1) Directed sample selection, block sample selection, and haphazard sample selection
are three types of probabilistic sample selection methods.
A) True
B) False
2) A high detection risk equates to a low amount of audit evidence needed.
A) True
B) False
3) Auditor’s need to exhibit professional skepticism when auditing a client. This
auditing standard is best expressed by which of the following?
A) the auditor neither assumes dishonesty or honesty of management
B) the auditor assumes dishonesty of management
C) the auditor assumes honesty of management
D) the auditor assumes management lacks integrity
4) Which of the following is ordinarily designed to detect material dollar errors on the
financial statements?
A) Tests of controls
B) Analytical review procedures
C) Computer controls
D) Tests of details of balances
5) For several years, a client’s physical inventory count has been lower than what was
shown on the books at the time of the count so that downward adjustments to the
inventory account were required. Contributing to the inventory problem could be
weaknesses in internal control that led to the failure to adjust the accounting records for
some:
A) purchases returned to vendors
B) sales returns received
C) sales discounts allowed
D) cash purchases
6) “Absence of reasonable care that can be expected of a person in a set of
circumstances” defines:
A) pecuniary negligence
B) gross negligence
C) extreme negligence
D) ordinary negligence
7) The audit procedures used to verify accrued liabilities differ from those employed for
the verification of accounts payable because:
A) accrued liability balances are less material than accounts payable balances
B) accrued liabilities at year end will become accounts payable during the following
year
C) evidence supporting accrued liabilities is non-existent, whereas evidence supporting
accounts payable is readily available
D) accrued liabilities usually pertain to services of a continuing nature, whereas
accounts payable are the result of completed transactions
8) If the balance sheet of a company is dated December 31, 2011, the audit report is
dated February 8, 2012, and both are released on February 15, 2012, this indicates that
the auditor has searched for subsequent events that occurred up to:
A) December 31, 2011
B) January 1, 2012
C) February 8, 2012
D) February 15, 2012
9) One potential disadvantage of IT systems is the reduction or elimination of source
documents, which reduces the visibility of the audit trail.
A) True
B) False
10) The evidence mix includes risk assessment procedures.
A) True
B) False
11) Which of the following computer-assisted auditing techniques inserts an audit
module in the client’s application system to identify specific types of transactions?
A) parallel simulation testing
B) test data approach
C) embedded audit module
D) generalized audit software testing
12) Generally, loans between a CPA firm or its members and an audit client are
prohibited because it is a financial relationship. Which of the following, made under
normal lending procedures, is not an exception to this rule?
A) immaterial loans
B) home mortgages
C) material loans
D) secured loans
13) To test the client’s list of outstanding checks on the bank reconciliation for
completeness, the auditor should trace from the list to the checks included with the
cutoff bank statement.
A) True
B) False
14) Which of the following statements is not correct?
A) It is acceptable to pick a starting point on a random number table by using a “blind
stab” method
B) It is impossible to draw a six-digit random number from a table that is separated into
columns of five digits
C) The only reason for selecting a random starting point on a random number table is to
eliminate the predictability of the sample
D) When selecting a three-digit number from a table that is separated into columns of
five digits, it is permissible to use the first three digits, the middle three digits, or the
last three digits
15) The Securities and Exchange Commission can impose all but which of the
following sanctions?
A) Suspend a CPA from auditing SEC clients
B) Prohibit a CPA from accepting new SEC clients for a period of time
C) Require a CPA to participate in continuing-education programs and make changes in
their practice
D) Revoke a CPA license
16) Auditors are responsible for determining whether financial statements are materially
misstated, so upon discovering a material misstatement they must bring it to the
attention of:
A) regulators
B) the audit firm’s managing partner
C) the client shareholders
D) the client’s management
17) Misappropriation of assets is normally perpetrated by:
A) members of the board of directors
B) employees at lower levels of the organization
C) management of the company
D) the internal auditors
18) “The use of comparisons and relationships to assess whether account balances or
other data appear reasonable compared to the auditor’s expectations” is a definition of:
A) analytical procedures
B) tests of transactions
C) tests of balances
D) auditing
19) The audit procedure “Recompute hours worked from time cards” is normally
performed when testing the completeness objective for payroll.
A) True
B) False
20) When testing details of balances, most audit procedures satisfy only one
balance-related objective, but more than one audit procedure should be used to test each
objective.
A) True
B) False
21) To do an audit, it is necessary for information to be in a verifiable form and some
criteria by which the auditor can evaluate the information. Detail the information and
criteria that would be used for:
(A) an independent CPA firm audits a company’s historical financial statements.
