ACC 717 Quiz 1

subject Type Homework Help
subject Pages 9
subject Words 2333
subject Authors Alvin A. Arens, Mark S. Beasley, Randal J. Elder

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1) Presentation and disclosure related audit objectives would be performed in which
phase of the audit process?
A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report
2) One key internal control to prevent fictitious transactions in the sales and collection
cycle is:
A) assign a specific customer number for each customer in the computer files
B) to account for the integrity of the numerical sequence of sales orders
C) to include the sales price list of all products in the computer files
D) having bank reconciliations prepared by one who is independent of the treasury
function
3) If the perpetual inventory master files show lower quantities of inventory than the
physical count, one explanation of the difference might be unrecorded sales.
A) True
B) False
4) Which auditor report would require only one paragraph?
A)
B)
C)
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D)
5) A common inventory observation procedure is to select a random sample of tag
numbers and identify the tag with that number attached to the actual inventory item.
The audit objective being achieved by this procedure is:
A) inventory as recorded on tags actually exists (existence)
B) existing inventory is counted and tagged (completeness)
C) inventory is counted accurately (accuracy)
D) inventory is classified correctly (classification)
6) The document that requires adjustments to the customers subsidiary ledger account is
the:
A) bill of lading
B) sales invoice
C) credit memo
D) monthly statement
7) A proof of cash involves a combination of substantive tests of transactions and tests
of details of balances.
A) True
B) False
8) Which of the following statements regarding the capital acquisition and repayment
cycle is most correct?
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A) Relatively few transactions affect the cycle, and most are smaller amounts
B) Large numbers of transactions affect the cycle, and most are smaller amounts
C) Relatively few transactions affect the cycle, and most are highly material
D) Large number of transaction affect the cycle, and most are highly material
9) One very useful method of auditing depreciation is to use an analytical procedure to
test for reasonableness.
A) True
B) False
10) The sample size is inversely related to the computed precision interval in difference
estimation; that is, as sample size increases, the computed precision interval decreases.
A) True
B) False
11) When CPAs are able to maintain their actual independence, it is referred to as
independence in:
A) conduct
B) appearance
C) fact
D) total
12) 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:
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Based on the schedule of interbank transfers above, which of the cash transfers would
appear as a deposit in transit on the December 31, 2007 bank reconciliation?
A) 1
B) 2
C) 3
D) 4
13) Which of the following audit procedures would be the most effective in testing for
nonexistent employees?
A) Trace transactions recorded in the payroll journal to the HR department to determine
employment status
B) Examine cancelled checks for proper endorsement
C) Recalculate net pay
D) Reconcile the disbursements in the payroll journal with the disbursements on the
payroll bank statements
14) Determine from the following the factor that would most likely elevate the auditor's
concern about the risk of financial statement fraud.
A) company cannot borrow debt capital without restrictive covenants
B) company finds it difficult to sell equity capital for expansion
C) company has a significant portion of liquid assets on its balance sheet
D) company reports substantial net income but ever decreasing cash flow from
operations
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15) Appropriateness of evidence is a measure of the:
A) quantity of evidence
B) quality of evidence
C) sufficiency of evidence
D) meaning of evidence
16) Four of the six Ethical Principles in the
A) Scope and Nature of Services
B) Integrity
C) Due Care
D) The Public Interest
17) When setting a preliminary judgment about materiality:
A) more evidence is required for a low dollar amount than for a high dollar amount
B) less evidence is required for a low dollar amount than for a high dollar amount
C) the same amount of evidence is required for either low or high dollar amounts
D) there is no relationship between it and the dollar amount of evidence needed
18) When a client will not permit inquiry of outside legal counsel, the audit report will
ordinarily contain a(n):
A) disclaimer of opinion
B) qualified opinion
C) standard unqualified opinion
D) unqualified opinion with a separate explanatory paragraph
19) The auditor should keep in mind that the amount in insurance expense is a residual
amount.
A) True
B) False
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20) The starting point for the verification of current-year acquisitions of property, plant,
and equipment is normally a client-prepared schedule of all acquisitions recorded in the
general ledger during the year.
A) True
B) False
21) Audit risk is the risk there will be an audit failure for a given audit engagement.
