Audit - Ch. 9, Audit Final

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A portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through confirmation.

true

Sales are normally recorded on the date of the sales invoice

true

When an auditing team does not receive a response on a positive accounts receivable confirmations, auditors should do nothing for immaterial balances.

False

In an attestation engagement, a CPA practitioner is engaged to:

Prepare a written report containing a conclusion about the reliability of a management assertion.

Which of the following statements about tests of controls is incorrect? Tests of controls

Provide persuasive evidence that a material misstatement exists when the auditor determines that the control is not being consistently applied.

List two common procedures that an auditor will perform with respect to a client's litigation, claims, and assessments

1. 2.

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

A. observe physical counts of the inventory items.

Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients?

b. relevant ethical requirements

which of the following procedures would an auditor most likely perform prior to the balance sheet date?

b. review detail and test significant travel and entertainment expenses.

what is an auditor's primary method to corroborate information on litigation, claims, and assessments?

b. reviewing the response from the client's lawyer t a letter of audit inquiry.

An auditor selected items for test counts while observing a client's physical inventory count. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's balance assertion of

completeness

When completing the audit of internal controls for a public company, AS 5 requires auditors to report on Management's Report on Internal Control/ An Audit of internal control a. no/no b. yes/no c. yes/yes d. none of the above

d. none of the above

Which of the following categories of principles is most closely related to evaluating compliance with the applicable reporting framework? a. performance b. responsibilities c. reasonable assurance d. none of the above

d. none of the above

Embezzlement is a type of fraud that involves a manager's falsification of financial statements for the purpose of misleading investors and creditors.

false

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 its auditors began the fieldwork on February 17, year 2. Hall completed gathering sufficient appropriate evidence on March 24, year 2; Hall's report and XYZ's financial statements were released on March 28, year 2. The written representations normally would be dated March 28, year 2.

false

The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the human resources function from the controllership function.

false

To make a year-to-year comparison of inventory turnover most meaningful, the auditor performs the analysis by division.

false

When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do nothing for immaterial balances.

false

auditors only have a responsibility related to management's disclosure of new information related to subsequent events until the date of the auditor's report.

false

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items:

represented by tags were included on the listing

The best description of the role of analytical procedures near the beginning of the audit engagement is to identify accounts that appear to be misstated with the intention of planning the nature, timing, and extent of other substantive procedures.

true

Identify the type of audit procedure (I - XI); and (2) Identify the related audit objective(s) (A-E) satisfied by each procedure: I. Footing II. Inquiry III. Vouching IV. Examination/Inspection V. Confirmations VI. Analytical Procedures VII. Reperformance VIII. Recalculation IX. Observation of Documents X. Tracing XI. Subsequent Events A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation or Accuracy E. Presentation and Disclosure AUDIT PROCEDURE: Compare amounts on receiving reports to vendors' invoices and entries in the acquisitions journal. Audit Procedure [I-XI] Audit Objective/assertion [A-E]

X. Tracing c. Completeness

when an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the

c. trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.

in establishing the existence and ownership of a long-term investment in the form of a publicly-traded stock, an auditor should inspect the securities or: a. Inspect the audited financial statements of the investee company. b. Determine that the investment is carried at the lower of cost or market. c. Correspond with the investee company to verify the number of shares owned. d. Confirm the number of shares owned that are held by an independent custodian.

d. Confirm the number of share owned that are held by an independent custodian

When auditors become aware of noncompliance with a law or regulation committed by client personnel, the primary reason that the auditors should obtain a better understanding of the nature of the act is to

d. Evaluate the effect of the noncompliance on the financial statements.

Which of the following procedures is the auditor least likely to perform on the actual date the physical inventory count is observed?

d. Examine documentation supporting the acquisition of highly material inventory items on hand at the count date.

An auditor usually traces the details of the test counts made during the observation of physical inventory counts to a final inventory compilation. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are physically present at the time of the preparation of the final inventory schedule.

false

Loan covenants are used to protect the auditors from false information by the borrower.

false

External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA) department if the external auditors intend to rely on IA's work? a. competence. b. integrity c. objectivity d. all of the above

d. all of the above

Under which of the following circumstances would an adverse opinion not be appropriate? a. The chief executive officer is unwilling to sign the management representation letter. b. The auditor is unable to determine the amounts associated with an employee fraud scheme. c. The client refuses to permit the auditor to confirm certain accounts receivable or apply alternative procedures to verify their balances. d. All of the above. e. None of the above.

d. all of the above

Which of the following audit procedures would likely be performed for audits of investments? a. Read board of directors' minutes for authorization of investment strategies b. confirm investments with broker or trustee. c. compare valuation to published market prices. d. all of the above

d. all of the above

Which of the following is not a preventative control? a. Reconciliation of a bank account b. Recalculation of a sample of payroll entries by internal auditors. c. Detailed fluctuation analysis completed by the CFO for revenue. d. all of the above. e. none of the above

d. all of the above

Which of the following audit procedures would not likely be performed for audits of shareholders' equity? a. Obtain management representation about number of shares issued and outstanding. b. Read board of directors' minutes for authorization of equity transactions. c. Confirm outstanding common and preferred stock with stock registrar. d. All of the above would likely be performed.

d. all of the above would likely be performed.

an audit team testing long-term investments would not ordinarily use analytical procedures to ascertain the reasonableness of the: a. existence of unrealized gains or losses b. classification as available-for-sale or trading securities. c. valuation of trading securities. d. all of the above.

d. all of the above.

which of the following normally occurs last in the audit examination?

b. discovery of an omitted audit procedure

The following test of controls could be performed during the audit of the controls in the production cycle. Required. For the procedure below, identify the primary assertion being addressed. PROCEDURE: Select a sample of the material issue forms in the production department file. Examine them for issue date and materials used report date.

valuation or allocation

in auditing long-term bonds payable, an auditor most likely would:

compare interest expense with the bond payable amount for reasonableness.

For the following description, identify the applicable Principle and Element from the following list. Principle: a. Responsibilities; b. Performance; c. Reporting Element: 1. Competence & Capabilities; 2. Relevant Ethical Requirements; 3. Professional Skepticism; 4. Planning and Supervision; 5. Materiality; 6. Risk Assessment; 7.Obtain Sufficient and Appropriate Evidence; 8. Render Opinion; 9. Assess Framework Description: The auditors' evaluation of the magnitude of a misstatement that would impact perceptions of the entity's profitability.

1. b performance. 2. 5. materiality

Classify the following issue according to whether it would be [1-3]: 1. Included in written representations in all audits, 2. Included in written representations in audits of public entities (under AS 5), or 3. Not included in written representations ISSUE: Management acknowledgment of its responsibility for the fairness of the financial statements in accordance with U.S. GAAP.

1. included in written representations in all audits.

Classify the following issue according to whether it would be [1-3]: 1. Included in written representations in all audits, 2. Included in written representations in audits of public entities (under AS 5), or 3. Not included in written representations ISSUE: Management's conclusion about the effectiveness of its internal control over financial reporting.

2. included in written representation in audits of public entities (under AS 5)

Classify the following issue according to whether it would be [1-3]: 1. Included in written representations in all audits, 2. Included in written representations in audits of public entities (under AS 5), or 3. Not included in written representations ISSUE: Auditors' judgment about the quality of the client's accounting principles.

3. not included in written representations

Classify the following issue according to whether it would be [1-3]: 1. Included in written representations in all audits, 2. Included in written representations in audits of public entities (under AS 5), or 3. Not included in written representations ISSUE: A description of recommendations that allow the client to improve the efficiency and effectiveness of its operations.

3. not included in written representations.

Using the audit risk model, state the effect on control risk, inherent risk, acceptable audit risk, and planned evidence for each of the following independent events. For the event below, select one letter for each of the three independent variables and planned evidence: I = increase, D = decrease, N = no effect, and C = cannot determine from information provided. This is the first year of an engagement with a new client. There has been no change in key management personnel. Also, you believe that management sets an appropriate tone with regard to the accuracy financial reporting. The audit firm is being investigated by the PCAOB and the Department of Justice with regard to issues over inappropriate relationships with several other audit clients: i. Control risk = I i. Control risk = D i. Control Risk = N i. Control Risk = C

Control Risk = N

The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate. STATEMENT: "We have prepared a description and evaluation of certain contingencies for which our attorneys have devoted substantive attention on our behalf in the form of legal representation."

Inappropriate

An auditor concludes that a substantive auditing procedure considered necessary during the prior period's audit was omitted. Which of the following factors would most likely cause the auditor promptly to apply the omitted procedure?

a. The omission of the procedure impairs the auditor's present ability to support the previously expressed opinion.

The Following is a description of a professional service. Identify the service as an audit engagement, attestation engagement, or assurance engagement. Choose the most specific answer choice. Service Description: Newspaper circulation audits..

a. Assurance Engagement

An auditor most likely would express an unmodified opinion and would not add emphasis-of-matter or other-matter paragraphs to the report if the auditor:

a. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.

A retailer's physical count of inventory was higher than that shown by the perpetual records. Which of the following could explain the difference? a.Credit memos for several items returned by customers had not been recorded. b. Inventory items had been counted but the tags placed on the items had not been taken off and added to the inventory accumulation sheets. c. No journal entry had been made on the retailer's books for several items returned to its suppliers. d. An item purchased FOB shipping point had not arrived at the date of the inventory count and had not been reflected in the perpetual records. e. Amounts received on the receiving deck were not included in the count.

a. Credit memos for several items returned by customers had not been recorded

A good fraud prevention program should address employees' motivation to steal from the company. The best method for doing this is to

a. Establish employee assistance programs

Your client counts inventory three months before the end of the fiscal year because controls over inventory are excellent. Which procedure is not necessary for the roll-forward?

a. request the client to recount inventory at the end of the year.

When auditing inventories, an auditor would least likely verify that

all inventory owned by the client is on hand at the time of the count.

An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by:

an error in recording amortization of the excess of the investor's cost over the investment's underlying book value

appropriate

Match the term (a-k) with the definition provided below: a. Tests of details of balances b. Tests of controls c. Substantive tests of transactions d. Analytical procedures e. Transaction-related audit objectives f. Management assertions g. Balance-related audit objectives h. Fraud i. Illegal act j. Error k. Management fraud DEFINITION: ________ Audit procedures designed to test the effectiveness of control policies and procedures.

b. tests of controls

an inventory turnover analysis is useful to the auditor because it may detect

b. the existence of obsolete merchandise

loan covenants are used for which of the following reasons?

b. to protect the lender from the borrower's substantially weakening of the latter's financial position.

Which of the following opinions would be issued if auditors believed that the entity's financial statements are presented in conformity with GAAP?

b. unmodified opinion

the evidence considered least appropriate by auditors is best described as

b. written responses made by the president of the entity

completeness

An audit team testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the

completeness of recorded investment income

which audit procedure is most likely related to the classification and understandability of the financial statements with respect to inventory?

confirming inventories pledged under loan agreements.

