Auditing Acct 107 exam
A client's physical count of inventories was lower than the inventory quantities per the perpetual records. This situation could be the result of the failure to record: a.Sales. b.Sales returns. c.Purchases. d.Purchase discounts.
A
ASC 820 is about which audit assertion? a.Valuation b.Existence c.Completeness d.Occurrence
A
Comparing financial ratios for the year under audit with those of prior years is an example of a.analytical procedeures b.reperformance c.confirmation d.tracing
A
In examining liabilities of a company, what is the auditors' primary concern? a.Completeness. b.Presentation. c.Rights. d.Valuation.
A
When performing an audit of the property, plant, and equipment accounts, an auditor should expect which of the following to be most likely to indicate a departure from generally accepted accounting principles? a.A gain was recognized on the sale of a fixed asset in which the book value exceeded the cash received for the sale. b.Interest has been capitalized for self-constructed equipment. c.Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statements. d.The cost of freight-in on an acquisition has been capitalized.
A
Discovery Sampling
A sampling plan for locating at least 1 deviation, providing that the deviation occurs in the population with a specified frequency.
Rights and obligations are audit assertions for (select all that apply) Account balances Transactions & events Presentation & disclosure Fair value & materiality
Account Balances Presentation & Disclosure
Completeness is an audit assertion for (select all that apply) Account balances Transactions & events Presentation & disclosure Fair value & materiality
Account Balances Transactions & events Presentation & disclosure
For good internal control, a copy of a receiving report should be sent to which of the following departments? (select all that apply) Accounts payable Purchasing Stores Shipping
Accounts payable Purchasing Stores
A change in accounting principles that the auditors believes is not justified is likely to result in which of the following audit reports? a.Adverse or Disclaimer. b.Adverse. c.Disclaimer. d.Neither Adverse nor DIsclaimer.
B
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' monthy 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
A company oil tanker recently spilled a large amount of oil in a pristine fishing area. No lawsuits have yet been filed. What is the audit issue? a.Account payable. b.Unasserted claim. c.Valuation of oil & gas holdings. d.General risk contingency.
B
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 occurence. b.Completeness c.Rights and obligations d.Presentation and disclosure.
B
Which audit assertion would best be addressed by ensuring that transactions are recorded in the correct year? a.Completeness b.Cutoff c.Presentation and disclosure d.Valuation e.None of the above
B
Which of the following is a correct statement concerning the Sarbanes-Oxley Act of 2002? a.It applies to audits of all companies doing business in the United States. b.It makes performance of nonattest services relating to financial information systems design and implementation for audit clients unlawful. c.It requires the divestiture of a consulting department of any CPA firm performing audits of publicly traded companies. d.It requires the reporting of all illegal acts identified during an audit to the Justice Department.
B
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 proceedures. c.Use only certified public accountants on the engagement. d.Place increased emphasis on the audit of objective transactions rather than subjective transactions.
B
Which of the following is not a typical transaction cycle? a.revenue b.planning c.conversion d.all of the above are typical cycles
B
Which of the following is not among the criteria that ordinarily exist for revenue to be recognized? a.Collectibility is reasonably assured. b.Delivery has occured or is scheduled to occur in the near future. c.Persuasive evidence of an arrangement exists. d.The seller's price to the buyer is fixed or determinable.
B
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 representation letter for accuracy d.Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average
B
Which of the following is the risk of material misstatement of an assertion about an account without considering internal control? a.Business risk b.Inherent risk c.Control risk d.Audit risk
B
Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? a.Adequate disclosure. b.Quality control. c.Materiality and audit risk. d.Client acceptance.
C
Which of the following events occuring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? a.A business combination. b.Early retirement of bonds payable. c.Settlement of litigation. d.Plant closure due to a strike.
C
Which of the following is an example of a detective control? a.Maintaining backup copies of key transactions b.Segregation of duties c.Monthly bank reconciliations d.Two of the above are detective controls
C
Article 9 of the California Accountancy Regulations is about a.The CPA exam b.Practice privileges c.Continuing education d.None of the above
D
Which of the following best describes the auditors' approach to the audit of accrued liabilities? a.Confirmation. b.Observation. c.Plan a low assessed level of control risk. d.Test computations.
D
Which of the following is not considered by the AICPA Conceptual Framework for Independence Standards a broad category of threat to auditor independence? a.Adverse interest. b.Financial self-interest c.Management participation. d.Safeguards.
