430 test 1

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An integrated audit performed under the Sarbanes-Oxley Act requires that auditors report on: Financial Statements Internal Control A. Yes Yes B. Yes No C. No Yes D. No No

Audits of financial statements are designed to obtain reasonable assurance of detecting material misstatements due to: Errors Misappropriation of Assets A. Yes Yes B. Yes No C. No Yes D. No No

Audits of financial statements are designed to obtain reasonable assurance of detecting misstatement due to: Fraudulent Financial Reporting Misappropriation of Assets A. Yes Yes B. Yes No C. No Yes D. No No

Financial statement assertions are established for classes of transactions: Account Balances Disclosures A. Yes Yes B. Yes Yes C. Yes No D. No Yes

In obtaining sufficient appropriate audit evidence, the work of which type or types of specialists may be relied upon? Client Engaged Auditor Engaged A. Yes Yes B. Yes No C. No Yes D. No No

Individuals who commit fraud are ordinarily able to rationalize the act and also have an: Incentive Opportunity A. Yes Yes B. Yes No C. No Yes D. No No.

Of the following, which are current types of peer reviews? System Reviews Engagement Reviews A. Yes Yes B. Yes No C. No Yes D. No No

Ordinarily, a public company audit report must be addressed to: Board of Directors Shareholders A. Yes Yes B. Yes No C. No Yes D. No No

The Public Company Accounting Oversight Board has authority to establish which of the following relating to public companies? Attestation Standards Independence Standards A. Yes Yes B. Yes No C. No Yes D. No No

Which measure(s) of materiality considers quantitative considerations? Planning Evaluation A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following is (are) considered a further audit procedure(s) that may be designed after assessing the risks of material misstatement? Substantive Tests of Details Substantive Analytical Procedures A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following approaches to an audit is most likely to result in a detailed analysis of one or more characteristics of an entire population? A horizontal analysis approach. A test design approach. A data analytical approach. A ratio analysis approach.

A data analytical approach.

To be effective, analytical procedures performed near the end of the audit should be performed by The partner performing the quality review of the audit. A beginning staff accountant who has had no other work related to the engagement. A manager or partner who has a comprehensive knowledge of the client's business and industry. The CPA firm's quality control manager.

A manager or partner who has a comprehensive knowledge of the client's business and industry.

PCAOB standards suggest which of the following when interpreting the federal securities laws relating to materiality? A material amount would significantly alter the "total mix" of information made available to an investor. Materiality cannot be used as a basis for interpreting federal securities laws. A material amount is that at which an individual's decision would be changed. Materiality is composed of quantitative and not qualitative aspects.

A material amount would significantly alter the "total mix" of information made available to an investor.

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence? A price for a similar asset obtained from an active market. An appraisal obtained discounting future cash flows. Management's judgment of the cost to purchase an equivalent asset. The historical cost of the asset.

A price for a similar asset obtained from an active market.

A successor auditor is required to make an effort to communicate with the predecessor auditor prior to: Performing test of controls. Testing beginning balances for the current year. Making a proposal for the audit engagement. Accepting the engagement.

Accepting the engagement.

Which of the following are issued by the Securities and Exchange Commission? Accounting and Auditing Enforcement Releases. Accounting Trends and Techniques. Industry Audit Guides. Statements of Position.

Accounting and Auditing Enforcement Releases.

Which of the following is not an assertion relating to classes of transactions? Accuracy. Adequacy. Cutoff. Classification.

Adequacy.

An audit opinion that states that the financial statements are not fairly presented is referred to as a(n) Adverse opinion. Limited assurance opinion. Negative opinion. Unqualified opinion.

Adverse opinion.

A summary of findings rather than assurance is most likely to be included in a(n): Agreed-upon procedures report. Compilation report. Examination report. Review report.

Agreed-upon procedures report.

If the economy is experiencing a recession, an auditor should focus increased attention on which of the following accounts? Purchase returns and allowances. Allowance for doubtful accounts. Common stock. Noncontrolling interest of a subsidiary purchased during the year.

Allowance for doubtful accounts.

The internal control flowchart is an example of: A supporting schedule. An administrative working paper. A lead schedule. A corroborative working paper.

An administrative working paper.

Which of the following statements is always true when an auditor is planning a year-end audit? An engagement should not be accepted after the fiscal year-end. An inventory count must be observed at the balance sheet date. The client's audit committee should not be told of any specific audit procedures which will be performed. An audit plan should be developed that includes a time budget.

An audit plan should be developed that includes a time budget.

Which of the following best describes the reason why independent auditors report on financial statements? A management fraud may exist and it is more likely to be detected by independent auditors. An audit provides credibility to the financial statements. A misstatement of account balances may exist and is generally corrected as the result of the independent auditors' work. Poorly designed internal control may be in existence.

An audit provides credibility to the financial statements.

Which of the following is accurate, as indicated in the principles underlying an audit? Management is expected to provide the auditors with all needed evidence prior to the beginning of audit work. An auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement. Auditors are responsible for having appropriate competence to perform the audit without the assistance of outside specialists. Management is responsible for preparing accurate financial statement amounts, while auditors are responsible for auditing those amounts and for preparing note disclosures related to those amounts.

An auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement.

Which of the following is a principle underlying an audit conducted in accordance with generally accepted auditing standards? The audit provides reasonable assurance the client will remain in business for at least one year. The audit report expresses an opinion on whether the financial statements are free of material and immaterial misstatement. Auditors are responsible for, among other things, maintaining professional objectivism, exercising professional engagement, and obtaining appropriate documentation. An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.

An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.

Preliminary arrangements agreed to by the auditors and the client should be documented in writing by the auditors. This documentation is known as: A memorandum to be placed in the permanent section of the auditing working papers. An engagement letter. A client representation letter. A confirmation letter attached to the constructive services letter.

An engagement letter.

Which of the following is least likely to be considered a "further audit procedure"? Tests of approval of sales transactions. An engagement letter. Analytical procedures performed as substantive procedures relating to inventory. Accounts receivable confirmation.

An engagement letter.

Which of the following situations would heighten an auditor's concern about the risk of fraudulent financial reporting Large amounts of liquid assets that are easily convertible into cash. Low growth and profitability as compared to other entity's in the same industry. Financial management's participation in the initial selection of accounting principles. An overly complex organizational structure involving unusual lines of authority.

An overly complex organizational structure involving unusual lines of authority.

An auditor performs analytical procedures that involve comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years. The auditor notes a significant increase in the gross margin at one division. The auditor does some preliminary investigation and also notes that there were no changes in products, production methods, or divisional management during the year. Based on the above information, the most likely cause of the increase in gross margin would be: An increase in the number of competitors selling similar products. A decrease in the number of suppliers of the material used in manufacturing the product. An overstatement of year-end inventory. An understatement of year-end accounts receivable.

An overstatement of year-end inventory.

Comparing the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable during an audit would be a type of: Test of transactions. Analytical procedure. Test of controls. Test of details.

Analytical procedure.

Which of the following is true about analytical procedures? Performing analytical procedures results in the most reliable form of evidence. Analytical procedures are tests of controls used to evaluate the quality of a client's internal control. Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances. Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

Analytical procedures are used in risk assessment, as a substantive procedure for specific accounts, and near the completion of the audit of the audited financial statements.