Each morning the controller gets the prior day's list of remittances, a copy of the payment report, and a copy of the deposit slip returned from the bank. When comparing these items, the controller would not be able to determine that a. No checks were returned for insufficient funds. b. The accounts receivable system has controls over unauthorized access. c. The assistant controller does not also reconcile the subsidiary accounts payable. d. All of the above.

d. All of the above

d. Completeness

an audit team testing long-term investments would not ordinarily use analytical procedures to ascertain the reasonableness of the: a. Existence of unrealized gains or losses. b. Classification as available-for-sale or trading securities. c. Valuation of trading securities. d. All of the above.

d. all of the above

f the auditor believes that a misstatement is or might be intentional and the effect on the financial statements could be material or cannot be readily determined, the auditor should do which of the following? a. Assess how the fraud was perpetrated. b. Assess and determine the materiality of the fraud scheme on the financial statements. c. Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is likely to have occurred. d. Both a and b are correct. e. All of the above are correct.

e. all of the above are correct

After an audit report is issued, an auditor discovers that an important audit procedure was not performed. Which of the following procedures is acceptable in this situation? a. Immediately notify known users of the omitted audit procedure. b. Require that the client notify financial statements users of the omitted procedures. c. Let the current report stand and correct material errors on the next audit report. d. Both b and c. e. None of the above.

e. none of the above

an audit team would most likely verify the interest earned on bond investments by A: Testing internal controls relevant to cash receipts. b. Inquiry with the bondholder regarding the interest earned on the basis of face amount, interest rate, and period held. c. Vouching the receipt and deposit of interest checks. d. Confirming the bond interest rate with the issuer of the bonds. e. None of the above.

e. none of the above

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about a. cutoff b.rights and obligations c. existence d. completeness e. valuation

e. valuation

Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015: ISSUE: GoodenCo has assisted Cardinal Inc. with the preparation of its financial statements but has not audited, compiled, or reviewed those financial statements. Cardinal wishes to include these financial statements in a communication that would describe GoodenCo's involvement in the preparation of the financial statements. GoodenCo believes that Cardinal's communication is adequate and appropriately describes GoodenCo's limited role in the preparation of the financial statements. Required: What audit opinion(s) could be issued for the issue above? Check all that apply. a.Unqualified with emphasis-of-matter paragraph b. None of the above c. Unqualified d. Qualified e. Adverse f. Disclaimer g. Unqualified with other-matter paragraph

f. disclaimer

the primary purpose for obtaining an understanding of a nonpublic audit client's internal control is to a. Provide a basis for making constructive suggestions in a management letter. b. Provide the rationale for the inherent risk assessment at the financial statement assertion level. c. Provide information for a communication of internal control-related matters to management. d. Both a and b. e. All of the above. f. None of the above.

f. none of the above

GoodenCo. Is audited by EMJAE, LLP. GoodenCo.'s has a calendar year-end. The auditor's report is dated March 7, 2016 and GoodenCo's 10-k was filed with the SEC on March 9, 2016. The following subsequent event was disclosed in GoodenCo's 2015 annual report: Event: On February 27, 2010, a significant earthquake struck the country of Chile. Although Dole's Chilean operations resumed business after the earthquake in a matter of days, Dole is currently evaluating its impact, if any, to its financial results. Preliminary reports indicate no major structural damage to the Dole facilities. Dole maintains customary insurance for its properties, including business interruption and extra related expense. Required: 1. Does it appear that this event meets the definition of a "subsequent event"? 2. Assuming that this event did meet the definition of a subsequent event, would you classify it as a subsequent event that relates to a condition that existed at the date of the financial statements or one that arose after the date of the financial statements?

i. ii.

All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors, and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has the technical competence to complete the engagement. I. Leadership Responsibilities ("tone at the top") II. Relevant Ethical Requirements III. Acceptance and Continuance with Clients and Engagements IV. Human Resources V. Engagement Performance VI. Monitoring

iii. acceptance and continuance with clients and engagements

The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate. STATEMENT: "No frauds involving management, employees who have significant roles in internal control, or other frauds that could have a material effect on the financial statements have occurred during the year under audit."

inappropriate

The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate. STATEMENT: "There are no significant deficiencies, including material weaknesses, in the design or operation of internal controls that could adversely affect our ability to record, process, summarize, and report financial data."

inappropriate

Auditors are not responsible for accounting estimates with respect to

making the estimates

Which of the following accounts would most likely be audited in connection with a related balance-sheet account?

property tax expense

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until

the audit report release date

In connection with the audit of an issue of long-term bonds payable, the audit team should determine whether bondholders are persons other than owners, directors, or officers of the company issuing the bond.

true

an auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about

valuation

When the client holds a large amount of negotiable securities, auditors need to plan to guard against substitution of securities already counted for other securities that should be on hand but are not.

true

revenues are normally considered to have been earned when the company has substantially accomplished what it must to be entitled to the benefits.

true

the primary objective of the fraud brainstorming session is to assess the potential for material misstatement due to fraud.

true

Ordinarily, audit documentation can be provided to someone else only with the express permission of the client.

true.

For the following audit procedure, identify the management assertion most usefully audited by using each procedure. a.Valuation b.Completeness c.Presentation and Disclosure d.Rights and Obligations e.Existence or Occurrence

A. Valuation e. Existence or occurrence

Three common types of attestation services are:

Audits, reviews, and attestations regarding internal controls

For the engagement described below, identify the: Service Type: A. Audit; B. Attestation; C. Assurance; D. Nonassurance Audit Type: I. Financial; II. Operational; III. Compliance; IV. Forensic; V. N/A ENGAGEMENT: A report that retroactively analyzes the effect of a proposed transaction on the company's historical financial statements "as if" that transaction had already occurred.

B. Attestation V. N/A

The following test of controls could be performed during the audit of the controls in the production cycle. Required. For the procedure below, identify the primary assertion being addressed. PROCEDURE: Balance and reconcile detailed production cost sheets to the work-in-process inventory control account. a. Rights and Obligations. b. Presentation and Disclosure. c. Completeness. d. Valuation or Allocation. e. Existence or Occurrence.

C. Completeness

The following is a description of an internal control. DESCRIPTION: Each quarter, department managers are perform bank reconciliations for the bank account assigned to their respective functional area. Required: Indicate which of the COSO internal control components is best represented by each internal control. a. Information and Communication b. Control Environment c. Control Activities. d. Monitoring e. Risk assessment

C. Control activities

Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements? a. Reliability of audit evidence. b. Professional judgment. c. Reasonable assurance. d. Absolute assurance.

C. Reasonable assurance

A retailer's physical count of inventory was higher than that shown by the perpetual records. Which of the following could explain the difference?

C. credit memos for several items returned by customers had not been recorded

When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond:

C. reading the financial statements for obvious material misstatements.

An auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if: a. The auditor's assessed level of detection risk is low. b. No individual investment is material to the financial statements taken as a whole. c. The results of alternative procedures that were performed compensate for the omission. d. The omission is documented in a communication with the audit committee.

C. the results of alternative procedures that were performed compensate for the omission.

If the opinion issued on prior-year's financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors' current report should: a. Not reference the prior-years' financial statements. b. Indicate that the opinion on the prior-years' financial statements cannot be relied upon. c. Express the revised opinion on the prior-years' financial statements without referencing the previously-issued opinion. d. None of the above

D. none of the above.

In one or two sentences answer each of the following questions. I. Why do banks add covenants to loan agreements? II. Why is it important for an auditor to review the documentation related to each covenant?

I. ii.

The following is an independent event. EVENT: Dodgy Automotive inadvertently included in its inventory automobiles that it was holding on consignment for other dealers. Required: For each of the preceding independent events indicate: I. The effect of the error or fraud on the balance sheet [1-6]. 1. Assets overstated 2. Assets understated 3. Liabilities overstated 4. Liabilities understated 5. No effect on balance sheet 6. Cannot be determined II. What auditing procedures, if any, could have detected the misstatement resulting from error or fraud [a-f]. a. Examination of purchase invoices should indicate that the per-unit-pricing. Also, comparison to prior periods should show the large change in value. b. As part of the roll-forward procedure, auditors would examine the entries to reduce inventory for the cost of sales. c. During the observation of the physical inventory, auditors should request that inventory within containers be opened. Also, purchase records should indicate how many items are contained in each container. d. Locations should be visited for an inventory count on a surprise basis. e. Examination of purchase records should reveal that the inventory items were not purchased. Inquiry of the client about consignments should also alert auditors to the presence of goods not owned by the client. f. None of the above.

I. 1 Assets overstated II. e Examination of purchase records should reveal that the inventory items were not purchased. Inquiry of the client about consignments should also alert auditors to the presence of goods not owned by the client

In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. They then design specific substantive procedures to obtain evidence about each of these assertions. Below is an accounts receivable assertion: Assertion: Accounts receivable are stated at net realizable value. Required: For the assertion described above: I. Identify the assertion [1-5]: 1. Existence or Occurrence 2. Rights and Obligations 3. Valuation and Allocation 4. Completeness 5. Presentation and Disclosure II. Select an audit procedure [a-g] that is best suited to address the assertion in the audit plan. Select only one procedure. a) Review loan agreements for indications of whether accounts receivable have been factored or pledged. b) Analyze unusual relationships between monthly accounts receivable and monthly accounts payable balances. c) Obtain an understanding of the business purpose of transactions that resulted in accounts receivable balances. d) Perform sales cutoff tests to obtain assurance that sales transactions and corresponding entries for inventories and cost of goods sold are recorded in the same and proper period. e) Review the accounts receivable trial balance for amounts due from officers and employees. f) Analyze the relationship of accounts receivable and sales and compare with relationships for preceding periods. g) Review the aged trial balance for significant past due accounts.

I. 3 II g

Procedure: When auditing the details of sales revenue, pay attention to the terms of sales to determine whether any amounts have been earned. I. Identify the primary management assertion addressed 1. Existence or Occurrence 2. Rights and Obligations 3. Completeness 4. Valuation 5. Presentation and Disclosure II Identify the specific account(s) being tested. a. Accounts Payable b. Accrued Liabilities c. Income Taxes Expense/Payable d. Payroll Expense/Liability e. Unearned Revenue

I. 3 II. e

Procedure: When auditing the details of sales revenue, pay attention to the terms of sales to determine whether any amounts have been earned. I. Identify the primary management assertion addressed [1-5]. 1. Existence or Occurrence 2. Rights and Obligations 3. Completeness 4. Valuation 5. Presentation and Disclosure II. Identify the specific account(s) being tested [a-e]. a. Accounts Payable b. Accrued Liabilities c. Income Taxes Expense/Payable d. Payroll Expense/Liability e. Unearned Revenue

I. 3 Completeness II. e. Unearned Revenue

I. 3 valuation and allocation II. g none of the above

Pamsorenson Manufacturing Corporation was incorporated on January 3, 2013. The corporation's financial statements for its first year's operations were not examined by a CPA. You have been engaged to audit the financial statements for the year ended December 31, 2014, and your work is substantially completed. A partial trial balance of the company's accounts follows: Pamsorenson Manufacturing Corporation Trial Balance at December 31, 2014 Debit Credit Cash $22,000 Accounts Receivable 85,000 Allowance for Doubtful Accounts $1,000 Inventory 77,000 Machinery 150,000 Equipment 58,000 Accumulated Depreciation $20,000 Patents 170,000 Leasehold Improvements 52,000 Prepaid Expenses 21,000 Organization Expenses 58,000 Goodwill 48,000 Licensing Agreement #1* 100,000 Licensing Agreement #2* $98,000 *An intangible asset representing the right to use a patent The following item relates to account(s) that may yet require adjustment: ITEM: On January 3, 2011, Pamsorenson purchased two licensing agreements; at that time they were believed to have unlimited useful lives. The balance in the Licensing Agreement No. 1 account included its purchase price of $96,000 and $4,000 in acquisition expenses. Licensing Agreement No. 2 also was purchased on January 3, 2013, for $100,000, but it has been reduced by a credit of $2,000 for the advance collection of revenue from the agreement. REQUIRED. For the item above: I. Below is an adjusting entry. Determine if the proposed adjustment is appropriate [A-B]. Proposed Entry: Dr. Licensing Agreement #2 2,000 Cr. Unearned Revenue 2,000 A. Yes B. No II. the substantive audit procedures [1-5] you would perform to test the transactions. If an appropriate substantive audit procedure is not provided, then choose none of the above. 1. Verify the acquisition expenses for Licensing Agreement #1. 2. Vouch transaction to the documentation to support from acquisitions journal noting the change in retained earnings. Vouch change in retained earnings to cash deposit in bank account. 3. Recalculate amortization. 4. Review goodwill account. Vouch to original calculation of goodwill to ensure all expenses in the account are capital expenses. 5. None of the above.

