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 to identify assets that are not currently in use.
B.Projections of future cash flows that is based on management’s strategic plans and
economic conditions.
C.Systematic development of current market values of similar assets prepared by the
client.
D.All of the above.
Which of the following procedures is not a substantive procedure used for testing the
valuation of long-lived assets?
A.Assess management’s impairment estimates.
B.Inquire of management about assets that are idle.
C.Develop an independent estimate of amortization expense.
D.All of the above are procedures used for testing the valuation assertion.
For which of the following engagements are members of the AICPA required to act with
integrity and objectivity?
A.Tax preparation.
B.Financial statement review services.
C.Financial statement audits.
D.All engagements.
Which of the following statements is false regarding agreed-upon procedures
engagements?
A.In this type of engagement, the independent practitioner is engaged to assist in
evaluating subject matter or an assertion.
B.In this type of engagement, the nature, timing, and extent of agreed-upon procedures
is the same for all engagements.
C.In this type of engagement, the practitioner does not perform a review, and does not
provide an opinion or negative assurance.
D.In this type of engagement, the report should indicate that it is restricted in its use to
specified parties.
When forming an opinion on special purpose financial statements, which of the
following items does the auditor not need to evaluate?
A.Whether the financial statements adequately describe the applicable financial
reporting framework.
B.Whether the financial statements have the appropriate title.
C.Whether the financial statements include a summary of significant accounting
policies.
D.Whether the financial statements differ in GAAS presentation.
The auditor normally considers both underlying accounting data and corroborating
information in the audit process. Underlying accounting data does not include which of
the following items?
A.Evidence of controls.
B.Minutes of meetings.
C.Checks, invoices, and contracts.
D.General and subsidiary ledger.
Which one of the following approaches does not represent how the auditor will become
aware of risks associated with long-lived assets?
A.Obtaining knowledge of the client business.
B.Reviewing the business plan related to major acquisitions.
C.Reviewing the minutes of board of directors’ meetings.
D.All represent how the auditor will become aware of risks associated with long-lived
assets and related expenses.
Which of the following frauds involved primarily asset misappropriation?
A.Enron.
B.Worldcom.
C.Dell.
D.Koss.
Which of the following is not an audit challenge relevant to fair value estimation of
Level 1, 2, and 3 assets?
A.Determining identical assets and active markets.
B.Assessing client methodology and cash flows to originally estimate value.
C.Determining appropriate model and inputs expected cash flows.
D.Determining similar assets and relevant markets.
After completing the audit report of Blair Corporation, but before delivering the audit
report to the client, a tornado demolished the main production facility. In this case, what
option is available to the auditor other than dual dating the report?
A.Use the original audit report date.
B.Go back to the client’s office and extend testing to the date of the tornado, thereby
taking responsibility for all events up to the date of the tornado.
C.Report the situation in the management representation letter.
D.Issue a scope limitation.
Independence is required for which of the following types of services?
A.Audit work.
B.Tax work.
C.Consulting.
D.Independence is always required of the CPA.
The auditor is normally not permitted to divulge confidential information obtained from
a client. Which of the following situations would be a violation of this standard?
A.To respond to the information request of a shareholder.
B.To respond to a quality review request of the state board of accountancy.
C.To initiate a complaint with the AICPA’s ethics division.
D.To ensure adequate disclosure in accordance with GAAP.
Please indicate the proper sequence of the acquisition cycle:
1. Approval of items for payment.
2. Authorized requisition for goods or services.
3. Cash disbursements.
4. Receipt of goods and services.
5. Authorized purchase of goods or services.
A.2, 5, 4, 1, 3
B.2, 4, 5, 1, 3
C.2, 1, 4, 5, 3
D.2, 5, 1, 4, 3
Which of the following is required by the dual approach for assessing uncorrected
misstatements?
A.The application of the rollover method.
B.The application of the iron curtain method.
C.Simultaneous application of both the rollover and iron curtain methods.
D.Sequential application of both the rollover and iron curtain methods.
Which one of the following is the best example of a Type II subsequent event?
A.Election of new board members.
B.Change in auditors.
C.Inability to collect from a significant customer.
