Under generally accepted auditing standards, which of the following relates to the
responsibilities principle?
A. The initial planning of the audit engagement
B. The confirmation of accounts receivable
C. The completion of an internal control questionnaire
D. Maintaining professional skepticism and exercising professional judgment
Which of the following would not be considered an analytical procedure?
A. Converting dollar amounts of income statement account balances to percentages of
net sales for comparison with industry averages
B. Developing the current year’s expected net sales based on the sales trend of similar
entities within the same industry
C. Projecting a deviation rate by comparing the results of a statistical sample with the
actual population characteristics
D. Estimating the current year’s expected expenses based on the prior year’s expenses
and the current year’s budget
Which of the following factors has a direct relationship with sample size in a variables
sampling application?
A. Tolerable misstatement: Yes; Expected misstatement: Yes
B. Tolerable misstatement: No; Expected misstatement: Yes
C. Tolerable misstatement: Yes; Expected misstatement: No
D. Tolerable misstatement: No; Expected misstatement: No
In computer systems, the information technology general controls (ITGC) would not
include
A. processing control activities.
B. separation of various computer system functions.
C. appropriate documentation of the data processing system.
D. control over physical access to computer hardware.
Which of the following is not a category of audit documentation?
A. Temporary files
B. Permanent files
C. Audit administrative files
D. Current documentation files
An auditor who is unable to form an opinion on a new client’s opening inventory
balances may issue an unmodified opinion on the current year’s
A. income statement only.
B. statement of cash flows only.
C. balance sheet only.
D. statement of changes in shareholders’ equity only.
In auditing intangible assets, an auditor most likely would review or recompute
amortization and determine whether the amortization period is reasonable in support of
the ASB balance assertion of
A. valuation.
B. existence.
C. completeness.
D. rights and obligations.
The study of business operations for the purpose of making recommendations about the
efficient use of resources, effective achievement of business objectives, and compliance
with company policies is referred to as
A. environmental auditing.
B. financial auditing.
C. compliance auditing.
D. operational auditing.
While selecting a sample of sales invoices for a test of internal controls, the auditor was
unable to locate one invoice and classified this invoice as non-deviation. This is an
example of
A. sampling risk.
B. incorrect acceptance.
C. nonsampling risk.
D. deviation risk.
Rule 301 has been interpreted by the AICPA to explicitly allow a CPA to divulge
confidential client information to
A. the SEC.
B. the U.S. Department of Justice.
C. the AICPA Professional Ethics Division.
D. the Federal Trade Commission.
The risk of underreliance is the risk that the sample selected to test controls
A. does not support the auditor’s planned level of control risk when the true operating
effectiveness of the control justifies such an assessment.
B. contains misstatements that could be material to the financial statements when
aggregated with misstatements in other account balances or transaction classes.
C. contains proportionally fewer monetary errors or deviations from prescribed control
procedures than exist in the balance or class as a whole.
D. does not support the tolerable misstatement for some or all of management’s
assertions.
Looking at vendors’ invoices for particular information is an example of
A. physical observation.
B. confirmation.
C. inspection of documents.
D. scanning.
Which of the following is an example of a control activity that satisfies the accuracy
control objective for sales invoices?
A. Recorded sales in the sales journal are supported by invoices.
B. Invoices, shipping documents, and sales orders are prenumbered and the numerical
sequence is checked.
C. Sales are recorded in the proper account.
D. Invoice quantities are compared to shipment and customer order quantities.
Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the
external auditor?
A. The CPA firm’s engagement partner
B. The CPA firm’s quality control partner
C. The client’s senior management
D. The audit committee
Which of the following expresses the relationship between changes in the factors and
changes in sample size in variables sampling?
A. Tolerable misstatement: Direct; Expected misstatement: Inverse; Risk of incorrect
rejection: Direct
B. Tolerable misstatement: Inverse; Expected misstatement: Direct; Risk of incorrect
rejection: Inverse
C. Tolerable misstatement: Inverse; Expected misstatement: Inverse; Risk of incorrect
rejection: Inverse
D. Tolerable misstatement: Inverse; Expected misstatement: Inverse; Risk of incorrect
rejection: Direct
When there has been a change in accounting principles, but the effect of the change on
the comparability of the financial statements is not material, the auditors should
A. refer to the change in an emphasis-of-matter paragraph.
B. explicitly concur that the change is preferred.
C. not refer to consistency in the report.
D. refer to the change in the opinion paragraph.
When performing a fraud examination, the fraud examiner takes great care to preserve
and identify any documents that may indicate fraud, which is called
A. preserving the chain of custody of the evidence.
B. establishing evidential procedure.
C. marking an evidential exhibit.
D. forensic auditing.
An auditor who discovers that client employees have committed an illegal act that has a
material effect on the client’s financial statements most likely would withdraw from the
engagement if
A. the illegal act is a violation of generally accepted accounting principles.
B. the client does not take the remedial action that the auditor considers necessary.
C. the illegal act was committed during a prior year that was not audited.
D. the auditor has already assessed control risk at the maximum level.
Which of the following statements is correct concerning statistical sampling in tests of
controls?