An abnormal fluctuation in gross profit suggests the need for extended audit procedures for sales and inventories. This would most likely be identified in the audit risk assessment phase by utilizing: Tests of transactions and balances. An assessment of internal control. An audit time budget. Analytical procedures.

Analytical procedures.

An investor reading the financial statements of The Fairbury Corporation observes that the statements are accompanied by an unmodified auditors' report. From this, the investor may conclude that: Any disputes over significant accounting issues have been settled to the auditors' satisfaction. The auditors are satisfied that Fairbury is operationally efficient. The auditors have ascertained that Fairbury's financial statements are free from error. Informative disclosures in the financial statements but not necessarily in the footnotes are to be regarded as reasonably adequate.

Any disputes over significant accounting issues have been settled to the auditors' satisfaction.

Financial statements are prepared following a(an) Applicable financial reporting framework. Appropriate subject matter. Generally accepted auditing standards. Set of quality control standards.

Applicable financial reporting framework.

Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud? Are all financial reporting operations at one location? Does it have knowledge of fraud or suspect fraud? Does it have programs to mitigate fraud risks? Has it reported to the audit committee the nature of the company's internal control?

Are all financial reporting operations at one location?

Which of the following is least likely to render a quantitatively small misstatement material? Affects the registrant's compliance with regulatory requirements. Masks a change in earnings or other trends. Arises from an item not capable of precise measurement. The transaction involves a related party.

Arises from an item not capable of precise measurement.

A nonpublic company auditors' report is most likely to be addressed to the company whose financial statements are being examined or to that company's: Chief operating officer. President. Audit Committee. Chief financial officer.

Audit Committee.

In the United States, the hiring of a company's external auditors of a public company is most likely the responsibility of the Audit committee. Board of directors. Management. Public Company Accounting Oversight Board.

Audit committee.

The Statements on Auditing Standards have been issued by the: Auditing Standards Board. Financial Accounting Standards Board. Securities and Exchange Commission. Federal Bureau of Investigation.

Auditing Standards Board.

An advantage of data analytical approaches applied to auditing is that Auditing of entire populations of transactions may, in particular situations, become cost justified. The legal situation in the United States makes it clear that such an approach will lead to less liability for auditors. Such approaches eliminate the need for auditor professional skepticism. Such approaches generally result in the analysis of far fewer transactions than do traditional sampling approaches.

Auditing of entire populations of transactions may, in particular situations, become cost justified.

Even though the quantity, type, and content of working papers will vary, the working papers generally would include: Copies of those client records examined by the auditor during the course of the engagement. An evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. Auditor's comments concerning the efficiency and competence of client management personnel. Auditing procedures followed and the testing performed in obtaining audit evidence.

Auditing procedures followed and the testing performed in obtaining audit evidence.

According to the professional standards, auditors may document the understanding established with an audit client through a(n) Written communication with the client Oral Communication with the client A. Yes Yes B. Yes No C. No Yes D. No No

An audit provides reasonable assurance of detecting which of the following types of material illegal acts? Direct Effect Without a Direct Effect A. Yes Yes B. Yes No C. No Yes D. No No

An unconditional responsibility to follow an AICPA professional standard exists when the professional standard uses the term(s): Must Should A. Yes Yes B. Yes No C. No Yes D. No No

The components of the risk of misstatement are: Inherent Risk Control Risk Detection Risk A. Yes Yes Yes B. Yes Yes No C. Yes No No D No Yes Yes

The risk associated with survivability and profitability is referred to as Information risk. Inherent risk. Relative risk. Business risk

Business risk

The risk that a company will not be able to meet its obligations when they become due is an aspect of: Information risk. Inherent risk. Relative risk. Business risk.

Business risk.

Authoritative GAAP Sources include: FASB Remediation Statements FASB Codification A. Yes Yes B. Yes No C. No Yes D. No No

By definition, proper professional skepticism on an audit requires: Questioning mind Subjective assessment of audit evidence A. No No B. No Yes C. Yes No D. Yes Yes

Further audit procedures include: Risk assessment procedures Tests of controls A. Yes Yes B. Yes No C. No Yes D. No No

Primary responsibility for the financial statements lies with: Auditors Management A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following types of audits are ordinarily performed following generally accepted auditing standards? Public Company Audit Nonpublic Company Audit A. Yes Yes B. Yes No C. No Yes D. No No

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

Company management falsifies inventory count tags thereby overstating ending inventory and understating cost of goods sold.

Which of the following is most likely to be considered an analytical procedure? Testing purchases at year-end to determine they were recorded in the proper period. Comparing inventory balances to recent sales activities. Selecting a sample of year-end receivables for confirmation. Reconciling physical counts of inventory to perpetual records.

Comparing inventory balances to recent sales activities.

Which procedure is not a typical analytical procedure? Study of relationships of the financial information with relevant nonfinancial information. Comparison of the financial information with similar information regarding the industry in which the entity operates. Comparison of recorded amounts of major disbursements with appropriate invoices. Comparison of the financial information with budgeted amounts.

Comparison of recorded amounts of major disbursements with appropriate invoices.

Which of the following is not considered to be an analytical procedure? Comparisons of financial statement amounts with source documents. Comparisons of financial statement amounts with non financial data. Comparisons of financial statement amounts with budgeted amounts. Comparisons of financial statement amounts with comparable prior year amounts.

Comparisons of financial statement amounts with source documents.

Which of the following is least likely to be directly examined in an inspection performed by the PCAOB? Audit engagements. Review engagements. Compilation engagements. CPA firm quality control system.

Compilation engagements.

When using management's written representations as audit evidence about the completeness assertion, an auditor should consider that such representations: Complement, but do not replace, substantive procedures designed to support the assertion. Constitute sufficient evidence to support the assertion when considered in combination with a moderate assessed level of control risk. Are generally sufficient audit evidence to support the assertion regardless of the assessed level of control risk. Replace the assessed level of control risk as evidence to support the assertions.

Complement, but do not replace, substantive procedures designed to support the assertion.

An auditor who selects a sample from the shipping documents file to determine whether invoices were prepared is satisfying the audit objective of: Accuracy. Completeness. Control. Existence.

Completeness.

Tracing from source documents forward to ledgers is most likely to address which assertion related to posted entries? Completeness. Existence. Rights. Valuation.

Completeness.

Which of the following terms best describes the audit of a taxpayer's tax return by an IRS auditor? Operational audit. Internal audit. Compliance audit. Government audit.

Compliance audit.

While assessing the risks of material misstatement, auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks, and: Assess the risk of misstatements due to illegal acts. Consider the complexity of the transactions involved. Consider the likelihood that the risks could result in material misstatements. Determine materiality levels.

Consider the likelihood that the risks could result in material misstatements.

Which of the following is not a type of auditors' opinion? Adverse. Conventional. Qualified. Unmodified.

Conventional

The public company audit report is most likely to have a section with the title of: Critical Audit Matters. Management Responsibilities. Shareholder Responsibilities. Type of Conclusion.

Critical Audit Matters.

An auditor is performing an analytical procedure that involves comparing a client's ratios with other companies in the same industry. This technique is referred to as: Vertical analysis. Horizontal analysis. Cross-sectional analysis. Comparison analysis.

