The AICPA guidance defines how many management assertions?
a. 5
b. 8
c. 11
d. 13
e. 10
Defined benefit plans can be:
(a) funded by the employer.
(b) unfunded by the employer.
(c) funded through a trust.
(d) All of the above.
Natasha is a staff-level auditor assigned to evaluate the ICFR for the XYZ Corporation
audit. Natasha follows her firm’s audit plan to assess ICFR. Step 1.3 of the audit plan
says:”the auditor should evaluate the overall attitude and awareness of an entity’s board
of directors concerning the importance of internal control.”
(a) With which component of internal control is Step 1.3 concerned?
(b) Draft specific audit steps that Natasha might find in her plan, in addition to
the general direction.
(c) What would Natasha include in her work papers to document her work?
Which of the following information would be transferred from the current file to the
permanent file?
(a) Current year financial statement.
(b) List of new corporate officers.
(c) Changes to accounting policies.
(d) Both b and c.
Generally, the auditor:
a. Cannot control audit risk.
b. Can control audit risk.
c. Controls audit risk to the extent of audit testing.
d. None of the above.
The purpose of a materials requisition form is to:
a. track work-in process inventory so the appropriate percentage of completion
proportion can be computed.
b. authorize the release of raw materials into work-in-process.
c. trigger the accounting entry to reduce raw materials inventory records and increase
finished goods.
d. update the general ledger for the movement of materials into finished goods.
A client decides to change accounting procedures for certain types of transactions
which will have a material impact on the financial statements. The client adopts an
accounting change promulgated by GAAP but this change has no effect on the current
period financial statements. The auditor should issue what type of opinion?
a. Qualified opinion.
b. Unqualified opinion.
c. Disclaimer of opinion.
d. Depending on the circumstances, the auditor may choose any of the above.
The engagement letter:
(a) must be generated before any audit work is performed.
(b) cannot be generated until the audit firm communicates with the audit committee, in
writing, about independence.
(c) includes the names of staff and managers working on the engagement.
(d) All of the above.
Approved customer orders authorize the release of goods from:
a. normal activities.
b. shipping.
c. receiving.
d. storage or warehousing.
e. accepting custody.
Which of the following is considered a cash equivalent?
(a) Commercial paper.
(b) Compensating balances.
(c) Money market fund.
(d) Both a and c.
A time sheet serves which purpose?
a. It records deductions.
b. It records time worked.
c. It collects billing information.
d. Both b and c.
Which of the following most likely would be detected by an auditor’s review of a
client’s sales cutoff?
a. Excessive write-offs of accounts receivable.
b. Shipments lacking sales invoices and shipping documents.
c. Unrecorded sales at year end.
d. Lapping of year-end accounts receivable.
e. Excessive write-offs of accounts payable.
Verification of prices and terms of the sale must be performed prior to:
a. scanning a bar code.
b. entering a diagnostic code.
c. completing the transaction.
d. specific authorization.
AH Family is a large private corporation in its fortieth year of operation. When Patricia,
the founder’s daughter, recently became AH Family’s CEO, she formulated an
aggressive multinational expansion plan that will add locations in Europe and Asia. To
accomplish this goal, Patricia and the Board of Directors realized its need to raise $100
million in new capital. In order to raise such high levels of new capital, AH Family will
have to go public. Currently, AH Family employs a local CPA firm to conduct yearly
audits of the financial statements for its creditors. (a)Identify the types of audits AH
Family will have to undergo if management chooses to take the company public.
(b)Identify the governing and standard-setting bodies that will affect AH Family if it
chooses to become a public company.(c)Is it possible that new costs will result if the
company goes public? Explain.
Event identification in the ERM Framework is primarily concerned with identifying:
(a) opportunities and threats that impact the company’s events and relationships.
(b) the relevant economic and political sources of risk.
(c) qualitative and quantitative techniques for assessing risk.
(d) the acceptable level of residual risk.
Auditing Standard #5 requires:
(a) auditors perform tests of internal control.
(b) auditors have technical competence to perform audits.
(c) auditors exercise professional skepticism.
(d) Both b and c.
By communicating with the predecessor auditor, an incoming auditor may gain valuable
information pertaining to:
(a) potential problem areas as indicated in the predecessor’s work papers.
(b) the updated status of a pending lawsuit.
(c) the results of the current year budget variance analysis.
(d) the audit tests that must be performed on a recurring basis.
Detection risk is defined as:
a. the risk that a material misstatement will go undetected by the client.
b. the risk that a material misstatement will go undetected by the auditor.
c. Both a and b.
d. Neither a nor b.
The AICPA Principles of Professional Conduct includes which of the following?
A. Contingent fees.
B. Accounting principles.
C. Due care.
D. Advertising.
Which of the following items in not typically documented in an audit planning memo?
(a) audit engagement objectives and deliverables
(b) the auditors’ understanding of ICFR and IT systems
(c) planned use of the work of others during the audit
(d) results of the quarterly review process
Which of the following relates to what an auditor does?
