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1) Because of the cycle’s pervasive nature, audit tests of the payroll cycle are usually extensive. A) True B) False 2) Auditors should obtain copies of the client’s code of ethics and minutes of the meetings of the board of […]

1) In a leading securities law and CPA liabilities case, the U.S. Supreme Court ruled in 1976 in Hochfelder v. Ernst & Ernst that before CPAs could be held liable for Rule 10b-5 of the Securities Exchange Act of 1934, […]

1) A company’s internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for […]

1) Inquiries of clients and reperformance normally have a low cost associated with them. A) True B) False 2) The primary purpose of a surprise payroll payoff is to detect employees who have reported more time than was actually worked […]

1) The accountant’s report on the examination of prospective financial statements should include a caveat that the prospective results may not be achieved. A) True B) False 2) An auditor using nonstatistical sampling cannot: A) B) C) D) Answer: C […]

1) The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related. A) directly B) indirectly C) not D) inversely 2) The most common case in which conditions beyond the client’s and auditor’s control cause a […]

1) The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must: A) be well documented and cross-referenced in the audit documents B) be based on sources that are external to company C) provide […]

1) A company issued long-term notes payable for cash during the year under audit. To ascertain that this transaction was properly recorded, the auditor’s best course of action is to: A) trace the cash received from the issuance to the […]

1) What client information is needed by auditors in creating lead schedules? A) Interim statements prepared by the client for the company’s 3rd quarter financial results B) General ledger information, including unadjusted ending balances and beginning balances for accounts C) […]

1) Which of the following audit risk components may be assessesed in non-quantitative terms? A) B) C) D) 2) A major consideration in assigning staff to an audit engagement is the experience levels required for the work, while a less […]

1) Which of the following statements about the audit of fixed assets is the least correct? A) The primary accounting record for manufacturing equipment and other property, plant and equipment is generally a fixed asset master file B) Manufacturing equipment […]

1) If a potential loss on a contingent liability is remote, the liability usually is: A) disclosed in footnotes, but not accrued B) neither accrued nor disclosed in footnotes C) accrued and indicated in the body of the financial statements […]

1) Information and idea exchange sessions by the audit team are required by SAS No. 99. A) True B) False 2) To test for proper sales cutoff, an auditor would obtain the number of the last bill of lading issued […]

1) When a pervasive scope limitation exists which paragraphs will be included in the independent auditors report? A) B) C) D) 2) Which of the following is not defined as an act discreditable in either the Rules or the Interpretations […]

1) Directed sample selection, block sample selection, and haphazard sample selection are three types of probabilistic sample selection methods. A) True B) False 2) A high detection risk equates to a low amount of audit evidence needed. A) True B) […]

1) As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company’s […]

1) The method used to measure the estimated total error amount in a population when there is both a recorded value and an audited value for each item in the sample is: A) difference estimation B) mean-per-unit estimation C) ratio […]

1) An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the: A) sales register to the accounts receivable ledger B) sales register to the meter department records C) […]

1) Presentation and disclosure related audit objectives would be performed in which phase of the audit process? A) plan and design audit approach B) perform audit tests for controls and transactions C) perform analytical procedures and tests of balances D) […]

1) Compilation reports may be of all but which of the following types? A) compilation with limited independence B) compilation with full disclosure C) compilation without independence D) compilation that omits substantially all disclosures 2) Limited liability companies are structured […]

1) Governmental Auditing Standards recognize that because of public accountability over governmental activities the acceptable tolerable misstatement as compared to commercial businesses may be: A) equal B) lower C) higher D) indeterminable 2) The audit procedure “Test clerical accuracy by […]

1) What event initiates a transaction in the sales and collection cycle? A) receipt of cash B) delivery of product to a customer C) identification of a new customer D) customer request for goods 2) Because of the importance of […]

1) If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably set a high assessment of control risk. A) True B) False 2) The primary accounting record […]

1) Which of the following groups establishes and maintains the company’s internal controls? A) Internal auditors B) Board of Directors C) Management D) Audit committee 2) Completeness and existence are the auditor’s primary objectives in auditing manufacturing equipment. A) True […]

1) The least helpful common audit test to verify current period acquisitions of property, plant, and equipment is examining vendors’ invoices and receiving reports. A) True B) False 2) Which of the following statements regarding the letter of representation is […]