D
A determination of the fairness of financial statements for public distribution by a corporation that has professional-level internal auditing staff would be considered a.Consulting services b.Accounting services c.An operational audit d.A compliance audit e.A financial statement audit
E
Which of the following would be a purpose of a work order for plant, property, and equipment? a.Authorization of plant asset additions. b.Disposition of plant assets. c.Authorization of repairs and maintenence to plant assets. d.Only I and II e.Only I f.Answers I, II, and III
F
A standard audit program can be used for most engagements. True False
False
TIP (P)SIE ACDO for the ten GAAS stands for
General= Training, Independence, Professional Care; Fieldwork= Planning and supervision, Internal control, Entity and environment; Reporting= Accounting gaap, Consistency, Disclosure, express Opinion
tolerable deviation rate
The maximum population rate of deviations from a prescribed control that the auditor will tolerate without modifying the planned assessment of control risk.
Sampling Risk
The possibility that the sample drawn is not representative of the population and that, as a result, the auditor reaches an incorrect conclusion about the reliability of the control, the account balance, or class of transactions based on the sample.
Risk of incorrect acceptance
The risk that sample results will indicate that a population is not materially misstated when, in fact, it is materially misstated.
Deviation Rate
a defined rate of departure from prescribed controls
Projected Misstatement
an estimate of the most likely amount of monetary misstatement in a population
Allowance for sampling risk
the level of uncertainty associated with sampling. It is calculated as the difference between the tolerable deviation and the expected mean of the population
A review of the tax return of a corporate president to determine whether charitable contributions are adequately substantiated would most likely be audited by which type of auditor? a.CPA b.GAO c.IRS d.Bank examiner e.Internal auditor
A
Adverse opinions are rare because: a.Auditors will more than likely terminate their relationship with the client before an adverse opinion can be issued. b.The auditor does not want to harm the working relationship with the client. c.Adverse opinions can only be given to clients under the strictest of circumstances as set forth by the PCAOB. d.Companies in the US hardly ever depart from GAAP, thus making this type of opinion not applicable.
A
An audit of the balance in the accounts payable account is ordinarily not designed to: a.Detect accounts payable that are substantially past due b.Verify that accounts payable were properly authorized c.Ascertain the reasonableness of recorded liabilities d.Determine that all existing liabilities at the balance sheet date have been recorded
A
An audit program is: a.The detailed plan of audit procedures to be performed in the course of the audit. b.An overview of the company and a general plan for the audit work to be accomplished. c.A generic document that auditing firms have developed to lead the process of the audit through a systematic and logical process. d.A budget of the time that should be necessary to complete each phase of the audit procedures.
A
An auditor needs to estimate te average highway weight of tractor-trailer trucks using a state's highway system. Which estimation method is most appropriate? a.Mean per unit b.Difference c.Ratio d.Probability proportional to size
A
Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? a.Accumulated depreciation. b.Cost of goods sold. c.Purchase returns and allowances. d.Purchase discounts.
A
Cooper, CPA, is auditing the financial statements of a small rural municipaity. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely: a.Send positive confirmation requests. b.Send negative confirmation requests. c.Examine evidence of subsequent cash receipts. d.Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.
A
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 voucher
A
Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable. a.Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence. b.Write-offs must be approved by the accounts receivable department. c.Write-offs must be authorized by the shipping department. d.Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off.
A
If ending inventory is understated in year 1, how will net income for year 2 be affected? a.Year 2 net income will be overstated b.Year 2 net income will be understated c.Year 2 net income not be affected
A
In most audits are auditors more concerned with an under-or overstatement of ending inventory, and why? a.Overstatement, because net income would be overstated also. b.Understatement, because net income would be overstated. c.Overstatement, because this would indicate that liabilities are likely to be understated. d.Understatement, because this would indicate that liabilities are likely to be understated.
A
In the report of the principal auditor, reference to the fact that a portion of the audit was made by another auditor is: a.Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms. b.Not in accordance with generally accepted auditing standards. c.A qualification that lessens the collective responsibility of both CPA firms. d.An example of a dual opinion requiring the signatures of both auditors.
A
Reconciliation of the bank account should not be performed by an individual who also: a.Processes cash disbursements. b.Has custody of securities. c.Prepares the cash budget. d.Reviews inventory reports.
