Significant risks often relate to routine transactions.
Significant changes in the industry may increase the risk of material misstatement at the
assertion level.
The cash account is not part of the acquisitions and payment cycle.
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.
The extent and timing of an auditor’s physical examination of inventory is significantly
influenced by the adequacy of the client’s perpetual inventory records.
The effectiveness of automated controls depends solely on the competence of the
personnel performing the controls.
In the audit of historical financial statements, management asserts that the financial
statements are fairly stated in accordance with what standards?
A) regulatory accounting principles
B) applicable international accounting standards
C) applicable U.S. accounting standards
D) B and C
Auditing standards require the auditor to communicate all management frauds and
illegal acts to the audit committee
A) only if the act is immaterial.
B) only if the act is material.
C) only if the act is highly material.
D) regardless of materiality.
To best ascertain that a company has properly included merchandise that it owns in its
ending inventory, the auditor should review and test the
A) terms of the open purchase orders.
B) purchase cutoff procedures.
C) contractual commitments made by the purchasing department.
D) purchase invoices received on or around year-end.
The audit objective that requires the auditor to determine that notes payable on the
notes payable schedule are properly classified can be tested by performing the
procedure to
A) confirm notes payable.
B) examine corporate minutes for loan approval.
C) examine notes, minutes, and bank confirmations for restrictions.
D) review the notes to determine whether any are with related parties.
A vendor invoice is normally prepared at the time tangible goods are received and
indicates the description of goods, the quantity received, the date received, and other
relevant data.
Auditing standards require that auditors document
A) specific risks of fraud identified at the financial statement level, but not at the
assertion level.
B) all conversations with management.
C) results of the procedures performed to address the risk of management override of
controls.
D) all of the above.
When a qualified or adverse opinion is issued, the qualifying paragraph is inserted
A) between the introductory and scope paragraphs.
B) between the scope and opinion paragraphs.
C) after the opinion paragraph, as a fourth paragraph.
D) immediately after the address, as the first paragraph.
Which of the following is not a correct combination of terms and related type of audit
evidence?
A) inquire inquiries of client
B) count physical examination
C) recompute recalculation
D) read documentation
Output controls need to be designed for which of the following data integrity
objectives?
A) detecting errors after the processing is completed
B) preventing errors before the processing is completed
C) detecting errors in the general ledger adjustment process
D) preventing errors in separation of duties for IT personnel
When auditing depreciation expense, the two major concerns related to the accuracy
audit objective are
A) consistent application of depreciation method and useful lives.
B) consistent application of depreciation method and classification of assets.
C) correctness of calculations and consistent application of depreciation policies.
D) cost of the fixed asset and useful lives.
Which of the following statements is true regarding review and audit services?
A) A review requires more substantive evidence than an audit.
B) An audit requires less evidence related to internal control than a review.
C) A review requires less evidence than an audit.
D) None of the above statements is true.
Tests of controls are directed toward the control’s
A) efficiency.
B) effectiveness.
C) cost and effectiveness.
D) cost benefit ratio.
The final step in the evaluation of the audit results is the decision to
A) accept the population as fairly stated or to require further action.
B) determine sampling error and calculate the estimated total population error.
C) project the point estimate.
D) determine the error in each sample.
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
The AICPA’s Code of Professional Conduct states that a CPA should maintain integrity
and objectivity. The term “objectivity” in the Code refers to a CPA’s ability to
A) choose independently between alternate accounting principles and auditing
standards.
B) distinguish between accounting practices that are acceptable and those that are not.
C) be unyielding in all matters dealing with auditing procedures.
D) maintain an impartial attitude on matters that come under the CPA’s review.
Inherent risk and control risk
A) are inversely related to each other.
B) are inversely related to detection risk.
C) are directly related to detection risk.
D) are directly related to audit risk.
An audit conducted in accordance with the Yellow Book must include an audit report
that states the audit was performed in accordance with
A) Generally Accepted Auditing Standards (GAAS).
B) Generally Accepted Government Auditing Standards (GAGAS).
C) Generally Accepted Standards on Auditing (GASA).
D) Statements on Auditing Standards (SAS).
When practical and reasonable, U.S. auditing standards require the confirmation of
A) individual transactions between organizations, such as sales transactions.
B) accounts receivable.
C) fixed asset additions.
D) payroll expenses.
When making statistical inferences, the auditor must remember that
A) the true population value must always be known.
B) auditors can state the conclusions drawn from a confidence interval in different
ways.
C) there can be no possibility that the sample is not sufficiently representative of the
population.
D) the knowledge of sampling distributions does not help the auditors to draw statistical
conclusions.
The majority of financial instruments are valued using
A) cost.
B) fair value estimates.
C) lower of cost or market.
D) realizable value.
When dealing with audit risk,
A) auditors cannot accept any level of risk in performing the audit function.
B) most risks that auditors encounter are relatively easy to measure.
C) the audit risk model is only used for classes of transactions.
D) the audit risk model helps the auditor to decide how much and what types of
evidence to accumulate.
When CPAs do audits for specified elements, accounts, or items,
A) materiality is defined in terms of the overall financial statements.
B) materiality is defined in terms of the elements, accounts, or items being audited.
C) auditors do not need to extend their audit efforts to include other elements, accounts,
or items that are interrelated with those being audited.
D) the authority for auditing specified elements, accounts, or items is in the review and
compilation standards.
Which ratio do auditors find useful for assessing misstatements in sales, cost of goods
sold, accounts receivable, and inventory?
A) earnings per share
B) profit margin
C) gross profit percent
D) current ratio
A ________ is a list prepared when cash is received by someone who has no
responsibility for recording sales, accounts receivable, or cash, and who has no access
to the accounting records.
A) prelisting of cash receipts.
B) sales invoice.
C) packing ticket.
D) vendor invoice.
The correct title of the Yellow Book is
A) Government Auditing Standards.
B) Institute of Internal Auditors (IIA) Practice Standards.
C) Statement of Responsibilities of Internal Auditing.
D) Statement of Standards on Accounting and Review Services.
If the perpetual inventory master files show lower quantities of inventory than the
physical count, an explanation of the difference might be unrecorded
A) sales.
B) sales discounts.
C) purchases.
D) purchase discounts.
Analytical procedures performed during phase III of the audit
A) must be performed before the balance sheet date.
B) can be used as a means of planning and directing other audit tests to specific areas.
C) should be done after tests of details of balances.
D) are expensive and are therefore not frequently used by the auditor.
Effective internal controls are designed to help organizations achieve which of the
following objectives?
A) reliability of financial reporting
B) efficiency and effectiveness of operations
C) compliance with applicable laws and regulations
D) all of the above
The accounts payable department usually has responsibility for approving acquisitions
for payment by comparing the details on the
A) vendor’s invoice and the receiving report.
B) vendor’s invoice and the purchase requisition.
C) purchase order, receiving report, and vendor’s invoice.
D) purchase requisition, purchase order, and receiving report.
The term “explanatory paragraph” was replaced in the AICPA auditing standards with
A) going concern paragraph.
B) emphasis-of-matter paragraph.
C) departure from principles paragraph.
D) consistency paragraph.
Which of the following audit tests form the basis for an auditor’s report on internal
control over financial reporting?
A) analytical procedures
B) tests of transactions
C) tests of controls
D) tests of details of balances
The record of the issuance and repurchase of capital stock for the life of the corporation
is maintained in the
A) shareholders’ capital stock master file.
B) capital stock certificate record.
C) schedule of stock owners.
D) corporate directory.