Under common law, which of the following statements most accurately reflects the
liability of a CPA who fraudulently gives an opinion on an audit of a client’s financial
statements?
A. The CPA is liable only to third parties in privity of contract with the CPA.
B. The CPA is liable only to known users of the financial statements.
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud.
D. The CPA probably is liable to the client even if the client was aware of the fraud and
did not rely on the opinion.
Which of the following elements ultimately determines the amount of audit work that is
necessary in the circumstances to afford a reasonable basis for an opinion?
A. Auditor judgment.
B. Materiality.
C. Relative risk.
D. Reasonable assurance.
Which of the following best describes why an independent auditor is asked to express
an opinion on the fair presentation of financial statements?
A. It is difficult to prepare financial statements that fairly present a company’s financial
position and changes in cash flows without the expertise of an independent auditor.
B. It is management’s responsibility to seek available independent aid in the appraisal of
the financial information shown in its financial statements.
C. The opinion of an independent party is needed because a company is not likely to be
considered objective with respect to its own financial statements.
D. It is a customary courtesy that all stockholders of a company receive an independent
report on management’s stewardship in managing the affairs of the business.
An auditor may reasonably issue an “except for” qualified opinion for
A. a scope limitation or an unjustified accounting change.
B. a scope limitation, but not an unjustified accounting change.
C. an unjustified accounting change, but not a scope limitation.
D. neither an unjustified accounting change nor a scope limitation.
The safeguarding of inventory most likely includes
A. comparison of the information contained on the purchase requisitions, purchase
orders, receiving reports, and vendors’ invoices.
B. periodic reconciliation of detailed inventory records with the actual inventory on
hand by taking a physical count.
C. analytical procedures for raw materials, goods in process, and finished goods that
identify unusual transactions, theft, and obsolescence.
D. application of established overhead rates on the basis of direct labor hours or direct
labor costs.
The least crucial element of internal control over cash is
A. separation of cash record-keeping from custody of cash.
B. preparation of the monthly bank reconciliation.
C. batch processing of checks.
D. separation of cash receipts from cash disbursements.
Which assertion for ending inventory is most likely violated if the gross profit
percentage is much greater than last year?
A. Existence.
B. Completeness.
C. Rights and obligations.
D. Valuation and allocation.
In the examination of property, plant, and equipment, the auditor tries to determine all
of the following except the
A. adequacy of controls.
B. extent of property abandoned, retired, or sold during the year.
C. adequacy of replacement funds.
D. reasonableness of the depreciation.
Which of the following is not an attestation standard?
A. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion
that is expressed in the report.
B. The report shall identify the subject matter or assertion being reported on and state
the character of the engagement.
C. The work shall be adequately planned and assistants, if any, shall be properly
supervised.
D. A sufficient understanding of internal controls shall be obtained to plan the
engagement.
Which of the following is true of generalized audit software packages?
A. They can be used only in auditing online computer systems.
B. They can be used on any computer without modification.
C. They each have their own characteristics that the auditor must carefully consider
before using in a given audit situation.
D. They enable the auditor to perform all manual test procedures less expensively.
Testing a sample of repairs and maintenance expense items to ensure that they were
properly classified as repairs as opposed to property, plant, and equipment tests which
of the following assertions for the repairs and maintenance expense account?
A. Occurrence.
B. Completeness.
C. Cutoff.
D. Authorization.