A
Requiring approval of period-end journal entries is an example of a.A preventive control b.A detective control c.A corrective control d.A compensating control
A
S-1 reviews are only applicable to a.SEC companies b.Non-public companies c.Governmental agencies. d.S-1 reports apply to all enties under audit.
A
The auditor's analytical procedures will be facilitated if the client: a.Uses a standard cost system that produces variance reports b.Segregates obsolete inventory before the physical inventory count c.Corrects material weaknesses in internal control before the beginning of the audit d.Reduces inventory balances to the lower of cost or market
A
The representation letter should be a.dated as of the audit report. b.dated as of the end of fieldwork. c.dated as of the date of issuance of the financial statements. d.dated as of the client's year end.
A
The type of companies LEAST susceptible to financial statement fraud are: a.Companies dealing with a period of constant growth b.Startup companies c.Companies transitioning from fast growth to slower growth d.Companies struggling to maintain their market position
A
To have an adequate basis to issue a management report on internal control under Section 404(a) of the Sarbanes-Oxley Act, management must do all of the following, except: a.Establish internal control with no material weakness. b.Accept responsibility for the effectiveness of internal control. c.Evaluate the effectiveness of internal control using suitable control criteria. d.Support the evaluation with sufficient evidence.
A
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 proceedures, 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
Which of the following describes a condition that existed at the balance sheet date? a.Type I subsequent event. b.Type II subsequent event. c.Pro-forma subsequent event. d.S-1 subsequent event.
A
Which of the following is a risk of a related party transaction in regards to property, plant, and equipment? a.The asset may be overstated on the balance sheet. b.The asset may be understated on the balance sheet. c.The legality of the transaction may be in question. d.The rights to the asset may be in question.
A
Which of the following is not an audit assertion for debt? a.Classification b.Existence c.Presentation and disclosure d.Cutoff
A
Which of the following procedures would the auditors most likely perform to test controls relating to manangement's assertion about the completeness of cash receipts for cash sales at a retail outlet? a.Observe the consistency of the employees' use of cash registers and tapes. b.Inquire about employees' access to recorded but undeposited cash. c.Trace deposits in the cash receipts journal to the cash balance in the general ledger. d.Compare the cash balance in the general ledger with the bank confirmation request.
A
Which of the following types of reports would not be appropriate for a very material issue in the financial statements? a.Qualified "except for." b.Adverse c.Disclaimer d.None of the above would apply as the auditor should disassociate themselves from the audit to reduce their risk of lawsuits.
A
Which of the following types of sampling is intended to determine the rate of error or occurrence: a.Attribute sampling b.Discovery sampling c.PPS sampling d.None of the above
A
Which of the following would be considered "Miscellaneous Revenue"? a.Interest income from a sinking fund account. b.Proceeds from the sale of scrap. c.Refund of an insurance premium. d.All of the above should not be considered "Miscellaneous Revenue."
A
A review of the management directive stating the goals and responsibilities of the mail handling department would be considered a.A compliance audit b.An operational audit c.A financial statement audit d.Consulting services e.Accounting services
B
Addition of an "emphasis of a matter" paragraph to what remains an unmodified opinion is least likely for which of the following situations? a.Related party transactions. b.Scope limitation. c.A large subsequent event. d.An uncertainty.
B
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 Compnay Accounting Oversight Board (United States). c.Generally accepted accounting principles (United States). d.Generally accepted accounting principles (Public Company Accounting Oversight Board).
B
CPAs in California are required to obtain _____ hours of continuing education every _____. a.80, year b.80, two years c.40, year d.40, two years
B
Cash or other assets set aside for the retirement of a debt are known as a.Treasury stock b.Sinking fund c.Trust indenture d.Two of the above
B
Cutoff is an audit assertion for (select all that apply) a.Account balances b.Transactions & events c.Presentation & disclosure d.Fair value & materiality
B
In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? a.Completeness b.Existence c.Valuation d.Rights
B
Internal auditors are most likely to issue a report on which of the following? a.Annual financial statement reporting b.Internal control c.Tax compliance d.Quarterly financial statement reporting
B
Recording repairs and maintenance expenses as property, plant, and equipment to overstate income is an example of a.Improper reporting of unusual transactions. b.A misstatement of acquisitions. c.A failure to record retirements. d.All of the above. e.None of the above.
B
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: a.Notify the board of directors that the auditor's report must no longer be associated with the financial statements. b.Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. c.Request that management disclose the effects of the newly discovered information by adding a footnote to subsequently issued financial statements. d.Issue revised pro forma financial statements taking into consideration the newly discovered information.
