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The greatest risk of recording transactions in the incorrect period occurs during the roll-forward period. A special purpose framework can use a cash basis financial reporting framework. Answer: TRUE The PCAOB does not currently have a mandate for convergence with […]

Footing, cross-footing, and tests of extensions are examples of which approach to gathering evidence? A.Reprocessing. B.Recalculation. C.Vouching. D.Examination of documentation. Which of the following controls related to management’s asset impairment judgments does the auditor need to understand? A.A systematic process […]

Management always uses journal entries to commit fraud because they are not reviewed by auditors. The familiarity threat is the most relevant issue for mandatory partner or audit firm rotation. Answer: TRUE Test of controls are a type of substantive […]

When preliminary fraud risk is high the auditor should pay close attention to areas of the audit that are highly subjective and should increase the predictability of the audit procedures. Audit staff performing audit work must be appropriately supervised by […]

The PCAOB requires that the auditor will express an opinion on the financial statements as a whole. The existence of fair value estimates that are unreasonable or unsupportable is indicative of a potential fraud scheme. Answer: TRUE Users rely on […]

Generally accepted auditing standards are the cornerstone for the interpretation of financial accounting. For an auditor to test the existence assertion of assets, testing will be performed beginning with the recorded asset and ending with the source documents. Answer: TRUE […]

When performing substantive tests using sampling methods, the auditor’s main concern is the risk of incorrect rejection. The deep pocket theory represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the […]

In limited assurance engagements, practitioners perform limited procedures (usually analysis of an issue but without significant testing) and checks to see if anything comes to their attention indicating a problem. When management is unable to provide an explanation for a […]

The AICPA’s fundamental principles can be divided into four sections: purpose of the audit, responsibility of the auditor, performance of the audit, and reporting of the results. A state insurance commission requires an insurance company to prepare its financial statements […]

Misstatements detected during the audit that were initially deemed to be immaterial need not be summarized to determine their aggregate effects. Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the […]

When the year-end cash balance is immaterial, audit procedures on the cash account are unnecessary. Managers of organizations are hired by Boards of Directors to perform responsibilities such as the implementation of internal control. Answer: TRUE If a significant scope […]

A board of directors that is actively involved in monitoring management mitigates opportunities to commit fraud. In planning an audit for the revenue cycle, the auditor must realize the integrated relationship of evidence found between the accounts receivable and the […]

Auditors must keep a questioning mind when analyzing management responses to inquiry and auditors should strive to obtain corroborating evidence before accepting the management responses. An auditor will conclude an internal control is effective if he or she believes the […]

Transparency is a desirable, but not critical, element of effective corporate governance. An auditor must be independent in fact and in appearance. Answer: TRUE Part of the understanding the client process of an audit is identifying factors that may require […]

Derivative instruments are long-term hybrid-type securities meant to increase the return on investments. The most difficult decisions about which opinion to issue are generally centered around decisions based on the materiality level and pervasiveness of GAAP violations, the significance of […]

Monitoring of the revenue cycle may be accomplished partially through the use of exception reporting. Various types of ways that fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing. Answer: TRUE The Rules of […]

The purpose of summarizing confirmation results is to list the extent of sales tested in relation to the response rate. The SEC issued SAB 108 in 2006, which mandates what is termed a dual approachto assessing uncorrected misstatements. Answer: TRUE […]

Internal controls that the auditor expects to rely on to reduce substantive testing must be tested. When the value of a long-lived asset has been impaired, the organization must write down the asset reflecting the decline in economic benefit of […]

Which of the following is not one of management’s responsibilities? A.Ensuring accounting principles are following in preparing financial statements. B.Engaging a qualified auditor. C.Implementing effective internal controls. D.Ensuring financial statements and disclosures are accurate. For which of the following special […]

Which of the following is a tool that is best used by the audit team to determine if the client has included all disclosures? A.Management representation letter. B.GAAS. C.Inquiry of the CFO. D.Checklists. If a client makes payments to a […]

Vouching recorded transactions involves taking a sample from the journal and tracing the items back to the source documents to ensure the transactions occurred. News media and web searches can provide useful information related to client management’s integrity and the […]

Managers must use professional judgment to determine whether identified control deficiencies rise to the level of a significant deficiency or material weakness. A risk factor indicating a heightened risk of fraud would be considered a significant risk. Answer: TRUE Auditors […]

A review report issued by a public accounting firm on a public client’s interim financial statements includes reference to adherence to the standards of the Public Company Accounting Oversight Board. Audit quality is driven, in part, by the audit firm’s […]

Inventory turnover is often calculated by the auditor for proper disclosure in client financial statements. The cutoff statement is mailed to the client for an agreed upon-date and then copied for the audit files. Answer: FALSE When testing controls, the […]

Auditors test the assertion of completeness by determining if any restrictions on the use of commercial paper by an entity are disclosed in the footnotes. Audit firms should NOT customize the audit programs based on the assessment of the risk […]

The need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information. The tolerable failure rate is the level at which the control’s failure […]