auditing final
Which of the following is an accurate statement regarding a company's ability to meet its long-term debt obligations? A) If the debt-to-equity ratio is too high it may indicate that the company has used up its borrowing capacity. B) If the debt-to-equity ratio is too high it may mean that available leverage is not being used to the owners' benefit. C) The times interest earned ratio indicates if a company can make its principal and interest payments. D) The key ratios that are used to measure a long-term solvency are debt to equity (return on assets) and times interest earned
A
______ generally provide the most reliable evidence. A) Confirmations B) Recalculations C) Reperformances D) Observations
A
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
A measure of management performance in meeting organizational goals
A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of:
A reasonable user of the financial statements
Which of the following would be least likely to be include din a standard inquiry to the client's attorney?
A request for the attorney to opine on the correct accounting treatment associated with an outstanding claim or pending lawsuit outcome.
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:
A system of quality control
The auditor is determining that the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed. She is gathering evidence about which transaction related audit objective?
Accuracy
A client acquired 25% of its outstanding capital stock after year-end but prior to the date of the auditor's report. The auditor should
Advise management to disclose the acquisition in the notes of the financial statements.
Which of the following professional services is an attestation engagement?
An engagement to report on compliance with statutory requirements
A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor's report on the financial statements of the year of the change should include:
An explanatory paragraph explaining the change
The authority to accept incoming goods in receiving should be based on an
Approved purchase order
Which of the following questions would be best to include in an internal control questionnaire concerning the completeness assertion for purchases?
Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
Which of the following is considered an assurance engagement?
Audit
Which of the following best describes tests of details of balances?
Audit procedures designed to test for monetary misstatements in the accounts summarized in the financial statements
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?
Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion
For privately held companies who is responsible for establishing auditing standards?
Auditing Standards Board
Analytical procedures are so important that they are required during the A) planning and test of control phases. B) planning and completion phases. C) test of control and completion phases. D) planning test of control and completion phases
B
Audit documentation of the evidence gathered by the auditor should meet which of the following criteria? A) Workpapers are prepared in sufficient detail so that they can be given to the client for future reference. B) The content is sufficient to provide support for the auditor's opinion including the auditor's representation as to compliance with auditing standards. C) Audit evidence is principally gathered to determine if the client's financial statements (as prepared by management) can be relied upon to make managerial decisions about the firm. D) Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors.
B
An audit of historical financial statements most commonly includes the:
Balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity
The permanent audit file would usually include the A) client's working trial balance. B) summary of the risk assessment procedures performed. C) organizational chart of the company's employees. D) summary of the auditors test of controls for the current years audit.
C
Which of the following is a correct statement regarding audit evidence? A) A large sample of evidence provided by an independent party is always considered persuasive evidence. B) A small sample of only one or two pieces of highly appropriate evidence is always considered persuasive evidence. C) The auditor must obtain a sufficient amount of relevant and reliable evidence to form an opinion on the fairness of the financial statements. D) Evidence is usually more reliable for balance sheet accounts when it is obtained within six months of the balance sheet date.
C
Which of the following is an accurate statement regarding audit evidence? A) Responses to the auditor's questions by client employees is considered highly persuasive evidence. B) Audit evidence should provide an absolute level of assurance. C) The auditor uses evidence to determine whether the statements are fairly presented. D) All evidence must be highly persuasive
C) The auditor uses evidence to determine whether the statements are fairly presented
The three requirements for becoming a CPA include all but which of the following?
Character Requirements
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
Completeness
In auditing accounts payable, an auditor's procedures most likely will focus primarily on management's assertion of
Completeness
In the audit of accounts payable an auditor's procedures will most likely focus primarily on management's assertion about account balances of
Completeness
The date of the CPA's opinion on the financial statements of the client should be the date of the:
Completion of all important audit procedures
An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):
Compliance Audit
Identify three or more assurance services that are likely to be provided only by public accounting firms:
Compliance auditing, Auditing of internal control over financial reporting, Reviews of historical financial statements ,Audits of historical financial statements
The Public Company Accounting Oversight Board (PCAOB) has the duty to:
Conduct investigations concerning registered public accounting firms
A management letter
Contains recommendations from the auditor designed to help the client improve the efficiency and effectiveness of its business.
While auditing a client's purchase transactions, an auditor selects a sample of vouchers and then compares the dates on the vouchers to the dates on which the corresponding transactions were actually recorded in the client's purchase journal. The audit procedure is likely designed to test the
Cutoff assertion
Which of the following are changes that affect the comparability of financial statements but not the consistency and therefore do not have to be included in the auditor's report? A) Error corrections not involving principles B) Changes in accounting estimates C) Variations in the format and presentation of financial information D) All of the above
D) All of the above
An example of an event occurring in the period between the end of the year being audited and the date of the auditor's report normally will not require disclosure in the financial statements or auditor's report is
Decreased sales volume resulting from a general business recession.