B
The PCAOB is responsible for all of the following except: a.Establishing independence standards for auditors of public companies. b.Reviewing financial reports filed with the SEC. c.Establishing auditing standards for audits of public companies. d.Sanctioning registered firms.
B
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 so as to obtain assurance that inventory quantities are reasonably accurate
B
To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: a.Supported by a vendor's invoice. b.Stamped "paid" by the check singer. c.Prenumbered and accounted for. d.Approved for authorized purchases.
B
When confirming accounts payable, the approach is most likely to be one of: a.Selecting the accounts with the largest balances at year-end, plus a sample of other accounts b.Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts c.Selecting a random sample of accounts payable at year-end d.Confirming all accounts
B
When verifying dividend amounts paid, an auditor will typically do all except which of the following? a.Determine dates and amounts of dividends paid. b.Send confirmations to shareholders to verify payments. c.Examine arrearages of preferred stock dividends. d.Examine treatment of unclaimed dividends.
B
Accounting standards for U.S. government agencies are established by a.FASB b.GASB c.FASAB d.PCAOB
C
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated: a.December 31, 20X8. b.January 17, 20X9. c.February 10, 20X9. d.February 16, 20X9.
C
An engagement letter is best described as which of the following? a.A letter from company management to the auditors specifying management's expectations for completion of the audit on a timely basis and the fees. b.A letter from the auditors to company management specifying that management is responsible for the financial statements, and the auditors will issue an opinion on the financial statements. c.A letter from the auditors to company management that specifies the responsibilities of both the company and the auditors in completing the audit and the timing for its completion. d.A letter from the Board of Directors' audit committee to the auditor that indicates the auditor has been engaged to perform the audit and the fees to be paid.
C
Article 12 of the California Accountancy Regulations is about a.Fees b.Rules of professional conduct c.Continuing education d.None of the above
C
Audit documentation relating to the A Company audit should be sufficient to allow which type of auditor to understand the audit work performed? a.Any auditor. b.Any auditor that works on A Company's audit. c.An experienced auditor. d.An experienced auditor with experience on A Company's audit.
C
Purchase cutoff procedures should be designed to test that merchandise is included in the inventory of the client when the client: a.Has paid for the merchandise. b.Has physical possession of the merchandise. c.Holds legal title to the merchandise. d.Holds the shipping documents for the merchandise issued in the company's name.
C
RFID tags include which of the following components a.Storage, processing, and modulating component b.Antenna c.Both of the above d.None of the above
C
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
The receiving department is least likely to be responsible for the: a.Determination of quantities of goods received b.Detection of damaged or defective merchandise c.Preparation of a shipping document d.Transmittal of goods received to the store's department
C
The results of the consideration of internal control are least likely to affect the auditors' decisions pertaining to: a.The use of analytical procedures. b.The assessment of control risk. c.The assessment of inherent risk. d.Detailed tests of ending balance.
C
What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls during an audit of the financial statements a.Assess control risk at the minimum level b.Perform only substantive analytical procedures on inventory c.Perform only substantive tests on inventory d.Perform only tests of controls on inventory
C
Which audit objective would procedures identifying accounts payable to related parties satisfy? a.Valuation and accuracy b.Occurance c.Presentation and disclosure d.None of the above
C
Which of the following does not ordinarily involve the addition of an expanatory paragraph to an audit report? a.A consistency modification. b.A qualified opinion. c.Part of the audit has been performed by other auditors. d.An adverse opinion.
C
Which of the following is most likely to be an audit objective in the audit of owners' equity? a.Establish that recorded owners' equity includes all long-term debt and equity balances b.Determine that common stock is valued at current market value c.Determine that the presentation and disclosure of owners' equity is appropriate d.Determine that the existence of recorded owner's equity is in conformity with equity accounting rule valuations
C
Which of the following is most likely to be considered a Type I subsequent event? a.A business combination completed after year-end, but for which negotiations began prior to year end. b.A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago. c.Customer checks deposited prior to year-end, but determined to be uncollectible after year-end. d.Introduction of a new line of products after year-end for which major research had been completed prior to year-end.
C
Which of the following is not correct concerning plant assets. a.Few transactions ordinarily occur. b.Typically there is little change in accounts from year to year. c.Plant assets need to be tightly controlled to prevent defalcation. d.Year-end cutoff of plant assets has no effect net income.
