Auditing and Assurance Exam 1 (Ch 1-5, 19) Multiple Choice

C

Under the SEC's rules regarding independence, which of the following must a public company ("registrants") disclose? a. only fees for the external audit b. only fees for internal and external audit services provided by the audit firm c. fees for the external audit, audit-related fees, tax fees, and fees for other nonaudit services performed by the audit firm d. only fees for systems implementation and design and nonaudit services performed by the audit firm

C

Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a listing of remittances that is forwarded to the cashier. A copy of the listing should be sent to the: a. entity's bank to compare the listing with the cahsier's deposit slip b. treasurer to compare the listing with the monthly bank statement c. A/R bookkeeper to update the subsidiary A/R records d. internal auditor to investigate the listing for unusual transactions

A

Vouching is used primarily to test which of the following assertions about classes of transactions? a. occurrence b. classification c. authorization d. completeness

Integrated Audit

What is the term most associated with "an audit of both financial statements and internal control over financial reporting" that is required for public companies?

B

When a company changes auditors, the successor auditor is required to ask the predecessor auditor about which of the following matters? a. related parties of which the predecessor has knowledge b. disagreements that the predecessor had with the entity's management over accounting and auditing issues c. the amount of audit hours that the predecessor required for the engagement d. the predecessor's assessment as to what is material to the financial statements e. material weaknesses in internal control known to the predecessor

A

When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying substantive analytical procedures and: a. recalculating payroll accruals b. footing and cross-footing the payroll register c. observing the distribution of payroll checks d. inspecting payroll tax returns

C

When is a duty to disclose fraud to parties other than the entity's senior management and its audit committee most likely to exist? a. when the amount is material b. when the fraud results from misappropriation of assets rather than fraudulent financial reporting c. in response to inquiries from a successor auditor d. when a line manager rather than a lower-level employee commits the fraudulent act

B

When planning an audit, an auditor should: a. Consider whether the extent of substantive procedures may be reduced based on the results of tests of controls b. Determine overall materiality for audit purposes c. Conclude whether changes in compliance with prescribed internal controls justify reliance on them d. Evaluate detected misstatements

D

Which auditing standards are applicable to the financial statement audit of U.S. private company (also referred to as a "nonissuer")? a. the "yellow book" issued by the Government Accountability Office b. Universal Auditing Standards issued by the Private Company Accounting Oversight Board c. Auditing Standards issued by the Public Company Accounting Oversight Board d. Statements on Auditing Standards issued by the Auditing Standards Board e. International Standards on Auditing issued by the International Federation of Accountants

C

Which of the following best describes relationships among auditing, attest, and assurance services? a. attest is a type of auditing service b. auditing and attest services represent two distinctly different types of services--there is no overlap c. auditing is a type of assurance service d. assurance is a type of attest service

C

Which of the following best describes the general character of the three generally accepted auditing standards classified as standards of field work? a. Description of the competence, independence, and professional care of persons performing the audit b. Criteria for the content of the auditor's report on financial statements and related footnote disclosures c. Criteria for audit planning and evidence gathering d. The need to maintain an independence of mental attitude in all matters relating to the audit

B

Which of the following statements concerning audit evidence is correct? a. to be appropriate, audit evidence should be either persuasive or relevant but need not be both b. the measure of the reliability of audit evidence lies in the auditor's judgment c. the difficulty and expense of obtaining audit evidence concerning an account balance are a valid basis for omitting the test d. an entity's general ledger may be sufficient audit evidence to support the financial statements

C

"The amount of the overall materiality that is used to establish a scope for the audit procedures for the individual account balance or disclosures" is associated with which term? a. planning-stage materiality judgment b. sampling risk c. tolerable misstatement d. evaluation-stage materiality judgment e. analytical procedures

B

A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The resulting misstatement is material, but the auditor does not consider its effect to be pervasive. The auditor is unable to convince the client to alter its accounting treatment. The rest of the financial statements are fairly stated in the auditor's opinion. Which kind of audit report should the auditor issue under these circumstances? a. Standard unqualified opinion b. Qualified opinion due to departure from GAAP c. Adverse opinion d. No opinion at all