1) In order to promote audit efficiency the auditor considers cost in selecting audit tests to perform. Which of the following audit tests would be the most costly? A) Analytical Procedures B) Risk Assessment Procedures C) Tests of Controls D) […]

1) A system walkthrough is primarily used to: A) test balances B) test details of transactions C) gain an understanding of internal controls D) determine acceptance of the client 2) Which of the following is not a general control? A) […]

1) In the context of financial statement auditing, fraud is defined as an intentional misstatement of a material fact regarding balances, transactions or presentation of the financial statements. A) True B) False 2) Which of the following is most correct […]

1) Which of the following is considered audit evidence? A) B) C) D) 2) Which of the following audit procedures would normally be best expected to test the completeness objective (assertion) for sales? A) Compare shipping documents with sales records […]

1) The purpose of phase 3 in the “process for understanding internal control and assessing control risk” is to: A) design, perform and evaluate tests of controls B) obtain and document an understanding of internal control design an operation C) […]

1) Which of the following is an advantage of systematic sample selection over random number sampling? A) It provides a stronger basis for statistical conclusions B) It enables the auditor to use the more efficient ‘sampling with replacement” tables C) […]

1) In third-party suits, which of the auditor’s defenses contends lack of privity of contract? A) Lack of duty B) Non-negligent performance C) Contributory negligence D) Absence of causal connections 2) If an auditor “proves” the bank statement in the […]

1) When auditing insurance expense, auditors normally rely on analytical procedures and limited testing of the debits to ensure that they arose from credits to prepaid insurance. A) True B) False 2) The four categories for describing the size of […]

1) Footing the sales journal and tracing the totals to the general ledger are tests relating to the accuracy objective for sales. A) True B) False 2) The criterion that is most likely to be used as a framework in […]

1) Transactions with related parties must be disclosed in the financial statements if they are deemed to be material. A) True B) False 2) The international standards for the professional practice of internal auditing include which two categories of standards? […]

1) To succeed in an action against the auditor, the client must be able to show that: A) the auditor was fraudulent B) the auditor was grossly negligent C) there was a written contract D) there is a close causal […]

1) Which of the following is the primary basis used to decide materiality for a for-profit entity? A) net sales B) net assets C) net income before tax D) all of the above 2) During the course of an audit, […]

1) Many small/local accounting firms do not perform audits as their primary services to their clients include accounting and tax. A) True B) False 2) Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which […]

1) When internal controls over a given financial statement account are assessed as highly effective, the auditor need not obtain audit evidence for that account beyond testing the controls. A) True B) False 2) Given the audit procedures below, which […]

1) Which balance-related audit objective cannot be assessed using monetary unit sampling? A) Accuracy B) Completeness C) Existence D) All of the above can be assessed using monetary unit sampling. 2) The acquisition and payment cycle is highly controlled and […]

1) After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily […]

1) A bill of lading is a special type of sales invoice used when goods are shipped interstate. A) True B) False 2) An audit report prepared by Garrett and Brown, CPAs, is provided below. The audit for the year […]

1) The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods. A) bill of lading B) sales invoice C) picking ticket D) remittance advice […]

1) As the acceptable level of detection risk increases, an auditor may change the: A) timing of substantive tests by performing them at an interim date rather than year end B) timing of the tests on controls by performing them […]

1) When the amount in the petty cash account is immaterial, most auditors would choose to test the account for reasons of client expectations. A) True B) False 2) When preparing a standard inquiry of client’s attorney letter, the client’s […]

1) Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934 are often referred to as: A) the antifraud provisions B) the new issues provisions C) the full-employment act for accountants D) the RICO provisions 2) A positive […]

1) When do most companies record sales returns and allowances? A) During the month in which the sale occurs B) During the accounting period in which the return occurs C) Whenever the customer contacts the company regarding the credit D) […]

1) The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the: A) existence objective B) completeness objective C) ownership objective D) valuation objective 2) Which one of the following […]

1) Which of the following accounts is not included in the acquisitions class of transactions? A) Inventory B) Prepaid expenses C) Purchase discounts D) Accounts payable 2) The trait that distinguishes auditors from accountants is the: A) auditor’s ability to […]

1) When the auditor suspects that fraud may be present, SAS No. 99 requires the auditor to: A) terminate the engagement with sufficient notice given to the client B) issue an adverse opinion or a disclaimer of opinion C) obtain […]

