Audit Quiz Questions Final

5-9. For a nonissuer, how do the scope, procedures, and purpose of an engagement to examine the effectiveness of an entitys internal control compare with those for the consideration of internal control in FS audit?

Scope: Different Procedure: Similar Purpose: Different

1-8. Which of the following statements describes why a properly planned and performed audit may not detect a material misstatement due to fraud?

a. Audit procedures that are effective for detecting an error may be ineffective for detecting fraud that is concealed through collusion b. an audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material fraud c. the factors considered in assessing the risk of material misstatement indicated an increased risk of intentional misstatements, but only a low risk of errors in the fs d. the auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the fs as a whole

2-2. The appearance of independence of a CPA or that CPA's firm, is most likely to be impaired if the CPA

a. Provides appraisal, valuation, or actuarial services for an attest client b. joins a trade association, which is an attest client, and serves in a nonmanagement capacity c. accepts a token gift from an attest client d. serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation

1-2. Which of the following professional services is considered an attestation engagement?

a. a consulting service to provide computer advice to a client b. an engagement to report on compliance with statutory requirements c. an income tax engagement to prepare federal and state returns d. the compilation of an engagement to provide a peer review for another CPA firm

1-3. Which of the following situations represents a risk factor that related to misstatements arising from misappropriation of assets?

a. a high turnover of senior management b. a lack of independent checks c. a strained relationship between management and the predecessor auditor d. an inability to generate cf from operations

5-8. Which of the following matters will an auditor most likely communicate to those charged with governance?

a. a list of negative trends that may lead to working capital deficiencies and adverse fin ratios b. the level of responsibility assumed by management for prep of the FS c. difficulties encountered in achieving a satisfactory response rate from the entitys customers in confirming AR d. the effects of significant accounting policies adopted by management in emerging areas for which no authoritative guidance exists

4-5. A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

a. a lower assessed risk of material misstatement b. increased use of analytical procedures to obtain evidence about particular assertions c. smaller expected frequency of deviations d. smaller measure of tolerable misstatement

2-1. Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditors family is most likely to impair the independence of an individual participating in an audit engagement?

a. a parents immaterial investment in a client b. a first cousins loan from a client c. a spouses employment with a client d. a siblings loan to a director of a client

3-9. Which of the following documentation is not required for an audit in accordance with auditing standards?

a. a written audit plan setting forth the procedures necessary to accomplish the audit objectives. b. an indication that the accounting records agree or reconcile with FS. c. a client letter that details the auditors planned field work. d. the basis for the auditors conclusion about the assessed risks of material misstatement.

4-8. Which of the following most likely would be an advantage in using classical variables sampling rather than monetary unit sampling?

a. an estimate of the standard deviation of the populations recorded amounts is not required b. the auditor rarely needs the assistance of the computer program to design an efficient sample c. inclusion of zero and neg balances usually does not require special design considerations d. any amount that is individually significant is automatically identified and selected

4-6. Which of the following statements about analytical procedures is true?

a. analytical procedures may be omitted entirely for some FS audits b. analytical procedures used as risk assessments should not use nonfin info c. analytical procedures usually are effective and efficient for tests of controls d. analytical procedures alone may provide the appropriate level of assurance for some assertions

4-1. The acceptable level of detection risk is inversely related to the

a. assurance provided by substantive procedures. b. risk of misapplying auditing procedures. c. preliminary judgment about materiality levels. d. risk of failing to discover material misstatements.

4-2. An auditors decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the

a. availability of data aggregated at a high level b. auditors determination about whether audit risk can be sufficiently reduced c. timing of tests performed after the balance sheet date d. auditors familiarity with industry trends

5-6. Normally the FS assertions about valuation is of minimum concern during the audit of cash. However the auditors concern about the valuation assertion will most likely increase when

a. both currency and negotiable securities are on hand b. the client uses a demand deposit account c. the proof of cash can not be reconciled d. the client has foreign currency accounts

1-7. GAAS require the auditor to be independent. An auditor is independent if they are

a. competent b. independent in fact and appearance c. consistent and independent and fact d. logical and intellectually honest

3-7. An auditor wishes to evaluate the design and perform tests of controls over a clients cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by

a. confirm and observation. b. observation and inquiry. c. analytical procedures and confirmation. d. inquiry and analytical procedures.

