Audit Exam 4
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: A) An emphasis-of-matter paragraph to the auditors' report. B) A footnote to the financial statements. C) The body of the financial statements. D) The "summary of significant accounting policies" section of the financial statements.
A
Which of the following is most likely to be considered a material weakness in internal control? A) Ineffective oversight of financial reporting by the audit committee. B) Restatement of previously issued financial statements due to a change in accounting principles. C) Inadequate controls over nonroutine transactions. D) Weaknesses in risk assessment.
A
Which of the following ordinarily involves the addition of an emphasis-of-matter paragraph to an audit report of a nonpublic company? A) A consistency modification. B) An adverse opinion. C) A qualified opinion. D) Part of the audit has been performed by component auditors.
A
The auditors identified a material weakness in internal control in August. The client was informed and the client corrected the material weakness prior to year-end (December 31); the auditors concluded that management eliminated the material weakness prior to year-end. The appropriate audit report on internal control is: A) Adverse. B) Qualified. C) Unqualified. D) Unqualified with explanatory language relating to the material weakness.
C
Which of the following is least likely to result in inclusion of an additional paragraph being added to an audit report? A) The company is a component of a larger business enterprise. B) An unusually important significant event. C) A decision not to confirm accounts receivable. D) A risk or uncertainty.
C
Concerning interim quarterly financial statements, management of public companies: A) Must engage CPAs to audit the statements. B) Must engage CPAs to review the statements. C) May choose to engage CPAs to review the statements. D) May not engage CPAs to become associated with the statements.
B
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: A) Notify the board of directors that the auditor's report must no longer be associated with the financial statements. B) Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. C) Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. D) Issue revised pro forma financial statements taking into consideration the newly discovered information.
B
The auditors' report should be dated as of the date the: A) Report is delivered to the client. B) Auditors have accumulated sufficient appropriate evidence. C) Fiscal period under audit ends. D) Peer review of the working papers is completed.
B
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: A) December 31, 20X8. B) January 17, 20X9. C) February 10, 20X9. D) February 16, 20X9.
C
Which of the following is most likely to be considered a Type 1 subsequent event? A) A business combination completed after year-end, but for which negotiations began prior to year-end. B) A strike subsequent to year-end due to employee complaints about working conditions that originated two years ago. C) Customer checks deposited prior to year-end but determined to be uncollectible after year-end. D) Introduction of a new line of products after year-end for which major research had been completed prior to year-end.
C
Which of the following is not a typical question asked during a walk-through? A) Have you ever been asked to override the process or controls? B) What do you do when you find an error? C) What is the largest fraudulent transaction you ever processed? D) What kind of errors have you found?
C
Which of the following is not typically performed when the auditors are performing a review of client financial statements? A) Analytical procedures applied to financial data. B) Inquiries about significant subsequent events. C) Confirmation of accounts receivable. D) Obtaining an understanding of accounting principles followed in the client's industry.
C
Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job? A) Examine human resources records for accuracy and completeness. B) Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. C) Make a surprise observation of the company's regular distribution of paychecks on a test basis. D) Visit the working areas and verify that employees exist by examining their badge or identification numbers.
C
A procedure that involves tracing a transaction from origination through the company's information systems until it is reflected in the company's financial report is referred to as a(n): A) Analytical analysis. B) Substantive test. C) Test of a control. D) Walk-through
D
As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: A) Express an opinion that is qualified due to the inability of the client company to continue as a going concern. B) Evaluate management's performance in causing this decline. C) Require note disclosure. D) Consider the possibility of a misstatement in the financial statements.
D
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: A) An unmodified opinion. B) A disclaimer of opinion. C) An "except for" opinion. D) An improper type of reporting.
D
Which of the following need not be included in management's report on internal control under Section 404(a) of the Sarbanes-Oxley Act of 2002? A) A statement that the company's auditors have issued an audit report on management's assertion. B) An identification of the framework used for evaluating internal control. C) Management's assessment of the effectiveness of internal control. D) Management's acknowledgment of its responsibility to establish and maintain internal control that detects all significant deficiencies.