I. A. Yes ii. 5. None of the above

or each management assertion below, determine the following: I Using the PCAOB nomenclature identify the MOST relevant management assertion; and II. Determine the appropriate level of audit objective. I. PCAOB Assertions A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation or Allocation E. Presentation and Disclosure II. Audit Objective Level 1. Transaction 2. Account Balance 3. Presentation and Disclosure Management Assertion: There are no liens or other restrictions on inventory.

I. B. Rights and Obligations II. 2. account balance

For the following independent situation, describe the most appropriate course of action that the auditors should take. SITUATION: Charles Carmelo is completing the December 31, 2014, audit of Nugget Company. As part of the final procedures, Carmelo has requested representations from Nugget's management regarding their assertion as to the fairness of the financial statements and other important matters addressed by professional standards on February 5. Because Nugget's management is attending an analyst briefing in the upcoming week, Carmelo receives these signed representations dated February 9, 2015. Because Carmelo had already completed all of the important procedures he released his auditor's report, dated February 5, 2015, with the financial statements on February 6. Required. Unless otherwise noted, assume that each scenario affect (are material) to the Company's financial statements, and there are persons who continue to rely on the financial statements. For the preceding item, determine: I. whether the event described should be classified as [A-D]: A. Subsequent Event B. Subsequently Discovered Event C. Omitted Procedure D. None of the above II. what actions the auditor should take after the firm's quality review identified these issues [1-7]: 1) Disclosure in financial statements 2) Adjustment to and/or disclosure in the financial statements 3) No further action is necessary (specific audit procedures) 4) Determine if alternative procedures are available, if so take action 5, if procedures are not available, withdraw the auditor's report 5) Perform procedures related to the item and revise the auditor's report date if necessary 6) Perform procedures related to the items and if facts would result in revision of auditors' report or financials, then notify individuals relying on financials and issue revised financials which provide disclosure of facts 7) Not applicable

I. C Omitted Procedure II. 5. Perform Procedures related to the item and revise the auditor's report date if necessary

The following question is from an internal control questionnaire for the production cycle. Assume that the answer to the question is "no." QUESTION: Are summary entries reviewed and approved by the cost accounting supervisor? Required: For the preceding question determine the following: I. Assertion addressed [A-E]. A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation E. Presentation and Disclosure II. Example of an error fraud that could occur [1-10]. 1. Errors in summary entries not detected and corrected. 2. Inventory transactions posted in wrong period. Cutoff errors. 3. Scrap reporting incorrect. Incorrect perpetual inventories. 4. Failure to disclose agreements in footnotes. 5. Materials withdrawn from inventory or hours worked for unauthorized projects. 6. Lost forms resulting in inventory not charged to Cost of Goods Sold. 7. Incorrect costs used; inventory improperly valued. 8. Production orders lost and accounting incomplete. 9. Labor or material used but not recorded. 10. Errors in labor costs.

I. E. Presentation and Disclosure II. 1 Errors in labor costs.

For the internal control question below, determine: (I) test of controls you could use to find out whether the control technique was really functioning [A-F]. (II) identify the auditing procedure(s) best used to describe (I) above [1-15]. Note that each question may have more than one, only one, or no correct answer provided. If there is more than one answer, choose what you believe is the best answer. If none of the tests of controls apply answer "G" and "15" for parts I and II. Question: Do customers receive a monthly statement even when the ending balance on the account is zero? I. Test of controls A. Visit the storage location yourself and see whether unauthorized persons could obtain blank sales invoices or pick some invoices yourself to see what happens. B. Review the client's working paper showing the balancing/reconciliation. Do the balancing yourself. C. Look to see who is performing bookkeeping and cash functions. Determine who is assigned to each function by reading organization charts. Ask other employees. D. Check to the numeric sequencing of invoices to ensure that the number of sales invoices for the month equals the number of invoice statements mailed each month. E. Select a sample of recorded sales invoices and vouch quantities thereon to bills of lading, vouch prices to price lists, and recalculate the math. F. Review the mathematical accuracy of invoices to ensure that each invoice matches the total amount on the monthly statements sent to customers. G. NONE OF THE ABOVE II. Auditing procedure(s) 1. Inquiry 2. Observation 3. Examination and Inspection of documents 4. Vouching 5. Tracing 6. Recalculation 7. Reperformance 8. Confirmations 9. Inquiry and Inspection 10. Vouching and Recalculation 11. Reperformance and Inspection 12. Reperformance and Inquiry 13. Observation and Inspection 14. Observation and Inquiry 15. NOT APPLICABLE

I. G II. 15

For the internal control question below, determine: (I) test of controls you could use to find out whether the control technique was really functioning [A-F]. (II) what error or fraud could occur if the question were answered "no" or if you found the control was not effective [a-f]. Note that each question may have more than one, only one, or no correct answer provided. If there is more than one answer, choose what you believe is the best answer. If none of the tests of controls apply answer "G". Question: Do customers receive a monthly statement even when the ending balance on the account is zero? I. Test of controls A. Visit the storage location yourself and see whether unauthorized persons could obtain blank sales invoices or pick some invoices yourself to see what happens. B. Review the client's working paper showing the balancing/reconciliation. Do the balancing yourself. C. Look to see who is performing bookkeeping and cash functions. Determine who is assigned to each function by reading organization charts. Ask other employees. D. Check to the numeric sequencing of invoices to ensure that the number of sales invoices for the month equals the number of invoice statements mailed each month. E. Select a sample of recorded sales invoices and vouch quantities thereon to bills of lading, vouch prices to price lists, and recalculate the math. F. Review the mathematical accuracy of invoices to ensure that each invoice matches the total amount on the monthly statements sent to customers. G. NONE OF THE ABOVE II. Error or fraud that could occur if control was ineffective a. Errors on the invoice could cause lost billings and lost revenue or overcharges to customers that are not collectible (thus, overstating sales and accounts receivable). b. Invoices may be double-counted or not counted at all in calculating total revenue resulting in either an over- or under-statement of sales. c. The company will not be notified when the amounts on monthly statements are understated. d. The bookkeeper might be able to embezzle cash and manipulate the accounting records to give the customer credit and hide the theft. For example, debit a customer's payment to Returns and Allowances instead of to cash or just charge the control total improperly. e. Someone could pick up a blank sales invoice and make a fictitious sale. f. Accounting entries could be made inaccurately or incompletely and the control account may be overstated or understated. g. NONE OF THE ABOVE.

I. G II. g

Below is an independent scenario involving various nonpublic audit clients. SCENARIO: During the planning phase of the audit, the senior manager purchased 10 shares of the client's common stock for $100. The value of the shares is clearly immaterial to the auditor's personal wealth. Before year-end the same manager sold the shares. Required: Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. For the preceding scenario: I. indicate the type of opinion(s) that auditors could issue [A-J], note that more than one opinion may be appropriate in each circumstance. A. Unmodified (standard unqualified) Opinion B. Unqualified Opinion with emphasis-of-matter paragraph C. Unqualified Opinion with other-matter-paragraph D. Unqualified Opinion with both emphasis-of-matter and other-matter paragraphs E. Qualified Opinion F. Adverse Opinion G. Disclaimer of Opinion H. Qualified or Adverse Opinion I. Qualified or Disclaimer J. No opinion, the auditor should withdraw from the engagement II. In addition, indicate how the standard (unmodified) report would be modified [1-14], if appropriate. If wording is changed, or a paragraph is omitted, then that paragraph should be considered modified for the purposes of answering this question. 1) No paragraphs are modified 2) Introductory paragraph only 3) Management's responsibility paragraph only 4) Auditor's responsibility paragraph only 5) Opinion paragraph only 6) Introductory and opinion paragraphs 7) Introductory and auditor's responsibility paragraphs 8) Introductory and management's responsibility paragraphs 9) Auditor's responsibility and opinion paragraphs 10) Management's responsibility and opinion paragraphs 11) Introductory, auditor's responsibility, and opinion paragraphs 12) Introductory, management's responsibility, and opinion paragraphs 13) All paragraphs modified 14) Not applicable III. If additional paragraphs are required, indicate the location of the additional paragraph [a-d]. a) Before the opinion paragraph b) After the opinion paragraph c) Either before or after opinion paragraph d) Not applicable

I. G disclaimer of opinion. II. 13 all paragraphs modified III. d not applicable

I. I. Assets overstated. II. e Examination of purchase records should reveal that the inventory items were not purchased. Inquiry of the client about consignments should also alert auditors to the presence of goods not owned by the client.

