1) The preliminary judgment about materiality and the amount of audit evidence
accumulated are ________ related.
A) directly
B) indirectly
C) not
D) inversely
2) The most common case in which conditions beyond the client’s and auditor’s control
cause a scope restriction is an engagement:
A) agreed upon after the client’s balance sheet date
B) where the client won’t allow the auditor to confirm receivables for fear of offending
its customers
C) where the auditor doesn’t have enough staff to satisfactorily audit all of the client’s
foreign subsidiaries
D) where the client is going through Chapter 11 bankruptcy
3) Preparation of a proof of cash would not be useful in discovering differences
between the actual and reported cash balances if the differences were due to:
A) deposits in transit
B) collections on the company’s behalf by the bank which are deposited directly to the
company’s account
C) cash receipts that were not recorded in the relevant accounting records
D) service charges
4) The audit objective of determining that cash in bank, as stated on the reconciliation,
foots correctly and agrees with the general ledger can be tested by which of the
following procedures?
A) Performing tests for kiting
B) Receiving and testing a cutoff bank statement
C) Footing the outstanding checks list and the list of deposits in transit
D) Examining the minutes of the board of directors for restrictions on the use of cash
5) If the auditor insists on financial statement disclosures that the management finds
unacceptable, the auditor can:
A)
B)
C)
D)
6) International auditing standards and U.S. GAAP classify assertions into three
categories. Which of the following is not a category of assertions that management
makes about the accounting information in financial statements?
A) Assertions about classes of transactions for the period under audit
B) Assertions about account balances at period end
C) Assertions about the quality of source documents used to prepare the financial
statements
D) Assertions about presentation and disclosure
7) Blank confirmations are considered less reliable than standard positive
confirmations.
A) True
B) False
8) “Auditing around the computer” is most appropriate when the client has not
maintained detailed output or source documents in a form readable by humans.
A) True
B) False
9) In a standard inquiry of client’s attorney letter, the attorney is requested to
communicate about contingencies up to the balance sheet date.
A) True
B) False
10) Which of the following would the auditor find most useful in relation to its previous
audit procedures from the client representation letter?
A) to impress upon the audit firm its responsibility for the audit
B) to impress upon management its responsibility for the financial statement assertions
C) to remind management of potential misstatements or omissions in the financial
statements
D) to document the responses from management to inquiries about various aspects of
the audit
11) A proof of cash is not an effective procedure for identifying which of the following
types of misstatements?
A) All recorded disbursements were paid by the bank
B) All recorded cash receipts were deposited
C) All amounts that were paid by the bank were recorded
D) Some checks were written for incorrect amounts
12) A customer mails and records a check to a client for payment of an unpaid account
on December 30 . The client receives and records the amount on January 2 . The
records of the two organizations will be different on December 31. This represents:
A)
B)
C)
D)
13) Attributes sampling tables can be used to evaluate results of tests of details with
Acceptable risk of assessing control risk too low (ARACR) being replaced with
acceptable risk of incorrect acceptance (ARIA).
A) True
B) False
14) Hanlon Corp. maintains a large internal audit staff that reports directly to the chief
financial officer. Audit reports prepared by the internal auditors indicate that the system
is functioning as it should and that the accounting records are reliable. An independent
auditor will probably:
A) eliminate tests of controls
B) increase the depth of the study and evaluation of administrative controls
C) avoid duplicating the work performed by the internal audit staff
D) place limited reliance on the work performed by the internal audit staff
15) You are auditing Rodgers and Company. After performing substantive analytical
procedures you conclude that, for the accounts tested, the client’s balance appears
reasonable. This may indicate that:
A) details test of balances can be eliminated for those accounts
B) certain test of balances procedures may be eliminated for those accounts
C) control tests may be eliminated for those accounts
D) control tests may be reduced for those accounts
16) Which one of the following statements is true? In deciding on substantive tests of
transactions:
A) some procedures are commonly employed on every audit regardless of the
circumstances
B) all procedures are dependent on the adequacy of the controls and the results of the
tests of controls
C) results obtained in the prior year’s audit will not affect the procedures used this year
D) the materiality of the item will not influence the choice of procedures used
17) Which of the following statements is true?
