Audit (Ch 1,2,3,6,7)

Which of the following types of audit evidence is generally the most​ reliable? 1.A bank confirmation 2.A bank statement 3.Analytical procedures 4.Inquiries made of the audit committee

1.A bank confirmation

Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from​ fraud? 1.Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion. 2.An audit is designed to provide reasonable assurance of detecting material​ errors, but there is no similar responsibility concerning fraud. 3.The factors considered in assessing control risk indicated an increased risk of intentional​ misstatements, but only a low risk of unintentional misstatements. 4.The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.

1.Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

Which of the following best describes what is meant by U.S. auditing​ standards? 1.Measures of the quality of the​ auditor's performance 2.Acts to be performed by the auditor 3.Procedures to be used to gather evidence to support financial statements 4.Audit objectives generally determined on audit engagements

1.Measures of the quality of the​ auditor's performance

When determining the​ auditor's or​ management's responsibility for compliance with laws and regulations during an​ audit, which of the following statements below would be​ incorrect? 1.The auditor is expected to detect the​ client's noncompliance with all laws and regulations affecting transaction cycles under review during the audit itself. 2.The auditor is not responsible for preventing noncompliance with laws and regulations. 3.Management and those charged with governance are responsible for ensuring that the​ company's operations are conducted in accordance with all applicable laws and regulations. 4.The auditor provides reasonable assurance that the financial statements are free of material misstatement due to noncompliance with laws and regulations.

1.The auditor is expected to detect the​ client's noncompliance with all laws and regulations affecting transaction cycles under review during the audit itself.

Which of the following is not a primary purpose of audit​ documentation? 1.To support the financial statements. 2.To coordinate the audit. 3.To provide evidence of the audit work performed. 4.To assist in preparation of the audit report.

1.To support the financial statements.

Although the​ quantity, type, and content of audit documentation will vary with the​ circumstances, audit documentation generally will include the 1.auditing procedures followed and the testing performed in obtaining audit evidence. 2.evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. 3.auditor's comments concerning the efficiency and competence of client management personnel. 4.copies of those client records examined by the auditor during the course of the engagement.

1.auditing procedures followed and the testing performed in obtaining audit evidence.

b. The date of the​ CPA's opinion on the financial statements of the client should be the date of the 1.completion of all important audit procedures. 2.closing of the​ client's books. 3.finalization of the terms of the audit engagement. 4.submission of the report to the client.

1.completion of all important audit procedures.

The major reason an independent auditor gathers audit evidence is to 1.form an opinion on the financial statements. 2.detect fraud. 3.evaluate management. 4.assess control risk.

1.form an opinion on the financial statements.

An entity changed from the​ straight-line method to the​ declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current​ year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial​ statements, the auditor should issue a report with​ a(n) 1.unmodified opinion. 2.unmodified opinion with explanatory paragraph. 3.qualified opinion. 4.qualified opinion with explanatory paragraph regarding consistency.

1.unmodified opinion.

An auditor reviews aged accounts receivable to assess likelihood of collection to support​ management's assertion about account balances of 1.valuation and allocation. 2.existence. 3.rights and obligations. 4.completeness.

1.valuation and allocation.

As compared to an unmodified​ opinion, an opinion qualified due to a material departure from generally accepted accounting principles would 1. include an extra​ paragraph, following the opinion paragraph. 2. indicate​ that, except for the problem​ noted, the financial statements are presented fairly. 3.include a slight modification to the introductory paragraph. 4.include a slight modification to the​ auditor's responsibility paragraph.

2. indicate​ that, except for the problem​ noted, the financial statements are presented fairly.

While auditing a​ client's accounting estimates used for their specific elements and​ accounts, the auditor has certain responsibilities. Which of the following is not a required audit procedure that the auditor would perform when evaluating a​ client's accounting​ estimate? 1.Verify that all material accounting estimates have been developed. 2.Determine if the accounting estimates used are consistent with those of the​ client's primary competitors. 3.Ensure that the accounting estimates used are properly disclosed in accordance with GAAP. 4.Evaluate the degree of uncertainty that is associated with the​ client's accounting estimates.

