Audit Final MC
D
A company owns a 30% voting interest in another entity. Assuming the investor did not elect the fair value option, which of the following provides the best form of audit evidence pertaining to the annual measurement of the investment? A.Market quotations of the investee's stock. B.Current fair value of the investee's assets. C.Historical cost of the investee's assets. D.Audited financial statements of the investee.
A
A practitioner may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that A. Use of the report is restricted to the specified parties. B. The prospective financial statements also are examined. C. Responsibility for the sufficiency of the procedures performed D. Limited assurance is expressed on the prospective financial statements taken as a whole.
D
A walkthrough is one procedures used by an auditor as part of the internal control audit. A walkthrough requires an auditor to A. Tour the organization's facilities and locations before beginning any audit work. B. Trace a transaction from every class of transactions from origination through the entity's information system. C. Trace a transaction from each major class of transactions from origination through the entity's information system. D. Trace a transaction from each major class of transactions from origination through the entity's information system until it is reflected in the entity's financial reports.
D
A written understanding between the auditor and the entity concerning the auditor's responsibility for fraud is usually set forth in a(n) A. Internal control letter. B. Letter of audit inquiry. C. Management letter. D. Engagement letter.
C
Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to A. All employees who work for the entity. B. Potential shareholders who request a prospectus or a registration statement. C. A bank with which the entity is negotiating for a loan. D. All shareholders of record as of the report date.
B
Although substantive tests may support the accuracy of underlying information used in monitoring, these tests may provide no affirmative evidence of the effectiveness of monitoring controls because A. Substantive tests rarely guarantee the accuracy of information used in monitoring if only a sample has been tested. B. The information used in monitoring may be accurate even through it is subject to ineffective control. C. Substantive tests relate to the entire period under audit, but tests of controls ordinarily are confined to the period during which the auditor is on the client's premises. D. When procedures are computerized and leave no audit trail to indicate who performed them, substantive tests may necessarily be limited to inquiries and observation.
B
An accountant is engaged to perform compilation services for a new client in an industry with which the accountant has no previous experience. How should the accountant obtain sufficient knowledge of the industry to perform the compilation service? A. By obtaining the most recent letter of credit from the entity's primary financial institution. B. By consulting AICPA guides, industry publications, or individuals knowledgeable about the industry. C. By researching the entity's Internet site and searching for current press releases. D. By reviewing the predecessor accountant's workpapers without the knowledge of the entity.
D
An assurance report on information can provide assurance about that information's: A. Reliability B. Relevance C. Timeliness D. All of the above
B
An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the assertion that all A.Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense. B.Expenditures for property and equipment have not been charged to expense. C.Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period. D.Expenditures for property and equipment have been recorded in the proper period.
C
An auditor is most likely to perform substantive tests of details on payroll transactions and balances when A.Cutoff tests indicate a substantial amount of accrued payroll expense. B.The level of control risk relative to payroll transactions is set at low. C.Substantive analytical procedures indicate unusual fluctuations in recurring payroll entries. D.Accrued payroll expense consists of primarily of unpaid commissions.
A
An auditor issued an audit report that was dual dated for a subsequent event occurring after the date on which the auditor has obtained sufficient appropriate audit evidence but before issuance of the financial statements. The auditor's responsibility for events occurring subsequent to the date on which the auditor has obtained sufficient appropriate audit evidence was A.Limited to the specific event referenced. B.Extended to include all events occurring since the date on which the auditor has obtained sufficient appropriate audit evidence. C.Extended to subsequent events occurring through the date of issuance of the report. D.Limited to events occurring up to the date of the last subsequent event referenced.
D
An auditor ordinarily sends a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance. One purpose of this procedure is to A.Provide the data necessary to prepare a proof of cash. B.Request that a cutoff bank statement and related checks be sent to the auditor. C.Detect kiting activities that may otherwise not be discovered. D.Seek information about loans from banks.
A
An auditor performs a vouching test on accounts receivable by looking through the general ledger, identifying sample accounts, and finding original supporting documentation for those balances. This test deals with which of the following management assertions? A. Existence B. Occurrence C. Completeness D. Accuracy, Valuation, and Allocation
B
An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. Tracing test counts most likely obtained evidence concerning the relevant assertion about A.Rights and obligations. B.Completeness. C.Existence. D.Valuation.