D
In an integrated audit, which of the following must be communicated by management to the audit committee? Known Material Weaknesses // Known Significant Deficiencies (1) Yes Yes (2) Yes No (3) No Yes (4) No No
1
In an integrated audit, which of the following must the auditors communicate to the audit committee? Known Material Weaknesses // Known Significant Deficiencies (1) Yes Yes (2) Yes No (3) No Yes (4) No No
1
The aggregated misstatement in the financial statements is made up of: Factual Misstatements Projected Misstatements Judgmental Misstatements (1) Yes Yes Yes (2) Yes Yes No (3) No Yes No (4) No Yes Yes
1
A CPA who is not independent may perform which of the following services for a nonpublic company? Compilation Review (1) Yes Yes (2) Yes No (3) No Yes (4) No No
2
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
In an integrated audit, which of the following lead(s) to an adverse opinion on internal control? Known Material Weaknesses // Known Significant Deficiencies (1) Yes Yes (2) Yes No (3) No Yes (4) No No
2
An audit of internal control over financial reporting ordinarily assesses internal control: A) As of the last day of the fiscal period. B) As of the last day of the auditor's fieldwork. C) For the entire fiscal period. D) For the entire period plus the period of the auditor's fieldwork.
A
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: A) Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. B) Not in accordance with generally accepted auditing standards. C) A qualification that lessens the collective responsibility of both CPA firms. D) An example of a dual opinion requiring the signatures of both auditors.
A
A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): A) Analytical process. B) Loss contingency. C) Probable loss. D) Unasserted claim.
B
An audit report for a public client indicates that the audit was performed in accordance with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board).
B
Which of the following is defined as a weakness in internal control that allows a reasonable possibility of a misstatement that is material? A) Control deficiency. B) Material weakness. C) Reportable condition. D) Significant deficiency.
B
An audit report for a public client indicates that the financial statements were prepared in conformity with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board).
C
Which of the following is least likely to be considered a substantive procedure relating to payroll? A) Investigate fluctuations in salaries, wages, and commissions. B) Test computations of compensation under profit sharing for bonus plans. C) Test commission earnings. D) Test whether employee time reports are approved by supervisors.
D
Which of the following procedures is most likely to be included near completion of an audit? A) Obtaining an understanding of internal control. B) Confirmation of receivables. C) Observation of inventory. D) Performing analytical procedures.
D
Which of the following must be obtained in a review of a nonpublic company? Engagement Letter Representation Letter (1) Yes Yes (2) Yes No (3) No Yes (4) No No
1
Management's documentation of internal control ordinarily should include information on: Controls Designed to Prevent Fraud // Controls Designed to Ensure Employee Personal Integrity (1) Yes Yes (2) Yes No (3) No Yes (4) No No
2
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
3
When the matter is properly disclosed in the financial statements of a nonpublic company, 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 Emphasis-of-Matter (1) Yes Yes (2) Yes No (3) No Yes (4) No No
3
In which of the following reports should a CPA not express negative (limited) assurance? A) A standard compilation report on financial statements of a nonpublic entity. B) A standard review report on interim financial statements of a public entity. C) A standard review report on financial statements of a nonpublic entity. D) A comfort letter on financial information included in a registration statement filed with the Securities and Exchange Commission.
A
A material departure from generally accepted accounting principles will result in auditor consideration of: A) Whether to issue an adverse opinion rather than a disclaimer of opinion. B) Whether to issue a disclaimer of opinion rather than a qualified opinion. C) Whether to issue an adverse opinion rather than a qualified opinion. D) Nothing, because none of these opinions is applicable to this type of exception.
C
A proper compilation report on financial statements that omit note disclosures: A) Includes an adverse opinion. B) Includes a disclaimer of opinion on the accuracy of such note disclosures. C) Indicates that management has omitted such information. D) Indicates that note disclosures are not necessary for those not informed about such matters.
C
The proper report by an auditor relating to summarized financial statements includes: A) A statement about the type of opinion expressed in the prior year. B) An adverse opinion. C) An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements. D) No assurance on the information.
C
The search for unrecorded liabilities for a public company includes procedures usually performed through the: A) Day the audit report is issued. B) End of the client's year. C) Date of the auditors' report. D) Date the report is filed with the SEC.
C
When performing a review of a nonpublic company, which is least likely to be included in auditor inquiries of management members with responsibility for financial and accounting matters? A) Subsequent events. B) Significant journal entries and other adjustments. C) Communications with related parties. D) Unusual or complex situations affecting the financial statements.
C
Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? A)A business combination. B) Early retirement of bonds payable. C) Settlement of litigation. D) Plant closure due to a strike.
C
When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? A) Capitalization. B) Financing. C) Investing. D) Operations.
A
A material weakness is a control deficiency (or combination of control deficiencies) that results in a reasonable possibility that a misstatement of at least what amount will not be prevented or detected? A) Any amount greater than zero. B) A greater amount than zero, but an amount that is at least inconsequential. C) A greater amount than inconsequential. D) A material amount.
D