A

A violation of the profession's ethical standards is least likely to occur when a CPA: a. purchases another CPA's accounting practice and bases the price on a percentage of all fees accruing from entities over a three-year period b. receives a percentage of the amounts invested by the CPA's audit entities in a tax shelter with the entities' knowledge and approval c. has a public accounting practice and is president and sole stockholder of a corporation that engages in data processing services to the public. The CPA often refers his attest entities to the data processing company d. forms an association--not a legally binding partnership--with two other sole practitioners and calls the association Adams, Betts & Associates

D

A written understanding between the auditor and the entity concerning the auditor's responsibility for fraud is usually set forth in a(n): a. Internal Control Letter b. Letter of audit inquiry c. Management letter d. Engagement letter

A

According to the SEC's SAB No. 101, which of the following is not necessary for revenue recognition? a. the seller has determined that the buyer will take the discount b. the seller's price to the buyer is fixed c. persuasive evidence of an arrangement exists d. collectability is reasonably assured

D

All of the following nonaudit services are identified by the SEC as generally impairing an auditor's independence except: a. information systems design and implementation b. human resource services c. management functions d. some specific tax services e. all of the above are seen by the SEC as impairing independence

D

An audit conducted by the EPA to determine whether a company properly disposed of hazardous waste in conformity with applicable environmental laws is best characterized as a(n): a. Operational audit b. Forensic audit c. Financial statement audit d. Compliance audit e. Pristine audit

A

An audit document that reflects the major components of an amount reported in the financial statements is referred to as a(n): a. Lead schedule b. Supporting schedule c. Audit control account d. Working trial balance

C

An audited entity company has not paid its 2015 audit fees. According to the AICPA Code of Professional Conduct, for the auditor to be considered independent with respect to the 2016 audit, the 2015 audit fees must be paid before the: a. 2015 report is issued b. 2016 fieldwork is started c. 2016 report is issued d. 2017 fieldwork is started

B

An auditor ordinarily should send a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance, because this procedure: a. provides for confirmation regarding compensating balance arrangements b. seeks information about indebtedness to the bank c. verifies securities held by the bank in safekeeping d. detects kiting activities that may not otherwise be detected

B

An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all: a. canceled checks b. vendors' invoices c. receiving reports d. merchandise received

C

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of: a. cutoff b. occurrence c. completeness d. authorization and accuracy

D

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that: a. payments to employees are computed at authorized rates b. segregation of duties exists between the preparation and distribution of the payroll c. internal controls relating to unclaimed payroll checks are operating effectively d. employees worked the number of hours for which they are paid

B

An auditor would be the least likely to use confirmations in connection with the examination of: a. inventory held in a third-party warehouse b. refundable income taxes c. long-term debt d. stockholder's equity

B

An independent audit adds value to the communication of financial information because the audit: a. confirms the exact accuracy of managment's financial representations b. lends credibility to the financial statements c. guarantees that financial data are fairly presented d. assures the readers of financial statements that any fraudulent activity has been corrected

A

As discussed in class, which of the following is NOT specifically an element of quality control as defined by the AICPA's "Statements of Quality Control Standards" (SQCS)? a. auditing, tax and consulting standards b. human resources c. Acceptance and continuance of client relationships d. monitoring e. leadership responsibilities

D

As generally conceived, the audit committee of a publicly held company should be made up of: a. Representatives of the major equity interests (preferred stock, common stock) b. The audit partner, the chief financial officer, the legal counsel, and at least one outsider c. Representatives from the entity's management, investors, suppliers, and customers d. Members of the board of directors who are not officers or employees

A

As lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to: a. find smaller errors b. find larger errors c. increase the tolerable misstatements in the accounts d. decrease the risk of overreliance

B

Audit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence? a. bank statements obtained from the entity b. computations made by the auditor c. prenumbered entity sales invoices d. vendors' invoices included in the entity's files

B

Auditing standards require auditors to make certain inquiries of management regarding fraud. Which of the following inquires is required? a. Whether management has ever intentionally violated the securities laws b. Whether management has any knowledge of fraud that has been perpetrated on or within the entity c. Management's attitudes towards regulatory authorities d. Management's attitudes about hiring ethical employees

C

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations? a. the positive confirmation form must always be used to confirm all balances regardless of size b. a combo of the two confirmation types can be used, with positive form used for trade receivables and the negative form for other receivables c. a combo of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances d. the positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory

