulent transaction you ever processed?
The proper report by an auditor relating to summarized financial statements includes
(3) an opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements
Which of the following is correct relating to compiled financial statements when third party reliance on the statements is anticipated
A compilation report must be issued (If someone beside management will look at the compilation, you need a report)
A material weakness involves a reasonable possibility that what size misstatement will not be prevented or detected
A material misstatement
An auditor's understanding with the client should be established through
A written engagement letter
Which of the following communication options may be used when an accountant submits compiled financial statements to be used only by management?
A written engagement letter, but not a compilation report
Which of the following is correct relating to compiled financial statements when third party reliance upon those statements is anticipated?
A: A compilation report must be issued
A material weakness that exists at year end will result in what type of audit report on internal control
A: Adverse
Which of the following is a strong indicator that a material weakness in internal control exists?
A: Restatement of previously issued financial statements to reflect correction
Which must management communicate to the audit committee
A: both known material weaknesses and known significant deficiencies
Which of the following would heighten an auditors concern about the risk of fraudulent financial reporting
Inability to generate positive cash flows from operations while reporting increase in earnings
Which of the following groups are not considered specialists by the AICPA standards
Internal auditors
In which of the following types of reports do auditors express negative assurance
Letter to the underwriter
A compilation report is not required when compiled financial statements are expected to be used by
Management only
Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement
Management's disregard for internal control
For a CPA, a client has imposed scope restrictions during a review of Financial statements. In this case, what's likely to result
Resignation from the account
In an integrated audit, which of the following must be communicated by management to the audit committee
both known material weaknesses and known significant deficiencies