A. Relies on all information provided by the client.
B. Performs a service and announces its opinion.
C. Prepares the financial statements for a company.
D. Advocates for the client.
A covered member, as described by the AICPA Professional Standards, would include
all of the following, except:
A. an individual on the attest engagement team.
B. the client.
C. the firm, including the firm’s employee benefit plans.
D. an individual in a position to influence the audit engagement.
The level of the AICPA Code that is intended to be the enforceable guide of conduct is:
A. Rules of Conduct.
B. Rulings by the Professional Ethics Executive Committees.
C. Interpretations of the Rules of Conduct.
D. Principles of Professional Conduct.
Tests of balances include:
a. reconciling total payroll expense to payroll tax returns.
b. reconciling total payroll expense to tax forms.
c. reconciling total payroll task expense to task forms.
d. Both a and c.
Which of the following tests are appropriate for intangible assets? TYPO
a. Tests of details.
b. Substantive analytical procedures.
c. Tests of cash disbursements.
d. All of the above.
The initials “PBC” mean:
a. paid by client.
b. prepared by client.
c. prepared before client.
d. None of the above.
Post-employment benefits are:
(a) considered a form of deferred compensation.
(b) considered an expense.
(c) not included in the calculation of compensation expense.
(d) paid to retired persons.
Internal auditors are guided by professional standards known as:
a. the SOX Act.
b. the Attribute Standards for the Professional Practice of Internal Auditing.
c. the Consulting Standards for the Professional Practice of Internal Auditing.
d. the Attribute Performance Standards for the Professional Practice of Internal
Auditing.
e. the International Standards for the Professional Practice of Internal Auditing.
If the auditor is performing an audit of a nonpublic company and the client refuses to
provide a management representation letter, the auditor may:
a. issue a financial statement audit report.
b. issue an integrated audit report.
c. issue a financial statement audit report with a scope limitation.
d. depending on the circumstances, the auditor may choose any of the alternatives.
Time worked not accepted by the payroll application program because the employee is
not in the payroll master file is an example of which assertion(s)?
a. Completeness and existence.
b. Existence.
c. Authorization and existence.
d. None of the above.
Tests of controls over investing activity include:
(a) tracing securities from the investment ledger to the supporting documents.
(b) reviewing the bank statement for deposits in transit.
(c) recalculating interest expense at the balance sheet date.
(d) All of the above.
Indicate whether each of the following items represents:
An internal (I) entity-level risk factor or
An external (E) entity-level risk factor.
TASK
(a) _____ Economic conditions may impact capital expenditures and financing and
expansion decisions.
(b) _____ New legislation can force changes in operating policies and strategies.
(c) _____ Change in management responsibilities can affect certain controls.
(d) _____ Changing customer needs can affect product development, production,
customer service, pricing, and warranties.
(e) _____ Disruption in IT processing can affect operations.
(f) _____ An ineffective audit committee can provide opportunities for indiscretions.
(g) _____ Natural disasters can lead to changes in operations or information systems.
(h) _____ Competition can alter marketing or service activities.
(i) _____ Technological developments can lead to changes in procurement or research
and development activities.
(j) _____ Methods of training and motivation can influence the entity’s control
consciousness.
Which of the below is an example of an inherent risk:
(a) the risk that the economy will sink into recession.
(b) the risk that the firm will be a take-over target.
(c) the risk that a particular financial statement account is incorrect.
(d) All of the above.
If a transaction is paid for by credit card, the seller processes the sales transaction with
the credit card issuer when the item is received.
Scanning a bar code and entering a diagnostic code are examples where the price
charged for the good or service has been preset and therefore pre-authorized by
management.
The auditor assesses the internal controls of a non-public client for the purpose of
planning.
Entities hire public accounting firms to provide financial statement services other than
audits.
The Sarbanes-Oxley Act limits the amount of non-attest services that auditors may
perform for public companies they audit.
After inventory is sold to a customer, even though the sale is completed, there are
usually circumstances for which the goods may be returned.
Tick marks are optional and used to provide a ‘short cut” notation of work performed.
You have been engaged by Markus Industries to examine its projected
financial statements for 2011.
For each of the following, state the evidence sources and procedures you would use to
evaluate the reasonableness of the assumption.
(a) The Molding Division’s sales forecast assumes that the Orlando facility will
be completed and operating at 42% of capacity on February 2, 2011. It is
highly improbable that the facility will be operational before December 31, 2010.
For every month’s delay in opening the facility, the sales of the Molding Division
are reduced by $82,000 and operating earnings are reduced by $32,000.
(b)Markus intends to sell certain real estate and facilities held by the Assembly Division
at an after-tax profit of $625,000. The proceeds of this sale will be used to retire
outstanding debt (described in c).
(c) Markus will call and retire all outstanding 8% subordinated debentures (callable at
107). Given the present interest rate of 7% on similar debt, it is expected that the
debentures will require the full call premium. A rise in market interest rates to 8%
would reduce the loss on bond retirement from the projected $195,000 to $185,000.
The accounting profession has provided a universally accepted answer to what is
considered moral and ethical behavior.
Salaried partners of a CPA firm are compensated based on a share in the firm’s profit.
AS#3 addresses audit documentation standards.
The internal auditor’s goal is to help improve the organization’s operations, risk
management, external controls, and organization management.
A firm is considered to be not independent if the accountant provides bookkeeping or
other services related to the accounting records or financial statements of the audit
client.
Forensic accountants use investigative methods that are similar to audit procedures.
A request for proposal (RFP) is required for each client acceptance or continuance
decision.
Why do you have to be a good accountant in order to be a good auditor?
Generally, there are two types of files: current and permanent.
Sampling risk is the risk that your sample is not representative of the population.
Audit risk only applies to auditors who audit public companies.