1) Which of the following groups establishes and maintains the company’s internal
controls?
A) Internal auditors
B) Board of Directors
C) Management
D) Audit committee
2) Completeness and existence are the auditor’s primary objectives in auditing
manufacturing equipment.
A) True
B) False
3) The appropriate assumption to make regarding the overall percent of error in those
population items containing an error is:
A) determined using random number tables
B) set after a quantitative analysis of client’s internal control system
C) based on the auditor’s personal judgment in the circumstances
D) based on statistical analysis using confidence limits
4) A four paragraph auditor opinion is required when:
A)
B)
C)
D)
5) Audit reports issued for financial statements of a private company should refer to
generally accepted auditing standards in the scope paragraph.
A) True
B) False
6) The overall objective in the audit of the sales and collection cycle is to evaluate
whether the account balances affected by the cycle are fairly presented in accordance
with Accounting standards.
A) True
B) False
7) If the size of the sample to be used in a test of attributes is not determined by using
statistical concepts, but the sample is chosen in accordance with random selection
procedures:
A) no inferences can be drawn from the sample
B) the auditor has committed a nonsampling error
C) the auditor may or may not achieve the tolerable exception rate at the acceptable risk
of assessing control risk too low
D) the auditor will have to evaluate results using the principles of discovery sampling
8) Members of the Public Company Accounting Oversight Board are appointed and
overseen by:
A) the U.S. Congress
B) the American Institute of Certified Public Accountants
C) the Auditing Standards Board
D) the Securities and Exchange Commission
9) Most of the audit testing of the storage of finished goods as well as the shipment of
merchandise takes place during the testing of the:
A) sales and collection cycle
B) payroll and personnel cycle
C) acquisitions and payments cycle
D) inventory and warehousing cycle
10) The total of the individual employee earnings in the payroll master file should equal
the total:
A) balance of gross payroll in general ledger accounts
B) of the checks drawn to employees for payroll
C) gross payroll plus the total contributed by the employer for payroll taxes
D) gross pay for the current week’s payroll
11) Likely misstatements can result from:
A)
B)
C)
D)
12) For which of the following professional services must CPAs be independent?
A) Management advisory services
B) Audits of financial statements
C) Preparation of tax returns
D) All three of the above
13) Which department should be authorized to add and delete employees from the
payroll or change pay rates and deductions?
A) the supervising department
B) the accounting department
C) the human resources department
D) the treasurer’s department
14) Specific attestation standards have been developed in all but which of the following
areas?
A) pro forma financial information
B) compliance with laws and regulations
C) prospective financial statements
D) standards have been developed for all of the above
15) If a client intends to count inventory at an interim date, the auditor should expect
there to be all of the following except:
A) controls over the preparation and maintenance of perpetual inventory records
B) competent personnel assigned to count the inventory
C) third-party inventory counting specialists
D) an adequately designed plan to count the inventory
16) Which of the following best describes the systems of internal control for payroll for
large companies ?
A) loosely structured but well controlled
B) loosely structured and loosely controlled
C) highly structured and well controlled
D) highly structured but loosely controlled
17) Company management is often under pressure to increase revenue and/or net
income. One approach is to use a “bill and hold” arrangement. This is an example of
which of the following?
A) adjustments to revenue accounts
B) fictitious revenue recorded
C) premature revenue recognized
D) alteration of cutoff documents
18) The auditor’s tests of the adequacy of the physical controls over raw materials,
work-in-process, and finished goods are usually restricted to:
A) observation and inquiry
B) documentation and observation
C) documentation and confirmation
D) documentation and inquiry
19) Any company with stock listed on a securities exchange is required to engage a(n)
________.
A) equity analyst
B) stock transfer agent
C) independent registrar
D) equity placement specialist
20) Parallel testing is more expensive than pilot testing.
A) True
B) False
21) Analytical procedures can be used to provide reliable substantive evidence for all
balance-related audit objectives.
A) True
B) False
22) One way to control sampling risk is to increase sample size.
A) True
B) False
23) The presence of fraud risk factors increases the likelihood of fraud and may suggest
that fraud is being perpetrated.
A) True
B) False
24) Which of the following statements about Generally Accepted Audit Standards are
true?
I.They serve as broad guidelines to auditors for conducting an audit engagement.
II.They are sufficiently specific to provide any meaningful guide to practitioners.
III.They represent a framework upon which the
A) I and II
B) I and III
C) II and III
D) I, II and III
25) A major consideration in the audit of the general cash balance is the possibility of
fraud. The auditor must extend his or her procedures in the audit of year-end cash to
determine the possibility of a material fraud when there are:
A) large cash balances at the end of the year
B) large cash receipts and disbursements during the year
C) no imprest accounts used for payroll
D) inadequate internal controls
26) The accuracy of a dividend declaration can be audited by recalculating the amount
on the basis of the dividend per share times the number of shares outstanding.
A) True
B) False
27) An engagement letter establishes a clear understanding of the terms of the
engagement between the client and the auditor, but it is optional for private companies.
A) True
B) False
28) When an auditor decides there is higher inherent risk for an account, one potential
effect is that more audit evidence will be required for that account.
A) True
B) False
29) An accountant may accept an engagement to apply agreed-upon procedures to
prospective financial statements provided that:
A) distribution of the report is to be restricted to the specified users involved
B) the prospective financial statements are also examined
C) responsibility for the adequacy of the procedures performed is taken by the
accountant
D) negative assurance is expressed on the prospective financial statements taken as a
whole
30) The issuance of bonds by the client subsequent to year-end would require a footnote
disclosure in, but no adjustment to, the financial statements under audit.
A) True
B) False
31) A four paragraph auditor opinion is required when:
A)
B)
C)
D)
32) Even with the most effectively designed internal control, the auditor must obtain
audit evidence, beyond testing the controls, for every:
A) transaction
B) financial statement account
C) material financial statement account
D) financial statement account that will be relied upon by third parties
33) Auditing standards require a written audit program.
A) True
B) False
34) The Private Securities Litigation Reform Act of 1995 capped damage awards
against auditors to the amount of the audit fees charged.
A) True
B) False
35) All misstatements the auditor finds during the audit should be evaluated for any
indication of fraud.
A) True
B) False
36) When other auditors are involved in the audit and they qualify their portion of the
audit, the principle auditor must decide if the amount in question is material to the
financial statements as a whole.
A) True
B) False
37) An accountant has accepted an engagement in which the audit procedures of inquiry
and analytical procedures will be employed. These procedures will form the basis for
issuance of:
A) a compilation report
B) audit report on supplemental information issued by the client
C) management advisory report requested by the audit committee
D) review report on comparative financial statements for a non-public company
38) Membership in the
A) True
B) False
39) A four paragraph auditor opinion is required when:
A)
B)
C)
D)
40) What are the three required conditions for a contingent liability to exist?
41) What are the major functions of the
42) Discuss each of the three phases of an operational audit.
43) Discuss three audit procedures commonly used to search for contingent liabilities.
44) Control activities help assure that the necessary actions are taken to address risks to
the achievement of the company’s objectives. List the five types of control activities.
45) Discuss the key internal controls related to the disposal of property, plant, and
equipment.