Below is an independent scenario involving various nonpublic audit clients. SCENARIO: The client refused to allow the auditor to confirm accounts receivable with customers claiming that they did not think that the customers would understand the procedure and may cause them to lose certain customers. Accounts receivable is material to the financial statements. The auditor does not believe that the client's refusal is reasonable and is consistent with a pattern of obstructionist behavior by management. Required: Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. For the preceding scenario: I. indicate the type of opinion(s) that auditors could issue [A-J], note that more than one opinion may be appropriate in each circumstance. A. Unmodified (standard unqualified) Opinion B. Unqualified Opinion with emphasis-of-matter paragraph C. Unqualified Opinion with other-matter-paragraph D. Unqualified Opinion with both emphasis-of-matter and other-matter paragraphs E. Qualified Opinion F. Adverse Opinion G. Disclaimer of Opinion H. Qualified or Adverse Opinion I. Qualified or Disclaimer J. No opinion, the auditor should withdraw from the engagement II. In addition, indicate how the standard (unmodified) report would be modified [1-14], if appropriate. If wording is changed, or a paragraph is omitted, then that paragraph should be considered modified for the purposes of answering this question. 1) No paragraphs are modified 2) Introductory paragraph only 3) Management's responsibility paragraph only 4) Auditor's responsibility paragraph only 5) Opinion paragraph only 6) Introductory and opinion paragraphs 7) Introductory and auditor's responsibility paragraphs 8) Introductory and management's responsibility paragraphs 9) Auditor's responsibility and opinion paragraphs 10) Management's responsibility and opinion paragraphs 11) Introductory, auditor's responsibility, and opinion paragraphs 12) Introductory, management's responsibility, and opinion paragraphs 13) All paragraphs modified 14) Not applicable III. If additional paragraphs are required, indicate the location of the additional paragraph [a-d]. a) Before the opinion paragraph b) After the opinion paragraph c) Either before or after opinion paragraph d) Not applicable

I. J no opinion, the auditor should withdraw from the engagement II. 14 not applicable III. d not applicable

I. J. no opinion, the auditor should withdraw from the engagement. ii. 14 not applicable III. d. not applicable

The following is an independent event. EVENT: Holmes Drug Stores counted its inventory on December 31, which is its fiscal year-end. The auditors observed the count at 20 of Holmes's 86 locations. The company falsified the inventory at 20 of the locations not visited by the auditors by including fictitious goods in the counts. Required: For each of the preceding independent events indicate: I. The effect of the error or fraud on the income statement [A-D]. A. Income overstated B. Income understated C. No effect on income D. Cannot be determined II. The effect of the error or fraud on the balance sheet [1-6]. 1. Assets overstated 2. Assets understated 3. Liabilities overstated 4. Liabilities understated 5. No effect on balance sheet 6. Cannot be determined

I. a II. 1

The following question is from an internal control questionnaire for the production cycle. Assume that the answer to the question is "no." QUESTION: Are labor usage reports compared to job time tickets? Required: For the preceding question determine the following: I. Assertion addressed [A-E]. A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation E. Presentation and Disclosure II. Example of an error fraud that could occur [1-10]. 1. Errors in summary entries not detected and corrected. 2. Inventory transactions posted in wrong period. Cutoff errors. 3. Scrap reporting incorrect. Incorrect perpetual inventories. 4. Failure to disclose agreements in footnotes. 5. Materials withdrawn from inventory or hours worked for unauthorized projects. 6. Lost forms resulting in inventory not charged to Cost of Goods Sold. 7. Incorrect costs used; inventory improperly valued. 8. Production orders lost and accounting incomplete. 9. Labor or material used but not recorded. 10. Errors in labor costs.

I. a II. 10

I. a Income overstated. II. 1. assets overstated

The following scenario involves a legal issue for Westbrook Russell Corporation (WRC). WRC is involved in several legal issues brought by or against competitors, customers and regulatory bodies. WRC is both a manufacturer and retailer of sports apparel. WRC works closely with its outside counsel preparing all such suits. WRC recently requested its outside attorneys with the firm of Curry & Thompson to provide information to its auditors on all legal matters. The managing partner of Curry & Thompson asked different lawyers who have worked on these cases to prepare a concise response to auditors. The auditors received the following response from WRC's lawyer. RESPONSE: WRC is being sued by the EPA for violation of the Clean Water Act for pollution violations at its manufacturing facility in Nampa, Idaho. In our opinion, it is unlikely that WRC will be able to defend this action successfully. WRC's possible monetary liability for this proceeding ranges from nominal to substantial in amount. Required. Interpret each of the scenarios separately. Assume that none of the scenarios are currently accounted for nor disclosed in the financial statements. I. Determine if the situation is [A-C]: A. Loss contingency B. Gain contingency C. Unasserted claim or assessment II. Determine whether each scenario requires the auditor to recommend [1-3]: 1. Disclosure in financial statements 2. Adjustment to and disclosure in the financial statements 3. No further action

I. a Loss contingency II. 1. Disclosure in financial statements

Pamsorenson Manufacturing Corporation was incorporated on January 3, 2013. The corporation's financial statements for its first year's operations were not examined by a CPA. You have been engaged to audit the financial statements for the year ended December 31, 2014, and your work is substantially completed. A partial trial balance of the company's accounts follows: Pamsorenson Manufacturing Corporation Trial Balance at December 31, 2014 Debit Credit Cash $22,000 Accounts Receivable 85,000 Allowance for Doubtful Accounts $1,000 Inventory 77,000 Machinery 150,000 Equipment 58,000 Accumulated Depreciation $20,000 Patents 170,000 Leasehold Improvements 52,000 Prepaid Expenses 21,000 Organization Expenses 58,000 Goodwill 48,000 Licensing Agreement #1* 100,000 Licensing Agreement #2* $98,000 *An intangible asset representing the right to use a patent The following item relates to account(s) that may yet require adjustment: ITEM: The balance in the Goodwill account includes $48,000 paid December 30, 2013, for an advertising program, which it is estimated will assist in increasing Pamsorenson's sales over a period of four years following the disbursement. REQUIRED. For the item above: I. Below is an adjusting entry. Determine if the proposed adjustment is appropriate [A-B]. Proposed Entry: Dr. Retained Earnings 48,000 Cr. Goodwill 48,000 A. Yes B. No II. the substantive audit procedures [1-5] you would perform to test the transactions. If an appropriate substantive audit procedure is not provided, then choose none of the above. 1. Vouch transaction to original expenses for proper amounts. Review Retained earnings for propriety of other items. 2. Vouch transaction to the documentation to support the receipt of revenue. Vouch cash to deposit in bank account. 3. Vouch transaction to purchase order for equipment and work orders for leasehold improvements. Recalculate amortizations. 4. Recalculate amortization. 5. None of the above.

I. a yes II. 5. none of the above

ASSERTION: Recorded investments represent investments actually owned at the balance-sheet date.

I. b. Rights and Obligations. II. 2. Obtain positive confirmations as of the balance sheet date of investments held by independent custodians.

Below is an independent scenario involving various nonpublic audit clients. SCENARIO: There is an immaterial client-imposed scope limitation. The auditor still believes that it is appropriate to continue the audit. Required: Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. For the preceding scenario: I. indicate the type of opinion(s) that auditors could issue [A-J], note that more than one opinion may be appropriate in each circumstance. A. Unmodified (standard unqualified) Opinion B. Unqualified Opinion with emphasis-of-matter paragraph C. Unqualified Opinion with other-matter-paragraph D. Unqualified Opinion with both emphasis-of-matter and other-matter paragraphs E. Qualified Opinion F. Adverse Opinion G. Disclaimer of Opinion H. Qualified or Adverse Opinion I. Qualified or Disclaimer J. No opinion, the auditor should withdraw from the engagement II. In addition, indicate how the standard (unmodified) report would be modified [1-14], if appropriate. If wording is changed, or a paragraph is omitted, then that paragraph should be considered modified for the purposes of answering this question. 1) No paragraphs are modified 2) Introductory paragraph only 3) Management's responsibility paragraph only 4) Auditor's responsibility paragraph only 5) Opinion paragraph only 6) Introductory and opinion paragraphs 7) Introductory and auditor's responsibility paragraphs 8) Introductory and management's responsibility paragraphs 9) Auditor's responsibility and opinion paragraphs 10) Management's responsibility and opinion paragraphs 11) Introductory, auditor's responsibility, and opinion paragraphs 12) Introductory, management's responsibility, and opinion paragraphs 13) All paragraphs modified 14) Not applicable III. If additional paragraphs are required, indicate the location of the additional paragraph [a-d]. a) Before the opinion paragraph b) After the opinion paragraph c) Either before or after opinion paragraph d) Not applicable

I. a. Unmodified (standard unqualified) opinion II. 1 no paragraphs are modified III. d not applicable.

For the following independent situation, describe the most appropriate course of action that the auditors should take. SITUATION: Drew Allison is conducting the audit of Anderson Inc. as of December 31, 2014. At the beginning of the evidence gathering, Allison becomes aware that one of Anderson's major customers (Jones) is experiencing significant financial difficulties. Jones normally accounts for 5 percent of Anderson's net sales. After performing the necessary procedures, Allison believes that $2.8 million of Jones's receivable balance will ultimately become uncollectible. Allison further believes this amount is material to Anderson's financial condition and results of operations. Required. Unless otherwise noted, assume that each scenario affect (are material) to the Company's financial statements, and there are persons who continue to rely on the financial statements. For the preceding item, determine: I. whether the event described should be classified as [A-D]: A. Subsequent Event B. Subsequently Discovered Event C. Omitted Procedure D. None of the above II. what actions the auditor should take after the firm's quality review identified these issues [1-7]: 1) Disclosure in financial statements 2) Adjustment to and/or disclosure in the financial statements 3) No further action is necessary (specific audit procedures) 4) Determine if alternative procedures are available, if so take action 5, if procedures are not available, withdraw the auditor's report 5) Perform procedures related to the item and revise the auditor's report date if necessary 6) Perform procedures related to the items and if facts would result in revision of auditors' report or financials, then notify individuals relying on financials and issue revised financials which provide disclosure of facts 7) Not applicable

I. a. subsequent event II. 2. adjustment to and/or disclosure int he financial statements

The following is an independent event. EVENT: Hunger Games Sporting Goods counted boxes of baseballs as having six baseballs per box when they actually had only twelve per box. Required: For each of the preceding independent events indicate: I. The effect of the error or fraud on the income statement [A-D]. A. Income overstated B. Income understated C. No effect on income D. Cannot be determined II. What auditing procedures, if any, could have detected the misstatement resulting from error or fraud [a-f]. a. Examination of purchase invoices should indicate that the per-unit-pricing. Also, comparison to prior periods should show the large change in value. b. As part of the roll-forward procedure, auditors would examine the entries to reduce inventory for the cost of sales. c. During the observation of the physical inventory, auditors should request that inventory within containers be opened. Also, purchase records should indicate how many items are contained in each container. d. Locations should be visited for an inventory count on a surprise basis. e. Examination of purchase records should reveal that the inventory items were not purchased. Inquiry of the client about consignments should also alert auditors to the presence of goods not owned by the client. f. None of the above.

I. b Income Understated II. c During the observation of physical inventory, auditors should request that inventory within containers be opened. Also, purchase records should indicate how many items are contained in each container.

I. b invome understated. II. 2 assets understated.

Pamsorenson Manufacturing Corporation was incorporated on January 3, 2013. The corporation's financial statements for its first year's operations were not examined by a CPA. You have been engaged to audit the financial statements for the year ended December 31, 2014, and your work is substantially completed. A partial trial balance of the company's accounts follows: Pamsorenson Manufacturing Corporation Trial Balance at December 31, 2014 Debit Credit Cash $22,000 Accounts Receivable 85,000 Allowance for Doubtful Accounts $1,000 Inventory 77,000 Machinery 150,000 Equipment 58,000 Accumulated Depreciation $20,000 Patents 170,000 Leasehold Improvements 52,000 Prepaid Expenses 21,000 Organization Expenses 58,000 Goodwill 48,000 Licensing Agreement #1* 100,000 Licensing Agreement #2* $98,000 *An intangible asset representing the right to use a patent The following item relates to account(s) that may yet require adjustment: ITEM: Patents for Pamsorenson's manufacturing process were purchased January 2, 2014, at a cost of $136,000. An additional $34,000 was spent in December 2012 to improve machinery covered by the patents and charged to the Patents account. The patents had a remaining legal term of 17 years. REQUIRED. For the item above: I. Below is an adjusting entry. Determine if the proposed adjustment is appropriate [A-B]. Proposed Entry: Dr. Machinery 42,000 Cr. Cost of Goods Sold 8,000 Cr. Patents 34,000 A. Yes B. No II. the substantive audit procedures [1-5] you would perform to test the transactions. If an appropriate substantive audit procedure is not provided, then choose none of the above. 1. Inspect the patent document and vouch to the revenue generated by the patent. Recalculate amortization of the machinery. 2. Vouch transaction to purchase order for equipment and work orders for leasehold improvements. Recalculate amortizations. 3. Review goodwill account. Vouch to original calculation of goodwill to ensure all expenses in the account are capital expenses. 4. Vouch transaction to original expenses for proper amounts. Review Retained earnings for propriety of other items. 5. None of the above.