D

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's: a. Awareness of the consistency in the application of generally accepted accounting principles between periods b. Evaluation of all matters of continuing accounting significance c. Opinion of any subsequent events occurring since the predecessor's audit report was issued d. Understanding as to the reasons for the change of auditors

C

Comparing amounts selected from the payroll account analysis for payroll accruals to supporting documentation would provide evidence primarily for which assertion? a. presentation and disclosure b. classification c. existence d. completeness

C

Confirmation is most likely to be a relevant form of evidence with regard to assertions about A/R when the auditor has concerns about the receivables': a. valuation b. completeness c. existence d. classification

D

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure? a. increase the balance in the allowance for uncollectible accounts b. intensify the study of the entity's system of internal control with respect to receivables c. review collections during the year being examined d. examine shipping documents

B

During the audit of Moon Co., the auditor disagrees with management's estimation of collectible accounts receivable. The possible misstatement amount is material. Which of the following statements below should weigh more heavily for the auditor in this instance? a. Moon management has the right to make company estimates b. requiring an adjustment to the allowance for doubtful accounts would give stockholders access to fair and adequate information c. accounts receivable as stated by Moon Co. might turn out to be fully collectible d. the interests of Moon Co., the auditor, and the public should be weighed equally in the decision

C

During the initial planning phase of the audit, a CPA most likely would: a. Identify specific internal control activities that are likely to prevent fraud b. Evaluate the reasonableness of the entity's accounting estimates c. Discuss the timing of the audit procedures with the entity's management d. Inquire of the entity's attorney if it is probably that any unrecorded claims will be asserted

D

For effective internal control, the A/P department should compare the information on each vendor's invoice with the: a. receiving report and the voucher b. vendor's packing slip and the purchase order c. vendor's packing slip and the voucher d. receiving report and the purchase order

C

For what primary purpose does the auditor obtain an understanding of the entity and its environment? a. to determine the audit fee b. to decide which facts about the entity to include in an audit report c. to plan the audit and determine the nature, timing, and extent of the audit procedures to be performed d. to limit audit risk to an appropriately high level

The auditor must communicate material fraud detected to those charged with governance

Identify the correct statement regarding the auditor's responsibilities to fraud?

A

If the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the timing, nature, and extent of audit procedures, they should assess the internal auditors': a. Competence and objectivity b. Efficiency and experience c. Independence and review skills d. Training and supervisory skills

C

If the objective of a test of details is to detect the overstatement of sales, the auditor should trace transactions from the: a. cash receipts journal to the sales journal b. shipping documents to the accounting records c. accounting records to the shipping documents d. sales journal to the cash receipts journal

A

In auditing controls of A/P, an auditor's procedures most likely would focus primarily on management's assertion of: a. completeness b. valuation and allocation c. existence d. rights and obligations

A

In connection with the element of engagement performance, a CPA firm's system of quality control should ordinarily include procedures covering all of the following except: a. performance evaluation b. engagement performance c. supervision responsibilities d. review responsibilities

C

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following? a. an aging schedule of past due accounts b. ratios calculated showing the past relationship of the valuation allowance to net credit sales c. the credit manager's opinion d. subsequent year collections of amounts in accounts receivable at the balance sheet date

C

In testing the existence assertion for an asset, an auditor ordinarily works from the: a. financial statements to the potentially unrecorded items b. potentially unrecorded items to the financial statements c. accounting records to the supporting documents d. supporting documents to the accounting records

Accounting records to the supporting documents

In testing the existence assertion, the direction of the testing is from the:

B

In which of the following situations would a CPA's independence be considered impaired according to the Code of Professional Conduct? 1. The CPA has a car loan from a bank that is an audit entity. The loan was made under the same terms available to all customers 2. The CPA has a direct financial interest in an audit entity, but the interest is maintained in a blind trust 3. The CPA owns a commercial building and leases it to an audit entity. The rental income is material to the CPA a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1, 2, and 3

A

One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through: a. a system of quality control b. a system of peer review c. continuing professional education d. compliance with generally accepted reporting standards