C
Which of the following is one of the most fundamental and effective controls? a.Increased use of computers for recording accounting transactions. b.Increased reliance on internal auditors to monitor accounting systems. c.Segregation of incompatible duties across several people. d.Having internal auditors report only to the Board of Directors.
C
Which of the following types of sampling is intended to estimate an overall value or amount, based on dollar intervals: a.Attribute sampling b.Discovery sampling c.PPS sampling d.All of the above
C
Which portion of an audit is least likely to be completed before the balance sheet date? a.Tests of Controls b.Issuance of a engagement letter c.Substantive procedures. d.Assessment of control risk
C
Which type of entity needs an audit committee? a.Partnership b.Closely held corporation c.Public Company d.All of the above need an audit committee.
C
With which of the following is the AICPA least concerned? a.Professional standards for CPAs b.Research and development of accounting standards c.Standards guiding the conduct of internal auditors d.Self regulation of the accounting profession
C
A disclaimer of opinion should be issued in the following circumstance: a.The client has imposed a scope limitation upon the audit. b.A significant uncertainty has not been resolved as of the report date that has a serious impact in the financial statements. c.Circumstances arise that are out of the auditor's control such as being engaged after the year end inventory was completed and alternative procedures were not available. d.All of the above circumstances could require a disclaimer of opinion.
D
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
An analysis of the aged accounts receivables is most directly related to which substantive test objective? a.Existence and occurrence. b.Presentation and disclosure. c.Rights and obligations. d.Valuation.
D
As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether: a.Each recorded sale represents a bona fide transaction. b.All sales have been recorded in the sales journal. c.All debit entries in the accounts receivable subsidiary ledger are properly supported by sales journal entries. d.Recorded sales have been properly posted to customer accounts.
D
Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: a.This is a duplication of cutoff tests b.Accounts payable balances at the balance at the balance sheet date may not be paid before the audit is completed c.Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment d.There is likely to be other reliable external evidence available to support the balances
D
If a lease conveys title to the lessee at the end of the lease, the lease is probably a.An operating lease b.A non-operating lease. c.A comprehensive lease. d.None of the above.
D
Management of Warren Company has decided to respond to a partiular risk by hedging the risk with futures contracts. This is an example of a.Avoidance b.Acceptance c.Reduction d.Sharing
D
Of the following statements about internal control, which one is not valid? a.No one person should be responsible for the custody and recording of an asset. b.Transactions must be properly authorized before they are processed. c.Because of the cost/benefit relationship, the client may apply controls on a test basis. d.Controls reasonably ensure that collusion among employees cannot occur.
D
The California Board of Accountancy is responsible for a.Regulating public accounting b.Licensing CPAs c.Investigating complaints against CPAs d.All of the above
D
The attest function: a.Is an essential part of every engagement performed by a CPA b.Requires a complete review of all transactions during the period under examination c.Requires a review of a sample of transactions during the period under examination d.Includes the preparation of a written report of the CPA's findings
D
The auditors may conclude that depreciation charges are insufficient by noting: a.Insured values greatly in excess of book values. b.Large amounts of fully depreciated assets. c.Continuous trade-ins of relatively new assets. d.Excessive recurring losses on assets retired.
D
The form of attestation that provides the highest form of assurance is a(n): a.Assembly b.Compilation c.Review d.Examination
D
What is ordinarily the preferable course of action when an auditor finds a higher than expected deviation rate when sampling controls? a.Triple the size of the sample to further analyze potential problems b.Project the level of deviation to the entire sample, and if material qualify the audit opinion c.Continue to selection items from the population until the error rate diminishes to a tolerable level d.Expand substantive procedures
D
Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? a.Depreciation. b.Accounts Payable. c.Cash. d.Repairs.
D
Which of the following balance sheet items does not have an expense component? a.Accounts Receivable. b.Property, Plant, and Equipment. c.Intangible Assets. d.All of the above have a component of expenses.
D
Which of the following does the auditor do to obtain an understanding of the entity under audit? a.Analytical proceedures. b.Inspection of the client's premises. c.Inquire of others outside of the company. d.All of the above are performed by the auditor.
D
Which of the following is an example of misappropriation of assets relating to sales? a.Accidentally recording cash that represents a liability as revenue. b.Holding the sales journal open to record next year's sales as having occured in the current year. c.Intentionally recording cash received from a new debt agreement as revenue. d.Theft of cash register sales.