I. b. No II. 5. none of the above

ASSERTION: Recorded investments represent investments actually owned at the balance-sheet date. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Trace opening balances in the general ledger to prior-year audit documentation. 2. Determine whether employees who are authorized to sell investments have access to cash. 3. Examine supporting documents for a sample of investment transactions to verify that prenumbered documents are used. 4. None of the above.

I. b. Rights and Obligations II. 4. None of the above

ASSERTION: Recorded investments represent investments actually owned at the balance-sheet date. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Examine supporting documents for a sample of investment transactions to verify that prenumbered documents are used. 2. Determine whether any other-than-temporary impairments in the carrying value of investments have been properly recorded. 3. Verify that transfers from the trading portfolio to the held-to-maturity investment portfolio have been properly recorded. 4. None of the above.

I. b. Rights and obligations. ii. 4 none of the above

Audit Procedure: Obtain financial statements or credit reports on large past due accounts and inquire of the credit manager about collections. REQUIRED: Indicate whether the audit procedure above: I. Is a test of controls, a substantive test, or dual-purpose test [a-c] a. Test of controls b. Substantive test c. dual-purpose test II. Next, indicate the financial statement assertion most closely related to each audit procedure. [1-5] 1. Existence or Occurrence 2. Rights and Obligations 3. Valuation and Allocation 4. Completeness 5. Presentation and Disclosure

I. b. Substantive Test II. 3 Valuation and Allocation

ASSERTION: Investments are properly valued at the balance-sheet date. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Trace opening balances in the general ledger to prior-year audit documentation. 2. Examine supporting documents for a sample of investment transactions to verify that prenumbered documents are used. 3. Obtain positive confirmations as of the balance sheet date of investments held by independent custodians. 4. None of the above.

I. c Valuation and allocation II. 4. none of the above

Audit Procedure: Vouch recorded sales invoices to supporting shipping documents. REQUIRED: Indicate whether the audit procedure above: I. Is a test of controls, a substantive test, or dual-purpose test [a-c] a. Test of controls b. Substantive test c. dual-purpose test II. Next, indicate the financial statement assertion most closely related to each audit procedure. [1-5] 1. Existence or Occurrence 2. Rights and Obligations 3. Valuation and Allocation 4. Completeness 5. Presentation and Disclosure

I. c dual-purpose test II. 1. existence or occurrence

For the following independent situation, describe the most appropriate course of action that the auditors should take. SITUATION: During a PCAOB inspection, it was determined that WKRP, LLP had not adequately documented their rationale for not observing the physical inventory count in its audit of King Manufacturing. This discovery occurred over a full year after the audit report release date. Lebron McWhiney, the lead engagement partner conceded that the inventory observation had not occurred and alternative procedures were not available due to the client's accounting record retention policies. In discussions with the PCAOB investigators Lebron noted that the rationale, although not documented, was that King's year-end inventory is quantitatively immaterial, at just 1% of total assets. Required. Unless otherwise noted, assume that each scenario affect (are material) to the Company's financial statements, and there are persons who continue to rely on the financial statements. For the preceding item, determine: I. whether the event described should be classified as [A-D]: A. Subsequent Event B. Subsequently Discovered Event C. Omitted Procedure D. None of the above II. what actions the auditor should take after the firm's quality review identified these issues [1-7]: 1) Disclosure in financial statements 2) Adjustment to and/or disclosure in the financial statements 3) No further action is necessary (specific audit procedures) 4) Determine if alternative procedures are available, if so take action 5, if procedures are not available, withdraw the auditor's report 5) Perform procedures related to the item and revise the auditor's report date if necessary 6) Perform procedures related to the items and if facts would result in revision of auditors' report or financials, then notify individuals relying on financials and issue revised financials which provide disclosure of facts 7) Not applicable

I. c omitted Procedure II. 3. no further action is necessary (specific audit procedures)

I. c omitted Procedure II. 5. perform procedures related to the item and revise the auditor's report date if necessary.

For the following independent situation, describe the most appropriate course of action that the auditors should take. SITUATION: Following the completion of the 2014 audit (including the release of the audit report) of Blankenship Corporation, by SeeanSee, Muzik, and Fakdurry, LLC (SMF). Reese Jill, SMF's audit partner met with the manager on the audit engagement to conduct a postmortem on the engagement and identify how changes in Blankenship's operations noted during the most recent audit may affect future audits. During this review, Jill became aware that Blankenship's process for evaluating potential impairment of goodwill related to an acquisition made by Blankenship during the most recent year had been considered and calculated by the audit team, but for unknown reasons the adjustment had not been proposed to the client. Thus, the impairment had not been properly disclosed or accounted for in the financial statements. Jill believes that the results of the procedure is important in supporting the opinion on Blankenship's financial statements and notes that Blankenship's management would probably be receptive to adjusting the financials. Required. Unless otherwise noted, assume that each scenario affect (are material) to the Company's financial statements, and there are persons who continue to rely on the financial statements. For the preceding item, determine: I. whether the event described should be classified as [A-D]: A. Subsequent Event B. Subsequently Discovered Event C. Omitted Procedure D. None of the above II. what actions the auditor should take after the firm's quality review identified these issues [1-7]: 1) Disclosure in financial statements 2) Adjustment to and/or disclosure in the financial statements 3) No further action is necessary (specific audit procedures) 4) Determine if alternative procedures are available, if so take action 5, if procedures are not available, withdraw the auditor's report 5) Perform procedures related to the item and revise the auditor's report date if necessary 6) Perform procedures related to the items and if facts would result in revision of auditors' report or financials, then notify individuals relying on financials and issue revised financials which provide disclosure of facts 7) Not applicable

I. c omitted procedure ii. 2. adjustment to and/or disclosure in the financial statements.

The following internal control has been taken from a standard internal control questionnaire used by a CPA firm for assessing control risk in different transaction cycles. CONTROL: Overall comparisons of purchases and inventory levels are made periodically. Required: For the internal control above, identify: 1. the transaction-related audit objective(s) to which it applies [A-E]; A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation or Allocation E. Presentation and Disclosure 2. the transaction cycle where the control is most likely to be tested [I-V] I. Revenue and Cash Collection II. Acquisition and Disbursement III. Payroll and Personnel IV. Production V. Finance and Investment

I. c. Completeness II. ii. acquisition and disbursement

The following scenario involves a legal issue for Westbrook Russell Corporation (WRC). WRC is involved in several legal issues brought by or against competitors, customers and regulatory bodies. WRC is both a manufacturer and retailer of sports apparel. WRC works closely with its outside counsel preparing all such suits. WRC recently requested its outside attorneys with the firm of Curry & Thompson to provide information to its auditors on all legal matters. The managing partner of Curry & Thompson asked different lawyers who have worked on these cases to prepare a concise response to auditors. The auditors received the following response from WRC's lawyer. RESPONSE: WRC was notified by researchers at Stanford University that chemicals used in the manufacturing of its sports drink container product line leached toxic chemicals after just two uses. The researchers noted that the chemicals are known cancer causing carcinogens and would also likely lead to miscarriages and other reproductive maladies for women who were either pregnant or attempting to become pregnant. The drink container line is WRC's top-selling product line with over 50 million units being sold over the past ten years. The researchers have submitted their findings to an academic journal for publication. WRC is currently conducting its own tests of the products and results are not known at this time. Both the amount and likelihood of an unfavorable outcome are unclear at this time. Required. Interpret each of the scenarios separately. Assume that none of the scenarios are currently accounted for nor disclosed in the financial statements. I. Determine if the situation is [A-C]: A. Loss contingency B. Gain contingency C. Unasserted claim or assessment II. Determine whether each scenario requires the auditor to recommend [1-3]: 1. Disclosure in financial statements 2. Adjustment to and disclosure in the financial statements 3. No further action

I. c. Unasserted claim or assessment. ii. 1. disclosure in the financial statements.

ASSERTION: Investments are properly valued at the balance-sheet date. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Determine whether employees who are authorized to sell investments have access to cash. 2. Examine supporting documents for a sample of investment transactions to verify that prenumbered documents are used. 3. Determine whether any other-than-temporary impairments in the carrying value of investments have been properly recorded. 4. None of the above.

I. c. valuation and allocation. II. 3. determine whether any other than temporary impairments in the carrying value of investments have been properly recorded.

ASSERTION: Investments are properly described and classified in the financial statements. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Trace opening balances in the general ledger to prior-year audit documentation. 2. Determine whether any other-than-temporary impairments in the carrying value of investments have been properly recorded. 3. Obtain positive confirmations as of the balance sheet date of investments held by independent custodians. 4. None of the above.

I. e Presentation and Disclosure. ii. 4 none of the above

ASSERTION: Investments are properly described and classified in the financial statements. Required. For the assertion above: I. Identify the assertion [A-E]: A. Existence B. Rights and Obligations C. Valuation and Allocation D. Completeness E. Presentation and Disclosure II. Select the audit procedure that is best suited for the audit plan [1-4]: 1. Examine supporting documents for a sample of investment transactions to verify that prenumbered documents are used. 2. Obtain positive confirmations as of the balance sheet date of investments held by independent custodians. 3. Trace investment transactions to minutes of the board of directors meetings to determine that transactions were properly authorized. 4. None of the above.

I. e Presentation and disclosure II. 3 Trace investment transactions to minutes of the board of directors meetings to determine that transactions were properly authorized.