(B) an Internal Revenue Service auditor who audits that same company’s tax return.
(C) an internal auditor use when performing an operational audit to evaluate whether
the company’s computerized payroll processing system is operating efficiently and
effectively.
22) Which of the following is not a cause for a modification of the format for a standard
unqualified auditor’s report?
A) Substantial doubt about an entity’s ability to continue as a going concern
B) Reports involving other auditors
C) A departure from promulgated accounting principles
D) Not consistently applying accounting principles
23) Typical controls developed for manual systems which are still important in IT
systems include:
A) management’s authorization of transactions
B) competent personnel
C) adequate preparation of input source documents
D) all of the above
24) Financial interests family members of a CPA can affect the CPA’s independence.
Which of the following parties would not be included as a “direct financial interest” of
the CPA?
A) Spouse
B) Dependent child
C) Relative supported by the CPA
D) Sibling living in the same city as the CPA
25) The audit report is normally addressed to the company’s president or chief executive
officer.
A) True
B) False
26) The audit of insurance expense is normally limited to analytical procedures and a
brief test of whether charges to insurance expense arose from credits to prepaid
insurance.
A) True
B) False
27) Jennings and Company has repositioned the firm’s business strategy from the basis
of competing on costs to competing on product differentiation. All the following will
increase, except:
A) Audit risk
B) Business Risk
C) Financial risk
D) Risk of Material Misstatements
28) Which one of the following statements is false?
A) Confidentiality is broken when an auditor is presented with a subpoena concerning
an audit client
B) Information that a CPA obtains from a client is generally not privileged
C) When a CPA firm conducts an
D) A CPA firm which observes substandard audit documentation of another firm during
a peer review can initiate a complaint to the
29) Testing the information on the aged trial balance for detail tie-in is a necessary audit
procedure, which would normally include:
A)
B)
C)
D)
30) When conducting the audit of stockholders’ equity it is normal practice to verify all
capital stock transactions:
A) only when the client is small
B) that are in excess of a material amount
C) if there aren’t very many during the year
D) regardless of the controls in existence, because of their materiality and permanence
in the records
31) You are auditing Manufacturing Company and testing the audit related objective of
completeness for the equipment accounts. Which of the following audit procedures is
most likely to achieve your objective?
A) Examine vendor invoices and receiving reports
B) Physically examine assets
C) Examine vendor invoices of closely related accounts such as repairs and
maintenance
D) Trace individual acquisitions to the fixed asset master file
32) You are auditing Rodgers and Company and have noticed that accounts receivables
have increased from the previous year because of financial problems with its customers.
Your likely first response would be to:
A) expand tests regarding account balance collectability
B) increase the allowance for uncollectible accounts for the client
C) communicate to the client that credit policy must be reviewed
D) increase the sample size of past due accounts
33) Auditors frequently audit statements that were prepared on a comprehensive basis
of accounting other than GAAP. When this occurs:
A) generally accepted auditing standards apply to these engagements and the reporting
requirements differ
B) generally accepted auditing standards apply to these engagements and the reporting
requirements are the same as well
C) generally accepted auditing standards do not apply to these examinations and the
reporting requirements differ also
D) generally accepted auditing standards do not apply to this engagement and the
reporting requirements remain the same for the CPA
34) A document prepared to initiate shipment of the goods sold by an independent
shipper is the:
A) sales order
B) bill of lading
C) sales invoice
D) customer order
35) Which of the following statements is correct regarding the costs involved in
obtaining evidence?
A)
B)
C)
D)
36) A proof of cash helps the auditor determine whether all recorded cash receipts were
deposited in the bank and whether all recorded cash disbursements were paid by the
bank.
A) True
B) False
37) An act of two or more employees to steal assets and cover their theft by misstating
the accounting records would be referred to as:
A) collusion
B) a material weakness
C) a control deficiency
D) a significant deficiency
38) Tests of controls are directed toward the control’s:
A) efficiency
B) effectiveness
C) efficiency and effectiveness
D) cost benefit ratio
39) Acceptable audit risk is a measure of the auditor’s willingness to accept that the
financial statements do not contain material misstatements after the audit is completed
and a qualified audit report has been issued.
A) True
B) False
40) Which one of the following is NOT a major difference between operational and
financial auditing?
A) purpose of the audit
B) distribution of the report
C) testing the effectiveness of internal controls
D) audits of non-financial areas