C
An auditor would be most likely to identify a contingent liability by obtaining a(n) A.Accounts payable confirmation. B.Bank confirmation of the entity's cash balance. C.Letter from the entity's general legal council. D.List of subsequent cash receipts.
D
An entity maintains perpetual inventory records in both quantities and dollars. If the level of control risk were set at high, an auditor would probably A.Insist that the entity perform physical counts of inventory items several times during the year. B.Apply gross profit tests to ascertain the reasonableness of the physical counts. C.Increase the extent of tests of controls of the inventory system. D.Request that the entity schedule the physical inventory count at the end of the year.
B
An independent audit adds value to the communication of financial information because the audit: A. Confirms the exact accuracy of management's financial representations. B. Lends credibility to the financial statements. C. Guarantees that financial data are fairly presented. D. Assures the readers of financial statements that nay fraudulent activity has been corrected.
A
An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report. From this, the investor may conclude that: A. Any disputes over significant accounting issues have been settled to the auditor's satisfaction. B. The auditor is satisfied that Stankey will be highly profitable in the future. C. The auditor is certain that Stankey's financial statements have been prepared accurately and that all account balances are precisely correct. D. The auditor has determined that Stankey's management is not qualified to lead the company.
B
Assessing control risk below high involved all of the following except A. Identifying specific controls to rely on. B. Concluding that controls are ineffective. C. Performing tests of controls. D. Analyzing the achieved level of control risk after performing tests of controls.
A
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? A.Understating the sales journal. B.Overstating the accounts receivable control account. C.Overstating the accounts receivable subsidiary ledger. D.Understating the cash receipts journal.
C
Contract law is the basis for the legal liability at common law of an auditor to his or her client. From which of the following may the auditor's liability arise? A. Only fraudulent actions by the auditor. B. Only gross negligence or fraudulent actions by the auditor. C. Negligence, gross negligence, or fraudulent actions by the auditor. D. Neither negligence nor fraudulent actions by the auditor.
C
During an investigation of unexplained inventory shrinkage, an internal auditor is testing inventory additions as recorded in the perpetual inventory records. Because of internal control weaknesses, the information recorded on receiving reports may not be reliable. Under these circumstances, which of the following documents provides the best evidence of additions to inventory? A.Purchase orders. B.Purchase requisitions. C.Vendors' invoices. D.Vendors' statements.
C
Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control activity that provides A.Segregation of duties for employees in the accounts payable department. B.Independent verification of invoices for disbursements recorded as equipment acquisitions. C.Investigation of variances within a formal budgeting system. D.Authorization by the board of directors of significant equipment acquisitions.
A
Final analytical procedures are generally intended to A.Provide the auditor with a final, overall evaluation of the relationships among financial statement balances. B.Test transactions to corroborate management's financial statement assertions. C.Gather evidence concerning account balances that have not yet been investigated. D.Retest control activities that appeared to be ineffective during the assessment of control risk.
B
How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law? A. Purchasers have to prove only that a loss was caused by reliance on audited financial statements. B. Privity with purchasers is not a necessary element of proof. C. Purchasers have to prove either fraud or gross negligence as a basis for recovery. D. Auditors are held to a standard of care described as "professional skepticism."
A
If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible there were A.Unrecorded credit sales in the current year. B.Unrecorded cash receipts last year. C.More thorough credit investigations made by the company late last year. D.Fictitious sales in the current year.
F
If an auditor references/highlights other auditors in their audit report, then the auditor is accepting full responsibility for the work of the other auditors. T/F
A
In auditing a public company, Natalie, and auditor, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit opinion should Natalie most likely report for the financial statement audit? A. An Unqualified Opinion B. An Adverse Opinion C. Disclaimer of opinion D. An exculpatory opinion
A
In auditing a public company, Natalie, and auditor, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit opinion should Natalie most likely report for the integrated audit? A. An Unqualified Opinion B. An Adverse Opinion C. Disclaimer of opinion D. An exculpatory opinion
D
In auditing payroll when control risk is assessed as low, an auditor most likely will A. Verify that checks representing unclaimed wages are mailed. B. Trace individual employee deductions to entity journal entries. C. Observe entity employees during a payroll distribution. D. Compare payroll costs with entity standards or budgets.