A

Operational auditing is oriented primarily toward: a. efficiency and future improvements to accomplish the goals of management b. the accuracy of data reflected in management's financial records c. verification that an entity's financial statements are fairly presented d. past protection provided by existing internal control

B

The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and a: a. list of violations that would cause the automatic suspension of a CPA's license b. set of specific, mandatory rules describing minimum levels of conduct a CPA must maintain c. description of CPA's procedures for responding to an inquiry from a trial board d. complete list of all the different kinds of crimes that would be considered as acts discreditable to the profession

C

Risk of material misstatement refers to a combination of which two components of the audit risk model? a. Audit risk and inherent risk b. Audit risk and control risk c. Inherent risk and control risk d. Control risk and detection risk

Existence/Occurrence

Suppose that an entity shipped merchandise FOB-shipping point on 1/5/18 and incorrectly recorded the sale on 12/28/17. In auditing the 2017 financial statements, which one of the 5 traditional financial statement "assertions" is most relevant in this situation?

C

The AICPA's Auditing Standards Board, in conjunction with the International Federation of Accountants, replaced it's longstanding 10 authoritative criteria formerly known as "GAAS" with 7 "Principles" classified into 4 categories of matters. Which of the following is NOT one of the 4 new categories associated with these 7 principles? a. purpose and premise b. responsibilities c. consistency d. performance e. reporting

D

Preliminary engagement activities include: a. understanding the client and the client's industry b. determining audit engagement team requirements c. ensuring the independence of the audit team and the audit firm d. all of the above

C

Rick, an independent CPA, must make an ethical judgment related to the audit of an entity. If he primarily focuses on whether his decision might yield unfair advantages for some at the expense of others, he is using: a. a utilitarian perspective b. a rights-based approach c. justice-based perspective d. rule-based AICPA guidelines

A

The Public Company Accounting Oversight Board: a. Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies b. Is a quasi-governmental organization that has legal authority to set accounting standards for public companies c. Is a quasi-governmental organization that has a policy to ignore public comment and input in the process of setting auditing standards d. Is a quasi-governmental organization that is independent of the SEC in setting auditing standards.

B

The assurance bucket is filled with all of the following types of evidence except: a. Tests of controls b. The audit report c. Substantive analytical procedures d. Tests of details

B

The audit procedures used to verify accrued liabilities differ from those employed for the verification of A/P because: a. accrued liabilities at year-end will become A/P during the following year b. accrued liabilities usually pertain to services of a continuing nature, while A/P are the result of completed transactions c. evidence supporting accrued liabilities is nonexistent, while evidence supporting A/P is readily available d. accrued liability balances are less material than A/P balances

D

The auditing standards that are used to guide the conduct of the audit are: a. implicitly referred to in the opening paragraph of the auditor's standard report b. explicitly referred to in the opening paragraph of the auditor's standard report c. implicitly referred to in the scope paragraph of the auditor's standard report d. explicitly referred to in the scope paragraph of the auditor's standard report e. implicitly referred to in the opinion paragraph of the auditor's standard report f. explicitly referred to in the opinion paragraph of the auditor's standard report

C

The current file of the auditor's working papers should generally include: a. a flowchart of the accounting system b. organization charts c. a copy of the financial statements d. copies of bond and note indentures

A

The cutoff assertion for A/P includes: a. determining whether all A/P are recorded in the proper period b. determining whether all A/P are properly classified in the financial statements c. determining whether all A/P are recorded d. determining whether all A/P actually are liabilities

D

The engagement partner and manager review the work of engagement team members to evaluate which of the following? a. The work was performed and documented b. The objectives of the procedures were achieved c. The results of the work support the conclusions reached d. All of the above are correct

A

The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor: a. Obtains reasonable assurance about whether the financial statements are free of material misstatement b. Assesses the accounting principles used and evaluates the overall financial statement presentation c. Realizes that some matters, either individually or in the aggregate, are important, while other matters are not important d. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management

D

The permanent file section of the working papers that is kept for each audit client most likely contains: a. review notes pertaining to questions and comments regarding the audit work performed b. a schedule of time spent on the engagement by each individual auditor c. correspondence with the entity's legal counsel concerning pending litigation d. narrative descriptions of the entity's accounting system and control procedures

