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The accountant needs to establish an understanding with the client about the terms of the engagement, any limitations on the use of the financial statements, and the understanding through a written communication with management. The following tests of controls are […]

Which of the following is not a responsibility of an audit committee? (a) Hiring, compensating, and overseeing the company’s independent auditor relationship. (b) Receiving and addressing complaints about accounting, internal control, and auditing matters. (c) Resolving disagreements between management and […]

When audit clients acquire new, more sophisticated IT systems, (a) The audit strategy will not be impacted as long as the duties of accounting personnel are primarily unchanged. (b) Auditors with advanced IT knowledge may need to be added to […]

An entity that, as part of its normal business operations, makes loans or extends credit to the general public, is referred to as a: A. financial institution. B. savings and loan. C. federal reserve bank. D. FDIC. When audit tests […]

The AICPA guidance defines how many management assertions? a. 5 b. 8 c. 11 d. 13 e. 10 Defined benefit plans can be: (a) funded by the employer. (b) unfunded by the employer. (c) funded through a trust. (d) All […]

Auditors test the ICFR by reviewing the receiving process. The Sarbanes-Oxley Act requires that the PCAOB perform audits on all publicly traded companies. Answer: F Information about changes in a company’s ownership, management, and/or audit firm is provided within Form […]

If internal auditors provide direct assistance to the external audit team, the independent external auditor must (a) reperform all of the work provided by the internal auditors. (b) supervise and evaluate the work performed by the internal auditors. (c) refuse […]

You are assigned to audit accounts payable for a manufacturing client. As part of the planning, your manager sets a tolerable misstatement amount of+/- $125,000. Your review of unpaid invoices indicates an understatement error of $25,253 from a sample of […]

Per GAAS, a standard audit report consists of at least: a. opinion, scope, and explanatory paragraphs in that order. b. introductory, explanatory, and scope paragraphs in that order. c. introductory, scope, and opinion paragraphs in that order. d. None of […]

The last component of the of the fraud triangle is that the person must be capable of rationalizing or personally justifying his or her illegal behavior. In the course of an investigation, forensic accountants may look at evidence from the […]

Post-retirement benefits are generally: (a) health benefits to retired employees. (b) health benefits to persons who have left the firm. (c) health benefits to non-employees. (d) None of the above. Client A hires part-time seasonal employees to perform routine accounting […]

Organizations that might use a SAS 70 report are: a. application service providers. b. mortgage bankers that service mortgages for others. c. Both a and b. d. None of the above. Companies are required to have an auditor complete a […]

Which of the following assertions address presentation and disclosure: (a) existence. (b) accuracy and valuation. (c) rights and obligations. (d) Both b and c. Controls are needed to ensure that goods are shipped on a timely basis and bills are […]

Five cases are listed below that illustrate different types of audit engagements. In the space provided, indicate the type of audit that would be conducted, the specific auditor who might undertake the engagement, and the auditing standards that would probably […]

Evidence about whether an ICFR is operating as designed and whether the control is being performed by someone with appropriate authority and qualifications are provided by: a. the risk level. b. management responsibility. c. effective operations. d. complimentary tests. e. […]

The rule of independence would relate to which of the following accounting professionals? A. Internal auditor. B. CPA performing an audit. C. Controller preparing the firm’s financial statements. D. Tax accountant. If serious control deficiencies are detected prior to year-end […]

Auditors should make inquiries about whether there is knowledge of fraud in the company. Such inquiries should be made of: (a) management. (b) the audit committee. (c) internal auditors. (d) All of the above. The process of client acceptance or […]

By speaking with individuals inside the company, an auditor may learn about: (a) Management’s philosophy and integrity. (b) The composition of the Board of Directors and audit committee. (c) The organizational structure and accounting functions. (d) All of the above. […]

Going concern issues may arise when: (a) Acquisitions or discontinued operations have recently occurred. (b) The accounting information systems have been modified. (c) The economy has negatively impacted the client company. (d) Changes in applicable accounting standards affect the client […]

The “answer” in a legal proceeding: a. Refers to the auditor’s response. b. Can cite lack of standing on the part of the plaintiff. c. Contains answers that agree with the complaint. d. All of the above. One test that […]

In the U.S., the first legislation requiring management of public companies to maintain a system of internal controls was the: (a) Committee of Sponsoring Organizations (COSO) of the Treadway Commission Act. (b) Sarbanes-Oxley Act. (c) Foreign Corrupt Practices Act. (d) […]

Whenever a company refuses to allow business professionals to communicate openly with an auditor, the auditor should be concerned about the likelihood that: (a) a RFP was not formalized. (b) information exists that the company wants to withhold. (c) management […]

Forensic accountants rely on the: a. identify theft theory. b. tax evasion theory. c. vendor fraud theory. d. fraud triangle theory. e. customer fraud theory. An audit report may need to be reissued if: a. the auditor is replaced and […]

Which of the following is NOT a “Big Four” firm? a. PwC. b. Grant-Thornton. c. Deloitte & Touche. d. Ernst & Young The responsibility of the audit firm is to communicate to users: A. its opinion on whether the company’s […]

Shareholders use audit reports to monitor management performance. An example of an item that an audit report does NOT provide is: a. Reasonable assurance on reported information that might be used to provide justification for management’s performance-based compensation. b. Access […]

According to the AICPA Interpretations of Rule 101, independence: During the period of the professional engagement, auditor independence is NOT considered to be impaired if the auditor: A. had or was committed to acquire any direct or material indirect financial […]

The moral intensity criteria that cause a decision maker to realize that a situation has moral components include: A. consequences are very large or significant. B. identify alternative courses of action. C. ethical issues need to be identified. D. the […]