D
In developing an audit plan, an auditor should A. Determine whether the allowance for sampling risk exceeds the achieved upper precision limit. B. Evaluate findings from substantive procedures performed at interim dates. C. Consider whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the financial statements. D. Perform risk assessment procedures.
B
In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of: A.Existence B.Valuation and allocation C.Completeness D.Rights and obligations
A
In meeting the control objective of safeguarding of assets, which department should be responsible for the following Distribution of Paychecks, Custody of unclaimed paychecks a. treasurer, Treasurer B. Payroll, Treasurer C. Treasurer, Payroll D. Payroll , Payroll
A
In the audit of which of the following types of profit-oriented enterprises is the auditor most likely to place special emphasis on testing the controls over proper classification of payroll transactions? A. A manufacturing organization. B. A retailing organization. C. A Wholesaling organization. D. A service organization.
C
In verifying the amount of goodwill recorded by a client in the current period, the most convincing evidence an auditor can obtain is by comparing the recorded amounts of assets acquired and liabilities assumed with the A.Assessed values as evidenced by tax bills. B.Seller's carrying amounts as evidence by financial statements. C.Insured values as evidenced by insurance policies. D.Fair values as evidenced by independent appraisals.
C
In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion on a client's financial statements? A. Departure from generally accepted accounting principles B. Inadequate disclosure of accounting policies C. Inability of the auditor to obtain sufficient appropriate evidence D. Unreasonable justification for a change in accounting principle
D
Internal control is a process designed to provide reasonable assurance regarding the achievement of which objective? A. Effectiveness and efficiency of operations. B. Reliability of financial reporting. C. Compliance with applicable laws and regulations. D. All of the above are correct.
B
Jenna Corporation approved a merger plan with Cord Corporation. One of the determining factors in approving the merger was the financial statements of Cord, which had been audited by Frank & Company, CPAs. Jenna had engaged Frank to audit Cord's financial statements. While performing the audit, Frank failed to discover fraud that later caused Jenna to suffer substantial losses. For Frank to be liable under common-law negligence, Jenna at a minimum must prove that Frank A. Knew of the fraud. B. Failed to exercise due care. C. Was grossly negligent. D. Acted with scienter.
D
Monitoring is a major component of the COSO Internal Control Integrated Framework. Which of the following is NOT correct in how the company can implement the monitoring component? A. Monitoring can be an ongoing process. B. Monitoring can be conducted as a separate evaluation. C. Monitoring and other audit work conducted by internal audit staff can reduce external audit costs. D. The independent auditor can serve as part of the entity's control environment and continuous monitoring.
C
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because A.A majority of recipients usually lack the willingness to respond objectively. B.Some recipients may report incorrect balances that require extensive follow-up. C.The auditor cannot infer that all non-respondents have verified their account information. D.Negative confirmations do not produce evidence that is statistically quantifiable.
B
On receiving the cutoff bank statement, the auditor should vouch A.Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal. B.Checks dated before year-end listed as outstanding on the year-end bank reconciliation to the cutoff statement .C.Deposits listed on the cutoff statement to deposits in the cash receipts journal. D.Checks dated after year-end to outstanding checks listed on the year-end bank reconciliation and to the cutoff statement.
D
SOX requires management to include a report on the effectiveness of ICFR in the entity's annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false? A. The auditor should evaluate whether internal controls over financial reporting are designed and operating effectively. B. Management's report should state its responsibility for establishing and maintaining an adequate internal control system. C. Management should identify material weaknesses in its report. D. The auditor should provide recommendations for improving internal control in the audit report
B
Substantive analytical procedures are used in which stage of the audit? A. Beginning: Planning/risk assessment B. Middle: Evidence collection C. Conclusion: Final review of reasonableness for financial statements D. All stages!
B
The audit firm's valuation specialist would likely be brought in to assist in the audit of fair value measurements at an entity when the following is present. A.The entity is a new audit client. B.Significant uncertainty exists in key inputs to the entity's valuation models. C.The entity has a financial instrument with a Level 2 input. D.The entity owns a large and diverse portfolio of publicly traded stock.