A) A large sample of highly competent evidence is persuasive if it is relevant to the
objective being tested
B) A large sample of evidence that is neither competent nor timely is not persuasive
C) A small sample of only one or two pieces of relevant, competent, and timely
evidence lacks persuasiveness
D) The persuasiveness of evidence can be evaluated after considering its sufficiency
18) CPAs are prohibited from which of the following forms of advertising?
A) Self-laudatory advertising
B) Celebrity endorsement advertising
C) Use of trade names, such as “Awesome Auditors”
D) Use of phrases, such as “Guaranteed largest tax refunds in town!”
19) For the report containing a disclaimer for lack of independence, the disclaimer is in
the:
A) third or opinion paragraph
B) second or scope paragraph
C) first and only paragraph
D) fourth or explanatory paragraph
20) Which of the following statements is most correct regarding errors and fraud?
A) An error is unintentional, whereas fraud is intentional
B) Frauds occur more often than errors in financial statements
C) Errors are always fraud and frauds are always errors
D) Auditors have more responsibility for finding fraud than errors
21) Statements on Auditing Standards are considered authoritative literature.
A) True
B) False
22) The audit procedure “Examine paid notes for cancellation to make sure they are not
still outstanding” is performed when verifying the completeness objective for notes
payable.
A) True
B) False
23) With respect to the detection of indirect- effect illegal acts, auditing standards state
that the auditor provides:
A) no assurance that they will be detected
B) the same reasonable assurance provided for other items
C) assurance that they will be detected, if material
D) assurance that they will be detected, if highly material
24) Your audit sampling program states: the upper misstatement limit is $13,200 and the
risk of incorrect acceptance is at the 95% confidence level. This means:
A) there is a 95% chance the actual misstatement is greater than $13,200
B) there is a 5% chance the actual misstatement is less than $13,200
C) there is a 95% chance the actual misstatement is less than $13.200
D) there is a 5% chance the actual misstatement is greater than $13,200
25) In many audits of sales transactions substantive tests of transactions can be reduced
in determining the completeness objective because:
A) understatements of assets and income are a greater concern than overstatements
B) overstatements of assets and income are a greater concern than understatements
C) it doesn’t matter if income is understated because the savings on income tax offsets
the reduced revenue and net income is correct
D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of
the two financial statements will not be misleading
26) In the audit of a public company, computer controls must be tested if they are
considered to be key controls for reducing the likelihood of material misstatements in
the financial statements.
A) True
B) False
27) Planned detection risk
I.determines the amount of substantive evidence the auditor plans to accumulate.
II.is dependent on inherent risk and control risk.
A) I only
B) II only
C) I and II
D) None of the above
28) The members of a client’s “audit committee” should be:
A) members of management
B) directors who are not a part of company management
C) non-directors and non-managers
D) directors and managers
29) You are conducting an audit and you are concerned about revenue recognition
issues because of timing concerns due to proper cutoff and channel stuffing (sales to
distributors above “normal” business needs. Describe at least two audit procedures that
would best address your concerns?
30) Identify the six categories of general controls and give one example of each.
31) Don Crosby, a partner in a national CPA firm, has just learned that his self sufficient
daughter has accepted a position as the CFO of Sunglasses, Inc., a current client within
the office with which he is employed. Explain the independence ramifications on 1>
Don’s independence, 2> his office, and 3> the firm’s independence.
32) When determining sufficient and appropriate audit evidence in order to form an
opinion on the client’s financial statements the auditor compiles audit documentation to
support the opinion. The largest portion of audit documentation will include detailed
supporting schedules prepared by the client or the auditor in support of specific
accounts on the financial statements. The major types of supporting schedules include
analysis schedules and tests of reasonableness. Discuss those two schedules and give an
example for each schedule.
33) Discuss the purpose of the Securities and Exchange Commission and its influence
on setting generally accepted accounting principles.
34) Briefly describe the circumstances in which it is acceptable to use negative
confirmation requests.