2-9. As part of understanding internal control relevant to the audit of a nonissuer, an auditor does not need to

a. consider factors that affect the risks of material misstatement b. determine whether controls have been implemented c. identify the risks of material misstatement d. obtain knowledge about the operating effectiveness of internal control

2-4. The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is

a. fixed by a public authority b. based on a price quote submitted in competitive bidding c. based on the results of judicial proceedings in a tax matter d. payable after a specified finding is attained in a review of fs

5-3. An auditor should communicate misstatements to those charged with governance

a. if they were not recorded before the end of the auditors field work b. if they are uncorrected c. if they are immaterial and corrected but frequently recurring d. even if they are clearly trivial

4-7. While performing a test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of

a. incorrect rejection b. incorrect acceptance c. overreliance d. underreliance

1-9. Which of the following circumstances most likely will cause an auditor to consider whether material misstatements due to fraud exist in an entity's financial statements?

a. management places little emphasis on meeting earnings projections of external parties b. the board of directors oversees the financial reporting process and internal control c. control deficiencies previously communicated to management are not corrected d. transactions selected for testing are not supported by proper documentation

2-5. Under the antifraud provision of section 10(b) of the SEC of 1934, a may CPA may be liable if the CPA acted

a. negligently b. with independence c. without due diligence d. without good faith

2-3. Which of the following is an example of unusual circumstances that could justify such a departue?

a. new legislation b. an unusual degree of materiality c. conflicting industry practices d. a theoretical disagreement with a standard promulgated by the FASB

1-5. Because of the risk of material misstatement due to fraud, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of?

a. objective judgment b. integrity c. professional skepticism d. impartial conservatism

3-8. Before performing substantive analytical procedures at an interim date prior to the balance sheet date, an auditor should

a. obtain audit evidence about the operating effectiveness of controls. b. determine that the accounts selected for interim testing are not material to the FS taken as a whole. c. consider whether the amounts of the year end balances selected for interim testing are reasonably predictable. d. obtain written representations from management that all fin records and related data will be made available.

4-9. In selecting a sample using monetary unit sampling, the dollar is the sampling unit. For example, if the 300th dollar of invoices is selected,

a. only the dollar is audited b. only an invoice with exactly $300 in audited c. an invoice of less than $300 can not be selected d. the invoice containing the 300th dollar is audited

4-10. Analytical procedures are most appropriate when testing which of the following types of transactions

a. payroll and benefit liabilities b. acquisitions and disposals of fixed assets c. operating expense transactions d. noncurrent debt transactions

3-10. Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use

a. positive form to confirm all balances regardless of size. b. neg form for small balances c. a combo of the 2 forms with the positive form used for trade balances and the neg form used for other balances. d. the positivie form when the assessed risk of material misstatement is acceptably low and the neg form when it is acceptably high.

1-1. Which of the following services, if any, may an accountant who is not independent provide?

a. preparation and complications, but not reviews b. reviews but not preparations c. both compilations and reviews d. no services

5-10. On receiving a clients bank cutoff statement, an auditor will most likely trace

a. prior year checks listed in the cutoff statement to the year end outstanding checklist b. deposits in transit listed in the cutoff statement to the year end bank reconciliation c. checks dated after year end listed in the cutoff statement to the year end outstanding checklist d. deposits recorded in the cash receipts journal after year end to the cutoff statement

2-6. Which of the following statements about internal control is true?

a. properly maintained internal control reasonably ensures that collusion among employees can not occur b. the establishment and maintenance of internal control are important responsibilities of the internal auditors c. exceptionally effective internal control is enough for the auditor to eliminate substantive procedures on a significant account balance d. a limit of internal control is that management makes judgments about the extent of controls it implements

2-8. A secondary result of the auditor's understanding of internal control for a nonissuer is that the understanding may

a. provide a basis for determining the nature, timing, and extent of audit tests b. assure that managements procedures to detect fraud are properly functioning c. bring to the auditors attention possible control conditions required to be communicated to the client d. develop evidence to support the assessed risks of material misstatement

5-7. An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year end balance. A purpose of this audit procedure is to

a. provide the data necessary to prepare a proof of cash b. request that a cutoff bank statement and related checks be sent to the auditor c. detect kiting activities that may otherwise not be discovered d. seek info about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation

2-7. If internal control is properly designed, the same employee may be permitted to

a. receive and deposit checks and also approve write offs of customer accounts b. approve vouchers for payment and also sign checks c. reconcile the bank statements and also receive and deposit cash d. sign checks and also cancel supporting documents

3-3. Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should

a. reduce audit risk by lowering initial levels of materiality. b. design special substantive procedures to compensate for the lack of industry expertise. c. engage financial experts familiar with the nature of the industry. d. perform risk assessment procedures.