A
The client's bookkeeper perpetrated a theft by preparing erroneous W-2 forms. The bookkeeper's FICA withheld was overstated by $2,000 and the FICA withheld from all other employees was understated by the same amount. Which of the following is an audit procedure that would detect such a fraud. A.Multiplication of the applicable FICA rate by each individual's gross annual taxable earnings. B.Utilizing Form W-4 and withholding charts to determine whether deductions authorized per pay period agree with amounts deducted per pay period. C.Footing and crossfooting the payroll register followed by tracing postings to the general ledger. D.Vouching canceled checks to the appropriate federal tax form.
B
The physical count of inventory of a retailer was higher than shown by the perpetual records. Which of the following could explain the difference? A.Inventory items had been counted but the tags placed on the items had not been taken off the items and added to the inventory accumulation sheets. B.Credit memos for several items returned by customers had not been recorded. C.No journal entry had been made on the retailer's books for several items returned to its suppliers. D.An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records.
D
The prevailing legal view is that an auditor's liability to third parties at common law may be based on A. Fraud only when such parties were in privity of contract with the auditor B. Gross negligence only if the auditor knew such parties were intended beneficiaries of the audit C. Ordinary negligence and that any third party who relied on the auditor's work may recover. D. Ordinary negligence if such parties belonged to a specifically foreseen class but were not specifically known.
C
The primary objective of final analytical procedures is to: A. Obtain evidence from details tested to corroborate particular assertions B. Identify areas that represent specific risks relevant to the audit C. Assist the auditor in assessing the validity of the conclusions reached on the audit D. Satisfy doubts when questions arise about an entity's ability to continue in existence
C
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the A.Human resource function from the controllership function. B.Administrative controls from the internal accounting controls. C.Authorization of transactions from the custody-related assets. D.Operational responsibility from the record-keeping responsibility.
C
The standard report issued by an accountant after reviewing financial statements states that A. A review includes assessing the accounting principles used and significant estimates made by management. B. A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. C. The accountant is not aware of any material modifications that should be made to the financial statements. D. The accountant does not express an opinion or any other form of assurance on the financial statements.
B
To establish the existence and rights of a long-term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or A.Relies on the entity's internal controls if the auditor has reasonable assurance that the control activities are being applied as prescribed. B.Confirms the number of shares owned that are held by an independent custodian. C.Determines the market price per share at the balance sheet date from the published quotations. D.Confirms the number of shares owned with the issuing company.
D
Tolerable misstatement is A. The amount of misstatement that management is willing to tolerate in the financial statement. B. Materiality for the balance sheet as a whole. C. Materiality for the income statement as a whole. D. Materiality used to establish a scope for the audit procedures for the individual account balance or disclosures.
T
True or False: Fraud brainstorming sessions amongst the audit team are mandatory.
D
Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted A. Negligently. B. With independence. C. Without due diligence D. Without good faith.
D
Under which conditions would an online dating company be more likely to opt for a SOC 3 report over a SOC 2 report? A. The company wishes the report to be distributed only to a restricted set of users who understand the details of the IT system being reported on. B. The company wishes to obtain a report that provides assurance as to its internal control over financial reporting in accordance with COSO's internal control framework. C. The company's auditor is seeking evidence that the company's data is being processed with integrity. D. The company wishes to disseminate the report broadly to convince potential users of its website that their information will be kept confidential and private.
B
What assertion(s) is a vouching audit procedure most directly related to? (choose single best answer) A. Cutoff B. Existence/occurrence C. Completeness D. Rights and obligations
A
What concern is most associated with Type I errors (incorrect rejection/under reliance) in audits? A. The audit is less efficient than it otherwise would be B. The audited financial statements are more likely to contain a material misstatement than they otherwise would. C. Type I errors are the result of audit staff improperly performing audit procedures. D. As a result, the auditor will rely on controls when they should not.
C
What organization oversees the creation of auditing standards for publicly traded companies? A. FASB B. AICPA C. PCAOB D. IIASB
C
When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued? A. The standard compilation report may be issued, regardless of independence. B. A compilation report with negative assurance may be issued. C. A compilation report with special wording that notes the accountant's lack of independence may be issued. D. A compilation report may be issued if the engagement is upgraded to a review.
