1) The accountant’s report on the examination of prospective financial statements
should include a caveat that the prospective results may not be achieved.
A) True
B) False
2) An auditor using nonstatistical sampling cannot:
A)
B)
C)
D)
3) Changes in reporting entities, such as the inclusion of an additional company in
combined financial statements, affect comparability but not consistency, and therefore
do not require an explanatory paragraph in the audit report.
A) True
B) False
4) When auditing the year-end cash balance, one of the areas of focus is on the accuracy
objective.
A) True
B) False
5) Which of the following is not one of the three categories of assertions?
A) Assertions about classes of transactions and events for the period under audit
B) Assertions about financial statements and correspondence to GAAP
C) Assertions about account balances at period end
D) Assertions about presentation and disclosure
6) When performing price tests for purchased inventory, the auditor would not be
concerned with the most recent vendors’ invoices if the client uses the FIFO valuation
method.
A) True
B) False
7) A prior period adjustment may result in a debit or credit to a company’s retained
earnings account.
A) True
B) False
8) Audits are expected to provide a higher degree of assurance for the detection of
material frauds than is provided for an equally material error.
A) True
B) False
9) Listed below are policies or procedures that the Crystal Cove audit firm has in place.
For each identified policy or procedure state if it is a Generally Accepted Audit
Standard (GAAS) or a Quality Control Standard.
10) If a short-term note payable is included in the accounts payable balance on the
financial statement, there is a violation of the:
A) completeness assertion
B) existence assertion
C) cutoff assertion
D) classification and understandability assertion
11) Indicate which changes would require an explanatory paragraph in the audit report.
A)
B)
C)
D)
12) Methods used to determine if there are legal encumbrances related to fixed assets
include all but which of the following?
A) Reading terms of loan and credit agreements
B) Reviewing loan confirmations received from banks
C) Having discussions with the client or sending letters to legal counsel
D) All of the above may be used to identify legal encumbrances
13) The audit tests to verify that the client is using an inventory method which is
generally accepted and to verify that physical counts were correctly summarized are
performed during the audit of the:
A) acquisition and payments cycle
B) payroll and personnel cycle
C) inventory and warehousing cycle
D) sales and collection cycle
14) Auditors are required to obtain a letter of representation that describes
management’s planned solutions to all internal control weaknesses identified during an
audit.
A) True
B) False
15) Which balance-related audit objective is not relevant to an audit of prepaid
expenses?
A) Rights
B) Accuracy
C) Detail tie-in
D) Realizable value
16) Which of the following statements is correct with respect to the auditor’s
responsibilities relative to the detection of indirect-effect illegal acts?
A) The auditor has no responsibility for searching for indirect-effect illegal acts
B) The auditor has the same responsibility for searching for indirect-effect illegal acts
as any other potential misstatement that may occur
C) Auditors have responsibility for searching for any illegal act, whether direct-effect or
indirect-effect
D) Discovery of indirect-effect illegal acts is usually easier than discovery of fraud
17) When determining whether independence is impaired because of an ownership
interest in a client company, materiality will affect ownership:
A) in all circumstances
B) only for direct ownership
C) only for indirect ownership
D) under no circumstances
18) Current professional auditing standards mandate the use of analytical procedures
during the testing phase of the audit.
A) True
B) False
19) Ordinarily, audit documentation can be provided to someone else only with the
express permission of the client.
A) True
B) False
20) The audit procedure “Perform tests of lower-of-cost-or-market, selling price, and
obsolescence” provides assurance mainly for the realizable value objective for
inventory pricing and compilation.
A) True
B) False
21) When the computed upper exception rate is greater than the tolerable exception rate
in attributes sampling, one possible appropriate course of action is to increase sample
size.
A) True
B) False
22) The audit objective to determine that notes payable in the schedule actually exist is
verified by the test of details of balances procedure to:
A) foot the notes payable list
B) confirm notes payable
C) recalculate interest expense
D) examine the balance sheet for proper disclosure of noncurrent portions
23) The Sarbanes-Oxley Act establishes standards related to the audits of privately held
companies.
A) True
B) False
24) The Code of Professional Conduct is established by the membership of the
A) Financial Accounting Standards Board
B) Securities and Exchange Commission
C) CPA licensing agencies within each state
D) Professional Ethics Executive Committee of the
25) These two conditions are generally present when material misstatements due to
fraud occurincentives and opportunities.
A) True
B) False
26) Which of the following tests determines that every field in a record has been
completed?
A) Validation
B) Sequence
C) Completeness
D) Programming
27) In phase 4 of the audit, complete the audit and issue an audit report, there are five
activities required. List below the activities.
28) Describe the methodology for designing tests of details of balances for notes
payable.
29) Describe the standard unqualified report to be issued for an audit of a private
company. Begin by specifying the seven parts of the report, and then discuss the
contents of each part.
30) Describe the differences between statistical and nonstatistical sampling in terms of
(1) the sample selection methods used, and (2) quantification of sampling risk.
31) Discuss the similarities and differences between financial statement audits,
operational audits, and compliance audits. Give an example of each type.
32) Discuss Rule 301Confidential Client Information, including the four exceptions to
the rule.
33) Define fraud and distinguish between the two main categories of fraud.
34) Discuss the differences and similarities between the roles of accountants and
auditors. What additional expertise must an auditor possess beyond that of an
accountant?
35) Describe purchase requisitions and purchase orders. What is a key difference
between the two documents?