A) True
B) False
22) 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 method
D) cost of the fixed asset and useful lives.
23) Acceptable risk of assessing control risk too low is the risk that the auditor is
willing to take in accepting a control as effective when the true population exception
rate is greater than the estimated population exception rate.
A) True
B) False
24) Which of the following controls prevent and detect errors while transaction data are
processed?
A) Software
B) Application
C) Processing
D) Transaction
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25) The computer-generated file which records acquisitions, disbursements and
allowances for each vendor is the:
A) Accounts payable master file
B) Cash disbursements file
C) Acquisitions transaction file
D) Purchase approval file
26) The same three fraud triangle risk conditions apply to fraudulent financial reporting
and misappropriation of assets.
A) True
B) False
27) A combined report on financial statements and internal control over financial
reporting includes all but which of the following types of paragraphs?
A) Inherent limitations paragraph
B) Description paragraph
C) Opinion paragraph
D) Each of the above paragraphs is included
28) When a compensating control exists, the absence of a key control:
A) is no longer a concern because there is no longer a significant deficiency or material
weakness
B) is still a major concern to the auditor
C) could cause a material loss, so it must be tested using substantive procedures
D) is magnified and must be removed from the sampling process and examined in its
entirety
29) A CPA who is not independent and is associated with financial statements should
disclaim an opinion with respect to those financial statements. The disclaimer should:
A) clearly state the specific reasons for lack of independence
B) not mention any reason for the disclaimer other than that the CPA was unable to
conduct the examination in accordance with generally accepted auditing standards
C) not describe the reason for lack of independence but should state specifically that the
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CPA is not independent
D) include a middle paragraph clearly describing the CPA's association with the client
and explaining why the CPA was unable to gather sufficient competent evidential
matter to warrant the expression of an opinion
30) Any restrictions on the payment of dividends must be disclosed in the footnotes to
the financial statements.
A) True
B) False
31) Which of the following services provides the lowest level of assurance on a
financial statement?
A) A review
B) An audit
C) Neither service provides assurance on financial statements
D) Each service provides the same level of assurance on financial statements
32) Indicate which changes would require an explanatory paragraph in the audit report.
A)
B)
C)
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D)
33) In difference estimation sampling, the confidence limits are calculated by
combining the point estimate of the total misstatements and the computed precision
interval at the desired confidence level.
A) True
B) False
34) When selecting a sample size for substantive tests of balances which factor, other
factors being equal, would result in a larger sample?
A) smaller tolerable misstatement
B) small expected misstatements
C) greater tolerable misstatement
D) greater expected misstatement
35) The transaction-related audit objective of timing is related to the assertion of cutoff.
A) True
B) False
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36) Which of the following is not a standard contained in both the Attestation Standards
and Generally Accepted Auditing Standards with regards to the standards of field work?
A) The examination is to be performed by a person having adequate technical training
B) An independence in mental attitude is to be maintained
C) Sufficient evidence is to be obtained
D) The practitioner must obtain a sufficient understanding of the client's internal control
37) The three most important balance-related audit objectives for notes payable are
existence, realizable value, and accuracy.
A) True
B) False
38) Which of the following services is performed under the attestation standards?
A)
B)
C)
D)
39) Discuss three major factors that have contributed to the recent increase in the
number of lawsuits against auditors and the size of awards to plaintiffs.
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40) Discuss several reasons why an auditor may not wish to continue a relationship
with an existing audit client.
41) Explain what is meant by information risk, and list the four causes of this risk.
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42) Discuss the four business functions that result in sales transactions in a typical sales
and collection cycle and, for each function, state the key documents and records
involved.
43) There are 14 steps to audit sampling for details of balances, divided into three
sections: plan the sample, select the sample and perform the audit procedures, and
evaluate the results. Discuss each of the steps included in the "evaluate the results"
section for nonstatistical sampling.

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