C
When auditing inventories, an auditor would least likely verify that A.The client has used proper inventory pricing. B.The financial statement presentation of inventories is appropriate. C.All inventory owned by the client is on hand at the time of the count. D.Damaged goods and obsolete items have been properly accounted for.
A
When engaged to compile the financial statements of a nonissuer, and accountant should possess a level of knowledge of the entity's accounting principles and practices. This most likely will include obtaining a general understanding of the A. Significant accounting policies adopted by management. B. Design of the entity's internal controls that have been implemented. C. Risk factors relating to misstatements arising from illegal acts. D. Internal control awareness of the entity's senior management.
B
When reporting on comparative financial statements, which of the following circumstances should ordinarily cause the auditor to change the previously issued opinion on the prior year's financial statements? A. The prior year's financial statements are restated following the purchase of another company. B. A departure from generally accepted accounting principles caused an adverse opinion on the prior year's financial statements, and those prior year statements have been properly restated. C. A change in accounting principle causes the auditor to make a consistency modification in the current year's audit report. D. A scope limitation caused a qualified opinion on the prior year's financial statements, but the current year's opinion is properly unqualified.
A
Whenever negative assurance is provided by a CPA, it is based upon A. An absence of nullifying evidence. B. A presence of substantiating evidence. C. An objective audit in accordance with generally accepted auditing standards. D. A judgemental determination in accordance with guidelines promulgated by the SEC.
B
Which is the true statement about an auditor's statutory legal liability? A. The Securities Act of 1933 broadened the auditor's liability and the Securities Exchange Act of 1934 narrowed it. B. The auditor has a greater burden of defense under the Securities Act of 1933 than the Securities Exchange Act of 1934. C. Criminal liability only arises under state law. D. The auditor may limit exposure to liability by destroying documents that might suggest an improper act.
A
Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A.Review compliance with the terms of debt agreements. B.Review management's plans to dispose of assets. C.Evaluate management's plans to borrow money or restructure debt. D.Consider management's plans to reduce or delay expenditures.
B
Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories? A.Trace test counts noted during the entity's physical count to the entity's summarization of quantities. B.Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens. C.Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales. D.Inspect the open purchase order file for significant commitments that should be considered for disclosure.
C
Which of the following audit tests would most likely be used to test the occurrence assertion for payroll transactions? A.Agree a sample of time sheets to the payroll register. B.Recompute the mathematical accuracy of a sample of payroll checks. C.Agree a sample of payroll checks to the approved time sheet summary and the master employee list to verify validity. D.Test a sample of time sheets for the presence of authorization.
C
Which of the following best describes litigation involving CPAs? A. The Racketeer Influenced and Corrupt Organizations Act was specifically passed by Congress to address illegitimate actions by CPAs. B. A CPA may successfully assert as a defense that the CPA had no motive to be part of a fraud. C. A CPA may be exposed to criminal as well as civil liability. D. A CPA is primarily responsible for a client's notes in an annual report filed with the SEC.
B
Which of the following best describes the concept of audit risk? A. The risk of the auditor being sued because of association with an auditee. B. The risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, materially misstated. C. The overall risk that a material misstatement exists in the financial statements. D. The risk that auditors use audit procedures that are inappropriate.
C
Which of the following best describes whether a CPA has met the required standard of care in auditing an entity's financial statements? A. Whether the client's expectations are met with regard to the accuracy of the audited financial statements. B. Whether the statements conform to general accepted accounting principles. C. Whether the CPA conducted the audit with the same skill and care expected of an ordinarily prudent CPA under the circumstances. D. Whether the audit was conducted to investigate and discover all acts of fraud.
A
Which of the following combinations of procedures would an auditor be most likely to perform to obtain evidence about fixed-asset additions? A.Inspecting documents and physically examining assets. B.Recomputing calculations and obtaining written management representations. C.Observing operating activities and comparing balances to prior-period balances. D.Confirming ownership and corroborating transactions through inquiries of entity personnel.
C
Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement? A. The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness. B. The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. C. In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance. D. In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance.