Cross-sectional analysis.

A predecessor auditor will ordinarily initiate communication with the successor auditor: Prior to the Subsequent to the Successor's Acceptance Successor's Acceptance of the Engagement of the Engagement A. Yes Yes B. Yes No C. No Yes D. No No

Examination of large data sets to uncover hidden patterns is often referred to as: Data analytics. Analysis review procedures. Tests of controls. Artificial analytical review.

Data analytics

The management representation letter date should coincide with the: Date of the auditor's report. Balance sheet date. Date of the latest subsequent event referred to in the notes to the financial statements. Date of the engagement agreement.

Date of the auditor's report.

An unexpected economic downturn is likely to have which effect on inventory turnover. Increase. Decrease. No effect. Each of these replies is equally likely.

Decrease.

Working papers used by the auditor that record the procedures used to gather evidence should be: Considered the primary support for the financial statements being examined. Viewed as the connecting link between the books of account and the financial statements. Designed to meet the circumstances of the particular engagement. Destroyed when the audited entity ceases to be a client.

Designed to meet the circumstances of the particular engagement.

The auditors will typically not initiate discussion with the audit committee regarding the: Extent to which the work of internal auditors will influence the scope of the examination. Extent to which change in the company's organization will influence the scope of the examination. Details of potential problems which the auditors believe might cause a qualified opinion. Details of the procedures which the auditors intend to apply.

Details of the procedures which the auditors intend to apply.

During financial statement audits, auditors seek to restrict which type of risk? Control risk. Detection risk. Inherent risk. Account risk.

Detection risk.

The risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an account balance when in fact such a misstatement does exist is referred to as: Account risk. Control risk. Detection risk. Inherent risk.

Detection risk.

The inspection of a vendor's invoice by the auditors is: Direct evidence about occurrence of a transaction. Physical evidence about occurrence of a transaction. Documentary evidence about occurrence of a transaction. Part of the client's accounting system.

Documentary evidence about occurrence of a transaction.

The date on which no information may be deleted from audit documentation is the Client's year-end. Documentation completion date. Last date of significant fieldwork. All of these are incorrect in that no information may ever be deleted from audit documentation.

Documentation completion date.

Which of the following is not an element of quality control? Documentation. Engagement performance. Monitoring. Relevant ethical requirements.

Documentation.

An act passed by Congress aimed at promoting financial stability improving accountability and transparency in the financial system: Better governance Act. Dodd-Frank Act. Public Company Accounting Oversight Board Act. Sarbanes-Oxley Act.

Dodd-Frank Act.

A requirement that working papers be reviewed by the supervisor, and any deficiencies be discussed with the preparer is an example of a quality control procedure in the area of: Acceptance and continuance of client relationships and specific engagements. Engagement performance. Human resources. Relevant ethical requirements.

Engagement performance.

An audit should be designed to obtain reasonable assurance of detecting material misstatements due to: Errors. Errors and fraud. Errors, fraud, and noncompliance with laws with a direct effect on financial statement amounts and others. Errors, fraud and noncompliance with all laws.

Errors, fraud, and noncompliance with laws with a direct effect on financial statement amounts and others.

Which of the following is not a general objective for the audit of asset accounts? Establishing existence of assets. Establishing proper valuation of assets. Establishing proper liabilities relating to assets. Establishing the completeness of assets.

Establishing proper liabilities relating to assets.

What type of transactions ordinarily have high inherent risk because they involve management judgments or assumptions in formulating accounting balances? Estimation. Nonroutine. Qualified. Routine.

Estimation.

Attestation risk is limited to a low level in which of the following engagement(s)? Both examinations and reviews. Examinations, but not reviews. Reviews, but not examinations. Neither examinations nor reviews.

Examinations, but not reviews

Auditors must assess fraud risk on every audit and respond to the risks that are identified. Which of the following is not a procedure required to further address the fraud risk of management override of internal control? Reviewing accounting estimates for biases. Examining physical controls over assets. Evaluating the business rationale for significant unusual transactions. Examining journal entries and other adjustments for evidence of fraud.

Examining physical controls over assets.

The process of working from financial statement figures back to detailed documents most directly addresses the financial statement assertion of Completeness. Existence. Disclosure. Correctness.

Existence.

Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting? Low turnover of senior management. Extreme degree of competition within the industry. Capital structure including various operating subsidiaries. Sales goals in excess of any of the preceding three years.

Extreme degree of competition within the industry.

An audit of the financial statements of a company is referred to as a(n) Financial audit. Compliance audit Operational audit. Integrated financial audit.

Financial audit.

An analytical procedure example is the comparison of: Financial ratios of the current year to previous years. Recorded amounts of major disbursements with appropriate invoices. Results of a statistical sample with the expected characteristics of the actual population. EDP generated data with similar data generated by a manual accounting system.

Financial ratios of the current year to previous years.

A set of criteria used to determine measurement, recognition, representation, and disclosure of all material items appearing in the financial statements is referred to as a(n) Financial reporting framework. Public Company Accounting Oversight Board Criteria. Quality control presentation standard. Special purpose audit standard.

Financial reporting framework.

The FDIC Improvement Act requires that management of large financial institutions engage auditors to attest to assertions by management about the effectiveness of the institution's internal controls over: Broker and dealer relationships. Financial reporting. Effectiveness of operations. Efficiency of operations.

Financial reporting.

Which of the following types of services is generally provided only by CPA firms? Tax audits. Financial statement audits. Compliance audits. Operational audits.

Financial statement audits.

A form filed with the SEC when a company changes auditors is a: Form 8-K. Form 10-K. Form S-1. Form B-1.

Form 8-K.

Which of the following is correct concerning requirements about auditor communications about fraud? Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. All fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. The auditor has no responsibility to disclose fraud outside the entity under any circumstances.

Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved.

Operational auditing is primarily oriented toward: Future improvements to accomplish the goals of management. The accuracy of data reflected in management's financial records. The verification that a company's financial statements are fairly presented. Past protection provided by existing internal control.

Future improvements to accomplish the goals of management.

Financial accounting standards for cities are developed primarily by the FASB. IFAC. GASB. SEC.

GASB.

To best test existence, an auditor would sample from the: General ledger to source documents. General ledger to the financial statements. Source documents to the general ledger. Source documents to journals.

General ledger to source documents.

The financial statements of a United States public company are most likely to follow: Generally accepted accounting principles. International Standards of Auditing. Public Company Accounting Oversight Board Principles. Quality control standards.

Generally accepted accounting principles.

Which of the following is not a service included in the attestation subject matter standard? Compliance attestation. Financial forecasts and projections. Historical financial statement examination. Service organization controls.

Historical financial statement examination.

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as: Vertical analysis. Horizontal analysis. Cross-sectional analysis. Comparison analysis.

Horizontal analysis.

Which of the following is one of the elements of AICPA quality control? Assurance of proper levels of association. Due professional care. Human Resources. Supervision.

Human Resources.

A requirement to design recruitment processes and procedures to help the firm select individuals meeting minimum academic requirements established by the firm is an example of a quality control procedure in the area of: Acceptance and continuance of client relationships and specific engagements. Engagement performance. Human resources. Relevant ethical requirements.