1) For privately held companies who of the following is responsible for establishing auditing standards? A) Securities and Exchange Commission B) Public Company Accounting Oversight Board C) Auditing Standards Board D) National Association of Accounting 2) A member in public […]

1) One purpose of performing preliminary analytical procedures in the planning phase of an audit is to help the auditor make a preliminary assessment of control risk. A) True B) False 2) Service auditors do not issue which of the […]

1) What are the two major balance-related audit objectives in testing payroll liabilities? A) Accuracy and detail tie-in B) Completeness and valuation C) Completeness and rights and obligations D) Accuracy and cutoff 2) There is very little opportunity for confirmation […]

1) When the auditor evaluates the effect of a change in accounting principle, the materiality of the change should be evaluated based on: A) the prior years presented B) the current year C) guidelines included in GAAS D) the effect […]

1) What is the purpose of applying stratified sampling to a population? A) B) C) D) 2) Which of the following is a factor that relates to incentives to misappropriate assets? A) Significant accounting estimates involving subjective judgments B) Significant […]

1) Which of the following would the auditor expect to find in the client’s management representation letter? A) management’s recommendations for internal control effectiveness improvements B) management’s plans for improving product quality C) management’s compliance with contractual arrangements that impact […]

1) An auditor who was engaged to perform an examination of the financial statements of a nonpublic entity has been asked by the client to refrain from performing various audit procedures and change the nature of the engagement to a […]

1) A substantive test for accounts payable that would be used to provide evidence regarding the occurrence assertion would be to: A) agree a sample of vouchers to authorized purchase orders B) recalculate the accuracy of the vouchers and the […]

1) Which of the following statements is most correct about an auditor’s required communication with management and those charged with corporate governance? A) The auditor is required to inform those charged with governance about significant errors discovered and subsequently corrected […]

1) Which is usually included in the engagement letter? A) B) C) D) 2) Research indicates that the most effective way to prevent and deter fraud is to: A) implement programs and controls that are based on core values embraced […]

1) The extent of tests of details of balances cannot be reduced when transaction-related audit objectives have been satisfied by tests of controls or substantive tests of transactions. A) True B) False 2) For a firm that practices good internal […]

1) Companies would normally recognize an account payable when the goods are received by the company. A) True B) False 2) The primary audit objectives to focus on when auditing debt are: A) accuracy and completeness B) accuracy and existence […]

1) Auditors should evaluate which of the following before evaluating application controls because of the potential for pervasive effects. A) input controls B) control environment C) processing controls D) general controls 2) Whenever subsequent events are used to evaluate the […]

1) Operational audits are often categorized as functional, organizational, or special assignments. A) True B) False 2) Procedures to obtain an understanding of internal control may suffice for tests of controls when the auditor is assessing automated controls. A) True […]

1) Acceptable risk of assessing control risk too low (ARACR) and acceptable risk of incorrect acceptance (ARIA) are inversely related; that is, a decrease in ARACR is accompanied by an increase in ARIA. A) True B) False 2) The higher […]

1) The auditor’s primary concern about authorization centers on shipment of goods to customers. A) True B) False 2) Independent registrars commonly disburse cash dividends to shareholders. A) True B) False Answer: B 3) When labor is a material factor […]

1) In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern. A) accuracy B) existence C) completeness D) none of the above 2) For most […]

1) The overall objective in the audit of the acquisition and payment cycle is: A) to ensure the reliability of the affected accounts B) to ensure the accuracy of the affected accounts C) to evaluate whether the affected accounts are […]

1) Expulsion from the A) True B) False 2) Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received? A) Count goods upon receipt in […]

1) With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential? A) PCAOB B) audit committee C) an appropriate level of management that is […]

1) When auditors evaluate sales returns and allowances, a primary emphasis is on the objective of occurrence. A) True B) False 2) The underlying reason for a code of professional conduct for any profession is: A) the need for public […]

1) Cost is never an adequate justification for omitting a necessary procedure or not gathering an adequate sample size. A) True B) False 2) Auditors follow a four step approach to reduce assessed control risk. Which of the following is […]

1) For proper internal control, there should be adequate separation of duties. However, the extent of separation of duties considered “adequate” does not depend on the size of the organization. A) True B) False 2) For sales, the occurrence transaction-related […]