2.Determine if the accounting estimates used are consistent with those of the​ client's primary competitors.

Which of the following best describes the reason why an independent auditor reports on financial​ statements? 1.A misappropriation of assets may​ exist, and it is more likely to be detected by independent auditors. 2.Different interests may exist between the company preparing the statements and the persons using the statements. 3.A misstatement of account balances may exist and is generally corrected as the result of the independent​ auditor's work. 4.Poorly designed internal controls may be in existence.

2.Different interests may exist between the company preparing the statements and the persons using the statements.

Which of the following presumptions is correct about the reliability of audit​ evidence? 1.Reliability of audit evidence refers to the amount of corroborative evidence obtained. 2.Effective internal control provides more assurance about the reliability of audit evidence. 3.Information obtained indirectly from outside sources is the most reliable audit evidence. 4.To be​ reliable, audit evidence should be convincing rather than merely persuasive.

2.Effective internal control provides more assurance about the reliability of audit evidence.

Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of​ evidence? 1.Bank statement obtained from the client 2.Prenumbered sales invoices 3.Vendor's invoice 4.Computations made by the auditor

2.Prenumbered sales invoices

Which of the following engagements is most likely to be considered an operational​ audit? 1.The auditor assists the client in preparation of financial statements. 2.The auditor evaluates the​ organizations efficiency in processing payments. 3.The auditor examines information presented in an​ entity's financial statements to determine whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. 4.The auditor determines whether the organization is following provisions of laws and regulations.

2.The auditor evaluates the​ organizations efficiency in processing payments.

What is the general character of the responsibilities characterized by the Performance​ principles? 1.The​ competence, independence, and professional care of persons performing the audit 2.The criteria of audit planning and evidence gathering 3.Criteria for the content of the​ auditor's report on financial statements and related footnote disclosures 4.The need to maintain an independence in mental attitude in all matters pertaining to the audit

2.The criteria of audit planning and evidence gathering

Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide 1.a means of assurance that internal accounting controls are functioning as planned. 2.a measure of management performance in meeting organizational goals. 3.the results of internal examinations of financial and accounting matters to a​ company's top-level management. 4.aid to the independent​ auditor, who is conducting the audit of the financial statements.

2.a measure of management performance in meeting organizational goals.

Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide 1.a means of assurance that internal accounting controls are functioning as planned. 2.a measure of management performance in meeting organizational goals. 3.aid to the independent​ auditor, who is conducting the audit of the financial statements. 4.the results of internal examinations of financial and accounting matters to a​ company's top-level management.

2.a measure of management performance in meeting organizational goals.

Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of​ efficiency, economy,​ effectiveness, as well as 1.accuracy. 2.adherence to specific rules or procedures. 3.evaluation. 4.internal control.

2.adherence to specific rules or procedures.

In the audit of accounts​ payable, an​ auditor's procedures will most likely focus primarily on​ management's assertion about account balances of 1.valuation and allocation. 2.completeness. 3.classification and understandability. 4.existence.

2.completeness.

The Public Company Accounting Oversight Board​ (PCAOB) has the duty to 1.conduct disciplinary proceedings for nonpublic accounting firms. 2.conduct investigations concerning registered public accounting firms. 3.select the public accounting firm for the​ issuer's annual audit. 4.establish rules related to the preparation of audit reports for nonissuers.

2.conduct investigations concerning registered public accounting firms.

An auditor most likely would apply analytical procedures in the overall review stage of an audit to 1.evaluate the design and implementation of internal control. 2.identify unusual or unexpected balances that were not previously identified. 3.obtain an understanding of​ high-risk areas. 4.identify related party transactions that may not have been previously identified.