A. Deviations from control procedures at a given rate usually result in misstatements at
a higher rate.
B. As the population size doubles, the sample size should also double.
C. The qualitative aspects of deviations are not considered by the auditor.
D. There is an inverse relationship between the sample size and the tolerable rate of
deviation.
Which of the following input controls would be least likely to identify the failure of an
employee to input a transaction for which documentary evidence has been prepared?
A. Batch totals
B. Hash totals
C. Missing data tests
D. Sequence tests
Jones, CPA, is auditing the financial statements of XYZ Retailing Inc. What assurance
does Jones provide that direct effect noncompliance that is material to XYZ’s financial
statements, and noncompliance that has a material, but indirect effect on the financial
statements will be detected?
A. Direct effect noncompliance: Reasonable; Indirect effect noncompliance: None
B. Direct effect noncompliance: Reasonable; Indirect effect noncompliance: Reasonable
C. Direct effect noncompliance: Limited; Indirect effect noncompliance: None
D. Direct effect noncompliance: Limited; Indirect effect noncompliance: Reasonable
An auditor is planning the testing of the accounts payable balance. The auditor’s main
concerns should be
A. existence and accuracy.
B. completeness and cutoff.
C. occurrence and cutoff.
D. valuation and accuracy.
L. Curtis, a maintenance supervisor, submitted maintenance invoices from a phony
repair company and received the checks at a post office box. This should have been
prevented by
A. comparison of the company name to the approved vendor list by the check signer.
B. recognition of the excess maintenance costs by Curtis’s supervisor.
C. refusal by the purchasing department to approve the vendor.
D. All of the above.
The proper organizational role of internal auditing is to
A. assist external auditors in reducing external audit fees.
B. perform studies to assist in attaining more efficient operations.
C. serve as an investigative arm of senior management and the board of directors.
D. serve as an independent, objective assurance and consulting activity that adds value
to the organization.
The auditor is not required to ask the predecessor auditor about
A. facts that might bear on the integrity of management.
B. disagreements the predecessor may have had with management about accounting
principles and audit procedures.
C. the fees charged for the previous audit.
D. the predecessor’s understanding about the reasons for the change of auditors.
Which of the following defines the imperative principle of ethics?
A. Ethic decisions cannot be resolved without evaluating all possible outcomes of all
choices.
B. Ethics are a function of moral rules and principles.
C. All ethical decisions will have positive and negative consequences.
D. It is essential that decisions be made for the greater good of society.
Which of the following is not one of the four major cycles?
A. Revenue and cash collection
B. Acquisition and expenditure
C. Cash receipts and disbursements
D. Financing and investing
When an auditor increases the assessed level of control risk because certain control
procedures were determined to be ineffective, the auditor would most likely increase
the
A. extent of tests of controls.
B. level of detection risk.
C. level of inherent risk.
A client has omitted a significant disclosure from the financial statements. The auditor
has asked the client to include the information, but the client refuses and claims the
information is confidential. The position of the CPA should be that the information
A. cannot be considered confidential if it is necessary to the completeness of the
financial statements.
B. cannot be considered confidential unless it can be covered by the attorney-client
privilege.
C. is confidential and will only be disclosed under subpoena or for a regulatory
investigation.
D. should be discussed with the audit committee to determine if the information should
be disclosed.
For each of the following statements, Match the term it best describes or typifies.
1. Management fraud A. A type of fraud involving employees or
nonemployees wrongfully taking money or property entrusted
to their care.
2. Embezzlement or defalcation B. The controller changed the journal entry
for estimating bad debt expense to a smaller number to
hide the poor results from extending credit to high risk customers.
This made income materially higher
than it otherwise would have been.
3. White-collar crime C. A bookkeeper inadvertently recorded
depreciation by transposing numbers in a journal entry.
4. Larceny D. Misdeeds done by people who steal
with a pencil or computer.
5. Errors E. An employee in a supermarket takes
home bags of fresh fruit each day without paying for them.
When considering assertions and obtaining evidence about accounts payable, auditors
must put emphasis on the _____________________________ assertion.
____________________________________ consist of (1) identification of data
population for audit and (2) an expression of the action to be taken to produce relevant
audit evidence.
The Single Audit Act established an annual audit for all ____________________ and
____________________ units that spend $_____________________ or more of
____________________ funds.
Prepare an audit plan for the observation of an inventory count.
What are the independent auditor’s responsibilities to detect and report errors and
frauds?
Fraud examination requires the individual to have expertise in ____________________
and ______________________________.