A
Which of the following environmental considerations indicates that the inherent risk of material misstatement of PPE additions is high? A.Most construction is performed in-house. B.All material additions are required to be approved by the board of directors. C.Recently acquired loans preclude further plan acquisition for 3 years. D.Gross property, plant, and equipment increased 36% during the current period.
C
Which of the following events occurring after the issuance of a set of financial statements and the accompanying auditor's report would be most likely to cause the auditor to make further inquiries about the financial statements? A.A technological development in the industry that could affect the entity's ability to continue as a going concern B.The entity's sale of a subsidiary that accounts for 30 percent of the entity's consolidated sales C.The discovery of information regarding a contingency that existed before the financial statements were issued D.The final resolution of a lawsuit explained in a separate paragraph of the auditor's report
C
Which of the following factors would most likely cause an auditor not to accept a new audit engagement? A. An inadequate understanding of the entity's internal controls. B. The close proximity to the end of the entity's fiscal year. C. Concluding that the entity's management probably lacks integrity. D. An inability to perform preliminary analytical procedures before assessing control risk.
A
Which of the following is an example of fraudulent financial reporting? A.Company management falsifies the inventory count, thereby overstating ending inventory and understating cost of sales. B.An employee diverts customer payments to his personal use, concealing his actions by debiting an expense account, thus overstating expenses. C.An employee steals inventory, and the shrinkage is recorded as cost of goods sold. D.An employee borrows small tools from the company and neglects to return them; the cost is reported as a miscellaneous operation expense.
A
Which of the following is most likely to be detected by an auditor's review of an entity's sales cutoff? A. Unrecorded sales for the year B. Lapping of year-end accounts receivable C. Excessive sales discounts D. Unauthorized goods returned for credit
A
Which of the following is required of an accountant in reviewing a company's financial statements under Statements on Standards for Accounting and Review Services (SSARSs)? A. Obtain an understanding of the client's industry. B. Send bank confirmations. C. Perform risk assessment procedures. D. Observe client's physical inventory.
C
Which of the following is true of a SOC 2 engagement? A. The report resulting from a SOC 2 engagement can be made available for general use. B. A SOC 2 engagement is based on criteria from COSO's internal control framework. C. A SOC 2 engagement is based on Trust Services Criteria of Security, Availability, Processing Integrity, Confidentiality, and Privacy. D. The users of a SOC 2 report are not expected to understand the details of the IT system being reported on or the nature and limitations of a SOC 2 engagement. C
B, C
Which of the following issues related to internal control over financial reporting are required to be communicated in writing to management and those charged with governance? (Answer may include more than one response). A. Deficiencies in internal control. B. Significant Deficiencies. C. Material Weaknesses. D. None of the above.
C
Which of the following procedures would most likely be considered a weakness in an entity's internal controls over payroll? A. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department's payroll summary. B.Payroll checks are prepared by the payroll department and signed by the treasurer. C.The employee who distributes payroll checks returns unclaimed payroll checks to the payroll department. D.The personnel department sends employees' termination notices to the payroll department.
B
Which of the following professional services would be considered an attest engagement? A. A management consulting engagement to provide IT advice to a client. B. An engagement to report on compliance with statutory requirements. C. An income tax engagement to prepare federal and state tax returns. D. Preparation of financial statements from a client's accounting records.
B
Which of the following sources of evidence are more reliable? A. Inquiry of an accounts receivable clerk regarding the accounts receivable balance B. Accounts receivable confirmations sent to a sample of customers
A
Which of the following sources of evidence are more reliable? A. Physical examination of lumber inventory performed by the external auditor B. Physical examination of inventory performed by internal auditors
C
Which of the following statements best explains why public accounting, as a profession, promulgates ethical standards and establishes means for ensuring their observance? A. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts. B. Ethical standards that emphasize excellence in performance over material rewards establish individual reputations for competence and character. C. Ethical standards are established so that users of accounting services know what to expect and accounting professionals know what behaviors are acceptable, and so that discipline can be applied when necessary. D. A requirement for a pression is to establish ethical standards that primarily stress responsibility to entities and colleagues.