Below is an independent scenario involving various nonpublic audit clients. SCENARIO: The audit client does not account for office supplies in conformity with GAAP. The effect is material to the current assets section of the balance sheet, but immaterial in comparison to total assets and the financial statements taken as a whole. Required: Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. For the preceding scenario: I. indicate the type of opinion(s) that auditors could issue [A-J], note that more than one opinion may be appropriate in each circumstance. A. Unmodified (standard unqualified) Opinion B. Unqualified Opinion with emphasis-of-matter paragraph C. Unqualified Opinion with other-matter-paragraph D. Unqualified Opinion with both emphasis-of-matter and other-matter paragraphs E. Qualified Opinion F. Adverse Opinion G. Disclaimer of Opinion H. Qualified or Adverse Opinion I. Qualified or Disclaimer J. No opinion, the auditor should withdraw from the engagement II. In addition, indicate how the standard (unmodified) report would be modified [1-14], if appropriate. If wording is changed, or a paragraph is omitted, then that paragraph should be considered modified for the purposes of answering this question. 1) No paragraphs are modified 2) Introductory paragraph only 3) Management's responsibility paragraph only 4) Auditor's responsibility paragraph only 5) Opinion paragraph only 6) Introductory and opinion paragraphs 7) Introductory and auditor's responsibility paragraphs 8) Introductory and management's responsibility paragraphs 9) Auditor's responsibility and opinion paragraphs 10) Management's responsibility and opinion paragraphs 11) Introductory, auditor's responsibility, and opinion paragraphs 12) Introductory, management's responsibility, and opinion paragraphs 13) All paragraphs modified 14) Not applicable III. If additional paragraphs are required, indicate the location of the additional paragraph [a-d]. a) Before the opinion paragraph b) After the opinion paragraph c) Either before or after opinion paragraph d) Not applicable

I. e Qualified opinion II. 5 Opinion paragraph only III. a Before the opinion paragraph

SCENARIO: The audit client does not account for office supplies in conformity with GAAP. The effect is material to the current assets section of the balance sheet, but immaterial in comparison to total assets and the financial statements taken as a whole. Required: Unless otherwise noted, assume that no departures from GAAP were identified in the audit engagement. For the preceding scenario: I. indicate the type of opinion(s) that auditors could issue [A-J], note that more than one opinion may be appropriate in each circumstance. II. In addition, indicate how the standard (unmodified) report would be modified [1-14], if appropriate. If wording is changed, or a paragraph is omitted, then that paragraph should be considered modified for the purposes of answering this question. III. If additional paragraphs are required, indicate the location of the additional paragraph [a-d].

I. e. qualified opinion, II. 5. opinion paragraph only. III. a. before the opinion paragraph

Identify the type of audit procedure (I - XI); and (2) Identify the related audit objective(s) (A-E) satisfied by each procedure: I. Footing VI. Analytical Procedures II. Inquiry VII. Reperformance III. Vouching VIII. Recalculation IV. Examination/Inspection IX. Observation of Documents X. Tracing V. Confirmations XI. Subsequent Events A. Existence or Occurrence B. Rights and Obligations C. Completeness D. Valuation or Accuracy E. Presentation and Disclosure AUDIT PROCEDURE: Totaling to ensure that the current and long-term liabilities agree with the total liabilities reported on the financials.

I. footing viii. recalculation d. valuation or accuracy

For the engagement described below, identify the: Audit Type: I. Financial; II. Operational; III. Compliance; IV. Forensic; V. N/A Accounting Professional: 1. CPA; 2. External; 3. Internal; 4. IRS; 5. Governmental; 6. CFE ENGAGEMENT: A report that represents expert testimony with regard to an investigation of a publicly traded company's economic losses related to unauthorized inventory purchasing agreements and procedures that existed as a result of inadequate financial reporting controls and lack of management oversight. Audit Type [I-V] Accounting Professional or Auditor Type [1-6]

I. iv forensic II. 6. CFE

IV. Planned Evidence = D

In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the:

Operating effectiveness of controls: no Design of controls: Yes

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion? a. Existence b. Valuation and allocation c. Rights and obligations d. occurrence e. both a and d f. none of the above

b. valuation and allocation

The following test of controls could be performed during the audit of the controls in the production cycle. Required. For the procedure below, identify the primary assertion being addressed. PROCEDURE: Locate the material issue forms and determine whether they are kept in a secure location, and available to unauthorized persons.

a. Existence or Occurrence

A. Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31, 2014. She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on February 5. The financial statements were changed to reflect the split, and she now needs to dual date the report on the entity's financial statements. Which of the following is the proper form?

a. January 30, 2015, except as to Note X, which is dated February 5, 2015.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is:

a. Stamped "paid" by the check signer

Which of the following communications is most likely to be written after the balance-sheet date? a. An attorney's letter regarding contingent liabilities. b. A report to the audit committee on the results of testing of internal control over cash receipts. c. Confirmation letters to vendors confirming the amounts they owe to the client. d. All of the above.

a. an attorney's letter regarding contingent liabilities.

Which of the following is not included in the standard (unmodified) report on the financial statements? a. An emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity. b. A general description of an audit. c. An identification of the financial statements that were audited. d. An opinion that the financial statements present financial position in accordance with GAAP.

a. an emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.

which of the following is not included in the standard (unmodified) report on the financial statements?

a. an emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.

When evaluating whether accounting estimates made by management are reasonable, the audit team would be least interested in which of the following?

a. assumptions that are similar to industry guidelines

An audit team's purpose in reviewing the documentation concerning the renewal of a note payable shortly after the balance-sheet date most likely is to obtain evidence concerning management's assertions about

a. classification

Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?

a. comparing recorded dividends with a standard financial reporting service's record of dividends.

For the following audit procedure, identify the management assertion most usefully audited by using each procedure. Audit Procedure: Tracing

a. completeness

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to

a. detect unrecorded liabilities

Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?

a. entity changed its inventory costing method from FIFO to LIFO

During an audit of a company's cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion? a. Existence. b. Rights and Obligations. c. Occurrence. d. Valuation or Allocation.

a. existence

For an entity's financial statements to be presented fairly in accordance with an applicable financial reporting framework, the framework selected should:

a. include an adequate description of the framework in the financial statements

Who is most likely to perpetrate fraudulent financial reporting?

a. management of the company

SCENARIO: Because of a direct request by Weaver's management, Bruce did not observe Weaver's physical inventory for the year ended December 31, 2014. Weaver's accounting records are not complete, so Bruce is unable to perform other substantive procedures and is not satisfied as to the fairness of the ending inventory balance for December 31, 2014. Required: Assume that the ending balance in inventory is material to the company's financial position, results of operations, and cash flows. For the scenario above, indicate what audit report option(s) that the auditor should consider in deciding which type of opinion to issue in the circumstances. Check all that apply. If none of the answers are correct, then select "None of the above". a. Qualified b. None of the above c. Disclaimer d. Adverse e. Unqualified

a. qualified. c. disclaimer

An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor's present ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if the:

a. results of other procedures that were applied tend to compensate for the procedure omitted.

You are engaged in the audit of the financial statements of Onedirection Corp. for the year ended December 31 and you are about to begin an audit of the investment securities. Onedirection's records indicate that the company owns various bearer bonds as well as 25% of the outstanding common stock of Geico Inc., a nonpublic insurer. All securities in Onedirection's portfolio are actively traded in a broad market, and approximately 10% of the total shares are in the process of being purchased or sold through the company's investment dealer. You are satisfied with evidence that supports the presumption of significant influence over Geico Inc. Lastly, according to the balance sheet about 5% of all investment securities are considered held-to-maturity investments. The various securities are at two locations as follows: 1. Recently acquired securities are in the company's safe in the custody of the treasurer. 2. Other securities are in the company's bank safe deposit box. Assume that the internal controls over securities are satisfactory, and consider the following audit objective related to the investment securities. Audit Objective: Existence of the investment securities at the balance-sheet date. Required: For the audit objective above, determine an audit procedure from the list below [a-o], that would provide the best evidence to address the audit objective above. If none of the procedures would adequately address the audit objective choose "None of the above".

a. send confirmation to the company's broker-dealer with regard to any unsettled transactions at the balance sheet date

Which of the following circumstances would most likely cause an audit team to perform extended procedures? a.Supporting documents are not produced when requested. b. The company maintains several different petty cash funds. c. The company has recently hired a new chief financial officer after the previous one retired. d. None of the above.

a. supporting documents are not produced when requested.

When an outside specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's report is acceptable if: a. the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory. b. the auditor's report contains a reference to the assumption of full responsibility. c. the auditor is satisfied through application of appropriate procedures as to the reputation and competence of the specialist. d. circumstances made it impracticable or impossible for the auditor either to do the work personally or observe the work done by the inventory firm.

a. the auditor conducted the same audit tests and procedures as would have been applicable if the client's employees took the physical inventory.

When a client company does not maintain its own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerning

a. the number of shares issued and outstanding

Assume the following issue is immaterial. ISSUE: The entity is a gas and electric utility company that follows the practice of recognizing revenue when it is billed to customers. At the end of the year, amounts earned but not yet billed are not recorded in the accounts or reported in the financial statements. What is the correct auditors' report opinion decision given the circumstances described above? Check all that apply. If none of the answers are correct, then select "None of the above" a. Unqualified b. Qualified c. Disclaimer d. Adverse e. None of the above

a. unqualified

SCENARIO: Because of the late appointment to the audit engagement, Bruce is unable to observe Weaver's physical inventory for the year ended December 31, 2014. However, Weaver maintains extensive perpetual inventory records, and Bruce has been able to perform other substantive procedures and is satisfied as to the fairness of the ending inventory balance for December 31, 2014. Required: Assume that the ending balance in inventory is material to the company's financial position, results of operations, and cash flows. For the scenario above, indicate what audit report option(s) that the auditor should consider in deciding which type of opinion to issue in the circumstances. Check all that apply. If none of the answers are correct, then select "None of the above".

a. unqualified

Assume the following issue is immaterial. ISSUE: The entity has lost a lawsuit in federal district court. The case is on appeal in an attempt to reduce the amount of damages awarded to the plaintiffs. No loss amount is recorded. What is the correct auditors' report opinion decision given the circumstances described above? Check all that apply. If none of the answers are correct, then select "None of the above". a.Unqualified b. Qualified c. Disclaimer d. Adverse e. None of the above

a. unqualified.

The following are activities that occurred at GoodenCo, a nonpublic company. Discounts on checks to GoodenCo's largest vendor are never taken, even though the bills are paid before the discount period expires. The president of the vendor's company provides free use of his ski lodge to the accountant who processes the checks in exchange for the lost discounts. Required: (1) Identify which of these activities are frauds (Yes or No); and (2) For each fraud, state what type of fraud is occurring.

a. yes, misappropriation of assets

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because:

b. accrued liabilities usually pertain to services of a continuing nature, whereas accounts payable are the result of completed transactions.

When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should

b. Be defaced to prevent reissuance and attached to their corresponding stubs.

which of the following audit procedures would not likely be performed for audits of investments?

b. Confirm investments with registrar.

When reporting under GAAS, certain statements are required in all auditors' reports ("explicit") and others are required only under certain conditions ("implicit"). Which combination that follows correctly describes the auditors' responsibilities for reporting? a. . GAAP: Implicit Consistency: Explicit Going concern: Explicit Opinion: Implicit b. GAAP: Explicit Consistency: Implicit Going concern: Implicit Opinion: Explicit c. GAAP: Explicit Consistency: Explicit Going concern: Implicit Opinion: Explicit d. GAAP: Implicit Consistency: Implicit Going concern: Explicit Opinion: Implicit

b. GAAP: explicit consistency: implicit going concern: implicit opinion: explicit

A GAAP violation can result in which of the following types of opinions? I. Unqualified (standard report) II. Unqualified (with explanatory paragraph) III. Qualified IV. Adverse V. Disclaimer

b. I, III, or IV

Match the engagement described to: (I) type of audit; and (II) auditor that would perform the engagement. Engagement: Evaluate financial statements that are to be submitted to a bank. a. I. Type of Audit: Financial II. Auditor: Internal b. I. Type of Audit: Financial II. Auditor: External c. I. Type of Audit: Financial II. Auditor: Governmental d. I. Type of Audit: Compliance II. Auditor: Internal e. I. Type of Audit: Compliance II. Auditor: External f. I. Type of Audit: Compliance II. Auditor: Governmental g. I. Type of Audit: Operational II. Auditor: Internal h. I. Type of Audit: Operational II. Auditor: External i. I. Type of Audit: Operational II. Auditor: Governmental

b. I. Type of audit: financial II. Auditor: external

Below is an independent risk factor. Identify which of the following audit risk model components relates most directly to each risk factor. The client engages in several material transactions with entities owned by family members of several of the client's senior executives.

b. Inherent Risk

If the opinion issued on prior-years' financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors' current report should

b. reference the type of opinion issued on the prior-years' financial statements and indicate that the current opinion on these financial statements differs from that expressed in the prior years.

b. January 30, 2015, except as to Note X, which is dated February 5, 2015

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in the auditing standards?

b. Misappropriation of an asset or groups of assets

The inability of an audit examination to provide absolute assurance with respect to detecting all material misstatements. Identify the applicable Principal and Element

b. Performance 7. Obtain Sufficient and Appropriate Evidence

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until a. the date of the auditor's report b. the audit report release date. c. the date of the financial statements. d. the following year's date of the financial statements

b. The audit report release date.

