1) When a pervasive scope limitation exists which paragraphs will be included in the
independent auditors report?
A)
B)
C)
D)
2) Which of the following is not defined as an act discreditable in either the Rules or the
Interpretations of the
A) The CPA firm’s partner in charge failed to file his tax return for the past year
B) The CPA firm discriminates in its hiring practices based on the age of the applicant
C) The CPA retains the client’s books and records to enforce past-due payment of the
CPA’s bill, even after the client has demanded they be returned
D) The CPA firm’s partner-in-charge was arrested recently on his way home from the
firm’s holiday party. He was a passenger in a car driven by his wife and she was charged
with “driving while intoxicated”
3) Which of the following would not be included in a CPA’s report based upon a review
of the financial statements of a nonpublic entity?
A) A statement that the review was in accordance with generally accepted auditing
standards
B) A statement that all information included in the financial statements is the
representation of management
C) A statement describing the principal procedures performed
D) A statement describing the auditor’s conclusions based upon the results of the review
4) When an auditor believes that an illegal act may have occurred, the auditor should
first:
A) inquire of management at a level above those likely to be involved
B) consult with legal counsel of others knowledgeable about the illegal acts
C) accumulate additional evidence
D) withdraw from the engagement
5) Which of the following resulted in a federal law passed in 1995 that significantly
reduced potential damages in securities-related litigation?
A) Private Securities Litigation Reform Act
B) Public Securities Damages and Settlements Act
C) Racketeer Influenced and Corrupt Organization Act
D) U.S. Securities Claims Reform Act
6) Which party has the primary responsibility to oversee an organization’s financial
reporting and internal control process?
A) the board of directors
B) the audit committee
C) management of the company
D) the financial statement auditors
7) For most audits, inherent risk for accounts receivable is moderate or low except for
which balance-related audit objectives?
A) Timing and realizable value
B) Completeness and existence
C) Existence and accuracy
D) Realizable value and cutoff
8) Generally, loans between a CPA firm or its members and an audit client are
prohibited because they create a financial relationship. However, there are exceptions.
Which of the following loans is not an exception to this rule?
A) automobile loans
B) loans fully collateralized by cash deposits at the same financial institution
C) home mortgages
D) unpaid credit card balances not exceeding $15,000
9) An imprest petty cash fund would least likely be used to pay for which of the
following items?
A) Minor office supplies
B) Monthly interest expense
C) Stamps for small mailings
D) Small contributions to a local charity
10) Which of the following tests of controls is least useful in assessing the
transaction-related audit objective related to occurrence?
A) Examine documents in voucher package for occurrence
B) Examine supporting documents for indication of approval
C) Account for sequence of vouchers
D) Attempt to input transactions with valid and invalid vendors
11) Materiality is essential when an auditor considers his/her determination of the
appropriate report for a given set of circumstances.
A) True
B) False
12) Who may identify matters to be included in a letter of inquiry sent to a client’s legal
counsel?
A)
B)
C)
D)
13) Which of the following sampling plans would be designed to estimate a numerical
measurement of a population, such as a dollar value?
A) Numerical sampling
B) Discovery sampling
C) Attributes sampling
D) Variable sampling
14) Match seven of the terms (a-k) with the definitions provided below (1-7):
a.Tests of details of balances
b.Tests of controls
c.Substantive tests of transactions
d.Analytical procedures
e.Transaction-related audit objectives
f.Management assertions
g.Balance-related audit objectives
h.Fraud
i.Illegal act
j.Error
k.Management fraud
________ 1> An intentional misstatement of the financial statements.
________ 2> A set of six audit objectives the auditor must meet, including timing,
posting and summarization, and accuracy.
________ 3> Implied or expressed representations made by the client about classes of
transactions, account balances and disclosures in the financial statements.
________ 4> Audit procedures testing for monetary misstatements to determine
whether the balance-related audit objectives have been satisfied for each significant
account balance.
________ 5> A set of nine audit objectives the auditor must meet, including
completeness, detail tie-in, and rights and obligations.
________ 6> Audit procedures designed to test the effectiveness of control policies and
procedures.
________ 7> Use of comparisons and relationships to assess whether account balances
or other data appears reasonable.
15) When auditing sales returns and allowances, the emphasis is normally on testing the
completeness objective.
A) True
B) False
16) When a qualified opinion is issued, an explanatory paragraph is added immediately
after the opinion paragraph to explain the nature of the qualification that affects the
opinion.
A) True
B) False
17) The audit team gathers information about a new client’s business and industry in
order to obtain:
A) an understanding of the clients internal control system for financial reporting
B) an understanding of how economic events and transactions have an effect on the
company’s financial statements
C) information about engagement risk
D) information regarding whether the company is engaging in financial statement fraud
18) In an effort to satisfy the completeness objective, the auditor could perform which
of the following test of details of balance procedures?
A) Trace the book balance on the reconciliation to the general ledger
B) Trace outstanding checks to subsequent period bank statements
C) Perform a four-column proof of cash
D) Review financial statements to make sure that material savings accounts and
certificates of deposit are disclosed separately
19) Which of the following statements about the existence and completeness assertions
is not true?
A) The existence and completeness assertions emphasize different audit concerns
B) Existence deals with overstatements and completeness deals with understatements
C) Existence deals with understatements and completeness deals with overstatements
D) The completeness assertion deals with unrecorded transactions
20) The realizable value audit objective is not applicable when auditing prepaid
insurance or insurance expense.
A) True
B) False
21) An auditor who audits a business cycle that has low inherent risk should:
A) increase the amount of audit evidence gathered
B) assign more experienced staff to that area
C) increase the tolerable misstatement for the area
D) expand planning procedures
22) Which are prospective financial statements that present an entity’s financial
position, results of operations, and cash flows, to the best of the responsible party’s
knowledge and belief, given one or more hypothetical assumptions?
A)
B)
C)
D)
23) Failure to capitalize a fixed asset at the correct amount would impact which
financial statements until the company disposes of the asset?
A) The balance sheet only
B) The income statement only
C) The cash flow statement only
D) Both the income statement and the balance sheet
24) External auditors typically consider internal auditors effective if they meet three
criteria. What are these criteria?
25) Often, auditor procedures result in significant differences being discovered by the
auditor. The auditor should investigate further if:
A)
B)
C)
D)
26) The prior year’s sample exception rate is the auditor’s best estimate of the exception
rate in the population for the current year.
A) True
B) False
27) Auditors seldom learn about the capital acquisition and repayment cycle when
gaining an understanding of the client’s business and industry.
A) True
B) False
28) Which of the following is not an element of examining a forecast?
A) evaluating the preparation of the prospective financial statements
B) understanding internal controls
C) evaluating the support underlying the assumptions
D) issuing an examination report