A
Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for ensuring their observance? A. A distinguishing mark of a profession is its acceptance of responsibility to the public. B. A requirement for a pression is to establish ethical standards that stress primarily a responsibility to clients and colleagues. C. Ethical standards that emphasize excellence in performance over material rewards establish individual reputations for competence and character. D. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
C
Which of the following statements concerning prospective financial statements is correct? A. Only a financial forecast would normally be appropriate for limited use. B.Only a financial projection would normally be appropriate for general use. C. Any type of prospective financial statement would normally be appropriate for limited use. D.Any type of prospective financial statement would normally be appropriate for general use.
A
Which of the following statements is correct concerning both an engagement to compile and an engagement to review a non-public entity's financial statements?' A. The accountant is not required to obtain an understanding of internal control. B. The accountant must be independent in fact and appearance. C. The accountant expresses no assurance on the financial statements. D. The accountant should obtain a written management representation letter.
A
Which of the following statements is true about the use of the work of an auditor's specialist? A.The specialist need not agree to the auditor's use of the specialist's findings. B.The auditor is required to perform substantive procedures to verity the specialist's assumptions and findings. C.The auditor must keep client information confidential, but the specialist is not obligated to do so. D.The auditor should obtain an understanding of the methods and assumptions used by the specialist.
B
Which of the following would an auditor most likely use in determining overall materiality when planning an audit? A. The anticipated sample size of the planned substantive tests B. The entity's income before taxes for the period-to-date (e.g., 6 months) C. The results of tests of controls D. The contents of the engagement letter
B
Which of the following would best represent a moral hazard problem? A. Because buyers have trouble discerning the quality of used cars, owners of high-quality used cars are less likely to participate in the used car market. B. Because I carry full coverage on my car, I don't go through as great of lengths to prevent it from getting damaged. C. People that expect to have larger medical bills are generally more are more likely to purchase health insurance. D. IPO's are most likely to occur when companies are over-valued.
A
Which procedure ordinarily is not performed during a review of interim financial information? A. Vouching items in the accounts and tracing source documents. B. Applying analytical procedures. C. Directing inquiries to management about internal control D. Reading the minutes of meetings of shareholders, directors, and committees.
B
Which sampling approach uses one randomly selected transaction and then uses a predetermined selection interval to identify the rest of the sample? A. Random Sampling B. Systematic Sampling C. Block Sampling D. Haphazard Sampling E. Judgmental Sampling
B
Who is primarily responsible for maintaining effective internal control and for ensuring the fairness of the company's financial statements? A. The Audit Committee B. Management C. The Auditor D. The PCAOB
B
Why do auditors generally use a sampling approach to evidence gathering? A. Auditors are experts and do not need to look at much to know whether the financial statements are correct or not. B. Auditors must balance the cost of the audit with the need for precision. C. Auditors must limit their exposure to their auditee to maintain independence. D. The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company.
D
Within a company, who is responsible for appointing and overseeing the work of the external auditor? A. The CEO. B. The CFO. C. The Board of Directors. D. The audit committee - a select group of individuals all belonging to the board of directors. E. The audit committee - a select group of individuals belonging to either management or the board of directors.
B
Without the consent of the entity, a CPA should not disclose confidential entity information contained in working papers to a(n): A. Authorized quality control review board B. Successor CPA firm that has been engaged to audit the former audit entity C. Federal court that has issued a valid subpoena D. Disciplinary body created under state statute
A
You are conducting control testing via sampling. If you increase the expected deviation rate (EDR), what do you expect to happen to your sample size? (Assume TDR, and ARO remain the same) A. Increase B. Decrease C. Remain the same D. Undeterminable
B
You are conducting control testing via sampling. If you increase your acceptable risk of overreliance (ARO), what do you expect to happen to your sample size? (assume EDR, TDR, remain the same) A. Increase B. Decrease C. Remain the same D. Undeterminable
D
You walk up to a filing cabinet and attempt to make a "random" selection of documents (without the use of a random number generator or other aid). What best describes this sampling approach? A. Random Sampling B. Systematic Sampling C. Block Sampling D. Haphazard Sampling E. Judgmental Sampling
Entity levels
___________________ controls include controls related to the control environment, management override, the risk assessment process, the monitoring of the results of operations, and the period-end financial reporting process