Human resources.

Management is concerned about the lower level of profitability in the Mid-Central Region. Which of the following would be a reasonable possible explanation(s) of the lower profitability for the Mid-Central Region? The lower number of stores in the Mid-Central Region. Sales employees are not as productive in generating sales as those in other regions. The Mid-Central Region has a lower gross margin. I only. II only. II and III only. I, II and III.

II and III only.

Which of the following best describes a portion of the auditors' responsibility regarding noncompliance with laws by clients? The auditors have a responsibility to discover all material noncompliance. If audit procedures reveal noncompliance, the auditors should take appropriate actions. If the auditors suspect noncompliance, they should conduct a legal audit of the company. The auditors' responsibility for the detection of all noncompliance is the same as their responsibility regarding material misstatements due to errors and fraud.

If audit procedures reveal noncompliance, the auditors should take appropriate actions.

Which of the following is correct concerning the PCAOB's concept of a significant account? It is the same as a relevant assertion. The auditor need only consider significant accounts when controls do not operate effectively. In deciding whether an account is a significant account one does not consider the effect of internal control. It is an account for which qualitative materiality considerations are particularly important.

In deciding whether an account is a significant account one does not consider the effect of internal control.

Which of the following situations would raise an auditor's concern about the risk of fraudulent financial reporting? Inability to generate positive cash flows from operations, while reporting large increases in earnings. Management's lack of interest in increasing the dividend paid on common stock. Large amounts of liquid assets that are easily convertible into cash. Inability to borrow necessary capital without obtaining waivers on debt covenants.

Inability to generate positive cash flows from operations, while reporting large increases in earnings.

An attestation engagement: Has as its primary source of standards the assurance standards. Includes a report on subject matter, or on an assertion about subject matter. Includes search and verification procedures for all major accounts. Is ordinarily an examination, review or compilation engagement.

Includes a report on subject matter, or on an assertion about subject matter.

The attest function: Is an essential part of every engagement by the CPA, whether performing auditing, tax work, or other services. Includes the preparation of a report of the CPA's findings. Requires a consideration of internal control. Requires a complete review of all transactions during the period under examination.

Includes the preparation of a report of the CPA's findings.

Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry) will: Decrease recorded net income. Decrease the current ratio. Increase days of sales in accounts receivable. Increase year-end recorded inventory.

Increase days of sales in accounts receivable.

Which of the following is not an example of a likely adjustment in the auditors' overall audit approach when significant risk is found to exist? Apply increased professional skepticism about material transactions. Increase the assessed level of detection risk. Assign personnel with particular skill to areas of high risk. Obtain increased evidence about the appropriateness of management's selection of accounting principles.

Increase the assessed level of detection risk.

Which of the following attributes is more essential for an auditor than of management? Integrity. Competence. Independence Keeping informed on current professional developments.

Independence.

Which of the following is not an element of quality control? Monitoring. Independence. Human resources. Engagement performance.

Independence.

The risk that a company's financial statements will materially depart from generally accepted accounting principles is referred to as: Business Risk. Information Risk. Detection Risk. Control Risk.

Information Risk.

The risk of a material misstatement occurring in an account, assuming an absence of internal control, is referred to as: Account risk. Control risk. Detection risk. Inherent risk.

Inherent risk.

Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the: Adequacy of the preplanned audit plan. Ability to establish consistency in application of accounting principles between years. Apparent scope limitation. Integrity of management.

Integrity of management.

Which of the following groups are not considered a specialist by AICPA Professional Standards? Appraisers. Internal auditors. Engineers. Geologists.

Internal auditors.

International Standards on Auditing are issued by: International Standards Board. International Auditing and Assurance Standards Board. Public Company Accounting Oversight Board. International Auditing Education Standards Board.

International Auditing and Assurance Standards Board.

The body that issues international pronouncements providing auditing procedural and reporting guidance is the: International Federation of Auditors. Multinational Reporting Commission. International Auditing and Assurance Standards Board. AICPA Auditing Standards Board.

International Auditing and Assurance Standards Board.

Confirmation would be most effective in addressing the existence assertion for the: Addition of a milling machine to a machine shop. Payment of payroll during regular course of business. Inventory held on consignment. Granting of a patent for a special process developed by the organization.

Inventory held on consignment.

Which of the following conditions identified during the audit increases the risk of employee fraud? Large amounts of cash in the bank. Existence of a mandatory vacation policy for employees performing key functions. Inventory items of small size, but high value. Presence of reconciling items on a client prepared year-end proof of cash.

Inventory items of small size, but high value.

The auditors use analytical procedures during the course of an audit. The most important phase of performing these procedures is the: Vouching of all data supporting various ratios. Investigation of significant variations and unusual relationships. Comparison of client-computed statistics with industry data on a quarterly and full-year basis. Recalculation of industry date.

Investigation of significant variations and unusual relationships.

When compared to an audit performed prior to 1900, an audit today: Is more likely to use sampling. Is less likely to include consideration of the effectiveness of internal control. Has bank loan officers as the primary financial statement user group. Includes a more detailed examination of all individual transactions.

Is more likely to use sampling

The review of a company's financial statements by a CPA firm: Is substantially less in scope of procedures than an audit. Requires detailed analysis of the major accounts. Is of similar scope as an audit and adds similar credibility to the statements. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements.

Is substantially less in scope of procedures than an audit.

Which of the following is not correct relating to the Sarbanes-Oxley Act? It toughens penalties for corporate fraud. It restricts the types of consulting CPAs may perform for audit clients. It applies to both public and nonpublic audit clients. It eliminates a significant portion of the accounting profession's system of self-regulation.

It applies to both public and nonpublic audit clients.

Which of the following situations would lead a CPA to conclude that a potential audit engagement should not be accepted? There are significant related party transactions that management claims occurred in the ordinary course of business. Internal control activities requiring the segregation of duties are subject to management override. Management continues to employ an inefficient system of information technology to record financial transactions. It is unlikely that sufficient evidence is available to support an opinion on the financial statements.

It is unlikely that sufficient evidence is available to support an opinion on the financial statements.

Which of the following is not accurate as it applies to using data analytics in financial statement auditing: It is often used with audit software such as ACL and IDEA. It may be used in the risk assessment stage of the audit. It may consider nonfinancial information. It ordinarily requires that all audit staff members maintain a high level of data analytics skills.

It ordinarily requires that all audit staff members maintain a high level of data analytics skills.

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with: Technical training that assures proficiency as an auditor. Professional education that is required in order to perform with due professional care. Knowledge required to fulfill assigned responsibilities and to progress within the firm. Knowledge required in order to perform a peer review.

Knowledge required to fulfill assigned responsibilities and to progress within the firm.

Which of the following best describes the problem with the use of published industry averages for analytical procedures? Lack of comparability. Lack of sufficiency. Lack of accuracy. Lack of availability.

Lack of comparability.

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a: Supporting schedule. Lead schedule. Corroborating schedule. Reconciling schedule.

Lead schedule.

Which of the following is not an assertion that is made in the financial statements by management concerning each major account balance? Completeness. Rights and obligations. Legality. Valuation.

Legality.

Which of the following is least likely to be required on an audit? Evaluate the business rationale for significant, unusual transactions. Make a legal determination of whether fraud has occurred. Review accounting estimates for biases. Test appropriateness of journal entries and adjustments.

