ACNT-2370 FINAL EXAM REVIEW

Which of the following has primary responsibility for the fairness of the representations made in financial statements. A) Client's management. B) Independent auditor. C) Audit committee. D) AICPA.

A) Client's management.

Ordinarily, the most significant assertion relating to accounts payable is: A) Completeness. B) Existence. C) Presentation. D) Valuation.

A) Completeness.

In an audit, the valuation of year-end accounts payable is most likely addressed by: A) Confirmation. B) Examination of cash disbursements immediately prior to year-end. C) Examination of cash disbursements immediately subsequent to year-end. D) Analytical procedures applied to vouchers payable at year-end.

A) Confirmation.

In attributes sampling, what effect does an increase in the acceptable risk of assessing control risk too low have on sample size? A) Decrease. B) Increase. C) Indeterminate D) No effect.

A) Decrease.

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the: A) Receiving report and the purchase order. B) Receiving report and the voucher. C) Vendor's packing slip and the purchase order. D) Vendor's packing slip and the voucher.

A) Receiving report and the purchase order.

To determine that all sales have been recorded, the auditors would select a sample of transactions from the: A) Shipping documents file B) Sales journal C) Accounts receivable subsidiary ledger D) Remittance advices

A) Shipping documents file

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices? A) Existence or occurrence B) Completeness C) Rights and obligations D) Presentation and disclosure

B) Completeness

During the inventory count an auditor selects items and determines that the proper description and quantity were recorded by the client. This procedure is most closely related to: A) Rights. B) Completeness. C) Existence. D) Valuation.

B) Completeness.

If a CPA performs an audit recklessly, the CPA will be liable to third parties who were unknown and not foreseeable to the CPA for: A) Strict liability for all damages incurred. B) Gross negligence. C)Either ordinary or gross negligence. D) Breach of contract.

B) Gross negligence.

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if: A) The effects of the adverse financial conditions are likely to be negative. B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. C) Management has no plans to reduce or delay future expenditures. D) Negative trends and recurring operating losses appear to be irreversible.

B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements.

Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory? A) Compare the physical quantities of slow-moving items with corresponding quantities in the prior year B) Observe merchandise and raw materials during the client's physical inventory taking C) Review the management's inventory representations letter for accuracy D) Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average

B) Observe merchandise and raw materials during the client's physical inventory taking

The primary objective of a CPA's observation of a client's physical inventory count is to: A) discover whether a client has counted a particular inventory item or group of items B) Obtain direct knowledge that the inventory exists and has been properly counted C) Provide an appraisal of the quality of the merchandise on hand on the day of the physical count D) Allow the auditor to supervise the conduct of the count in order to obtain assurance that inventory quantities are reasonably accurate

B) Obtain direct knowledge that the inventory exists and has been properly counted

A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner? A) Footing the purchases journal. B) Reconciling vendors' monthly statements with subsidiary payable ledger accounts. C) Tracing totals from the purchases journal to the ledger accounts. D) Sending written quarterly confirmation to all vendors.

B) Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

In November, two months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to interest revenue. The most effective method for detecting this type of error is: A) Foot the cash receipts journal for November. B) Send a bank confirmation as of year-end. C) Prepare a bank reconciliation as of year-end. D) Prepare a bank transfer schedule as of year-end.

B) Send a bank confirmation as of year-end.

Analytical procedures are most likely to detect: A) Weaknesses of a material nature in internal control. B) Unusual transactions. C) Noncompliance with prescribed control activities. D) Improper separation of accounting and other financial duties.

B) Unusual transactions.

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

B) Use less predictable audit procedures.

An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff bank statement primarily in order to: A) Verify the cash balance reported on the bank confirmation inquiry form. B) Verify reconciling items on the client's bank reconciliation. C) Detect lapping. D) Detect kiting.

B) Verify reconciling items on the client's bank reconciliation.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation? A) Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal. B) Receive a cutoff statement directly from the client's bank. C) Prepare a four column bank reconciliation using the year-end bank statement. D) Confirm the year-end balance using the standard form to confirm account balance information with financial institutions.

B. Receive a cutoff statement directly from the client's bank.

The auditors' primary objective in selecting a sample of items from an audit population is to obtain: A) A random sample B) A stratified sample C) A representative sample D) A large sample

C) A representative sample

To test the existence assertion for recorded receivables, the auditors would select a sample from the: A) Sales orders file B) Customer purchase orders C) Accounts receivable subsidiary ledger D) Shipping documents (bills of lading)file.

C) Accounts receivable subsidiary ledger

Which of the following best describes the relationship between assurance services and attest services?. A) While attest services involve financial data, assurance services involve nonfinancial data. B)While attest services require objectivity, assurance services do not require objectivity. C) Both attest and assurance services require independence. D) Attest and assurance services are different terms referring to the same types of services.

C) Both attest and assurance services require independence.

The primary objective of tests of details of transactions performed as substantive procedures is to: A) Comply with generally accepted auditing standards. B) Attain assurance about the reliability of the accounting system. C) Detect material misstatements in the financial statements. D) Evaluate whether management's policies and procedures are operating effectively.

C) Detect material misstatements in the financial statements.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? A) Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. B) Examine unusual relationships between monthly accounts payable balances and recorded purchases. C) Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. D) Examine selected cash disbursements in the period subsequent to year-end.

D) Examine selected cash disbursements in the period subsequent to year-end.