2.identify unusual or unexpected balances that were not previously identified.

The​ auditor's report contains the​ following: "We did not audit the financial statements of​ EZ, Inc., a wholly owned​ subsidiary, which statements reflect total assets and revenues constituting 27 percent and 29​ percent, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to​ us, and our​ opinion, insofar as it relates to the amounts included for​ EZ, Inc., is based solely on the report of the other​ auditors." These sentences 1.require a departure from an unmodified opinion. 2.indicate a division of responsibility. 3.assume responsibility for the other auditor. 4.are an improper form of reporting.

2.indicate a division of responsibility.

During an audit​ engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be 1.a​ client-owned record of conclusions reached by the auditors who performed the engagement. 2.support for the​ auditor's representations as to compliance with auditing standards. 3.evidence supporting financial statements. 4.a record to be used as a basis for the following​ year's engagement.

2.support for the​ auditor's representations as to compliance with auditing standards.

One of a CPA​ firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this objective is provided through 1. continuing professional education. 2. a system of peer review. 3. a system of quality control. 4.compliance with generally accepted reporting standards.

3. a system of quality control.

Which of the following is considered an assurance​ engagement? 1.Bookkeeping 2.Compilation 3.Audit 4.Preparation

3.Audit

Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other​ professions? 1.Competence. 2.Due professional care. 3.Independence. 4.Complex body of knowledge.

3.Independence.

Which of the following provides authoritative guidance for the auditor of a nonpublic​ company? 1.An article in the Journal of Accountancy that discusses new audit requirements 2.Information obtained from continuing professional education programs 3.Statements on Auditing Standards 4.Publication from state CPA societies that provides questions and answers on frequently asked audit questions

3.Statements on Auditing Standards

Because of the risk of material​ misstatement, an audit should be planned and performed with an attitude of 1.objective judgment. 2. Independent integrity. 3.professional skepticism. 4.impartial conservatism.

3.professional skepticism.

According to PCAOB audit​ standards, audit documentation must be retained for 1.three years. 2.five years. 3.seven years. 4.one year.

3.seven years.

Which of the following professional services is an attestation​ engagement? 1.A consulting service engagement to provide​ computer-processing advice to a client. 2.An income tax engagement to prepare federal and state tax returns. 3.The preparation of financial statements from a​ client's financial records. 4.An engagement to report on compliance with statutory requirements.

4.An engagement to report on compliance with statutory requirements.

Which of the following types of documentary evidence should the auditor consider to be the most​ reliable? 1.A sales invoice issued by the client and supported by a delivery receipt from an outside trucker. 2.A​ check, issued by the company and bearing the​ payee's endorsement, that is included with the bank statements mailed directly to the auditor. 3.An audit schedule prepared by the​ client's controller and reviewed by the​ client's treasurer. 4.Confirmation of an account payable balance mailed by and returned directly to the auditor.

4.Confirmation of an account payable balance mailed by and returned directly to the auditor.

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial​ statements? 1.It is a customary courtesy that all stockholders of a company receive an independent report on​ management's stewardship of the affairs of the business. 2.It is difficult to prepare financial statements that fairly present a​ company's financial​ position, operations, and cash flows without the expertise of an independent auditor. 3.It is​ management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. 4.The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

4.The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

a. Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing​ standards? 1. A title that emphasizes the report is from an independent auditor. 2.The city and state of the audit firm issuing the report. 3.A statement explaining​ management's responsibilities for the financial statements. 4.The signature of the engagement partner.

4.The signature of the engagement partner.

An auditor will most likely review an​ entity's periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support​ management's assertion about classes of transactions of 1.classification. 2.accuracy. 3.occurrence. 4.completeness.

4.completeness.

An adverse opinion and a disclaimer of opinion 1. may be used interchangeably. 2.both require modification of the introductory paragraph. 3.result in the​ auditor's withdrawal from the engagement. 4.indicate situations in which there are material departures from the standards.