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?
Determine if the accounting estimates used are consistent with those of the client's primary competitors
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to
Determine that purchases were properly recorded
Which of the following best describes the reason why an independent auditor reports on financial statements?
Different interests may exist between the company preparing the statements and the persons using the statements
When the auditor determines that the financial statements are fairly stated but there is a non-independent relationship between the auditor and the client the auditor should issue
Disclaimer of Opinion
Which of the following is more difficult to evaluate effectively?
Efficiency and effectiveness of operations
Whenever an auditor issues an audit report for a public company the auditor can choose to issue a report in which of the following forms? I. A combined report on financial statements and internal control over financial reporting II. Separate reports on financial statements and internal control over financial reporting
Either I or II
What assurance does the auditor provide that errors and fraud that are material to the financial statements will be detected?
Errors: Reasonable; Fraud: Reasonable
Management makes the following assertions about account balances:
Existence, completeness, valuation and allocation, and rights and obligations.
The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.
False
The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.
False
The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.
False
If the balance sheet of a private company is dated December 31 2011 the audit report is dated February 8 2012 and both are released on February 15 2012 this indicates that the auditor has searched for subsequent events that occurred up to:
February 8, 2012
Identify three or more assurance services that are likely to be provided by assurance providers other than public accounting firms
Food inspections, elevator inspections, ISO 9000 Certifications, Pumps at gasoline stations
The major reason an independent auditor gathers audit evidence is to:
Form an opinion on the financial statements
When the auditor uses monetary unit statistical sampling to examine the total dollar value of invoices, each invoice
Has a probability proportional to its dollar value of being selected
If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence the auditor:
Has the responsibility of notifying financial statement users through the auditor's report.
Which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?
Human resources, monitoring, and engagement performance
When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern the appropriate audit report could be:
I. an unqualified opinion with an explanatory paragraph. II. a disclaimer of opinion.
Which of the following statements are true for the audit report of a non-public entity? I. The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II. The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management.
II Only
Which of the following audits can be regarded as generally being a compliance audit?
IRS agents' examinations of taxpayer returns
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?
Independence
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
Indicate a division of responsibility
An adverse opinion and a disclaimer of opinion:
Indicate situations in which there are material departures from the standards
____________ risk reflects the possibility that the information upon which the business decision was made was inaccurate
Information
Identify three or more assurance services that may be provided by public accounting firms or other assurance providers:
Information on website traffic, Assurance on website controls, Assurance on corporate responsibility and sustainability, Fraud and illegal acts risk assessment
The standard unqualified audit report for public entities includes the following three paragraphs:
Introductory, scope, and opinion
Which of the following best describes the operational audit?
It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.
An audit report was dual-dated for a subsequent event disclosed in the financial statements, which occurred after the completion of the evidence collection process but before the issuance of the financial statements. The auditor's responsibility for events occurring subsequent to the completion of the evidence collection process was
Limited to the specific events referred to.A
One objective of an operational audit is to:
Make recommendations for improving performance
Which of the following best describes what is meant by the U.S. Auditing Standards?
Measures of the quality of the auditor's performance
An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following if material is a fraud as defined in auditing standards?
Misappropriation of an asset or groups of assets
Auditors have found that generally the most efficient and effective way to conduct audits is to:
Obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts.
In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?
Occurence
An auditor who qualified an opinion because of an insufficiency of audit evidence should refer to the scope limitation in the
Opinion paragraph
Auditing standards for public companies are established by the:
PCAOB
An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with:
PCAOB Standards
Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit?
Plan work and supervise assistants
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
Portion of the financial statements audited by the other auditor
In applying variables sampling, an auditor attempts to
Predict a monetary population value within a range of precision
Determining that the footnote disclosures related to long-term debt are accurate is an example of the ___ audit objective.
Presentation and disclosure
The Responsibilities principle underlying AICPA auditing standards includes a requirement that:
Professional judgement be exercised by the auditor
The Sarbanes-Oxley Act applies to which of the following companies:
Public Companies
A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. If the auditor does not concur with the appropriateness of the change the auditor should issue a(n):
Qualified Opinion
Which of the following is not a required item to be communicated by the auditor to the audit committee or others charged with governance?
Recommendations for improving the client's business.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
In addition to making management inquiries, an auditor should perform the following procedures to identify client contingencies with the exception of
Reviewing derivative transactions reflected on the quarter-end balance sheet.
