Audit exam 3

An audit report for a public client indicates that the financial statements were prepared in conformity with: (1) Generally accepted auditing standards (United States). (2) Standards of the Public Company Accounting Oversight Board (United States). (3) Generally accepted accounting principles (United States). (4) Generally accepted accounting principles (Public Company Accounting Oversight Board).

Generally accepted accounting principles (United States).

In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is: (1) Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. (2) Not in accordance with generally accepted auditing standards. (3) A qualification that lessens the collective responsibility of both CPA firms. (4) An example of a dual opinion requiring the signatures of both auditors.

Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.

To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: (1) Supported by a vendor's invoice. (2) Stamped "paid" by the check signer. (3) Prenumbered and accounted for. (4) Approved for authorized purchases.

stamped "paid" by the check signer

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees? (1) A bank lockbox system. (2) Prenumbered remittance advices. (3) Monthly bank reconciliations. (4) Daily deposits of cash receipts.

(1) A bank lockbox system

Hall Company had large amounts of funds to invest on a temporary basis. The board ofdirectors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to makeperiodic reviews of the investment activity would be: (1) An investment committee of the board of directors. (2) The chief operating officer. (3) The corporate controller. (4) The treasurer.

(1) An investment committee of the board of directors.

In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the: (1) Efficiency of the audit (2) Effectiveness of the audit (3) Selection of the sample (4) Audit quality controls

(1) Efficiency of the audit

Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash salesat a retail outlet? (1) Observe the consistency of the employees' use of cash registers and tapes. (2) Inquire about employees' access to recorded but undeposited cash. (3) Trace deposits in the cash receipts journal to the cash balance in the general ledger. (4) Compare the cash balance in the general ledger with t

(1) Observe the consistency of the employees' use of cash registers and tapes

In which of the following circumstances is it least likely that test of controls will be performed? (1) The expected deviation rate exceeds the tolerable deviation rate (2) The planned assessed level of control risk is are a level slightly below the maximum (3) The risk of assessing control risk too low is less than the expected deviation rate (4) The tolerable deviation rate exceeds the risk of assessing control too low

(1) The expected deviation rate exceeds the tolerable deviation rate

Which of the following statistical sampling techniques is least desirable for use by the auditors? (1) Random number table selection (2) Block selection (3) Systematic selection (4) Random number generator selection

(2) Block selection

Which of the following is an element of sampling risk? (1) Choosing an audit procedure that is inconsistent with the audit objective (2) Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement. (3) Failing to detect an error on a document that has been inspected by an auditor. (4) Failing to perform audit procedures that are required by the sampling plan.

(2) Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement.

Critical audit matters are most likely to include those matters that: (1) Are communicated to the Public Company Accounting Oversight Board. (2) Involve challenging, subjective or complex auditor judgement. (3) Are material weaknesses in internal control. (4) Involve signifcant risks.

(2) Involve challenging, subjective or complex auditor judgement.

A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions? Qualified Unmodified with Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No

(2) Yes No

The auditors' primary objective in selecting a sample of items from an audit population is to obtain: (1) A random sample (2) A stratified sample (3) A representative sample (4) A large sample

(3) A representative sample

You have been assigned to the year-end audit of a financial institution and are planning thetiming of audit procedures relating to cash. You decide that it would be preferable to: (1) Count the cash in advance of the balance sheet date in order to disclose any kiting operations at year-end. (2) Coordinate the count of cash with the cutoff of accounts payable. (3) Coordinate the count of cash with the count of marketable securities and other negotiable assets. (4) Count the cash immediately upon

(3) Coordinate the count of cash with the count of marketable securities and other negotiable assets.

When the matter is properly disclosed in the financial statements, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions? Qualified Unmodified with an additional paragraph (1) Yes Yes (2) Yes No (3) No Yes (4) No No

(3) No Yes

In testing controls over cash disbursements, the auditors most likely would determine thatthe person who signs checks also: (1) Reviews the monthly bank reconciliation. (2) Returns the checks to accounts payable. (3) Is denied access to the supporting documents. (4) Is responsible for mailing the checks

(4) Is responsible for mailing the checks.

The auditors suspect that a client's cashier is misappropriating cash receipts for personaluse by lapping customer checks received in the mail. In attempting to uncover this embezzlementscheme, the auditors most likely would compare the: (1) Details of bank deposit slips with details of credits to customer accounts. (2) Daily cash summaries with the sums of the cash receipts journal entries.(3) Individual bank deposit slips with the details of the monthly bank statements. (4) Dates uncollecti

1) Details of bank deposit slips with details of credits to customer accounts.