4.indicate situations in which there are material departures from the standards.

c. If a principal auditor decides to refer in his or her report to the audit of another​ auditor, he or she is required to disclose the 1.name of the other auditor. 2.nature of the inquiry into the other​ auditor's professional standing and extent of the review of the other​ auditor's work. 3.reasons for being unwilling to assume responsibility for the other​ auditor's work. 4.portion of the financial statements audited by the other auditor.

4.portion of the financial statements audited by the other auditor.

The​ auditor's responsibility regarding material misstatements caused by fraud is 1.greater than the​ auditor's responsibility regarding material misstatements caused by error. 2.less than the​ auditor's responsibility regarding material misstatements caused by error. 3.either less than or greater than the​ auditor's responsibility regarding material misstatements caused by error​, depending on the circumstances. 4.the same as the​ auditor's responsibility regarding material misstatements caused by error.

4.the same as the​ auditor's responsibility regarding material misstatements caused by error.

When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in​ existence, the auditor should issue​ a(n) 1.adverse opinion. 2.unmodified opinion. 3.qualified opinion only. 4.unmodified opinion with explanatory paragraph.

4.unmodified opinion with explanatory paragraph.

When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in​ existence, the auditor should issue​ a(n) 1.qualified opinion only. 2.adverse opinion. 3.unmodified opinion. 4.unmodified opinion with explanatory paragraph.

4.unmodified opinion with explanatory paragraph.

An entity changed from the​ straight-line method to the​ declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current​ year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the f inancial​ statements, the auditor should issue a report with​ a(n) 1.qualified opinion. 2.unmodified opinion with explanatory paragraph. 3.qualified opinion with explanatory paragraph regarding consistency. 4.unmodified opinion.

4.unmodified opinion.

​First, select the choice that best describes the need an independent audit satisfies. A. An independent audit is a means of satisfying the need for reliable information on the part of the decision makers. B. An independent audit ensures financing at the lowest rate. C. An independent audit ensures that the projected cash flows is accurate. D.An independent audit is a means of satisfying the need for favorable financial ratios.

A. An independent audit is a means of satisfying the need for reliable information on the part of the decision makers.

Identify the​ reason(s) why the factor you selected in the preceding step is important. ​(Select all that​ apply.) --> Increased global activities of many businesses. A.Multiple product lines and transaction locations. B.Possibly millions of transactions processed daily via sophisticated computerized systems. C.Foreign exchange effects on transactions. D.Owners also managing the daily activities of the company. E.New accounting standards are issued on a regular basis. F.Directors not involved in​ day-to-day operations or decisions.

A.Multiple product lines and transaction locations. C.Foreign exchange effects on transactions.

What events led to the creation of the Public Company Accounting Oversight Board and what is their role in the oversight of audit​ firms? The Public Company Accounting Oversight Board​ (PCAOB) was established by the AICPA in the wake of multiple accounting scandals and alleged audit failures. The PCAOB provides oversight for auditors of public and private​ companies, including establishing auditing and quality control standards for public and private company​ audits, and performing inspections of the quality controls at audit firms performing those audits. B. The Public Company Accounting Oversight Board​ (PCAOB) was established by the​ Sarbanes-Oxley Act of 2002 in the wake of multiple accounting scandals and alleged audit failures. The PCAOB provides oversight for auditors of public​ companies, including establishing auditing and quality control standards for public company​ audits, and performing inspections of the quality controls at audit firms performing those audits. C. The Public Company Accounting Oversight Board was established within the Securities Act of 1933 in order to provide investors with reliable information upon which to make investment decisions. The PCAOB requires companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. D. The Public Company Accounting Oversight Board was established within the Securities Act of 1934 in order to provide investors with reliable information upon which to make investment decisions. The PCAOB requires public companies and others to file detailed annual reports with the SEC for review before the companies are permitted to sell securities through the securities exchanges.

