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If the upper limit rate of deviation exceeds the tolerable rate of deviation, the auditor would most likely A. accept the account balance as fairly stated. B. reject the account balance as fairly stated. C. increase the planned effectiveness of […]

Under generally accepted auditing standards, which of the following relates to the responsibilities principle? A. The initial planning of the audit engagement B. The confirmation of accounts receivable C. The completion of an internal control questionnaire D. Maintaining professional skepticism […]

Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. Wall, CPA, is Delta’s auditor. If Wall discovers that the statements are not suitably titled, Wall […]

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be A. vendors with whom the entity has previously done business. B. amounts recorded in the accounts payable subsidiary ledger. C. […]

Assume that the audit team wishes to determine the extent to which a particular control policy was functioning as intended. Identifying applications of the control throughout the period under audit would be most closely related to which of the following […]

If a customer’s account was recorded at $45,000, the audited value was $30,000, and the sampling interval was $30,000, the projected misstatement would be A. $10,000. B. $15,000. C. $20,000. D. $30,000. Which of the following sample selection techniques can […]

When an account receivable is considered uncollectible, the person who generally authorizes the write-off is the client’s A. credit manager. B. treasurer. C. accountant. D. internal auditor. Sun Corp. approved a merger plan with Cord Corp. One of the determining […]

You are planning to use monetary unit sampling to evaluate accounts receivable for Rose Company. The accounts receivable account totals $4,000,000. You have assessed a risk of incorrect acceptance of 10%, a tolerable misstatement of $200,000, and an expected misstatement […]

Which of the following statements is true regarding attributes sampling? A. Once the population reaches a certain size, population size has a limited impact on sample size. B. Auditors should use attributes sampling to evaluate controls, regardless of the degree […]

An attestation engagement is one in which a CPA is engaged to A. issue, or does issue, a report on subject matter or an assertion about the subject matter that is the responsibility of another party. B. provide tax advice […]

As part of assessing the risk of material misstatement, the audit team must assess the control risk in the computerized processing system. Initially, the audit team must identify the overall processing scope of the system(s), which would include each of […]

Law, CPA is using nonstatistical sampling in his examination of Jye Company’s accounts receivable. The recorded balance of Jye’s accounts receivable was $750,000. Law selected a sample of customer accounts for examination, which were recorded at $50,000. Based on the […]

Vouchers should be stamped PAID to A. prevent duplicate payment. B. generate a new purchase order. C. indicate posting in the voucher register. D. facilitate preparation of the bank reconciliation. Independence permits internal auditors to render impartial and unbiased judgments. […]

An auditor would least likely use computer software to A. access client data files. B. prepare spreadsheets. C. assess information systems control risk. D. construct parallel simulations to test the client’s computing system. How does monetary unit sampling (MUS) ensure […]

Loan covenants A. describe the collateral of the loan. B. require the borrower to maintain certain financial characteristics. C. describe the lender’s responsibilities. D. include all the above. Roll-forward work normally occurs between the ____ and the ____. A. beginning […]

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements. Certification means that the company CEO and CFO must sign a statement indicating A. they have read the financial statements. B. they are not aware […]

Tracing the payables to the cash disbursements journal can provide the evidence regarding the valuation of accounts payable. Forensic accounting is a term used solely to describe work that is performed when evidence of fraud exists in an organization. Answer: […]

When financial statements contain a departure from GAAP, the auditors should explain the unusual circumstances in a separate paragraph and express an opinion that is A. unmodified. B. qualified. C. adverse. D. qualified or adverse, depending on the overall materiality […]

Inventory observation must be observed if inventory is one of the major assets listed on the balance sheet. The accounts payable department reconciles the vendor invoice, purchase order, and receiving report prior to approving the payment to the vendor. Answer: […]

Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriation of assets? A. A large number of bearer bonds on hand B. A large number of inventory items with low sales prices C. […]

