An auditor would least likely use computer software to
A. access client data files.
B. prepare spreadsheets.
C. assess information systems control risk.
D. construct parallel simulations to test the client’s computing system.
How does monetary unit sampling (MUS) ensure that larger dollar components are
selected for examination?
A. MUS sampling requires the auditor to identify all items having a balance greater
than performance materiality prior to beginning the sample selection process.
B. MUS sampling requires the auditor to stratify the sample into larger and smaller
dollar components prior to beginning the sample selection process.
C. MUS sampling defines the sampling unit as an individual dollar within an account
balance or class of transactions.
D. MUS sampling selects components having larger balances in the prior audit.
To determine whether sales transactions have been recorded in the proper accounting
period, the auditor performs cutoff tests. Which of the following best describes the
overall approach used when performing cutoff tests?
A. Ascertain that management has included in the representation letter a statement that
transactions have been accounted for in the proper accounting period.
B. Analyze transactions occurring within a few days before and after year-end.
C. Confirm year-end transactions with regular customers.
D. Examine cash receipts in the subsequent period.
Which of the following factors should an external auditor obtain updated information
about then assessing an internal auditor’s competence?
A. The reporting status of the internal auditor within the organization.
B. The educational level and professional experiences of the internal auditor.
C. Whether policies prohibit the internal auditor from auditing areas where relatives are
employed.
D. Whether the board of directors, audit committee, or owner-manager oversees
employment decisions related to the internal auditor.
The most effective audit procedure for determining the collectability of an account
receivable is the
A. review of the subsequent cash collections.
B. examination of the related sales invoice(s).
C. confirmation of the account.
D. review of authorization of credit sales to the customer and the previous history of
collections.
A weakness in internal control over recording retirements of equipment may cause an
auditor to
A. inspect certain items of equipment in the plant and trace those items to the
accounting records.
B. review the subsidiary ledger to ascertain whether depreciation was taken on each
item of equipment during the year.
C. trace additions to the “other assets” account to search for equipment that is still on
hand but no longer being used.
D. select certain items of equipment from the accounting records and locate them in the
plant.
What is the term used to identify the risk that the client’s financial statements may be
materially false and misleading?
A. Business risk
B. Information risk
C. Client risk
D. Risk assessment
What is the appropriate name for an assurance service provided by a CPA regarding a
client’s commercial Internet site with reference to the principles of privacy, security,
processing integrity, availability, and confidentiality?
A. WebTrust
B. SysTrust
C. XBRL
D. WebSecure
Why is it the client’s decision to record adjustments to the financial statements?
A. Having auditors adjust the financial statements would impair independence with
respect to the client.
B. The financial statements are the responsibility of the client’s management.
C. Auditors often do not have sufficient client-specific expertise to record adjustments
to the financial statements.
D. The client will ultimately suffer any losses related to misstated financial statements.
If overhead is miscalculated so that it is underabsorbed, the result if the error is not
corrected will be that
A. inventory will be understated and net income will be overstated.
B. inventory and net income will be overstated.
C. inventory will be overstated and net income will be understated.
D. inventory and net income will be understated.
Before accepting an engagement to audit a new client, a CPA is required to obtain
A. an assessment of fraud risk factors likely to cause material misstatements.
B. an understanding of the prospective client’s industry and business.
C. the prospective client’s signature to a written engagement letter.
D. the prospective client’s consent to make inquiries of the predecessor, if any.
Which of the following components of the audit risk model is most closely associated
with variables sampling?
A. Audit risk
B. Risk of material misstatement
C. Detection risk
D. Analytical procedures risk
In the audit of cash the auditor obtains a bank cutoff statement primarily to
A. identify old outstanding checks that the client may exclude from the year-end bank
reconciliation in order to misappropriate cash.
B. obtain sufficient information to reconcile the client’s bank account as of year-end.
C. obtain direct confirmation of the client’s bank balances as of year-end.
D. test the propriety of items appearing on the client’s year-end bank reconciliation.
An auditor most likely would perform substantive procedures on payroll transactions
and balances when
A. cutoff tests indicate a substantial amount of accrued payroll expense.
B. the assessed level of control risk relative to payroll transactions is low.
C. analytical procedures indicate unusual fluctuations in recurring payroll entries.
D. accrued payroll expense consists primarily of unpaid commissions.
All of the following are advantages of statistical sampling except
A. statistical sampling eliminates the auditors’ exposure to nonsampling risk.
B. statistical sampling allows the probability of selecting sample items to be
determined.