C

The primary objective of final analytical procedures is to: a. obtain evidence from details tested to corroborate particular assertions b. identify areas that represent specific risks relevant to the audit c. assist the auditor in assessing the validity of the conclusions reached on the audit d. satisfy doubts when questions arise about an entity's ability to continue in existence

A

The purpose of segregating the duties of distributing payroll checks and hiring personnel is to separate the: a. authorization of transactions from the custody of related assets b. operational responsibility from record keeping responsibility c. duties within the accounting function d. custody of assets from the accounting for those assets`

C

The substantive analytical procedure known as trend analysis is best described by: a. the comparison, across time or to a benchmark, of relationships between financial statement accounts or between an account and nonfinancial data b. development of a model to form an expectation using financial data, nonfinancial data, or both to test account balances or changes in account balances between accounting periods c. the examination of changes in an account over time d. comparison of common-size financial statements over time

D

Tolerable misstatement is: a. The amount of misstatement that management is willing to tolerate in the financial statements b. Materiality for the balance sheet as a whole c. Materiality for the income statement as a whole d. Materiality used to establish a scope for the audit procedures for the individual account balance or disclosures

A

Tracing a sample of time sheets before and after period end to the weekly payroll report and tracing the weekly payroll report to the general ledger to verify that payroll transactions are recorded in the proper period would provide evidence primarily for which assertion? a. cutoff b. occurrence c. valuation d. classification

B

Tracing bills of lading to sales invoices provides evidence that: a. shipments to customers were properly authorized b. shipments to customers were billed c. recorded sales were shipped d. billed sales were shipped

C

Tracing copies of sales invoices to shipping documents will provide evidence that all: a. shipments to customers were billed b. accounts receivable ledger is complete c. billed sales were shipped d. shipments to customers were recorded as receivables

A

Tracing is used primarily to test which of the following assertions about classes of transactions? a. completeness b. occurrence c. authorization d. cutoff

B

Which of the following best describes the reason why an independent auditor is often retained to report on financial statements? a. Management fraud may exist, and it is more likely to be detected by independent auditors than internal auditors b. different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements c. a misstatement of account balances may exist, and all misstatements are generally corrected as a result of the independent auditor's work d. an entity may have a poorly designed internal control system

A

Which of the following best describes the relationship between business objectives, strategies, processes, controls, and transactions? a. To achieve its objectives, a business formulates strategies and implements processes, which are carried out through business transactions. The entity's information and internal control systems must be designed to ensure that the transactions are properly executed, captured, and processed. b. To achieve its strategies, a business formulates objectives and implements processes, which are carried out through the entity's information and internal control systems. Transactions are conducted to ensure that the processes are properly executed, captured, and processed. c. To achieve its objectives, a business formulates strategies to implement its transactions, which are carried out through business processes. The entity's information and internal control systems must be designed to ensure that the processes are properly executed, captured and processed. d. To achieve its business processes, a business formulates objectives, which are carried out through the entity's strategies. The entity's information and internal control systems must be designed to ensure that the entity's strategies are properly executed, captured, and processed.

D

Which of the following best places the events of the last decade in the proper sequence? a. Sarbanes-Oxley Act, increased consulting services to auditees, Enron and other scandals, prohibition of most consulting work for auditees, establishment of the PCAOB b. Increased consulting services to auditees, SOX Act, Enron and other scandals, prohibition of most consulting work for auditees, establishment of the PCAOB c. Enron and other scandals, SOX act, increased consulting services to auditees, prohibition of most consulting work for auditees, establishment of the PCAOB d. Increased consulting services to auditees, Enron and other scandals, SOX act, prohibition of most consulting work for auditees, establishment of the PCAOB

C

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? a. turnover of senior accounting personnel is low b. insiders recently purchased additional shares of the entity's stock c. management places substantial emphasis on meeting earnings projections d. the rate of change in the entity's industry is slow

D

Which of the following concepts are pervasive in the application of GAAS, particularly the standards of filed work and reporting? a. Internal Control b. Expected Misstatement c. Control Risk d. Materiality and Audit Risk

C

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a. payroll b. controller c. human resource d. treasurer