Specific balance assertions typical of accounts payable would not include A. recorded liabilities are obligations of the entity. B. estimated liabilities are properly valued. C. accounts payable are not pledged as collateral. D. payables are recorded in the proper period. […]

Foreseeable third parties are best described as A. management of the entity. B. those third parties who have a direct relationship with auditors through previous contract related to the audit engagement. C. those third parties who will rely on the […]

When a company keeps its own stock records, which of the following procedures is not required? A. Confirm outstanding common stock with stock registrar agent. B. Inspect the stock record stubs for certificate numbers and number of shares. C. Inspect […]

Which of the following statements is true with respect to the quality of audit evidence? A. Quality is related to the relevance of evidence, but not the reliability of evidence. B. Evidence is considered of higher quality when gathered prior […]

Which of the following is not true with respect to the risk of incorrect acceptance? A. It results in an efficiency loss to the auditor. B. It occurs when the auditor’s sample indicates that the account balance is fairly stated. […]

The procedures used in a review engagement are A. physical examination, reperformance, and obtaining a management representation letter. B. analytical procedures, reperformance, and obtaining a management representation letter. C. analytical procedures, inquiry, and obtaining a management representation letter. D. physical […]

According to the ethical standards of the profession, which of the following acts is generally prohibited? A. Purchasing a product from a third party and reselling it to a client B. Writing a financial management newsletter promoted and sold by […]

The audit team is planning to examine a sample of control policies and procedures. Assume that, based on the intended degree of reliance on internal control, the audit team wishes to control the risk of overreliance to 5% and establishes […]

Improperly capitalizing an expense item results in A. understatement of profit in the current year and overstatement in future years. B. understatement of profit in the current year and in future years. C. overstatement of profit in the current year […]

The accountants who record cash receipts and credits to customer accounts should not handle the cash. The Bill of Materials provides pricing information on all materials used in production. Answer: FALSE Governmental and internal auditors are more concerned with compliance […]

If the audit team established a tolerable rate of deviation of 5%, an expected population deviation rate of 3%, and desired to control the risk of overreliance to 5%, what sample size would be appropriate in this situation? A. 132 […]

Accountants should be under orders to record sales and accounts receivable when A. the customer’s order is received. B. all supporting documentation of shipping is in order. C. the item has been paid for. D. the terms are agreed upon. […]

On March 15, 2015, Kent, CPA, issued an unqualified opinion on a client’s audited financial statements for the year ended December 31, 2014. On May 4, 2015, Kent’s internal inspection program disclosed that engagement personnel failed to observe the client’s […]

Which of the following situations would require auditors to add an other-matter paragraph to their report on comparative financial statements? A. An unmodified opinion is issued in the current year while a qualified opinion was issued in prior years. B. […]

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of A. objective judgment. B. independent integrity. C. professional skepticism. D. impartial conservatism. […]

In performing a financial statement audit in accordance with government auditing standards, an auditor is required to report on the entity’s compliance with laws and regulations. This report should A. state that compliance with laws and regulations is the responsibility […]

The audit team is planning to examine a sample of control policies and procedures. Assume that, based on the intended degree of reliance on internal control, the audit team wishes to control the risk of overreliance to 5% and, based […]

A set of characteristics that helps to define a seriousness about employees’ attitudes about the control activities in a company is referred to as A. management assertions. B. the control environment. C. control risk assessment. D. functional responsibilities. After the […]

C. Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday’s predecessor auditor was K. Post, CPA, whom Monday has notified by that its services have been terminated. Under these circumstances, which party should initiate the […]

Lancaster & Co. CPAs is auditing the financial statements of Cooper Corporation. During the course of the audit, Cooper Corporation sent the following memo to the engagement partner: We have requested $1 million worth of products from Ladd Corporation with […]

Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade accounts receivable? A. Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming […]

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the A. date of the financial statements. B. date of the auditors’ report. C. audit report release date. D. subsequent year’s date of the financial […]