SITUATION: The auditors have engaged component auditors to conduct a portion of the audit but do not wish to assume responsibility for their work. The auditors have not approached the component auditors about presenting their reports with the company's financial statements and do not plan to do so. For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above? Check all that apply. Selected Answers: [None Given]Answers:a. Unqualified with emphasis-of-matter paragraph b. Unqualified c. Adverse d. Qualified e. Unqualified with other-matter paragraph f. None of the above g. Disclaimer

b. Unqualified.

the permanent files included as part of audit documentation do not normally include:

b. a copy of the current and prior years' audit programs

Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards? :a. The client's Chief Executive Officer graduated from the same university as the partner in charge of the accounting firm. b. An auditor on the engagement owns a financial interest in the stock of the client. c. An auditor on the engagement has a distant relative who is employed by a vendor that does a significant amount of business with clients. d. The client provides financial support to a number of charitable causes that also receive support from the accounting firm.

b. an auditor on the engagement owns a financial interest in the stock of the client

Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of an audit client?

b. an internal control questionnaire

b. by january 30, 2015, except as to Note X, which is dated as February 5, 2015.

Which of the following sets of information does an auditor usually confirm on one form?

b. cash in bank and collateral for loans

Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events?

b. compare the latest available interim financial statements with the financial statements being audited.

the primary reason auditors request responses to attorney letters is to provide auditors

b. corroboration of the information furnished by management about litigation, claims, an assessments

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate?

b. determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

If the auditors encounter a significant scope limitation in evaluating a public company's internal control over financial reporting, which of the following types of opinions on the effectiveness of the company's internal control over financial reporting would be appropriate?

b. disclaimer of opinion

An auditor is testing the reasonableness of dividend income from investments in publicly-held companies. The auditor most likely would compute the amount that should have been received and recorded by the client by:

b. electronically accessing the details of dividend records on the internet

During an audit of cash, the auditor is most concerned with the management assertion of

b. existence

Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015: ISSUE: One of GoodenCo's clients is RealCo, a real estate holding company. Assume that RealCo experienced a significant decline in the value of its investment properties during the past year because of a downturn in the economy and has appropriately recognized that decline in market value under GAAP. GoodenCo wishes to emphasize the decline in the economy and its impact on RealCo's financial position and results of operations for 2015 in its audit report. Required: What audit opinion(s) could be issued for the issue above? Check all that apply. a. Unqualified b. Unqualified with emphasis-of-matter paragraph c. Unqualified with other-matter paragraph d. None of the above e. Adverse f. Disclaimer g. Qualified

b. unqualified with emphasis-of-matter paragraph.

Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015: ISSUE: GoodenCo believes that some of the verbiage in Plunkett's Management Discussion & Analysis section is inconsistent with the firm's financial statements. GoodenCo has concluded that Plunkett's financial statements present its financial position, results of operations, and cash flows in accordance with GAAP and has decided to issue an unmodified opinion on Plunkett's financial statements. Required: What audit opinion(s) could be issued for the issue above?

b. unqualified with other-matter paragraph

You are engaged in the audit of the financial statements of Onedirection Corp. for the year ended December 31 and you are about to begin an audit of the investment securities. Onedirection's records indicate that the company owns various bearer bonds as well as 25% of the outstanding common stock of Geico Inc., a nonpublic insurer. All securities in Onedirection's portfolio are actively traded in a broad market, and approximately 10% of the total shares are in the process of being purchased or sold through the company's investment dealer. You are satisfied with evidence that supports the presumption of significant influence over Geico Inc. Lastly, according to the balance sheet about 5% of all investment securities are considered held-to-maturity investments. The various securities are at two locations as follows: 1. Recently acquired securities are in the company's safe in the custody of the treasurer. 2. Other securities are in the company's bank safe deposit box. Assume that the internal controls over securities are satisfactory, and consider the following audit objective related to the investment securities. Audit Objective: Proper recognition of investment gains and losses. Required: For the audit objective above, determine two audit procedures from the list below [a-o], that would provide the best evidence to address the audit objective above. If none of the procedures would adequately address the audit objective choose "None of the above".

b. for investments in the held-to-maturity securities evaluate whether the security has been downgraded by a rating agency or the financial condition of the issuer has deteriorated.

The following statement is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate or inappropriate. STATEMENT: "Our assessment of internal control over financial reporting provides us absolute assurance that no material misstatements will occur and be undetected by our internal control."

b. inappropriate

The following is an independent event. EVENT: Pfeiffer Electronics Inc. has priced wiring at $200 per thousand feet instead of $200 per hundred feet. Required: For each of the preceding independent events indicate: I. The effect of the error or fraud on the income statement [A-D]. A. Income overstated B. Income understated C. No effect on income D. Cannot be determined II. What auditing procedures, if any, could have detected the misstatement resulting from error or fraud [a-f]. a. Examination of purchase invoices should indicate that the per-unit-pricing. Also, comparison to prior periods should show the large change in value. b. As part of the roll-forward procedure, auditors would examine the entries to reduce inventory for the cost of sales. c. During the observation of the physical inventory, auditors should request that inventory within containers be opened. Also, purchase records should indicate how many items are contained in each container. d. Locations should be visited for an inventory count on a surprise basis. e. Examination of purchase records should reveal that the inventory items were not purchased. Inquiry of the client about consignments should also alert auditors to the presence of goods not owned by the client. f. None of the above.

b. income understated a. examination of purchase invoices should indicate that the per-unit-pricing. Also, comparison to prior periods should show the large change in value.

For each of the following instances of noncompliance, explain why they are either: Direct-effect (D) or indirect-effect (I) noncompliance.

b. indirect effect

Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

b. investigate changes in shareholders' equity occurring after the date of the financial statements.

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor a. Learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements b. Is satisfied as to the independence and professional reputation of the other CPA c. Issues an unqualified opinion on the consolidated financial statements d. Is unable to review the audit programs and working papers of the other CPA

b. is satisfied as to the independence and professional reputation of the other CPA

which of the following characteristics most likely would be indicative of check kiting?

b. low average balance compared to high level of deposits.

which of the following is not required by generally accepted auditing standards?

b. management letter.

An auditor is required to confirm accounts receivable if the accounts receivable balances are

b. material to the financial statements

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements? a. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. b. New information is discovered concerning undisclosed lease transactions of the audited period. c. A contingency is resolved that had been disclosed in the audited financial statements. d. A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

b. new information is discovered concerning undisclosed lease transactions of the audited period.

When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to:

b. present the information in the audit report and to issue a qualified or an adverse opinion.

To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the:

b. purchase cutoff procedures

Assume the following issue is material. ISSUE: The entity leases buildings for its chain of transmission repair shops under terms that qualify as capital leases under ASC 840. These leases are not capitalized as leased property assets and lease obligations. What is the correct auditors' report opinion decision given the circumstances described above? Check all that apply. If none of the answers are correct, then select "None of the above". a. none of the above b. qualified. c. unqualified. d. adverse. e. disclaimer

b. qualified. d. adverse

An audit team would most likely verify the interest earned on bond investments by

b. recomputing the interest earned on the basis of face amount, interest rate, and period held.

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion? a. Existence. b. Valuation and allocation. c. Rights and obligations. d. Occurrence. e. Both a and d. f. None of the above.

b. valuation and allocation

c. Completeness

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate?

c. Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

Reference in a group engagement partner's report to the fact that part of the audit was performed by another auditor most likely would be an indication of the:

c. Divided responsibility between the auditors who conducted the audits of the components of the overall financial statements.

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? a. Compare inventory balances to anticipated sales volume. b. Review inventory experience and trends. c. Test the computation of standard overhead rates. d. Tour the manufacturing plant or production facility.

c. Test the computation of standard overhead rates

when auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following?

c. an emphasis-of-matter paragraph.

On February 9, Brown, CPA, expressed an 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:

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

Which of the following phrases would an auditor most likely include in the auditor's report when expressing an adverse opinion due to inadequate disclosure? a. Subject to the departure from generally accepted accounting principles, as described above. b. With the foregoing explanation of these omitted disclosures. c. Do not present fairly. d. Except for the omission of the information described in the Basis for Qualified Opinion paragraph. e. None of the above.

c. do not present fairly

For the following substantive procedure, identify the assertion most closely related to the evidence the procedure will produce (the primary assertion). PROCEDURE: Determine whether corresponding retirements of replaced PP&E have occurred and have been properly entered in the detail records.

c. existence or occurrence.

March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor's report would usually be addressed to:

c. monday corp., the client that engaged March.

When there has been a change in accounting principle, but the effect of the change on the comparability of the financial statements is not material, the auditor should a. Refer to the change in an explanatory paragraph b. Explicitly concur that the change is preferred c. Not refer to consistency in the auditor's report d. Refer to the change in the opinion paragraph e. Both b and c. f. None of the above.

c. not refer to consistency in the auditor's report.

The purpose of tracing a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items

c. represented by tags were included on the listing.

Which of the following accounts would least likely be audited in connection with a related balance-sheet account? a. Property Tax Expense. b. Depreciation Expense. c. Research and Development. d. All of the above.

c. research and development

c. the results of alternative procedures that were performed compensate for the omission.

ABC Company has 100 shares of IBM stock that it holds as an investment. The stock was purchased three years ago and has been in the client's safe deposit box along with other investment securities. During an inspection of securities held by the client, the auditor noted the 100 shares of IBM stock had a different CUSIP number than the number listed when purchased and the number verified during the previous audit. Which of the following would be the auditor's main concern about this discovery?

c. there had been unauthorized buying and selling of investment securities.

The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following auditors' report alternatives?

c. unmodified opinion with a reference to going-concern or disclaimer of opinion.

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about a. completeness b. existence c. valuation d. rights and obligations e. occurrence

c. valuation

c. valuation or allocation

Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable? a. Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. b. Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts. c. Request that customer's payment checks be made payable to the company and addressed to the treasurer. d. Have customers send payments directly to the company's depository bank.