A

Which of the following is an example of fraudulent financial reporting? a. company management falsifies the inventory count, thereby overstating ending inventory and understating cost of sales b. an employee diverts customer payments to his personal use, concealing his actions by debiting an expense account, thus overstating expenses c. an employee steals inventory, and the shrinkage is recorded as a cost of goods sold d. an employee borrows small tools from the company and neglects to return them; the cost is reported as a miscellaneous operating expense

A

Which of the following is correct concerning required auditor communications about fraud? a. fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved b. fraud with a material effect on the financial statements should be reported directly by the auditor to the SEC c. any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor d. the professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities

C

Which of the following is correct regarding the types of audits over which the ASB and the PCAOB, respectively, have standard-setting authority in the United States? a. ASB = nonpublic company audits, PCAOB = nonpublic company audits b. ASB=public company audits, PCAOB = public company audits c. ASB=nonpublic company audits, PCAOB=public company audits d. ASB=public company audits, PCAOB=nonpublic company audits

C

Which of the following is misappropriation of assets? a. classifying inventory held for resale as supplies b. investing cash and earning at a 3% rate of return as opposed to paying off a loan with an interest rate of 7% c. an employee of a consumer electronics stores steals 12 CD players d. management estimates bad debt expense as 2% of sales when it actually expects bad debts to equal 10% of sales

B

Which of the following is not a part of the role of internal auditors? a. assisting the external auditors b. providing reports on the reliability of financial statements to investors and creditors c. consulting activities d. operational audits

D

Which of the following is not an inherent risk factor for the revenue process? a. special industry practices b. complexity of revenue recognition issues c. difficulty of auditing transactions d. entity does not follow its stated policies for sales order approvals

B

Which of the following is not an issue related to the valuation of A/R? a. a proper allowance for doubtful accounts b. proper cutoff c. the net realizable value of A/R d. the valuation of revenue that makes up the detail of A/R

Tests of control to evaluate the operating effectiveness of internal control

Which of the following is not considered a "substantive" procedure?

A

Which of the following is the most important reason for an auditor to gain an understanding of an audit client's system of internal control over financial reporting? a. understanding a client's system of internal control can help the auditor assess risk and identify areas where financial statemetn misstatements might be more likely b. understanding a client's system of internal control can help the auditor make valuable recommendations to management at the end of the engagement c. understanding a client's system of internal control can help the auditor sell consulting services to the client d. understanding a client's system of internal control is not a required part of the audit process

C

Which of the following legal situations would be considered to impair the auditor's independence? a. an expressed intention by the present management to commence litigation against the auditor, alleging deficiencies in audit work for the entity, although the auditor considers that there is only a remote possibility that such a claim will be filed b. actual litigation by the auditor against the entity for an amount not material to the auditor or to the financial statements of the entity arising out of disputes as to billings for management advisory services c. actual litigation by the auditor against the present management, alleging management of fraud or deceit d. actual litigation by the entity against the auditor for an amount not material to the auditor or to the financial statements of the entity arising out of a dispute as to billings for tax services

A

Which of the following most likely would give the most assurance concerning the valuation assertion for A/R? a. assessing the allowance for uncollectible accounts for reasonableness b. tracing amounts in the subsidiary ledger to details on the shipping documents c. inquiring about receivables pledged under loan agreements d. comparing receivable turnover ratios to industry statistics for reasonableness

B

Which of the following presumptions is least likely to relate to the reliability of audit evidence? a. the more effective internal control, the more assurance it provides about the accounting data and financial statements b. an auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost c. evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity d. the independent auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly

D

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? a. contrast the ratio of A/P to purchases with the prior years ratio b. vouch a sample of creditor balances to supporting invoices, receiving reports and purchase orders c. reconcile receiving reports with related cash payments made just prior to year-end d. compare cash payments occurring after the balance sheet date with the A/P trial balance

B

Which of the following procedures would an auditor most likely rely on to verify management's assertion of completeness? a. reviewing standard bank confirmations for indications of cash manipulations b. comparing a sample of shipping documents to related sales invoices c. observing the entity's distribution of payroll checks d. confirming a sample of recorded receivables by direct communications with the debtors

Audit risk model applies to the financial statements as a whole, as well as to the individual audit areas

Which of the following statements about the "audit risk model" is not true?