Make a legal determination of whether fraud has occurred.

When an auditor is planning an audit, the auditor should: Consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire. Make preliminary judgments about materiality levels for audit purposes. Conclude whether changes in compliance with prescribed control procedures justifies reliance on them. Prepare a preliminary draft of the management representation letter.

Make preliminary judgments about materiality levels for audit purposes.

A typical objective of an operational audit is for the auditor to: Determine whether the financial statements fairly present the entity's operations. Evaluate the feasibility of attaining the entity's operational objectives. Make recommendations for improving performance. Report on the entity's relative success in attaining profit maximization.

Make recommendations for improving performance.

Which of the following is least likely to be included in a client's representation letter? No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. Management acknowledges responsibility for illegal actions committed by employees. Management has made available all financial statements, including notes.

Management acknowledges responsibility for illegal actions committed by employees.

Which of the following is not an underlying premise of an audit? Management must provide the auditor with all information relevant to the preparation and fair presentation of the financial statements. Management and the auditors have responsibility for the preparation of financial statements in accordance with the applicable financial reporting framework. Where appropriate, the auditor may obtain information from those charged with governance. The auditors should be provided unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence.

Management and the auditors have responsibility for the preparation of financial statements in accordance with the applicable financial reporting framework.

The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the: Management fails to take appropriate corrective action. Illegal act has material financial statement implications. Illegal act has received widespread publicity. Auditors cannot reasonably estimate the effect of the illegal act on the financial statements.

Management fails to take appropriate corrective action.

Which of the following situations would an auditor consider a potential risk factor for misstatements from fraudulent financial reporting? Several members of management have recently purchased additional shares of the entity's stock. Several members of the board of directors have recently sold shares of the entity's stock. The entity distributes financial forecasts to financial analysts that predict conservative operating results. Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Which of the following is explicitly included as a part of the description of management's responsibility in a nonpublic company unmodified audit report? Management is responsible for making a judgment on which misstatements are material vs. immaterial. Management is responsible for providing auditors with all relevant evidence. Management is responsible for the maintenance of internal control. Management is responsible for listing all illegal acts with a direct effect on financial statement amounts and disclosures.

Management is responsible for the maintenance of internal control.

The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the: Partner assigned to the audit engagement. Management of the company. Auditor in charge of the fieldwork. Securities and Exchange Commission.

Management of the company.

Which of the following is least likely to be considered a financial statement audit risk factor? Management operating and financing decisions are dominated by top management. A new client with no prior audit history. Rate of change in the entity's industry is rapid. Profitability of the entity relative to its industry is inconsistent.

Management operating and financing decisions are dominated by top management.

Which of the following is least likely to be included as a titled section in a standard unqualified public company audit report? Basis for opinion section. Critical audit matters section. Management responsibilities section. Opinion section.

Management responsibilities section.

Which of the following factors would most likely cause a CPA to decide not to accept a new audit engagement? Lack of understanding of the potential client's internal auditors' computer-assisted audit techniques. Management's disregard for internal control. The existence of related party transactions. Management's attempt to meet earnings per share growth rate goals.

Management's disregard for internal control.

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions? The financial statements must often be adjusted for the effects of material related party transactions. Material related party transactions must be disclosed in the notes to the financial statements. The substance of related party transactions will differ from their form. In a related party transaction one party has the ability to exercise significant influence over the other party.

Material related party transactions must be disclosed in the notes to the financial statements.

An auditor should expect that fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the: Acquisition date of the asset. Audit report date. Expected replacement date of the asset. Measurement date (ordinarily the date of the financial statements).

Measurement date (ordinarily the date of the financial statements).

Which of the following best describes what is meant by generally accepted auditing standards? Acts to be performed by the auditors. Measures of the quality of the auditors' performance. Procedures to be used to gather evidence to support financial statements. Audit objectives generally determined on audit engagements.

Measures of the quality of the auditors' performance.

Which statement is correct with respect to continuing professional education (CPE) requirements of members of the AICPA? Only members employed by the AICPA are required to take such courses. Only members in public practice are required to take such courses. Members, regardless of whether they are in public practice, are required to meet such requirements. There is no requirement for members to participate in CPE.

Members, regardless of whether they are in public practice, are required to meet such requirements.

A procedure in which a quality control partner periodically tests the application of quality control procedures is most directly related to which quality control element? Engagement performance. Human resources. Leadership responsibilities for quality with the firm. Monitoring.

Monitoring.

When a Statement on Auditing Standards uses the word "should" relating to a requirement, it means that the auditor: Must fulfill the responsibilities under all circumstances. Must comply with requirements unless the auditor demonstrates and documents that alternative actions are sufficient to achieve the objectives of the standards. Should consider whether to follow the advice based on the exercise of professional judgment in the circumstances. May choose to change responsibilities relating to various professional standards that remain under consideration.

Must comply with requirements unless the auditor demonstrates and documents that alternative actions are sufficient to achieve the objectives of the standards.

The permanent file section of the working papers that is retained for each audit client most likely contains: Review notes pertaining to questions and comments regarding the audit work performed. A schedule of time spent on the engagement by each individual auditor. Correspondence with the client's legal counsel concerning pending litigation. Narrative descriptions of the client's accounting procedures and controls.

Narrative descriptions of the client's accounting procedures and controls.

n using the statement of cash flows to obtain an understanding of a profitable, growing company, which of the following would ordinarily be least surprising to an auditor? Decreases in accounts payable. Decreases in accounts receivable. Negative cash flows from investing. Negative operating cash flows.

Negative cash flows from investing.

An audit performed in accordance with generally accepted auditing standards should: Be expected to provide absolute assurance that noncompliance with all laws will be detected where internal control is effective. Be relied upon to disclose violations of truth in lending laws. Encompass a plan to actively search for all illegalities which relate to operating aspects. Not be relied upon to provide absolute assurance that all noncompliance with laws will be detected.

Not be relied upon to provide absolute assurance that all noncompliance with laws will be detected.

Which of the following is not a basic approach often used by auditors to evaluate the reasonableness of accounting estimates? Observation of procedures. Review of management's process of development. Independent development of an estimate. Review of subsequent events.

Observation of procedures.

Which of the following is least likely to be considered a risk assessment procedure? Observation of the physical count of inventory. Analytical procedures. Application of data analytical procedures. Inspection of receiving reports.

Observation of the physical count of inventory.

When an auditor accepts an audit engagement but does not possess the industry expertise of the business entity involved, the auditor should: Engage financial experts familiar with the nature of the business entity. Obtain a knowledge of matters that relate to the nature of the entity's business. Refer a substantial portion of the audit to another CPA who will act as the principal auditor. First inform management that an unqualified opinion cannot be issued.

Obtain a knowledge of matters that relate to the nature of the entity's business.

An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of one of these differences? The usual audit of financial statements covers the four basic statements, whereas the operational audit is usually limited to either the balance sheet or the income statement. Operational audits are more subjective and often involve evaluating efficiency and effectiveness of operations. Operational audits do not ordinarily result in the preparation of a report. The operational audit deals with pre-tax income.

Operational audits are more subjective and often involve evaluating efficiency and effectiveness of operations.