C. statistical sampling allows the sample selection process to be replicated.
D. statistical sampling increases the likelihood of selecting a representative sample.
Which of the following would not be communicated to users in the auditors’ report on
an entity’s financial statements and related disclosures?
A. Whether the financial statements are presented in accordance with GAAP, or another
applicable financial reporting framework
B. Unusual aspects of the audit examination, such as the involvement of component
auditors in the audit of group financial statements
C. Specific details regarding the audit examination, such as the materiality threshold
used to identify material misstatements
D. Other matters affecting the client, such as substantial doubt about the entity’s ability
to continue as a going concern
Which of the following would not be an example of nonsampling risk in an attributes
sampling application?
A. Failure to perform the appropriate type of test of controls procedure
B. Failure to notice a deviation from prescribed control procedures
C. Incorrectly estimating the expected population deviation rate
D. Incorrectly accumulating the number of deviations
Which of the following computer controls would provide the best evidence that
unauthorized users are not accessing specific computer programs and files?
A. Using passwords requiring access to those programs and files
B. Periodically reviewing and confirming access rights for the organization’s users
C. Monitoring actual user activity through a program log and comparing that activity to
authorized levels
D. Ensuring that access to programs and files is removed for recently-terminated
employees
The GAO Government Auditing Standards requirements for written reports in financial
statement audits do not include
A. audit report on financial statements.
B. a report of any significant accomplishments and management improvements.
C. a report on the auditee’s internal control structure and the control risk assessment.
D. a report on the auditee’s compliance with applicable laws and regulations.
Which of the following reporting options is available if the client refuses to provide
auditors with written representations?
A. Unmodified or qualified opinion
B. Qualified or adverse opinion
C. Qualified opinion or disclaimer of opinion
D. Disclaimer of opinion or adverse opinion
A large retail enterprise has established a policy that requires the paymaster to deliver
all unclaimed payroll checks to the internal audit department at the end of each payroll
distribution day. This policy was most likely adopted to
A. ensure that employees who were absent on a payroll distribution day are not paid for
that day.
B. prevent the paymaster from cashing checks that are unclaimed for several weeks.
C. prevent a bona fide employee’s check from being claimed by another employee.
D. detect any fictitious employee who may have been placed on the payroll.
Which of the following has a direct relationship with sample size in a variables
sampling application?
A. Tolerable misstatement: Yes; Expected error: Yes
B. Tolerable misstatement: Yes; Expected error: No
C. Tolerable misstatement: No; Expected error: Yes
D. Tolerable misstatement: No; Expected error: No
When considering the competence of internal auditors, external auditors should obtain
evidence about the
A. educational and experience qualifications of the internal auditors.
B. organizational status of the internal auditors.
C. lines of communication within the entity of the internal auditors.
D. the size of the internal audit department.
Related party transactions
A. must be valued as if they were arm’s length.
B. must be assumed to be valued differently than if they were arm’s length.
C. must be disclosed in the financial statements.
D. must be disclosed in the financial statements and the auditor’s report.
An auditor selected an inventory item on the warehouse floor, test counted it, and traced
the count to the final inventory compilation. The auditor most likely was testing the
PCAOB assertion of
A. existence.
B. valuation.
C. completeness.
D. rights and obligations.
In determining the adequacy of the allowance for uncollectible accounts, the least
valuable evidence would be obtained from
A. an aging schedule of past due accounts that the auditor has tested.
B. correspondence with the client’s collection agency.
C. financial statements of individual customers.
D. no reply to negative confirmations.
To be recognized, revenues must also be realized or realizable and
A. foreseeable.
B. collected.
C. earned.
D. shipped.
Which of the following should be performed by the persons opening the mail and
recording payments?
A. Restrictive endorsement on all checks
B. Entering of payment information into customer accounts
C. The preparation of the deposit slip and the delivery of the checks to the bank
D. The segregation of all payments made on accounts listed as past due
Which of the following is the best defense auditors can assert in a suit for common law
fraud based on their unqualified opinion on materially misstated financial statements?