D
Which of the following is correct about forensic audits? a.All audits are forensic in nature b.Forensic audits are performed by law firms; they are not performed by CPA firms c.Forensic audits are equivalent to compliance audits d.Forensic audits are usually performed in situations in which fraud has been found or is suspected
D
Which of the following is correct concerning "window dressing" for cash? (select all that apply) a.A segregation of duties within the cash function effectively eliminates its occurrence. b.It generally involves manipulation of inventory. c.It is illegal, and an audit is designed to provide reasonable assurance of its detection. d.Many forms of it require no action by the auditors.
D
Which of the following is least likely to be required on an audit? a.Test appropriateness of journal entries and adjustment. b.Review accounting estimates for biases c.Evaluate the business rationale for significant, unusual transactions. d.Make a legal determination of whether fraud has occurred.
D
Which of the following is not a financial statement assertion made by management? a.Existence of recorded assets and liabilities b.Completeness of recorded assets and liabilities c.Valuation of assets and liabilities d.Effectiveness of internal control
D
Which of the following is not correct concerning a type I and a type II subsequent event? a.A type I may require adjustment to financial statements while a type II will not. b.Both a type I and a type II subsequent event may require note disclosure. c.A type I is an event that occurred prior to year end, but was discovered after, while a type II is one that arose subsequent to year end. d.A type II event may require adjustment to the financial statements and a type I may require note disclosure.
D
Which of the following is not included in the engagement letter? a.Schedule of dates for fieldwork. b.Audit fees. c.Management's responsibility. d.Team members on the engagement. e.All of the above are included in the engagement letter.
D
Which of the following ordinarily is considered the weakest form of evidence? a.Actual physical evidence. b.Documentary evidence obtained from outside the company. c.Documentary evidence obtained from inside the company. d.Replies by company employees to auditor oral inquiries.
D
Which of the following procedures is most likely to be included in the final review stage of an audit? a.Obtain an understanding of internal control. b.Confirmation of receivables. c.Observation of inventory. d.Perform analytical procedures.
D
Which of the following would most likely be detected by an auditor's review of the client's sales cutoff? a.Exessive goods returned for credit. b.Unrecorded sales discounts. c.Lapping of year-end accounts receivable. d.Inflated sales for the year.
D
Which of the following would not be considered an emphasis of a matter? a.A going concern issue. b.Significant related party transactions. c.A risk or uncertainty. d.The company is a component of a larger business enterprise.
D
An expanatory paragraph must be included in the audit report under the following circumstances except: a.When two auditors share responsibilty over the financial statements. b.A justified departure from GAAP has occured. c.There was a scope restriction. d.There is a going concern issue that has been fully disclosed in the financial statements.
A
Article 10 of the California Accountancy Regulations is about a.Fees b.Practice privileges c.Continuing education d.None of the above
A
As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter? a.To increase the efficiency of the audit by eliminating the need for other audit proceedures. b.To remind the client's management of its primary responsibility for the financial statements. c.To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement. d.To provide evidence in those areas dependent upon management's future intentions.
A
Cash set aside by a company to cover the repayment of a debt would be considered: a.A sinking fund b.A slush fund c.A debentured fund d.An indentured fund
A
Commitments refers to a.A contractual obligation to enter into a transaction in the future. b.A contractual obligation entered into in the past. c.A contractual obligation that is only executed upon completion of a specific task. d.Only contractual obligations that both parties attorneys have looked over before signing.
A
If the auditor felt that the income statement warranted an unmodified opinion, but the balance sheet warranted a qualified opinion, what could the auditor do? a.Give opinions on the income statement and the balance sheet separately. b.Give the entire audit a qualified opinion using the rule of conservatism. c.Give the entire audit an Unmodified opinion "except for" and add an explainatory paragraph before the opinion. d.The auditor would have to withdraw from the audit as the fourth standard of fieldwork states that auditors shall express an opinion on the financial statements "taken as a whole."
A
In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee? a.A fee based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing. b.A fee is to be established at a later date by a Bankruptcy Court. c.A fee is based upon the nature of the engagement rather than upon the actual time spent on the engagement. d.A fee is based on the fee charged by the client's former auditors.
A
Instead of taking a physical inventory count on the balance sheet date, the client may take physical counts prior to the year end if internal control is adequate and: a.Computerized records of perpetual inventory are maintained b.Inventory is slow-moving c.Computer error reports are generated for missing prenumbered inventory tickets d.Obsolete inventory items are segregated and excluded.