3-2. The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to

a. refer the disagreement to the AICPA peer review board. b. document the details of the disagreement with the conclusion reached. c. discuss the disagreement with the entity's management or its audit committee. d. report the disagreement to an impartial peer review monitoring team.

3-5. Which of the following statements about the auditors response to assessed risks of material misstatement in a FS audit is true?

a. risk assessment procedures performed to obtain an understanding of an entity's internal control also may serve as tests of controls. b. when the risk of material misstatement is high, an auditor should reduce the amount of substantive testing. c. reliance on internal control may be sufficient to allow the auditor to eliminate substantive testing for significant transaction classes. d. when assessing the risks of material misstatement, an auditor should not consider evidence obtained in prior audits about the operation of controls.

1-10. Assurance services are best described as

a. services designed for the improvement of operations, resulting in better outcomes b. independent professional services that improve the quality of information, or its context, for decision makers c. the assembly of financial statements based on info and assumptions of a reasonably party d. services designed to express an opinion on historical financial statements based on the results of an audit

3-1. Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?

a. staff will need to be rescheduled to cover this new client. b. there will be a client imposed scope limit. c. the firm will have to hire a specialist in one audit area. d. the clients fin reporting system has been in place for 10 years.

3-4. An auditor is planning an audit engagement for a new client in a business that is unfamiliar to the auditor. Which of the following would be the least useful source of info for the auditor during the preliminary planning stage, when the auditor is trying to obtain a general understanding of audit problems that might be encountered?

a. textbooks and periodicals related to the industry. b. AICPA Audit and accounting guides. c. FS of other entities in the industry. d. results of performing substantive procedures.

1-4. Which of the following is a true statement about an auditor's responsibility regarding consideration of fraud in a financial statement audit?

a. the auditor should consider the client's internal control and plan and perform the audit to provide absolute assurance of detecting all material misstatement b. the auditor should assess the risk that errors may cause the fs to contain any misstatements and determine whether the necessary controls are prescribed and are being following satisfactorily c. the auditor should consider the types of misstatements that could occur and perform tests on 100% of the info subject to misstatement d. the auditor should assess the risks of material misstatement due to fraud

2-10. When obtaining an understanding of an entitys internal control, an auditor should concentrate on their substance rather than their form because

a. the controls may be operating effectively but may not be documented b. management may establish appropriate controls but not enforce compliance with them c. the controls may be so inappropriate that no reliance is expected by the auditor d. management may implement controls whose costs exceed their benefits

4-3. In addition to evaluating the frequency of deviations in test of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was

a. the only deviation discovered in the sample b. identical to a deviation discovered during the prior years audit c. caused by an employees misunderstanding of instructions d. initially concealed by a forged document

5-2. Which of the following is a true statement concerning an engagement to examine the effectiveness of an entitys internal control over fin reporting?

a. the practitioner relies on managements assessment about the effectiveness of internal control b. the management evaluates the effectiveness of internal control c. management relies on the practitioners audit in making the assessment about the effectiveness of internal control d. management agrees not to include the practitioners report in a general use document

5-1. An auditor is most likely to communicate to those charged with governance that

a. the turnover in the accounting department was unusually high b. the auditor encountered significant difficulties during the audit c. the auditor discovered subsequent events d. management disagreed with auditors assessed risks of material misstatement

3-6. In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the

a. timing of the audit. b. costs and benefits of gathering evidence. c. FS as a whole. d. FS assertions.

1-6. Users of an issuer's financial statements demand independent audits because?

a. users demand assurance that fraud does not exist b. management may not be objective in reporting c. users expect auditors to correct management errors d. management relies on the auditor to improve internal control

4-4. Which of the following factors has the least influence on an auditors consideration of the reliability of data for purpose of analytical procedures?

a. whether the data were processed in a computer system or in a manual b. whether sources within the entity were independent of those who are responsible for the amount being audited c. whether the data were subject to audit testing in the current or prior year d. whether the data were obtained from independent sources outside the entity or from sources within the entity