C

Which of the following statements best describes management's and the external auditor's respective levels of responsibility for a public company's financial statements? a. management and the external auditor share equal responsibility for the fairness of the entity's financial statements in accordance with GAAP b. neither management nor the external auditor has significant responsibility for the fairness of the entity's financial statements in accordance with GAAP c. Management has the primary responsibility to ensure that the company's financial statements are prepared in accordance with GAAP, and the auditor provides reasonable assurance that the financial statements are free of material misstatement d. management has the primary responsibility to ensure that the company's financial statements are prepared in accordance with GAAP, and the auditor provides a guarantee that the statements are free of material misstatement

C

Which of the following statements best describes the role of materiality in a financial statement audit? a. Materiality refers to the "material" from which the audit evidence is developed b. the higher the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather c. the lower the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather d. the level of materiality has no bearing on the amount of evidence the auditor must gather

D

Which of the following statements best describes what is meant by an unqualified audit opinion? a. issuance of an unqualified auditor's report indicates that in the auditor's opinion the client's financial statements are not fairly enough presented in accordance with agreed-upon criteria to qualify for a clean opinion b. issuance of an unqualified auditor's report indicates that the auditor is not qualified to express an opinion that the client's financial statements are fairly presented in accordance with agreed-upon criteria c. issuance of an unqualified auditor's report indicates that the auditor is expressing different opinions on each of the basic financial statements regarding whether the client's financial statements are fairly presented in accordance with agreed-upon criteria d. issuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's financial statements are fairly presented in accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases

C

Which of the following statements best explains why public accounting, as a profession, promulgates ethical standards and establishes means for ensuring their observance? a. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts b. ethical standards that emphasize excellence in performance over material rewards establish individual reputations for competence and character c. ethical standards are established so that users of accounting services know what to expect and accounting professionals know what behaviors are acceptable, and so that discipline can be applied when necessary d. a requirement for a profession is to establish ethical standards that primarily stress responsibility to entities and colleagues

A

Which of the following statements is correct regarding the relationships among auditing, attestation, and assurance services? a. auditing is a type (that is, a subset) of assurance service b. attestation is a type (that is, a subset) of audit service c. auditing and attestation are distinctly different and there is no overlap d. the words auditing, attestation, and assurance may be used interchangeably e. consulting services are permitted along with attestation and assurance engagements, but are prohibited in connection with auditing engagements

C

Which of the following statements relating to attests and assurance services is NOT correct? a. independence is an important attribute of assurance service providers b. assurance services can be performed to improve the quality or context of information for decision makers c. financial statement auditing is a form of attest service but it is not an assurance service d. in performing an attest service, the CPA determines the correspondence of the subject matter (or an assertion about the subject matter) against criteria that are suitable and available to users

A

Which of the following types of audit evidence is least reliable? a. prenumbered purchase order forms prepared by the entity b. bank statements obtained from the entity c. test counts of inventory performed by the auditor d. correspondence from the entity's attorney about litigation

D (because you won't give the company specific details about the plan)

Which of the following would NOT normally be included in the audit engagement letter? a. management's responsibilities b. auditor repsonsibilities c. estimated fees expected for the work to be performed d. nature, timing, and extent of planned audit procedures e. the estimated timeline expected for issuance of the audit report

B

Which of the following would an auditor most likely use in determining overall materiality when planning an audit? a. The anticipated sample size of the planned substantive tests b. The entity's income before taxes for the period-to-date (e.g., 6 months) c. The results of tests of controls d. The contents of the engagement letter

B

Which of the following would be considered a nonattest assurance service engagement? 1. Expressing an opinion about the reliability of an entity's financial statements 2. Reviewing and commenting on an entity-prepared business plan a. 1 only b. 2 only c. Both 1 and 2 d. Neither 1 nor 2

A

Which of these statements concerning illegal acts by clients is correct? a. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud b. An audit in accordance with GAAS normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements c. An auditor considers illegal acts from the perspective of the reliability of management's representations rather than their relation to the audit objectives derived from financial statement assertions d. An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial statements

B

Without the consent of the entity, a CPA should not disclose confidential entity information contained in working papers to a(n): a. authorized quality control review board b. CPA firm that has been engaged to audit a former audit entity c. federal court that has issued a valid subpoena d. disciplinary body created under state statute