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1) Compilation reports may be of all but which of the following types?
A) compilation with limited independence
B) compilation with full disclosure
C) compilation without independence
D) compilation that omits substantially all disclosures
2) Limited liability companies are structured and taxed like a general partnership, but
their owners have limited personal liability similar to that of a general corporation.
A) True
B) False
3) Statements on Standards for Accounting and Review Services are issued by the:
A) Accounting and Review Services Committee
B) Professional Ethics Executive Committee
C) Securities and Exchange Commission
D) Financial Accounting Standards Board
4) Negative confirmations are less expensive, and less reliable, than positive
confirmations.
A) True
B) False
5) A member in public practice may perform for a contingent fee any professional
services for a client for whom the member or member's firm performs:
A) an audit
B) consulting services
C) preparation of an original tax return
D) preparation of an amended tax return
6) It is common to use a combination of positive and negative confirmations by sending
the latter to accounts with large balances and the former to those with small balances.
A) True
B) False
7) If the results of the tests of controls, substantive tests of transactions, and analytical
procedures are not consistent with the predictions, tests of details of balances will be:
A) eliminated
B) increased
C) unaffected
D) changed
8) An auditor who issues a qualified opinion because sufficient appropriate evidence
was not obtained should describe the limitations in an explanatory paragraph. The
auditor should also modify the:
A)
B)
C)
D)
9) An audit partner is developing an office-training program to familiarize his
professional staff with statistical decision models applicable to the audit of dollar-value
balances. He wishes to demonstrate the relationship of sample sizes to population size
and variability and the auditor's specifications as to precision and confidence level. The
partner prepared the following table to show comparative population characteristics and
audit specifications of two populations.
Based on the information presented above, you are to indicate for the specified case
from the table the required sample size to be selected from population 1 relative to the
sample from population 2 . In case 2, the required sample from population 1 is:
A) larger than the required sample size from population 2
B) equal to the required sample size from population 2
C) smaller than the required sample size from population 2
D) indeterminate relative to the required sample size from population 2
10) The auditor is determining that the recorded sales are for the amount of goods
shipped are correctly billed and recorded. She is gathering evidence about which
transaction related audit objective?
A) existence
B) completeness
C) accuracy
D) cut-off
11) When comparing the auditor's responsibility for detecting employee fraud and for
detecting errors, the profession has placed the responsibility:
A) more on discovering errors than employee fraud
B) more on discovering employee fraud than errors
C) equally on discovering either one
D) on the senior auditor for detecting errors and on the manager for detecting employee
fraud
12) One objective of an operational audit is to:
A) determine whether the financial statements fairly present the entity's operations
B) evaluate the feasibility of attaining the entity's operational objectives
C) make recommendations for improving performance
D) report on the entity's relative success in attaining profit maximization
13) Audit tests of the petty cash fund are typically performed on the balance sheet date.
A) True
B) False
14) In a CPA firm operating as a limited liability partnership (LLP), the liability for one
partner's actions does not extend to another partner's personal assets.
A) True
B) False
15) Results of compliance audits are typically reported to someone within the
organizational unit being audited rather than to a broad spectrum of outside users.
A) True
B) False
16) An accountant who reviews the financial statements of a nonpublic entity should
issue a report stating that a review:
A) is substantially equivalent in scope to an audit
B) is substantially more in scope than a compilation
C) is substantially less in scope than an audit
D) provides only limited assurance that the financial statements are fairly presented
17) Internal controls over the processing of purchase orders function, the receipt of raw
materials function, and the storage of raw materials function in the inventory and
warehousing cycle are normally tested by the auditor as a part of performing tests of
controls and substantive tests of transactions in the acquisition and payment cycle and
the payroll and personnel cycle.
A) True
B) False
18) When auditing the capital acquisition and repayment cycle, it is common to verify
each transaction taking place in the cycle for the entire year as a part of verifying the
balance sheet accounts.
A) True
B) False
19) An auditor is likely to use four types of procedures to support the operating
effectiveness of internal controls. Which of the following would generally NOT be
used?
A) make inquiries of appropriate client personnel
B) examine documents, records, and reports
C) reperform client procedures
D) inspect design documents
20) The audit procedure "Foot the notes payable list and trace the totals to the general
ledger" is performed when verifying the accuracy objective for notes payable.
A) True
B) False
21) The concept of reasonable assurance indicates that the auditor is:
A) not a guarantor of the correctness of the financial statements
B) not responsible for the fairness of the financial statements
C) responsible only for issuing an opinion on the financial statements
D) responsible for finding all misstatements
22) The test of details of balances procedure which requires a "recalculation of
investment credit" satisfies the audit objective of:
A) classification
B) detail tie-in
C) existence
D) accuracy
23) Verification of the legitimacy of year-end unpaid bonuses to officers and employees
can be accomplished by comparing the recorded accrual to the amount:
A) in the expense account
B) used in the prior period
C) authorized in the minutes of the board
D) paid in the subsequent period
24) Substantive tests of details of balances are the most costly type of audit test to
perform.
A) True
B) False
25) Non-CPA members of a firm with
A) True
B) False
26) A CPA firm can issue a compilation report even if it is not independent with respect
to the client.
A) True
B) False
27) Which of the following statements is not true?
A) Inherent risk is inversely related to the amount of audit evidence whereas detection
risk is directly related to the amount of audit evidence required
B) Inherent risk is directly related to evidence whereas detection risk is inversely
related to the amount of audit evidence required
C) Inherent risk is the susceptibility of the financial statements to material error,
assuming no internal controls
D) Inherent risk and control risk are assessed by the auditor and function independently
of the financial statement audit
28) Which of the following statements is not true?
A) Analytical procedures emphasize the overall reasonableness of transactions and
balances
B) Tests of controls are concerned with evaluating whether controls are sufficiently
effective to justify reducing control risk and thereby reducing analytical review
procedures
C) Substantive tests of transactions emphasize the verification of transactions recorded
in the journals and then posted in the general ledger
D) Tests of details of balances emphasize the ending balances in the general ledger
