audit quiz questions

The refusal of a client's legal counsel to provide information requested in an inquiry letter generally is considered

A limitation on the scope of the audit.

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because

Accrued liabilities usually pertain to services of a continuing nature whereas accounts payable are the result of completed transactions.

It is important for the auditor to consider the competence of the audit client's employees, because their competence bears directly and importantly upon the

Achievement of the objectives of internal control.

Analytical procedures performed to assist in forming an overall conclusion suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that

Additional audit procedures are required.

A client using U.S. GAAP has capitalizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the effects on the financial statements are material and pervasive?

Adverse opinion.

In an audit of financial statements, an auditor's primary consideration regarding an internal control is whether the control

Affects management's financial statement assertions.

Which of the following is a false statement about materiality?

An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

Which of the following most likely would give the most assurance concerning the valuation assertion about accounts receivable?

Assessing the allowance for uncollectible accounts for reasonableness.

The acceptable level of detection risk is inversely related to the

Assurance provided by substantive procedures.

"In connection with an audit of our financial statements, management has prepared, and furnished to our auditors, a description and evaluation of certain contingencies." The foregoing passage most likely is from a(n)

Audit inquiry letter to legal counsel.

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the

Auditor's report.

Proper segregation of functional responsibilities to achieve effective internal control calls for separation of the functions of

Authorization, recording, and custody.

Subsequent events are defined as events that occur subsequent to the

Balance sheet date but prior to the auditor's report date.

After obtaining an understanding of internal control, an auditor of a nonissuer's financial statements may place no reliance on controls for some assertions because the auditor

Believes the controls are unlikely to be effective.

A written representation from a client's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the

Chief executive officer and the chief financial officer.

Which of the following is an inherent limitation of internal control?

Collusion.

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

In auditing for unrecorded noncurrent bonds payable, an auditor most likely will

Compare interest expense with the bond payable amount for reasonableness.

Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

Compare recorded financial information with anticipated results from budgets and forecasts.

The auditor can best verify a client's bond sinking-fund transactions and year-end balance by

Confirmation with the bond trustee.

Which of the following is not a component of internal control?

Control risk.

An auditor may decide to perform only substantive procedures for certain assertions because the auditor believes

Controls are not relevant to the assertions.

An auditor's plan to audit noncurrent debt most likely includes steps that require

Correlating interest expense recorded for the period with outstanding debt.

The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with

Corroboration of the information furnished by management about litigation, claims, and assessments.

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is

Detection risk.

An auditor uses the knowledge provided by the understanding of internal control and the assessed risks of material misstatement primarily to

Determine the nature, timing, and extent of substantive procedures for financial statement assertions.

An auditor most likely will use analytical procedures to form an overall conclusion to

Determine whether additional audit evidence may be needed.

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to

Discover expenditures that were expensed but should have been capitalized.

The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the

Engagement letter.

An auditor would most likely be concerned with controls that provide reasonable assurance about the

Entity's ability to initiate, authorize, record, process, and report financial data.

Which of the following tests of controls most likely will help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices.

An audit plan for noncurrent debt should include steps that require

Examining bond trust indentures.

Inherent risk and control risk differ from detection risk in that they

Exist independently of the financial statement audit

When few property and equipment transactions occur during the year, the continuing auditor usually obtains an understanding of the related internal controls and performs

Extensive tests of current year property and equipment transactions.

When an auditor increases the assessed risks of material misstatement because certain control activities were determined to be ineffective, the auditor most likely would increase the

Extent of tests of details.

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

Financial statement assertions.

Audit procedures applied to purchase transactions at year end address the cutoff assertion. An entity should include goods in its inventory if it

Holds legal title to the goods.

Which of the following is a step in an auditor's decision to rely on internal controls?

Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

Inspect the shipping records documenting the merchandise sold to the debtors.

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?

Inspecting documents and physically examining assets.

Which of the following most likely should be included as part of an auditor's tests of controls?

Inspection.

After obtaining an understanding of internal control and assessing the risks of material misstatement in a financial statement audit, an auditor decided to perform tests of controls. The auditor most likely decided that

It would be efficient to perform tests of controls that would result in a reduction in substantive procedures.

To obtain assurance that items reflected in a client's perpetual inventory records actually exist, an auditor would most likely trace

Items in the inventory perpetual records to inventory tags and the auditor's test counts.

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would vouch

Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.

The negative request form of accounts receivable confirmation may be used when the

Low Many Likely

Internal controls are designed to provide reasonable assurance that

Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.

