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1) Information and idea exchange sessions by the audit team are required by SAS No.
99.
A) True
B) False
2) To test for proper sales cutoff, an auditor would obtain the number of the last bill of
lading issued during the period under audit and verify that the item shipped had been
excluded from the inventory listing.
A) True
B) False
3) Why does the auditor divide the financial statements into smaller segments?
A) Using the cycle approach makes the audit more manageable
B) Most accounts have few relationships with others and so it is more efficient to break
the financial statements into smaller pieces
C) The cycle approach is used because auditing standards require it
D) All of the above are correct
4) The process of "final evidence accumulation" is always done late in the engagement.
Which one of the following would be done the earliest in the engagement?
A) final analytical procedures
B) search for contingent liabilities
C) evaluate the going concern assumption
D) acquire the client's letter of representation
5) Professional standards prohibit which one of the following types of engagements for
prospective financial statements from being undertaken?
A) a compilation
B) a review
C) an examination
D) an agreed-upon procedures engagement
6) Auditors typically rely on internal controls of their private company clients:
A) only as needed to complete the audit and satisfy Sarbanes-Oxley requirements
B) only if the controls are determined to be effective
C) only if the client asks an auditor to test controls
D) only if the controls are sufficient to increase Control Risk to an acceptable level
7) Improperly classifying a fixed asset by recording the amount in the repairs and
maintenance expense account will have an effect on which of the following financial
statements until the asset would normally have been depreciated?
A) The balance sheet
B) The income statement
C) The cash flow statement
D) Both the income statement and the balance sheet
8) Information obtained by a CPA from a client is legally privileged in federal court.
A) True
B) False
9) Perpetual inventory records should be maintained by persons having access to
inventory.
A) True
B) False
10) Acceptable risk of incorrect acceptance (ARIA) and sample size are inversely
related; that is, as ARIA increases, sample size decreases.
A) True
B) False
11) The word below that best explains the relationship between required sample size
and the acceptable risk of incorrect acceptance is:
A) inverse
B) direct
C) proportional
D) indeterminate
12) The audit committee is responsible for determining an organization's financial
reporting and internal control processes.
A) True
B) False
13) Confirmations are ordinarily used to verify account balances, but may be used to
verify transactions.
A) True
B) False
14) Under the
A) True
B) False
15) In "auditing" financial accounting data, the primary concern is with:
A) determining whether recorded information properly reflects the economic events
that occurred during the accounting period
B) determining if fraud has occurred
C) determining if taxable income has been calculated correctly
D) analyzing the financial information to be sure that it complies with government
requirements
16) Acceptable risk of incorrect rejection is the statistical risk that the auditor has
concluded that a population is materially misstated when it is not.
A) True
B) False
17) Sampling used for tests of details of balances provides results in terms of:
A) exception rates
B) percentages
C) dollars
D) expectation rates
18) When the client's physical inventory occurs before the last day of the year, it is still
necessary to perform an accounts payable cutoff at the time of the count. In addition,
the auditor must verify whether all acquisitions taking place between the count and the
end of the year were added to:
A) the physical inventory
B) Accounts Payable
C) Accounts Payable and Cost of Goods Sold
D) the physical inventory and Accounts Payable
19) What potential problems may arise when an auditor considers the relationship
between payroll and inventory valuation?
A)
B)
C)
D)
20) Listed below are four interbank cash transfers, indicated by the numbers 1, 2, 3, and
4, of a client for late December 2007 and early January 2008:
Based on the schedule of interbank transfers above, which of the cash transfers would
not appear as an outstanding check on the December 31, 2007 bank reconciliation?
A) 1
B) 2
C) 3
D) 4
21) The preparation of a sales invoice is the final step in the sales and collection cycle.
A) True
B) False
22) The auditor normally does not need to test the accuracy or classification of fixed
assets recorded in prior periods if they are the continuing auditor because:
A) they are rarely material to the audit
B) they rarely contain misstatements
C) they are verified in previous audits
D) they don't affect the balance sheet
23) Subsequent events for which disclosure, but no adjustment, is required provide
information about significant events/conditions which existed at the balance sheet date.
A) True
B) False
24) Auditors must communicate in writing about internal control weaknesses to the
audit committee or those charged with governance.
A) True
B) False
25) Ordinarily, the auditor should review corporate minutes during the later stages of an
audit.
A) True
B) False
26) The
A) attestation engagements
B) services performed by accountants in public practice
C) accounting and auditing services performed
D) professional work performed by CPAs
27) The prelisting of cash receipts should be prepared by the individual who has
primary responsibility for the recording of cash receipts.
A) True
B) False
28) In planning the audit, an auditor takes 3 basic steps in determining the audit
procedures to be performed for any business cycle or class of transactions in order to
gather audit evidence concerning possible misstatement due to error or fraud. List those
three basic steps below.
29) What types of exceptions are auditors most concerned with when evaluating
populations of accounting data?
30) Processing controls include the following tests:
Validation
Sequence
Data Reasonableness
Completeness
Describe what each control is designed to do:
31) Explain why monetary-unit sampling, or probability proportional to size sampling,
is not useful for detecting understatements.
32) Discuss each of the six possible courses of action the auditor can take when he or
she has concluded that the population is misstated by more than a tolerable amount.
33) Below are 12 audit procedures. Classify each procedure according to the following
types of audit evidence: (1) physical examination, (2) confirmation, (3) documentation,
(4) observation, (5) inquiry of the client, (6) reperformance, and (7) analytical
procedure.
34) What are the five categories of attestation services?
35) Explain the decision rule used in monetary-unit sampling to determine whether the
population value (account balance) is acceptable.