Which of the following tests would an auditor be least likely to perform during an audit of accounts payable?
Send out accounts payable confirmations.
If the financial statements include an income statement and a balance sheet but exclude the statement of cash flows the auditors:
Should issue a qualified opinion due to the departure from GAAP
Written management representations obtained by the auditor in connection with a financial statement audit should include a
Statement of management's belief that the effects of uncorrected misstatements are not material
Which of the following provides authoritative guidance for the auditor of a non-public company?
Statements on Auditing Standards
When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should
Take no action regarding the event.
The nature and extent of a CPA's firm's quality control policies and procedures depend on:
The CPA Firm's size, the nature of the CPA firm's practice, and the cost-benefit considerations
Members of the Public Company Accounting Oversight Board are appointed and overseen by:
The SEC
Which of the following engagements is most likely to be considered an operational audit?
The auditor evaluates the organization's efficiency in processing payments.
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?
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 statements is correct about an auditor's required communication with those charged with governance?
The auditor is required to inform those charged with governance about significant misstatements discovered by the auditor and subsequently corrected by management.
The Form 10-K filed by management of a public company includes a section on management's discussion and analysis in addition to the annual financial statements. Which of the following best describes the auditor's responsibility for the MD&A information?
The auditor must read the MD&A information to determine if there is any material inconsistency with the audited financial statements.
The standard unqualified audit report is sometimes called:
The clean opinion
What is the general character of the responsibilities characterized by the performance principles?
The criteria of audit planning and evidence gathering
Which of the following would be an advantage of using variables sampling rather than probability-proportional-to-size sampling?
The inclusion of zero and negative balances usually does not require special design considerations
Which of the following is an internal control that will prevent paid cash disbursement documents from being presented for payment a second time?
The official signing the check compares the check with documents and should deface the documents
Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
An adverse opinion is issued when the auditor believes:
The overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.
The auditor's responsibility regarding material misstatements caused by fraud is
The same as the auditor's responsibility regarding material misstatements caused by error
As a result of management's refusal to permit the auditor to physically examine inventory the auditor must depart from the unqualified audit report because:
The scope of the audit has been restricted
Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing standards?
The signature of the engagement partner
Management of Thurman Corporation included additional supplementary information in documents that include the audited financial statements for the year ended December 31, 2013. Management has asked its audit firm, Wally, CPAs, whether they can report on the supplementary information. Which of the following conditions would preclude Wally, CPAs, from conducting this engagement?
The supplementary information covers the period January 1, 2016 through February 15, 2017.
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:
The use of other auditors
Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients. Which of the following is true for auditors of publicly traded companies
There is no restriction on providing consulting services to non-audit clients
When comparing misstatements with a measurement base the auditor must consider the pervasiveness of the misstatement. Of the following examples the most pervasive misstatement is a(n):
Understatement of Inventory
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)
Unmodified opinion
When accounting principles are not consistently applied and the materiality level is immaterial the auditor will issue a(n):
Unqualified Opinion
An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of:
Valuation and Allocation
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be
Vendors with whom the entity has previously done business
Because of the risk of material misstatement
an audit should be planned and performed with an attitude of:, Professional Skepticism
When a company's financial statements contain a departure from GAAP with which the auditor concurs the departure should be explained in:
an explanatory paragraph after the opinion paragraph
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, Adherence to specific rules or procedures
ASB
establishes auditing standards for U.S. private companies *Prior to the creation of the PCAOB, the ASB had responsibility for establishing auditing standards for both public and private companies*
PCAOB
has responsibility for establishing auditing standards for U.S. public companies
To determine accounts receivable turnover
net sales is divided by A) beginning net accounts receivable. B) average gross receivables. C) cost of goods sold. D) 365 days, B
Investment and property schedules are presented for purposes of additional analysis in a document outside the basic financial statements. The schedules are not required supplementary information. When the auditor is engaged to report on whether the supplementary information is fairly stated in relation to the audited financial statements as a whole, the measurement of materiality is the
same as that used in forming an opinion on the basic financial statements as a whole
In a financial statement audit
the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. In order to obtain reasonable assurance, the auditor must:, Obtain sufficient audit evidence
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), Unmodified opinion with an explanatory paragraph
As compared to an unmodified opinion an opinion qualified due to a material departure from generally accepted accounting principles would Indicate that except for the problem noted
the financial statements are presented fairly
In "auditing" financial accounting data
the primary concern is with:, Determining whether recorded information properly reflects the economic events that occurred during the accounting period.
If you have 150 credit hours completed
the work experience requirement for obtaining the CPA designation is:, Two years