The ultimate purpose of understanding the entity and its environment and assessing the risks of material misstatement is to contribute to the auditor's assessment of the risk that

Material misstatements may exist in the financial statements.

Which one of the following statements is correct concerning the concept of materiality?

Materiality is a matter of professional judgment.

An auditor who has confirmed accounts receivable may discover that the sales journal was held open past year end if

Most of the returned positive confirmation requests indicate that the debtor owes a smaller balance than the amount being confirmed.

Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable?

Multiplying the average outstanding loan balance by the interest rate and comparing the result to interest expense actually recorded.

Which of the following events that occurred after a client's calendar-year end, but before the audit report date, would require disclosure in the notes to the financial statements, but no adjustment in the financial statements?

New convertible bonds are issued to expand the company's product line.

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to

Observe physical counts of the inventory items.

The auditor should perform tests of controls when the auditor's risk assessment includes an expectation

Of the operating effectiveness of internal control.

Analytical procedures reveal significant unexpected differences between recorded amounts and the expectations developed by the auditor. If management is unable to provide an acceptable explanation, the auditor should

Perform additional audit procedures to investigate the matter further.

What is the most likely course of action that an auditor would take after determining that performing substantive procedures on inventory will take less time than performing tests of controls?

Perform only substantive procedures on inventory.

In developing an audit plan, an auditor should

Perform risk assessment procedures.

Proper segregation of duties reduces the opportunities to allow persons to be in positions both to

Perpetrate and conceal fraud and error.

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to accumulated depreciation accounts in the current year?

Plant assets were retired during the current year.

A basic premise underlying analytical procedures is that

Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

When the financial statements contain a misstatement, the effect of which is material but not pervasive, the auditor should

Qualify the opinion and include a basis for qualified opinion paragraph that describes the matter resulting in the qualification.

Which of the following procedures should an auditor ordinarily perform regarding subsequent events?

Read the latest subsequent interim financial statements.

A limitation on the scope of the audit sufficient to preclude an unmodified opinion is most likely to result when management

Refuses to permit its lawyer to respond to the letter of audit inquiry.

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may

Require disclosure to keep the financial statements from being misleading.

The most effective audit procedure for determining the collectibility of an account receivable is the

Review of the subsequent cash collections.

The audit of year-end physical inventories should include steps to verify that the client's purchases and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise included in the physical count at year end was not recorded as a

Sale in the current period.

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that

Sales billed to customers were actually shipped.

An entity's financial statements were misstated over a period of years because large amounts of revenue were recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by

Scanning the general journal for unusual entries.

Which of the following procedures would be appropriate to test the existence assertion during an audit of accounts receivable?

Send confirmations to customers.

Tracing shipping documents to prenumbered sales invoices provides evidence that

Shipments to customers were properly invoiced.

The date of the audit report is important because

The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained.

Samples to test controls are intended to provide a basis for an auditor to conclude whether

The controls are operating effectively.

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality for the financial statements as a whole?

The entity's year-to-date financial results and position

Which of the following auditor concerns usually is so serious that the auditor might conclude that a financial statement audit cannot be conducted?

The integrity of the entity's management is suspect.

A purpose of a management representation letter is to reduce

The possibility of a misunderstanding concerning management's responsibility for the financial statements.

An auditor decides to express a qualified opinion on an entity's financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to

The possible effects on the financial statements.

Which of the following factors most likely would cause a CPA to not accept a new audit engagement?

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

Under which of the following circumstances might an auditor disclaim an opinion?

There are significant uncertainties affecting the financial statements for which the auditor is unable to obtain sufficient evidence to support management's assertions.

During an audit of an issuer of bonds, the auditor should obtain written confirmation regarding debenture transactions from the

Trustee.

Before accepting an audit engagement, an auditor should make specific inquiries of the predecessor auditor regarding the predecessor's

Understanding as to the reasons for the change of auditors.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Unpaid bills.

The objective of performing analytical procedures in planning an audit is to identify the existence of

Unusual transactions and events.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete or slow-moving inventory to support the relevant assertion about

Valuation and allocation.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely

Verify that the amount was received.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices.

When financial statements are materially but not pervasively misstated, an auditor may express a

Yes No

For all audits of financial statements made in accordance with generally accepted auditing standards, the auditor should apply analytical procedures to some extent as

Yes No Yes

The auditor's report most likely is addressed to the following:

Yes Yes No

Which of the following factors are included in an entity's control environment?

Yes Yes Yes