AC 439

subject Type Homework Help
subject Pages 9
subject Words 1521
subject Authors Alvin A. Arens, Mark S. Beasley, Randal J. Elder

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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 (fraudulent hours).
A) True
B) False
3) The introductory paragraph of the standard audit report states that the auditor is:
A) responsible for the financial statements and the opinion on them
B) responsible for the financial statements
C) responsible for the opinion on the financial statements
D) jointly responsible for the financial statements with management
4) The risk of incorrect rejection is important only when there is a ________ cost to
increasing the sample size.
A) high
B) low
C) moderate
D) marginal
5) Auditing standards require that tests of controls be performed on every audit
engagement.
A) True
B) False
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6) Which of the following is not a key control in the acquisition and payment cycle?
A) Authorization of purchases
B) Authorization of credit
C) Timely recording and independent review of transactions
D) Authorization of payments
7) Which event that occurred after the end of the fiscal year under audit but prior to
issuance of the auditor's report would not require disclosure in the financial statements?
A) sale of a bond or capital stock issue
B) loss of plant or inventories as a result of fire or flood
C) a significant decline in the market price of the corporation's stock
D) settlement of litigation when the event giving rise to the claim took place after the
balance sheet date
8) An example of an external document that provides reliable information for the
auditor is:
A) employees' time reports
B) bank statements
C) purchase order for company purchases
D) carbon copies of checks
9) The careful and timely preparation of all payroll tax returns is necessary to avoid
penalties and criminal charges. The most important control in the timely preparation of
these returns is:
A) computerized preparation of tax returns
B) a well-defined set of policies that indicate when each form must be filed
C) independent verification of computer output by a competent individual
D) a Gaant chart
10) When a pervasive scope limitation exists, which paragraphs of the independent
auditor's report will differ from the standard unqualified audit report?
A)
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B)
C)
D)
11) Which of the following is a major balance-related audit objective in testing payroll
liabilities?
A) Payroll tax expense is properly recorded
B) Transactions in the payroll and personnel cycle are recorded in the proper period
C) Accrual of salaries is the same as the amounts paid on the payroll tax returns
D) Time records are recorded by supervisors
12) Below are five audit procedures, all of which are tests of balances associated with
the audit of accounts receivable. Also below are the eight general balance-related audit
objectives and the four management assertions. For each audit procedure, indicate (1)
its audit objective, and (2) the management assertion being tested.
Audit Objectives A. Existence B. Completeness C. Accuracy D. Classification E. Cutoff
F. Detail tie-in G. Realizable value H. Rights and obligations Assertions V. Existence
W. Completeness X. Valuation and allocation Y. Rights and obligations
13) CPA firms are never allowed to provide bookkeeping services for clients.
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A) True
B) False
14) When labor is a significant part of inventory, verifying the proper accounting of
these costs should be tested in the:
A) inventory and warehousing cycle
B) payroll and personnel cycle
C) acquisitions and payments cycle
D) cash cycle
15) Which of the following accounts is not associated with the acquisition and payment
cycle?
A) Common stock
B) Property, plant and equipment
C) Accrued property taxes
D) Income tax expense
16) As part of designing and performing procedures to address management override of
controls, auditors must perform which of the following procedures?
A)
B)
C)
D)
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17) You are gathering evidence for the audit objective that existing inventory items are
included in the inventory listing schedule. The audit procedure that would provide you
with the best evidence to confirm this objective is:
A) trace from inventory tags to the inventory listing schedule and make sure the
inventory tag is included
B) trace the inventory totals to the general ledger
C) perform tests of lower-of-cost-or-market
D) account for unused tags shown in the auditor's documentation to make sure no tags
have been added
18) When assets are being verified, auditors focus much of their attention on making
sure that the accounts are not overstated. Alternatively, auditors focus their efforts on
understatement when auditing liabilities. What is the primary reason for this difference
in focus?
A) Auditors' legal liability
B) GAAP
C) GAAS requirements
D) All of the above
19) A partial-period bank statement and the related canceled checks, duplicate deposit
slips, and other documents included in bank statements, mailed by the bank directly to
the CPA firm's office, is called:
A) a four-column proof of cash
B) a year-end bank statement
C) a cutoff bank statement
D) a short-period bank statement
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20) The overall objective in the audit of accounts payable is to determine whether
accounts payable:
A) is fairly stated and properly disclosed
B) is overstated
C) is understated
D) is accurately stated
21) Which of the following is not one of the three phases in an operational audit?
A) planning
B) training and supervising employees
C) evidence accumulation and evaluation
D) reporting and follow-up
22) The audit committee of a private company need not approve all non-audit services
provided by the company's financial statement auditor.
A) True
B) False
23) How must significant deficiencies and material weaknesses be communicated to
those charged with governance?
A) Either oral or written communication is acceptable
B) Oral communication is required
C) Written communication is required
D) Written communication is required for material weaknesses, but oral communication
is allowed for significant deficiencies
24) Which of the following is not a likely source of information to assess fraud risks?
A) Communications among audit team members
B) Inquiries of management
C) Analytical procedures
D) Consideration of fraud risks discovered during recent audits of other clients
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25) An auditor should issue a qualified opinion with an explanatory paragraph
whenever there is a material uncertainty affecting the financial statements.
A) True
B) False
26) Which of the following statements is true?
A)
B)
C)
D)
27) The auditor may use which of the following criteria when using the directed sample
selection technique?
A) Items most likely to contain misstatements
B) Items containing selected population characteristics
C) Large dollar coverage
D) Any of the above
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28) You are the in-charge auditor for a long-term client. Which of the following is not a
category of tests commonly associated with the audit of manufacturing equipment?
A) Verification of depreciation expense
B) Analytical procedures
C) Verification of current-period disposals
D) Verification of the beginning balance in accumulated depreciation
29) Sales returns and allowances are often ignored by auditors because they are often
immaterial.
A) True
B) False
30) What type of test is used to obtain more types of evidence than any other?
A) Substantive tests of transactions
B) Tests of controls
C) Analytical procedures
D) Tests of details
31) Membership in the
A) True
B) False
32) The company's choices for fixed asset on the assets useful life and residual value
impact the amount of depreciation recorded.
A) True
B) False
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33) To check the accuracy of hours worked, an auditor would ordinarily compare clock
cards with:
A) personnel records
B) job time tickets
C) labor variance reports
D) time recorded in the payroll register
34) A public company may purchase internal audit services from their financial
statement auditor if they are approved by the company's audit committee.
A) True
B) False

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