The order of presentation of sections in a public company financial statement audit report is: Basis for Opinion, Critical Audit Matters, Opinion. Basis for Opinion, Opinion, Critical Audit Matters. Critical Audit Matters, Basis for Opinion, Opinion. Opinion, Basis for Opinion, Critical Audit Matters.

Opinion, Basis for Opinion, Critical Audit Matters.

o test for unsupported entries in the journals, the direction of audit testing should be to the: Ledger entries. Journal entries. Original source documents. Financial statements.

Original source documents.

An engagement review form of peer review is least likely to include a peer reviewer's detailed analysis of: Compilation reports. Documentation of procedures followed on a review. Overall system of quality control. Review reports.

Overall system of quality control.

Which transaction would not necessarily be considered a related party transaction? Payment of a bonus to the president. Purchases from another corporation that is controlled by the corporation's chief stockholder. Loan from the corporation to a major stockholder. Sale of land to the corporation by the spouse of a director.

Payment of a bonus to the president.

An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): Peer Review Engagement. Quality Control Engagement Quality Assurance Engagement. Attestation Engagement.

Peer Review Engagement.

An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): Peer Review Engagement. Quality Control Engagement. Quality Assurance Engagement. Attestation Engagement.

Peer Review Engagement.

Management has centralized purchasing and uses a model based upon previous year's sales with adjustments for trends in the market place (e.g., the trend to more casual shoes). A staff auditor has suggested that the centralized purchasing may be one of the reasons for the lower level of profitability in the Mid-Central Region. Which of the following would be the best single audit procedure to address the staff auditor's assertion? Take a sample of receiving documents at stores and trace to purchase orders to determine the length of time between the purchase and delivery of the goods. Interview store managers in the Mid-Central Region to determine their attitude toward centralized purchasing. Perform an inventory count at selected stores in the Mid-Central Region and determine if adjustments are needed to the perpetual records. Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions.

Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions.

Which of the following would be least likely to be considered an audit planning procedure? Use an engagement letter. Develop the overall audit strategy. Perform the risk assessment. Develop the audit plan.

Perform the risk assessment.

Auditors can mitigate risk, like the failure to detect material dollar errors in the financial statements, by doing what? Performing substantive procedures. Performing tests of controls. Assessing control risk. Obtaining a client representation letter.

Performing substantive procedures.

Applying substantive tests to the details of asset and liability accounts as of an interim date, rather than as of the balance sheet date: Eliminates the use of certain statistical sampling methods that would otherwise be available. Presumes that the auditor will reperform the tests as of the balance sheet date. Should be especially considered when there are rapidly changing economic conditions. Potentially increases the risk that errors which exist at the balance sheet date will not be detected.

Potentially increases the risk that errors which exist at the balance sheet date will not be detected.

Which of the following is not included in the auditors' standard unmodified audit report for a nonpublic company? The procedures selected by the auditor depend on the auditor's judgment. An audit includes evaluating the appropriateness of accounting policies used. An audit includes evaluating the overall presentation of the financial statements. Preferred accounting principles have been consistently applied.

Preferred accounting principles have been consistently applied.

The Auditing Standards Board's guidance on matters such as the purpose of an audit, the premise of an audit, and auditor personal responsibilities is included in: The professional responsibilities section of the generally accepted auditing standards. The Code of Professional Conduct. Accounting Series Releases. Principles Underlying an Audit Conducted in Accordance with GAAS.

Principles Underlying an Audit Conducted in Accordance with GAAS.

The auditors are planning an audit engagement for a new client. The business of the client is unfamiliar to the auditors. Which of the following would be the most useful source of information for the auditors when they are trying to obtain a general understanding of audit problems that could be encountered? Client manuals of accounts and charts of accounts. AICPA Industry Audit Guides. Prior-year working papers of the predecessor auditors. Latest annual and interim financial statements issued by the client.

Prior-year working papers of the predecessor auditors.

Analytical procedures are required at the risk assessment stage and as: Tests of internal control. Substantive procedures. Procedures near the end of the audit. Computer generated procedures.

Procedures near the end of the audit.

An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatements, and a critical assessment of audit evidence is referred to as: Reasonable assurance. Professional skepticism. Audit neutralism. Auditing mindset.

Professional skepticism.

Historically, which of the following has the AICPA been most concerned with providing? Professional standards for CPAs. Professional guidance for regulating financial markets. Standards guiding the conduct of internal auditors. Staff support to Congress.

Professional standards for CPAs.

Which of the following is not a function of working papers? Provide support for the auditors' report. Provide support for the accounting records. Aid partners in planning and conducting future audits. Document staff compliance with generally accepted auditing standards.

Provide support for the accounting records.

Passage of the Sarbanes-Oxley Act led to the establishment of the: Auditing Standards Board. Public Company Accounting Oversight Board. Public Accountancy Review Board. Securities and Exchange Commission.

Public Company Accounting Oversight Board.

In United States v. Arthur Young, the Supreme Court of the United States described the auditor's role as requiring independence, complete fidelity to the public trust and to serve as a(n): Objective observer. Public watchdog. Independent detective. Inspector with high morals.

Public watchdog.

In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are Prepared in a satisfactory control environment. Consistent with industry guidelines. Based on verifiable objective assumptions. Reasonable in the circumstances.

Reasonable in the circumstances.

Which of the following is not a financial statement assertion relating to account balances? Completeness. Existence. Rights and obligations. Recorded value and discounts.

Recorded value and discounts.

To present fairly in conformity with generally accepted accounting principles, the financial statements must: Be consistently applied. Inform users of all matters that could materially affect a decision. Reflect transactions and events within a range of reasonable limits. Be considered preferable to the users of those financial statements.

Reflect transactions and events within a range of reasonable limits.

An independent auditor finds that the Simmer Corporation purchased land owned by an officer of the company for an amount in excess of its asking price. This finding indicates the existence of: Management fraud. Related party transactions. Window dressing. Weak internal control.

Related party transactions.

Which of the following is not one of the assertions made by management about an account balance? Relevance. Existence. Valuation. Rights and obligations.

Relevance

Assertions that have a meaningful bearing on whether an account balance, transaction class, or disclosure is fairly stated are referred to as: Appropriate assertions. Sufficient assertions. Relevant assertions. Reliable assertions.

Relevant assertions.

In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy? Acceptance and continuance of clients and engagements. Engagement performance. Personnel management. Relevant ethical requirements.

Relevant ethical requirements.

If noncompliance with a law is discovered during the audit of a publicly held company, the auditors should first: Notify the regulatory authorities. Determine who was responsible for the noncompliance. Intensify the examination to identify noncompliance with any laws. Report the act to those in charge of governance within the client's organization.

Report the act to those in charge of governance within the client's organization.

Which of the following is most consistent with an increase in the ratio of debt to equity? Payment of a required principal payment on long-term debt. Repurchase of a portion of the company's outstanding common stock. Higher than expected profits due to a decrease in cost of goods sold. Payment of most accounts receivable immediately prior to year-end using a portion of the company's cash.

Repurchase of a portion of the company's outstanding common stock.

Concerning retention of working papers, the Sarbanes-Oxley Act: Has no provisions. Requires permanent retention. Requires retention for at least 7 years. Requires retention for a period of 4 or less years

Requires retention for at least 7 years.