A
Testing the period end accrual of payroll expenses will not satisy which audit objective? a.Classification. b.Completeness. c.Accuracy. d.Existence.
A
Tests of controls are used to test whether controls are a.Operating effectively. b.Implemented (placed in operation). c.Properly accumulated into balance sheet totals. d.Properly documented by the client.
A
The auditors may find unrecorded long-term liabilities by analyzing: a.Interest payments b.Discounts on long-term liabilities c.Premiums on long-term liabilities d.Recorded long-term liability accounts
A
The institution(s) charged with the responsibility for avoiding over-issuance of a corporation's stock is/are a.Stock registrar b.Stock transfer agent c.Both of the above d.None of the above
A
There is a presumption that auditors will confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low. a.And accounts receivable are immaterial, or the use of confirmations would be ineffective. b.And accounts receivable are composed of large amounts. c.And the effectiveness of confirmations is absolutely determined. d.Or accounts receivable are from extremely reputable customers.
A
Understatement of which of the following is most likely to overstate net income? a.Accounts payable. b.Accounts receivable. c.Property, plant and equipment. d.Cash.
A
What is the general objective for the auditor to locate a fixed asset listed on the client's subsidiary plant and equipment ledger? a.Existence b.Valuation c.Completeness d.Rights
A
What is the general objective for the auditor to trace a sample of shipping documents to recorded sales transactions? a.Completeness b.Existence c.Rights d.Valuation
A
What is treasury stock? a.Stock that is owned by the company repurchased on the open market b.Stock issued by the US Treasury c.Stock set aside by the company as part of a sinking fund d.Stock issued by the company above the par value
A
What mitigates or eliminates threats to independence? a.Safeguards b.Interpretations c.Principles d.Rules
A
When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak, the auditor would probably: a.Want the client to schedule the physical inventory count at the end of the year b.Insist that the client perform physical counts of inventory items several times during the year c.Increase the extent of tests for unrecorded liabilities at the end of the year d.Have to disclaim an opinion on the income statement for that year
A
Which assertion would the following control not cover? "Reconcile bank accounts monthly" a.Completeness b.Existence & Occurence c.Rights & Obligations d.Valuation & Accuracy
A
Which of the following is accurate regarding tolerable misstatement? a.Tolerable misstatement is directly related to materiality. b.Tolerable misstatement cannot be determined until the sample results are evaluated. c.Tolerable misstatement does not affect sample size. d.Tolerable misstatement is a measure of reliability of the sample.
A
Which of the following would be least likely to diminish the validity of evidence obtained from confirmation of accounts receivable? a.The confirmation requests are sent on the client's letterhead. b.The confirmation requests are mailed to clients by the internal auditors. c.The mailing addresses on the confirmation requests are verified by the client's mailroom personnel. d.The return address on the envelopes used to send the confirmation requests is the exact office address that the CPAs work in at the client's premises.
A
Which of the following would be most likely to be an appropriate addressee for an audit report? a.The shareholders of the corporation whose financial statements were examined. b.The chief financial officer. c.The president of the corporation whose financial statements were examined. d.A third party who requested that a copy of the audit report be sent to her.
A
Which substantive procedure would satisfy the presentation and disclosure audit objective for debt? a.Perform procedures to identify notes payable to related parties b.Obtaining an analysis of debt and other related accounts c.The confirmation of debt d.Testing computations of interest expense
A
Adequate planning and design of an audit is necessary for an auditor to restrict which type of audti risk? a.Control risk b.Detection risk c.Sufficiency risk d.Inherent risk
B
An explanatory paragraph relating to a scope limitation in the audit of the financial statements of a nonpublic company should be placed a.After the opinion paragraph. b.Prior to the opinion paragraph. c.Either before or after the opinion paragraph. d.An audit report modified for a scope limitation does not include an explanatory paragraph.
B
Assume that a client recorded a payable for a large purchase twice. Which of the following controls 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 confirmations to all vendors e.None of the above
B
Auditors may choose not to confirm accounts payable because: a.Confirmation obtains evidence identical to that obtained by cutoff tests. b.Other reliable external evidence to support the balances is likely to be available. c.A reading of the corporate minutes reveals that confirmation is unnecessary. d.The balances due will have changed between the year-end and the date of confirmation. e.Two of the above
B
In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? a.Tests of controls show that the entity's internal control is so poor that it can not be relied upon. b.The statements are not in conformity with the FASB Statements regarding the capitalization of leases. c.Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. d.The chief executive officer refuses the auditor access to minutes of board of directors' meetings.