Discovery sampling is particularly effective when: (1) There are a large number of errors in the population (2) The auditors are looking for critical deviations that are not expected to be frequent in number (3) The auditors know where deviations are likely to occur (4) The population is large in size

2) The auditors are looking for critical deviations that are not expected to be frequent in number

In order to guard against the misappropriation of company-owned marketable securities,which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities? (1) One trustworthy & bonded employee be responsible for access to thesafekeeping area where securities are kept. (2) Employees who enter & leave the safekeeping area sign & record in alog the exact reason for their access. (3) Employees involved in the safekeeping function maintai

4) Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

Which of the following is least likely to result in inclusion of an emphasis-of-matter paragraph in an audit report? (1) The company is a component of a larger business enterprise. (2) An unusually important significant event. (3) A decision not to confirm accounts receivable. (4) A risk or uncertainty.

A decision not to confirm accounts receivable.

The auditors who physically examine securities should insist that a client representative be present in order to: (1) Detect fraudulent securities. (2) Lend authority to the auditors' directives. (3) Acknowledge the receipt of securities returned. (4) Coordinate the return of securities to the proper locations.

Acknowledge the receipt of securities returned.

The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: (1) An emphasis-of-matter paragraph to the auditors' report. (2) A footnote to the financial statements. (3) The body of the financial statements. (4) The "summary of significant accounting policies" section of the financial statements.

An emphasis-of-matter paragraph to the auditors' report.

Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly. . ." This is: (1) An unmodified opinion. (2) A disclaimer of opinion. (3) An "except for" opinion. (4) An improper type of reporting.

An improper type of reporting.

Sampling that reaches a conclusion about a population in terms of a rate of occurrence is: (1) Attributes sampling. (2) Binomial sampling. (3) Occurrence sampling. (4) Variables sampling

Attributes sampling

The auditors' report should be dated as of the date the: (1) Report is delivered to the client. (2) Auditors have accumulated sufficient evidence. (3) Fiscal period under audit ends. (4) Peer review of the working papers is completed.

Auditors have accumulated sufficient evidence.

This year the audit plan, as compared to the prior year, includes a lower risk of assessing control risk too low. Other factors held constant, which of the following is most likely to be correct relating to the planned risk of incorrect acceptance for substantive procedures? (1) Lower than prior year. (2) Same as prior year. (3) Higher than prior year. (4) Indeterminate as there is no certain relationship between the acceptable levels of the risks.

Higher than prior year

Reconciliation of the bank account should not be performed by an individual who also: (1) Processes cash disbursements. (2) Has custody of securities. (3) Prepares the cash budget. (4) Reviews inventory reports.

Processes cash disbursements

An audit report for a public client indicates that the audit was performed in accordance with: (1) Generally accepted auditing standards (United States). (2) Standards of the Public Company Accounting Oversight Board (United States). (3) Generally accepted accounting principles (United States). (4) Generally accepted accounting principles (Public Company Accounting Oversight Board).

Standards of the Public Company Accounting Oversight Board (United States).

Which of the following is accurate regarding tolerable misstatement? (1) Tolerable misstatement is directly related to materiality (2) Tolerable misstatement cannot be determined until the sample results are evaluated (3) Tolerable misstatement does not affect sample size (4) Tolerable misstatement is a measure of reliability of the sample

Tolerable misstatement is directly related to materiality

The best way to verify the amounts of dividend revenue received during the year is: (1) Recomputation. (2) Verification by reference to dividend record books. (3) Confirmation with dividend-paying companies. (4) Examination of cash disbursements records

Verification by reference to dividend record books

A material departure from generally accepted accounting principles will result in auditor consideration of: (1) Whether to issue an adverse opinion rather than a disclaimer of opinion. (2) Whether to issue a disclaimer of opinion rather than a qualified opinion. (3) Whether to issue an adverse opinion rather than a qualified opinion. (4) Nothing, because none of these opinions is applicable to this type of exception.

Whether to issue an adverse opinion rather than a qualified opinion.

In attributes sampling, what effect does an increase in the acceptable risk of assessing control risk too low have on sample size? (1) Decrease. (2) Increase. (3) Indeterminate (4) No effect.

decrease

What effect on sample size does increasing the allowable risk of incorrect acceptance have for a substantive test? (1) Decrease. (2) Increase. (3) Indeterminate. (4) No effect.

decrease

To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except: (1) Cutoff bank statement. (2) Year-end bank statement. (3) Bank confirmation. (4) General ledger

general ledger

In attributes sampling, what effect does a decrease in the tolerable deviation rate have on sample size? (1) Decrease. (2) Increase. (3) Indeterminate. (4) No effect

increase

What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated: Qualified Adverse (1) Yes Yes (2) Yes No (3) No Yes (4) No No

no, yes