The Government Accountability Office (GAO): is primarily concerned with rapid processing of all accounts payable incurred by the federal government. Responsibilities include conducting operational audits to ensure spending meets Congress's requirements. is a multinational organization of professional accountants. is primarily concerned with budgets and forecasts approved by the SEC.

Responsibilities include conducting operational audits to ensure spending meets Congress's requirements.

Which of the following is not a required source of information for the auditors' assessment of fraud risk? Discussion among audit team members. Fraud risk factors. Results of tests of controls. Inquiry of management and others.

Results of tests of controls.

Inquiries and analytical procedures ordinarily form the basis for which type of engagement? Agreed-upon procedures. Audit. Examination. Review.

Review.

Which of the following is a basic approach often used by auditors to evaluate the reasonableness of accounting estimates? Confirmation. Observation. Reviewing subsequent events or transactions. Analyzing corporate organizational structure.

Reviewing subsequent events or transactions.

Assertions with high inherent risk are least likely to involve: Complex calculations. Difficult accounting issues. Routine transactions. Significant judgment by management.

Routine transactions.

Based on the previous information, which of the following preliminary conclusions can the auditor use as a basis for further investigations? Sales per store are directly related to the size of the store. Sale clerks are less productive in larger size stores. Gross margin is directly related to the size of the store. Average square feet of store correlates with the number of stores in the district.

Sales per store are directly related to the size of the store.

The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the: Auditing Standards Board. Financial Accounting Standards Board. Government Accounting Standards Boards. Securities and Exchange Commission.

Securities and Exchange Commission.

A public company's audit report must be addressed to the board of directors and the Audit committee. Company itself. President. Shareholders.

Shareholders.

Tests for unrecorded assets typically involve tracing from: Source documents to recorded journal entries. Source documents to observations. Recorded journal entries to documents Recorded journal entries to observations.

Source documents to recorded journal entries.

Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during risk assessment? Turnover of personnel in the factory. Objectivity of audit committee members. Square footage of selling space. Management's plans to repurchase stock.

Square footage of selling space.

The right to practice as a CPA is given by which of the following organizations? State Boards of Accountancy. The AICPA. The SEC. The General Accounting Office.

State Boards of Accountancy

The sequentially-numbered pronouncements issued by the Auditing Standards Board over a period of years are known as: Auditing Statements of Position (ASPs). Accounting Series Releases (ASRs). Statements on Auditing Standards (SASs). Statements on Auditing Principles (SAPs).

Statements on Auditing Standards (SASs).

To minimize the risk that the audit will not detect material misstatements in the financial statements, the auditor primarily relies on: Substantive procedures. Tests of controls. Internal control. Statistical analysis.

Substantive procedures.

During an audit, the working papers are primarily considered to be: A client-owned record of conclusions reached by the auditors who performed the engagement. Evidence supporting financial statements. Support for the auditors' representations as to compliance with generally accepted auditing standards. A record to be used as a basis for the following year's engagement.

Support for the auditors' representations as to compliance with generally accepted auditing standards.

A peer review in which the peer reviewers study and appraise a CPA firm's system of quality control to perform accounting and auditing work is referred to as a(n): Engagement review. Inspection review. Supervision review. System review.

System review.

Which of the following is not a basic procedure used in an audit? Risk assessment procedures. Substantive procedures. Tests of controls. Tests of direct evidence.

Tests of direct evidence.

The auditors' report for a nonpublic company should indicate: That the audit was made in accordance with auditing standards generally accepted in the United States of America. Any weakness in internal control observed by the auditors. That accounting principles have been consistently applied. That no illegal acts have been identified.

That the audit was made in accordance with auditing standards generally accepted in the United States of America.

In cases of a publicly traded company audit in the United States, when International Standards on Auditing (ISAs) conflict with the PCAOB, standards, which of the following is correct? The ISA is applicable. The PCAOB standard is applicable. The substance of the conflict should be analyzed, and the ISA or PCAOB treatment that seems more appropriate is applicable. Both sets of standards have equal applicability.

The PCAOB standard is applicable.

Which of the following is generally true about the sufficiency of audit evidence? The amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement. The amount of evidence concerning a particular account varies inversely with the materiality of the account. The amount of evidence concerning a particular account varies inversely with the inherent risk of the account. When evidence is appropriate with respect to an account it is also sufficient.

The amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement.

Which of the following is not included as a part of the description of the auditor's responsibility in a nonpublic company unmodified report? The audit was performed in accordance with generally accepted accounting principles. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment. An audit includes evaluating the appropriateness of accounting policies used.

The audit was performed in accordance with generally accepted accounting principles.

Which of the following is the most accurate statement regarding audit evidence? Audit evidence gathered by an auditor from outside an enterprise is reliable. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions. Oral representations made by management are not valid evidence. The auditor must obtain sufficient appropriate audit evidence.

The auditor must obtain sufficient appropriate audit evidence.

Which of the following statements regarding audit evidence is generally correct? The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. To be appropriate, audit evidence must be sufficient. Accounting data alone may be considered sufficient appropriate audit evidence to issue an unqualified opinion on financial statements. Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained.

The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.

What ultimately determines the specific audit procedures necessary to provide independent auditors with a reasonable basis for the expression of an opinion? The audit time budget. The auditors' judgment. Generally accepted accounting quality standards. The auditors' working papers.

The auditors' judgment.

Which of the following topics is not normally included in an engagement letter? The auditors' level of materiality in planning the audit. The auditors' estimate of the fee for the engagement. Limitations on the scope of the engagement. A description of responsibility for the detection of fraud.

The auditors' level of materiality in planning the audit.

Which of the following statements is correct regarding the auditor's determination of materiality for a public company audit? The planning level of materiality should normally be the larger of the amount considered for the balance sheet versus the income statement. The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts. Auditors may use various rules of thumb to arrive at an evaluation level of materiality, but not for determining the planning level of materiality. The amount used for the planning should equal that used for evaluation.

The auditors' planning level of materiality may be disaggregated into smaller "tolerable misstatements" for the various accounts.

The auditors must consider materiality in planning an audit engagement. Materiality for planning purposes is: The auditors' preliminary estimate of the largest amount of misstatement that would be material to any one of the client's financial statements. The auditors' preliminary estimate of the smallest amount of misstatement that would be material to any one of the client's financial statements. The auditors' preliminary estimate of the amount of misstatement that would be material to the client's balance sheet. An amount that cannot be quantitatively stated since it depends on the nature of the item.

The auditors' preliminary estimate of the smallest amount of misstatement that would be material to any one of the client's financial statements.

Auditors must obtain written client representations that typically should be signed by: The president and the chairperson of the board. The treasurer and the internal auditor. The chief executive officer and the chief financial officer. The corporate counsel and the audit committee chairperson.

The chief executive officer and the chief financial officer.

Which of the following statements is accurate about "fraud risk factors" considered when conducting an audit? If the factors are present, it indicates that fraud exists. The factors often have been observed in circumstances where frauds have occurred. The factors will require modification to planned audit procedures. The factors obtained during the audit will lead to required communications with the audit committee.

The factors often have been observed in circumstances where frauds have occurred.