B
Jones embezzled $50,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of: a.Lapping. b.Kiting. c.Effective cash management. d.Related party transactions.
B
On receiving the bank cutoff statement, the auditor should trace: a.Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal. b.Checks dated prior to year end to the outstanding checks listed on the year-end bank reconciliation. c.Deposits listed on the cutoff statement to deposits in the cash receipts journal. d.Checks dated subsequent to year end to the outstanding checks listed on the year-end bank reconciliation.
B
Professional standards in the audit of public companies requires that auditors maintain documentation for how many years? a.5 b.7 c.10 d.12
B
The auditor uses a bank cutoff statement to compare: a.Bank service charges on the cutoff statement to deposits in the cash receipts journal. b.Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. c.Deposits listed on the cutoff statement to disbursements in the cash disbursements journal. d.Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.
B
The first paragraph of a standard unmodified audit report for a nonpublic client is referred to as the: a.Explanatory paragraph. b.Introductory paragraph. c.Scope paragraph. d.Opinion paragraph.
B
Which of the following statements is correct with respect to explanatory paragraphs in reports on audits of the financial statements of nonpublic companies? a.They always precede the scope paragraph. b.Sometimes they precede and sometimes they follow the opinion paragraph. c.They always precede the opinion paragraph. d.They always follow the opinion paragraph.
B
Which of the following types of sampling is intended to find an error or exception: a.Attribute sampling b.Discovery Sampling c.PPS sampling d.None of the above
B
Which set of laws govern all public accounting in California? a.State Board of Accountancy b.California Accountancy Act c.AICPA d.PCAOB
B
In which circumstance is a CPA firm's independence most likely to be impaired? a.An individual on the audit has a close relative who is a receptionist for the client. b.The father of the audit senior holds a material financial interest in the client of which the senior is unaware. c.The spouse of a staff member on the audit has an immaterial common stock investment in the audit client. d.The partner in charge of the office's compensation is affected by office profitability, a portion of which arises from this audit.
C
In which circumstance would an auditor be most likely to express an adverse opinion? a.The chief executive officer refuses the auditor access to minutes of the board of directors' meetings. b.Tests of controls show that the client's internal control is so poor that it cannot be relied upon. c.The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases. d.Information comes to the auditor's attention that raises a question about the client's ability to continue as a going concern.
C
The search for unrecorded liabilities for a public company includes procedures usually performed through the a.Day the audit report is issued. b.End of the client's year. c.The date of the auditors' report. d.Date the report is filed with the SEC.
C
Which of the following is not an assertion regarding presentation and disclosure? a.Completeness b.Understandability c.Allocation d.Obligations
C
You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedures relating to cash. You decide that it would be preferable to: a.Count the cash in advance of the balance sheet date in order to disclose any kiting operations at year-end. b.Coordinate the count of cash with the cutoff of accounts payable. c.Coordinate the count of cash with the count of marketable securities and other negotiable assets. d.Count the cash immediately upon the return of the confirmation letters from the financial institution.
C
In addition to audits of financial statements, governmental auditing often includes audits of efficiency, effectiveness, and a.Adequacy b.Evaluation c.Accuracy d.Compliance
D
When an auditor has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the current financial statement date (9/30/X1), the auditor's responsibility includes: a.Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements. b.Preparing prospective financial information to verify whether management's plans can be effectively implemented. c.Projecting conditions and events from one year prior to this year's date (9/30/X0) to 9/30/X1. d.Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.
D
Which of the following should not normally be included in the engagement letter for an audit? a.A description of the responsibilities of client personnel to provide assistance. b.An indication of the amount of the audit fee. c.A description of the limitations of the audit. d.A listing of the client's branch offices selected for testing.
D
Which of the following steps are performed in the verification of cash dividends? a.Reviewing the treatment of unclaimed dividend checks b.Verifying amounts paid c.Determining the amount of any preferred checks in arrears d.All of the above are performed
D
Which of these organizations has the responsibility to perform inspections of auditors of public companies? a.AICPA b.SEC c.FASB d.PCAOB
D
risk of assessing control risk too low
This most important risk is the possibility that the assessed level of control risk based on the sample is less than the true operating effectiveness of the controls.