D.Acquisition of a subsidiary.
Which of the following engagements requires less evidence than a review of financial
statements?
A.A compilation.
B.An audit.
C.An examination.
D.Attestation.
Which of the following services does the PCAOB require auditors of public companies
to perform?
A.A financial statement audit and an attest audit.
B.A financial statement audit and an assurance audit.
C.A financial statement audit and agreed upon procedures.
D.A financial statement audit and an examination of the effectiveness of internal
controls.
The information and communication component of internal control includes which of
the following?
A.The organization deploys control activities through policies that establish what is
expected and in procedures that put policies into action.
B.The organization obtains or generates and uses relevant, quality information to
support the functioning of other components of internal control.
C.The organization identifies and assesses changes that could significantly impact the
system of internal control.
D.All of the above.
A financial statement auditor concludes that internal controls over cash are not
functioning as designed. She believes that material misstatements to the cash accounts
are possible because of the deficiencies. What course of action is the auditor most likely
to take?
A.Report the audit to the regulatory agencies of the IRS and SEC.
B.Develop specific tests for cash balances to determine the extent of misstatement.
C.Explain to the client that the audit firm will not be able to complete the audit.
D.Test the internal control over cash.
Which of the following is not part of management’s report on internal controls?
A.Management responsibility for control of financial reporting.
B.The framework used to evaluate internal control.
C.An assessment of the effectiveness of the company’s internal control.
D.A statement that the company is not required to have an audit on internal control.
Which of the following describes documents that accompany customer payments to
help the clerk identify the payments?
A.Receipts such as register tapes.
B.Accommodation certificates such as authenticated customer tokens.
C.Turnaround documents such as remittance advices.
D.Checks stamped with restrictive endorsements such as customer signatures.
Which of the following is an example of a control environment deficiency??
A.A low level of control consciousness within the organization.
B.An audit committee that does not have independent members.
C.An audit committee that is not viewed as the client of the external auditor.
D.All of the above.
Which of the following is not a rationale that purchasing is a separate function in many
organizations?
A.Purchasing promotes efficiency and effectiveness.
B.Purchasing eliminates potential favoritism.
C.Purchasing reduces the opportunity for fraud.
D.Purchasing decentralizes control.
The acquisition cycle begins with which of the following?
A.A payment.
B.A purchase order.
C.A requisition.
D.A receiving report.
Which of the following procedures is not appropriate for examining or reviewing pro
forma financial information?
A.Obtaining less evidence in an examination engagement than in a review engagement.
B.Obtaining an understanding of the underlying transaction or event.
C.Discussing management’s assumptions regarding the effects of the transaction or
event.
D.Evaluating whether pro forma adjustments are completely recorded.
When the CPA is not independent with respect to a compilation client, what should the
CPA do?
A.The CPA must not accept the engagement.
B.The CPA must include a separate paragraph in the report stating the lack of
independence.
C.The CPA must change the engagement to a review engagement.
D.The CPA must issue a disclaimer.
Which of the following procedures will usually be performed by the auditor to actively
determine obsolete inventory?
A.Confirmation of inventory with customers.
B.Footing the inventory subsidiary ledger.
C.Tracing inventory ordered by the client to receiving reports.
D.Analysis of inventory turnover and sales reports.
Julie Webb, CPA takes out an automobile loan with First national Bank of Wellville
(FNBW) while attending the University of Wellville. Julie graduates one year later and
is hired as an auditor by Best and Driftwood, LLP. Her first assigned audit engagement
is with First national Bank of Wellville, a client of Best and Driftwood. As a new audit
assistant, Julie continues to pay her automobile loan payments each month. According
to the AICPA, why is Julie is considered a covered member for FNBW independence
purposes?
A.She will be working on the engagement.
B.She has a direct financial interest in FNBW.
C.She graduated in the same area as the client is operating.
D.She has an immaterial direct financial interest in FNBW.
Which of the following is a method of eliminating non-sampling risk?
A.Proper supervision and instruction of the client’s employees.
B.Proper supervision and instruction of the audit team.
C.The use of attributes sampling rather than variables sampling.
D.Controls to ensure that the sample drawn is random and representative.