Which of the following matters is generally included in an auditor's engagement letter? The financial accounting framework that will be applied. Factors to be considered in establishing preliminary judgments about materiality. Management's liability for all illegal acts committed by its employees. The auditor's responsibility to obtain negative assurance relating to non-compliance with laws and regulations.

The financial accounting framework that will be applied.

Which situation would most likely require special audit planning by the auditor: Some items of factory and office equipment do not bear identification numbers. Depreciation methods used on the client's tax return differ from those used on the books. Assets costing less than $500 are expensed even though the expected life exceeds one year. The investment portfolio has several complex financial instruments, such as deriviatives.

The investment portfolio has several complex financial instruments, such as deriviatives.

Which situation would most likely require special audit planning by the auditors? Some items of factory and office equipment do not bear identification numbers. Depreciation methods used on the client's tax return differ from those used on the books. Assets costing less than $500 are expensed even though the expected life exceeds one year. The investment portfolio has several complex financial instruments, such as deriviatives.

The investment portfolio has several complex financial instruments, such as deriviatives.

Which of the following statements is not correct regarding the auditor's further analysis? The Mid-Central Region has fewer average full-time equivalent employees per store than the other regions per store. The other regions all generate higher sales per square foot than the Mid-Central Region. The Mid-Central Region has the highest average wages per full-time equivalent employee. The largest contributor to total corporate profits is the Southwest Region.

The other regions all generate higher sales per square foot than the Mid-Central Region.

Which of the following professionals has primary responsibility for the performance of an audit? The managing partner of the firm. The senior assigned to the engagement. The manager assigned to the engagement The partner in charge of the engagement.

The partner in charge of the engagement.

Which of the following situations would cause a CPA to not accept a new audit engagement? The prospective client has fired its prior auditor. The CPA lacks a thorough understanding of the prospective client's operations and industry. The CPA is unable to review the predecessor auditor's working papers due to a major fire that destroyed both hard and soft copy documentation. The prospective client is unwilling to make financial records available to the CPA.

The prospective client is unwilling to make financial records available to the CPA.

Which of the following is not generally considered a difficulty in using data analytical approaches in auditing and other areas? Determining data likely to be useful. Limitations in data accuracy, completeness and quality. Combining disparate databases with one another. The requirement for networks of linked "super-computers" to perform any such calculations.

The requirement for networks of linked "super-computers" to perform any such calculations.

When a company has changed auditors, according to the Professional Standards: The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management. The predecessor must always respond fully to all inquiries made by the successor auditor. The successor must discuss with the predecessor matters bearing on the engagement prior to accepting the engagement. The successor may choose not to attempt any communication with the predecessor auditor.

The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management.

What is a potential successor auditor's responsibility for communicating with the predecessor auditors when dealing with a prospective new client? The successor auditors have no responsibility to contact the predecessor auditors. The successor auditors should obtain permission from the prospective client to contact the predecessor auditors. The successor auditors should contact the predecessors regardless of whether the prospective client authorizes contact. The successor auditors need not contact the predecessors if the successors are aware of all available relevant facts.

The successor auditors should obtain permission from the prospective client to contact the predecessor auditors.

In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit? The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation. The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers. The working papers are the property of the client after the client pays the fee. The working papers must be retained by the CPA firm for a period of ten years.

The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation.

Which of the following is most likely to be included in a public company financial statement audit report? Adverse opinion. The name of the engagement partner. The audit was performed in accordance with generally accepted auditing standards. The year the auditor began serving the company.

The year the auditor began serving the company.

Which of the following statements best describes the primary purpose of Statements on Auditing Standards? They are guides intended to set forth auditing procedures which are applicable to a variety of situations. They are procedural outlines which are intended to narrow the areas of inconsistency and divergence of auditor opinion. They are authoritative statements, enforced through the Code of Professional Conduct. They are interpretations which may be useful guidance to auditors.

They are authoritative statements, enforced through the Code of Professional Conduct.

Which of the following is not a primary purpose of audit working papers? To coordinate the examination. To assist in preparation of the audit report. To decrease the need for substantive procedures. To provide evidence of the audit work performed.

To decrease the need for substantive procedures.

A CPA firm establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is: To enable the auditor to attest to the integrity or reliability of a client. To comply with the quality control standards established by regulatory bodies. To minimize the likelihood of association with clients whose managements lack integrity. To lessen the exposure to litigation resulting from failure to detect fraud in client financial statements.

To minimize the likelihood of association with clients whose managements lack integrity.

A successor auditor should always make inquiries of the predecessor auditor before accepting an audit engagement. The successor should specifically inquire about the predecessor's: Awareness of the consistency in the application of generally accepted accounting principles between accounting periods. Evaluation of all matters of continuing accounting significance. Opinion of any subsequent events occurring since the predecessor's audit report was issued. Understanding as to the reasons for the change of auditors.

Understanding as to the reasons for the change of auditors.

Which of the following is most likely to be an overall response to fraud risks identified in an audit? Only use certified public accountants on the engagement. Place increased emphasis on the audit of objective transactions rather than subjective transactions. Supervise members of the audit team less closely and rely more upon judgment. Use less predictable audit procedures.

Use less predictable audit procedures.

Determining that receivables are presented at net realizable value is most directly related to which management assertion? Existence. Rights. Valuation. Presentation and disclosure.

Valuation.

Which of the following procedures is not performed as a part of planning an audit engagement? Reviewing the working papers of the prior year. Developing an overall audit strategy. Verifying cutoff procedures. Designing an audit plan.

Verifying cutoff procedures.

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as: Vertical analysis. Horizontal analysis. Cross-sectional analysis. Comparison analysis.

Vertical analysis.

A CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so: Violates professional standards. Is acceptable, but should only be done when cost justified. Is acceptable, but only for non-public clients. Is acceptable and desirable under all conditions.

Violates professional standards.

Which of the following is not used by auditors to establish the completeness of recorded assets? Assessing control risk. Tracing from source documents to entries in the accounting records. Performing analytical procedures. Vouching transactions.

Vouching transactions.

Generally accepted auditing standards established by the AICPA through April of 2003: Were accepted as interim standards by the Public Company Accounting Oversight Board. Provide accounting guidance for nonpublic companies. Were also adopted as international auditing standards at that date. Are now developed by the Securities and Exchange Commission.

Were accepted as interim standards by the Public Company Accounting Oversight Board.

When the auditors express an opinion on financial statements, their responsibilities extend to: The underlying wisdom of their client's management decisions. Whether the results of their client's operating decisions are fairly presented in the financial statements. Active participation in the implementation of the advice given to their client. An ongoing responsibility for their client's solvency.

Whether the results of their client's operating decisions are fairly presented in the financial statements.

A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final mount that will appear in the financial statement, is referred to as a: Working trial balance. Lead schedule. Summarizing schedule. Supporting schedule.

Working trial balance.

The auditors' understanding established with a client should be confirmed through a(an): Oral communication with the client. Written communication with the client. Written or oral communication with the client. Completely detailed audit plan.

Written communication with the client.

Audit documentation is intended to allow ___________ to understand the audit work performed, the evidence obtained, and the significant conclusions. a certified public accountant the general public an experienced auditor the controller at the company being audited

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