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence on operating effectiveness? A) Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports. B) Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports. C) Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks. D) Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.

D) Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.

A primary purpose of the audit working papers is to: A) Aid the auditors by providing a list of required procedures. B) Provide a point of reference for future audit engagements. C) Support the underlying concepts included in the preparation of the basic financial statements. D) Support the auditors' opinion.

D) Support the auditors' opinion.

The statement that best expresses the auditor's responsibility with respect to events occurring between the balance sheet date and the end of his audit is that: A) The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date. B) The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred. C) The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of field work. D) The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.

D) The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.

Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees? A) A bank lockbox system. B) Approval of all disbursements by an individual independent of cash receipts. C) Monthly bank cutoff statements. D) Prenumbered remittance advices.

A) A bank lockbox system.

By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be able to detect: A) An unrecorded deposit made at the bank at the end of the month. B) A second payment of an account payable which had already been paid in full two months earlier. C) An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into the bank. D) A receivable collected that had previously been written off as uncollectible.

A) An unrecorded deposit made at the bank at the end of the month.

When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? A) Capitalization. B) Financing. C) Investing. D) Operations.

A) Capitalization.

When a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should: A) Consider the organizational level to which the internal auditors report the results of their work. B) Review the internal auditors' work. C) Consider the qualifications of the internal audit staff. D) Review the training program in effect for the internal audit staff.

A) Consider the organizational level to which the internal auditors report the results of their work.

An audit report for a public client indicates that the audit was performed in accordance with: A) Generally accepted auditing standards (United States). B) Standards of the Public Company Accounting Oversight Board (United States). C) Generally accepted accounting principles (United States). D) Generally accepted accounting principles (Public Company Accounting Oversight Board).

A) Generally accepted auditing standards (United States).

A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with: A) Knowledge necessary to determine the nature, timing, and extent of further audit procedures. B) Audit evidence to use in reducing detection risk. C) A basis for modifying tests of controls. D) An evaluation of the consistency of application of management policies.

A) Knowledge necessary to determine the nature, timing, and extent of further audit procedures.

An auditor most likely would make inquiries of production and sales personnel concerning possible obsolete inventory to address: A) Valuation B) Existence C) Rights D) Presentation

A) Valuation

In attributes sampling, what effect does a decrease in the tolerable deviation rate have on sample size? A) Decrease. B) Increase. C) Indeterminate D) No effect.

B) Increase.

Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control? A) Segregation of duties over cash disbursements. B) Requiring approval of purchase transactions. C) Preparing bank reconciliations. D) Maintaining backup copies of key transactions.

C) Preparing bank reconciliations.

In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable? A) Sales and Cost of Goods Sold. B) Interest and Bad Debt Expense. C) Sales and Bad Debt Expense. D) Interest and Cost of Goods Sold.

C) Sales and Bad Debt Expense.

Which portion of an audit is least likely to be completed before the balance sheet date? A) Tests of controls. B) Issuance of an engagement letter. C) Substantive procedures. D) Assessment of control risk.

C) Substantive procedures.

An auditor may compensate for a weakness in internal control by increasing the extent of: A) Tests of controls. B) Detection risk. C) Substantive tests of details. D) Inherent risk.

C) Substantive tests of details.

Which of the following is not explicitly included in an audit report with an unqualified opinion for a nonpublic company? A) The CPA's opinion that financial statements comply with generally accepted accounting principles. B) The generally accepted auditing standards were followed during the audit. C) That all material instances of fraud have been identified. D) An identification of the financial statements audited.

C) That all material instances of fraud have been identified.

The term "except for" in an audit report is: A) Used in an adverse opinion. B) No longer considered appropriate. C) Used in a qualified opinion. D) Used for an unmodified opinion when an emphasis-of-matter paragraph is added.

C) Used in a qualified opinion

A CPA should maintain objectivity and be free of conflicts of interest when performing: A) All attestation services, but not other professional services. B) All attestation and tax services, but not other professional services. C) Audits, but not any other professional services. D) All professional services.All professional services.

D) All professional services.

Which of the following would provide the most assurance concerning the valuation of accounts receivable? A) Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents. B) Compare receivable turnover ratios to industry statistics for reasonableness C) Inquire about receivables pledged under loan agreements D) Assess the allowance for uncollectible accounts for reasonableness.

D) Assess the allowance for uncollectible accounts for reasonableness.

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should: A) Express an opinion that is qualified due to the inability of the client company to continue as a going concern. B) Evaluate management's performance in causing this decline. C) Require note disclosure. D) Consider the possibility of a misstatement in the financial statements.

D) Consider the possibility of a misstatement in the financial statements.

The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as A) Business risk. B) Engagement risk. C) Control risk. D) Detection risk.

D) Detection risk.

Tests of controls ordinarily are designed to provide evidence of: A) Balance correctness. B) Control implementation. C) Disclosure adequacy. D) Operating effectiveness.

D) Operating effectiveness.

The least likely approach in auditing management's estimate relating to an accrued liability is to: A) Independently develop an estimate of the amount to compare to management's estimate. B) Review and test management's process of developing the estimate. C) Review subsequent events or transactions bearing on the estimate. D) Send confirmations relating to the estimate.

D) Send confirmations relating to the estimate.

A scope restriction is least likely to result in a(an): A) Qualified opinion. B) Disclaimer of opinion. C) Adverse opinion. D) Standard unmodified opinion.

D) Standard unmodified opinion.