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

The risk of material misstatement is composed of which audit risk components? a.Inherent risk, control risk, and detection risk. b. Inherent risk and detection risk. c. Control risk and detection risk. d. Inherent risk and control risk.

d. Inherent Risk and Control Risk

A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment? a. The copy of the purchase order sent to the furniture company's receiving department should not have shown an expected quantity. b.Personnel in the furniture company's accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher. c.Personnel in the furniture company's cash disbursements department should compare the check that is prepared to all of the backup documentation. d. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order. e. All of the above

d. Personnel in the furniture company's purchasing department should compare that purchase requisition with the purchase order.

When financial statements are presented in comparative form and another firm audited the prior-years' financial statements (but the other firm's report is not presented with the financial statements), the auditors' report on the current-year financial statements should

d. Refer to the report and type of opinion issued by the other firm on the prior-years' financial statements.

Which of the following internal control activities most likely addresses the occurrence assertion for inventory?

d. There is a separation of duties between the payroll department and inventory accounting personnel.

A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system?

d. accounts payable are not materially understated

An auditor reviews job cost sheets to test which transaction assertion?

d. accuracy

SITUATION: The client has not recognized a material loss related to a decline in the market value of its investments. Because the auditors believe this decline in value is not temporary, they believe the financial statements do not present the client's financial position and results of operations in accordance with GAAP. For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above? Check all that apply. a. Disclaimer b. Unqualified c. None of the above d. Adverse e. Unqualified with emphasis-of-matter paragraph f. Unqualified with other-matter paragraph g. Qualified

d. adverse g. qualified.

Ambrose is auditing the financial statements of Mays (dated December 31, 2014). The date of the auditor's report is February 17, 2015, and the audit report release date is February 20, 2015. For which of the following matters might Ambrose have responsibility? a. The obsolescence of inventory held on December 31, 2014, that was identified on January 20, 2015. b. A customer's deteriorating financial condition that was identified on February 19, 2015. c. A merger that was announced by Mays and known by Ambrose on February 12, 2015. d. All of the above. e. None of the above.

d. all of the above

Your client counts inventory three months before the end of the fiscal year because controls over inventory are excellent. Which procedure is not necessary for the roll-forward? a. check that shipping documents for the last three months agree with perpetual records. b. trace receiving reports for the last three months to perpetual records. c. compare gross margin percentages for the last three months. d. all of the above are necessary.

d. all the above are necessary.

which of the following tests would most likely provide relevant evidence relating to recorded sales for which there was no shipment? a. The auditor can vouch selected entries in the sales journal to related copies of shipping and other supporting documents b. The auditor could trace shipping documents to sales journal and the accounts receivable subsidiary ledger c. Examine the resolution of related receivable to see whether it was written-off or is still outstanding. d. Both a and c e. All of the above

d. both a and c

failure to meet company objectives is a result of

d. business risk

when evaluating inventory controls, an auditor would least likely to

d. consider policy and procedure manuals.

when an auditor concludes there is substantial doubt about a continuing audit client's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to:

d. consider the adequacy of disclosure about the client's possible inability to continue as a going concern.

Audit documentation that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the.

d. current file audit documentation

d. disclaimer

An auditor's inquiries of management disclosed that the entity recently invested in a series of energy derivatives to hedge against the risks associated with fluctuating oil prices. Under these circumstances, the auditor should:

d. examine the contracts for possible risk exposure and the need to recognize losses

a material weakness is a situation in which a. It is probable that an immaterial financial statement misstatement would not be detected on a timely basis. b. It is reasonably possible that an immaterial misstatement would not be detected on a timely basis. c. There is a remote likelihood that a material misstatement would be detected on a timely basis. d. It is reasonably possible that a material misstatement would not be detected on a timely basis.

d. it is reasonably possible that a material misstatement would not be detected on a timely basis

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was:

d. limited to the specific event referenced.

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the: a. letter of inquiry. b. letters testamentary. c. management letter. d. management letter of representation.

d. management letter of representation

Audit firms who audit more than ______ issuer clients must be inspected every ______. a. 20, 3 years b. 100, 3 years c. 20, year d. none of the above

d. none of the above

Auditors perform analytical procedures in the planning stage of an audit for the purpose of a. Deciding the matters to cover in an engagement letter. b. Determining which of the financial statement assertions are the most important for the client's financial statements. c. Determining the nature, timing, and extent of further audit procedures for auditing the inventory. d. None of the above.

d. none of the above

For an entity's financial statements to be presented fairly in accordance with an applicable financial reporting framework, the framework selected should: a.Be U.S. GAAP, for all audits performed in the United States. b. Be approved by the Auditing Standards Board or the appropriate industry subcommittee. c. Match the reporting framework used by most other entities within the entity's particular industry. d. None of the above.

d. none of the above

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor a.. Issues an unqualified opinion on the consolidated financial statements b. Learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements c. Is unable to review the audit programs and working papers of the other CPA d. None of the above

d. none of the above

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to a. Evaluate internal control over securities. b. Determine the validity of prepaid interest expense. c. Ascertain the reasonableness of imputed interest. d. None of the above.

d. none of the above

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. b. Disbursement vouchers should be approved by at least two responsible management officials. c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. d. None of the above.

d. none of the above

Which of the following is the most important audit consideration when examining the stockholders' equity section of a client's balance sheet? a. Changes in the capital stock account are verified by an independent stock transfer agent. b. Stock dividends are capitalized at par or stated value on the dividend declaration date. c. Stock dividends and stock splits during the year under audit were approved by the stockholders. d. None of the above.

d. none of the above

a related party is a person or entity that a. is a member of the company's management team or board of directors. b. has a family tie to management member c. does business with the company. d. both b and c. d. none of the above

d. none of the above

subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements? a. Sale of an issue of new stock for $500,000 on January 30. b. Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000. c. Storm damage of $1 million to the entity's buildings on March 1. d. None of the above.

d. none of the above

the primary reason auditors request responses to attorney letters is to provide auditors a. The probable outcome of asserted claims and pending or threatened litigation. b. The attorney's opinions of the client's historical experiences in recent similar litigation. c. A description and evaluation of litigation, claims, and assessments that existed at the date of the financial statements. d. None of the above.

d. none of the above

which of the following is not required by Generally accepted auditing standards? a. Written representations. b. Attorney letter. c. Engagement letter. d. None of the above.

d. none of the above

All corporate capital stock transactions should ultimately be traced to the a. cash receipts journal b. cash disbursements journal c. numbered stock certificates d. none of the above.

d. none of the above.

when a client company does not maintain is own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerning a. restrictions on the payment of dividends. b. guarantees of preferred stock liquidation value. c. the number of shares subject to agreements to repurchase. d. none of the above.

d. none of the above.

which of the following statements is not true with respect to written representations? a. They should address management's responsibility for designing internal control to prevent and detect fraud. b. Auditors use them to corroborate information received during the audit from the client and its employees. c. They are dated the same date as the auditor's reports. d. None of the above.

d. none of the above.

If the auditors decide to present separate reports on the entity's financial statements and internal control over financial reporting, which of the following should be modified to refer to the other report? a. . Report on Financial Statements: No Report on Internal Control over Financial Reporting: No b. Report on Financial Statements: No Report on Internal Control over Financial Reporting: Yes c. Report on Financial Statements: Yes Report on Internal Control over Financial Reporting: No d. Report on Financial Statements: Yes Report on Internal Control over Financial Reporting: Yes

d. report on financial statements: yes Report on Internal control over financial reporting: yes

which of the following statements is not true regarding the auditor's responsibility for subsequent events?

d. the auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted.

d. the omission of the procedure impairs the auditor's present ability to support the previously expressed opinion

The primary difference between operational auditing and financial auditing is that in operational auditing

d. the operational auditor is seeking to help management use resources in the most effective manner possible

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the:

d. trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.

d. unqualified

Assume the following issue is immaterial. ISSUE: The entity prohibits confirmation of accounts receivable, and sufficient and appropriate evidence cannot be obtained using alternative procedures. What is the correct auditors' report opinion decision given the circumstances described above? Check all that apply. If none of the answers are correct, then select "None of the above". a. none of the above b. qualified. c. adverse. d. unqualified. e. disclaimer

d. unqualified.

d. valuation or allocation.

One of the typical characteristics of management fraud is

d. victimization of investors through the use of materially misleading financial statements.

After an audit report is issued, an auditor discovers that an important audit procedure was not performed. Which of the following procedures is acceptable in this situation? a. a. Immediately notify known users of the omitted audit procedure. b. Require that the client notify financial statements users of the omitted procedures. c. Let the current report stand and correct material errors on the next audit report. d. Both b and c. e. None of the above.

e. none of the above.

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph: a. Is considered an "except for" qualification of the opinion. b. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation." c. Is inappropriate and would negate the unqualified opinion. d. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. e. None of the above.

e. none of the above

Assume that GoodenCo CPAs encountered the following issue during its various audit engagements in 2015: ISSUE: Trees Inc. presents summary financial information along with its financial statements. The summary financial information has been derived from the complete set of financial statements that GoodenCo has audited (and issued an unmodified opinion on the complete financial statements). A lender has engaged GoodenCo to evaluate and report on Trees' summary financial information; GoodenCo believes that the summary financial information is fairly stated in relation to Trees' complete financial statements. Required: What audit opinion(s) could be issued for the issue above? a.Disclaimer b. Unqualified with other-matter paragraph c. Unqualified d. Unqualified with emphasis-of-matter paragraph e. None of the above f. Adverse g. Qualified

e. none of the above

For the following client control procedure, select a test of controls that could produce evidence on the question of whether the client's control procedure has been implemented and is in operation. If there is more than one answer, only choose one test of controls. If none of the answers are correct, then select "NONE OF THE ABOVE". PROCEDURE: Prenumbered shipping doc prepared, sequence checked a. Study the accounting manual on date of shipment and make inquiry about accountants' instructions to date sales. b. Select a sample of random numbers representing recorded sales invoices, and compare customer payments to ensure that all payments are made sequentially. Inquire with the credit manager regarding any payments that are either larger than the selected invoice or not equal to an individual item on the approved price list. c. Select a sample of random numbers representing recorded sales invoices, and compare invoice date to shipping document date. d. Obtain client's documentation showing the accounts receivable subsidiary total reconciled to the accounts receivable control account. Alternatively, total the subsidiary and compare the amount to the control account. e. NONE OF THE ABOVE

e. none of the above

SITUATION: Auditors have identified an immaterial departure from GAAP in their examination, but the entity has not adjusted its financial statements for this departure or disclosed this departure in its financial statements or related disclosures. For the preceding situation, indicate: What audit opinion(s) could be issued for the issue above? Check all that apply. a. Unqualified with other-matter paragraph b. Adverse c. Qualified d. None of the above e. Unqualified f. Unqualified with emphasis-of-matter paragraph g. Disclaimer

e. unqualified

According to the AICPA, the purpose of an audit of financial statements is to obtain systematic and objective evidence about financial assertions and report the results to interested users.

false

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about rights and obligations.

false

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to perpetual inventory records

false

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to evaluate internal control over securities

false

For control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is

forwarded to the receiving department

A client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditors are unable to count securities at the balance sheet date, they most likely will

request the client to have the bank seal the safe deposit box until the auditors can count the securities at a subsequent date.

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