A. Contributory negligence on the part of the client
B. A disclaimer contained in the engagement letter
C. Lack of privity
D. Lack of scienter
While conducting an audit, Larson Associates, CPAs, failed to detect material
misstatements included in its client’s financial statements. Larson’s unqualified opinion
was included with the financial statements in a registration statement and prospectus for
a public offering of securities made by the client. Larson knew that its opinion and the
financial statements would be used for this purpose. Which of the following statements
is correct with regard to a suit against Larson and the client by a purchaser of the
securities under section 11 of the Securities Act of 1933?
A. The purchaser must prove that Larson failed to conduct the audit in accordance with
generally accepted auditing standards.
B. The purchaser must prove that Larson knew of the material misstatements.
C. Larson will not be liable if it had reasonable grounds to believe the financial
statements were accurate.
D. Larson will not be liable if the purchaser did not rely on the financial statements.
Production reports of finished units should be signed by the
__________________________________ and finished goods inventory custodian and
forwarded to _______________________________.
For each of the descriptions in Column A, match the correct word or words from
Colunm B
The five functional responsibilities of a payroll cycle are
____________________________, ____________________________,
____________________________, ____________________________, and
________________________________.
What are the four basic requirements for becoming a CPA?
A list of all purchases might exist only in a
____________________________________ file rather than a
_____________________________________.
For each of the communications listed below, indicate (1) the time period during which
the communication is typically obtained or provided and (2) whether the
communication is oral, written, or either oral or written. Use the following
abbreviations in providing your
A. Prior to the engagement
B. Prior to or at the date of the auditors’ report
C. Following the date of the auditors’ report
D. Either following the date of the auditors’ report or as significant matters are
identified
E. Oral
F. Written
G. Either oral or written
___ 1. Engagement letter
___ 2. Acceptance letter (signed copy of engagement letter)
___ 3. Attorney letter response
___ 4. Written representations
___ 5. Internal control deficiencies
___ 6. Communications with individuals charged with governance
___ 7. Management letter
____________________ auditing refers to the study of business operations for the
purpose of making recommendations about ____________________ and
____________________ use of resources.
What are the legal liabilities of auditors under common law?
The auditors of Mikel’s Shops obtained the following information when performing
cutoff testing procedures during their observation of Mikel’s physical inventory count at
December 31, 2009:
When comparing the cutoff information to the sales records, the auditors found that all
these shipments were recorded as 2011 sales. The goods shipped on bills of lading 1235
and 1236 were not counted in the inventory, but the goods on bill of lading 1237 and
1238 were included.
The confirmation of notes payable to banks may use the
_____________________________________ confirmation.
___________________________________ and
___________________________________ can cause “unmatched” invoices and
related “unmatched” receiving reports to be unnoticed.
For each of the following statements or phrases, Match the professional standard to
which it relates.
1. AU 250: A. “Consideration of Laws and Regulations” Investigate
large and unusual transactions, particularly those that occur at or
near year-end.
2. AU 260: B. “The Auditor’s Communication with Those Charged with
Governance” Make inquiries about management’s policies and
procedures for compliance with laws and regulations.
3. AU 540: C. “Auditing Accounting Estimates” Evaluate the net
realizable value of inventory.
4. AU 240: D. “Consideration of Fraud in a Financial Statement Audit”
Disagreements with management on significant accounting and
auditing matters.
Indicate, using the letters C (client), A (auditors), and AT (attorney) which party is
responsible for each of the following duties relating to letters of inquiry of attorneys.
Each statement is associated with only one party.
___ 1. Respond directly to auditors’ initial inquiries regarding litigation, claims, and
assessments.
___ 2. Initiate request for attorney letter.
___ 3. Respond to attorney letter.
___ 4. Provide initial description and evaluation of litigation, claims, and assessments.
___ 5. Request attorney letter.
___ 6. Perform various procedures relating to litigation, claims, and assessments.
___ 7. Identify whether client’s views expressed in the attorney letter are appropriate.
___ 8. Party the attorney informs if an unasserted claim must be disclosed.