B. The Public Company Accounting Oversight Board​ (PCAOB) was established by the​ Sarbanes-Oxley Act of 2002 in the wake of multiple accounting scandals and alleged audit failures. The PCAOB provides oversight for auditors of public​ companies, including establishing auditing and quality control standards for public company​ audits, and performing inspections of the quality controls at audit firms performing those audits.

Select another change in accounting and business operations over the last decade that has increased the need for independent audits. A.Historical transactions. B. Complex accounting and exchange transactions. C.Decrease in governmental regulations. D. Intercompany transactions.

B. Complex accounting and exchange transactions.

Identify the​ reason(s) why the factor you selected in the preceding step is important. ​(Select all that​ apply.) A.New and changing business relationships lead to innovative accounting and reporting problems. B.Possibly millions of transactions processed daily through online and traditional sales channels. C.Voluminous data requires interpretation. D.Foreign companies are a higher risk investment. E.New financing options available. F.Reductions in the interest rate.

B.Possibly millions of transactions processed daily through online and traditional sales channels. C.Voluminous data requires interpretation.

Two examples of generally accepted accounting principles​ are: A. accounting for leases and adequacy of informative disclosures. B. expression of opinion on financial statements and accounting for fair value assets. C. accounting for leases and accounting for fair value assets. D. expression of opinion on financial statements and adequacy of informative disclosures.

C. accounting for leases and accounting for fair value assets

Auditing​ standards: A.outline specific rules for accounting for transactions occurring in a business enterprise. B. are ten general guidelines to aid auditors in fulfilling their professional responsibilities. C. represent the combination of the four principles and all the Statements on Auditing Standards​ (SASs) that are codified in the​ AU-C sections. D. represent the combination of the six principles and four of the Statements on Auditing Standards​ (SASs) that are codified in the​ AU-C sections.

C. represent the combination of the four principles and all the Statements on Auditing Standards​ (SASs) that are codified in the​ AU-C sections.

Generally accepted accounting principles​ are: A. general rules for accounting for transactions occurring in a business enterprise established by the PCAOB. B. general rules for accounting for transactions occurring in a business enterprise established by the AICPA. C. specific rules for accounting for transactions occurring in a business enterprise established by FASB. D. specific rules for accounting for transactions occurring in a business enterprise established by the SEC.

C. specific rules for accounting for transactions occurring in a business enterprise established by FASB.

Select another change in accounting and business operations over the last decade that has increased the need for independent audits. A.Low transactions amount. B.Data transmitted electronically. C.Low risk financing option. D. More complex information systems.

D. More complex information systems.

Two examples of auditing standards​ are: A. expression of opinion on financial statements and accounting for fair value assets. B.accounting for leases and accounting for fair value assets. C. accounting for leases and SAS No. 125. D. SAS No. 124 and SAS No. 125.

D. SAS No. 124 and SAS No. 125.

Select a change in accounting and business operations over the last decade that has increased the need for independent audits. A.Generally Accepted Accounting Standards. B.Increase in gas prices. C.Internal auditors are requiring independent audits. D.Increased global activities of many businesses.

D.Increased global activities of many businesses.

Identify the​ reason(s) why the factor you selected in the preceding step is important. ​(Select all that​ apply.) --> Complex accounting and exchange transactions. A.Less disclosures is required now than was needed a decade ago. B.Owners also managing the daily activities of the company. C.Low risk financing option. D.Changes in taxes regulations. E.Increasing use of derivatives and hedging activities. F.Increasingly complex accounting standards in areas such as revenue recognition.

E.Increasing use of derivatives and hedging activities. F.Increasingly complex accounting standards in areas such as revenue recognition.

Which of the following best describes the operational​ audit? 1.It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company. 2.It concentrates on implementing financial and accounting control in a newly organized company. 3.It focuses on verifying the fair presentation of a​ company's results of operations. 4.It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.

It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.