When the year-end cash balance is immaterial, audit procedures on the cash account are
unnecessary.
Managers of organizations are hired by Boards of Directors to perform responsibilities
such as the implementation of internal control.
If a significant scope limitation is imposed by the client, a disclaimer should ordinarily
be issued.
A culture that encourages auditors to seek consultation with other members of the audit
firm will be more likely to result in auditors who will acquiesce to inappropriate or
aggressive client preferences.
There are no differences in audit report requirements across the standards of the AICPA,
PCAOB, and IAASB.
The client’s verbal evidence is more reliable than evidence from independent outside
sources.
A covered member under the AICPA’s rules includes individuals on the engagement
team, any individual in a position to influence the engagement team, and all
professional staff in the office of the engagement.
Audited financial statements should be free from all errors and fraud.
Performing a walkthrough provides an auditor an understanding of the nature of
processing in important accounting applications.
The revenue cycle involves the procedures in generating a sales order, shipping the
products, recording the transaction and collecting the receivable.
The highest-order rights include rights granted by the government, such as civil rights,
legal rights, rights to own property, and license privileges.
In an audit, management is considered the “client”.
Which of the following is an example of a physical control to safeguard assets?
A.Hiring only trustworthy cashiers.
B.Separation of duties.
C.Locks on the warehouse doors.
D.Safety audits on the production-line.
Dividing the population into relatively homogeneous groups in order to reduce sample
size is the definition of which of the following terms?
A.Ratio estimation.
B.Difference estimation.
C.Stratification.
D.MUS sampling.
Which of the following facts should be communicated by the auditor to the audit
committee?
A.The auditor’s responsibilities under GAAP.
B.All significant audit adjustments.
C.Significant accounting policies.
D.All are required communications.
Which of the following is not a form of ratio analysis?
A.Turnover of receivables.
B.Monthly sales analysis compared with past years.
C.Gross margin analysis.
D.Sales in last month to total sales.
Which of the following are two frequently used preliminary analytical procedures?
A.Reasonableness tests and economic analyses.
B.Trend analyses and reasonableness tests.
C.Ratio analyses and economic analyses.
D.Ratio analyses and trend analyses.
Which of the following is not part of the systematic process called auditing?
A.Communicating results of the audit to users.
B.Procuring and evaluating evidence.
C.Providing important managerial decisions for a client.
D.Comparing evidence regarding assertions to certain established criteria.
Which of the following phrases should not be used when the auditor is qualifying the
audit opinion?
A.Except for.
B.Subject to.
C.With the exception of.
D.With the qualification of.
The rule on confidentiality is intended to protect the client’s information. The rule,
however, does not apply in certain circumstances.
A. Explain the rule on confidentiality.
B. Identify the circumstances in which the rule of confidentiality does not apply.
For a compilation report, identify:
A. for what type of organization the report may be performed;
B. the procedures the auditor performs;
C. the type of assurance provided;
D. the requirements for auditor independence.
The auditor prepares a schedule for marketable securities. Which of the following is not
one of the items included related to the value of the securities?
A.Cost.
B.Year-end market value.
C.Carrying value for debt instruments.
D.Interest and dividends.
When an auditor chooses not to rely on a client’s internal controls because the control
design is ineffective, which of the following tests is eliminated?
A.Substantive testing.
B.Test of controls.
C.Test of details of balances.
D.Substantive analytical procedures.
Audit procedures should be proportional to which of the following?
A.Size of the client.
B.Size of the firm.
C.The assessed risks.
D.The assessed misstatements.
When an auditor is faced with a material departure from GAAP that is pervasive, which
of the following should the audit report contain?
A.An unqualified opinion.
B.A qualified opinion with an explanatory paragraph.
C.An adverse opinion.
D.A disclaimer of opinion.
The auditor selects a sample of asset disposals and examines the sales documentation
evidencing disposal of the equipment and recomputes gain or loss on the disposal. This
audit steps primarily tests which of the following assertions for the equipment account?
A.Existence.
B.Presentation and disclosure.
C.Rights.
D.Valuation.
Which of the following risk factors suggests a heightened level of risk of material
misstatement?
A.Having a stable product.
B.The departure of key personnel of a company.
C.Few immaterial related-party transactions.
D.Declining a merger with another company.
Where would the auditor make mention of issues noted during audit procedures that are
not of audit significance?
A.Engagement letter.
B.Management letter.
C.Representation letter.
D.Attorney letter.
The internal audit department at Monument Company receives electronic exceptions
reports for all sales transactions entered over $10,000 in total. This process is performed
for which purpose?
A.Drafting financial statements.
B.Monitoring revenue transactions.
C.Providing management reports to the controller.
D.Providing suggestions for operational improvement.
What should an audit team do when it discovers that fraud risk factors are present on an
audit engagement?
A.Retract from the client and inform regulatory bodies.
B.Modify procedures to actively search for the existence of fraud.
C.Reduce the amount of evidence required and resort to management inquiry.
D.Turn the audit over to forensic accountants.
Which of the following statements is false regarding forensic accounting?
A.Forensic accounting builds support for legal action against the person committing the
fraud by identifying the fraud, calculating the damages caused by the fraud, and
building both factual and testimonial evidence of the fraud.
B.Forensic accountants rely on sampling of fraud-related documents to accurately
measure the cost of the fraud.
C.One aspect of forensic accounting focuses on identifying the person who has
perpetrated the fraud and having that person confess to the fraud.
D.Interviewing is one of the most important forensic accounting skills.
Why is fraud detection an important part of the audit?
A.Auditors are required to seek out and find all fraud, regardless of its magnitude.
B.Auditors expect that management will make them aware of any fraud in the financial
statements.
C.Society expects that financial statements have not been materially misstated due to
fraud.
D.Society realizes that some fraud was not intended to be discovered by auditors.
Conclusions are typically documented by auditors in which type of work paper?
A.Audit planning memo.
B.Audit program.
C.Audit memoranda.
D.Representation letter.
Which of the following statements about the auditing standards issued by the AICPA is
true?
A.The auditing standards issued by the AICPA are no longer recognized by the
PCAOB.
B.The auditing standards issued by the AICPA are no longer recognized by the
profession because the AICPA voted itself out of existence.
C.The auditing standards issued by the AICPA continue to be issued by that
organization for audits of public companies.
D.The auditing standards issued by the AICPA were used by the PCAOB as a starting
point.
The tour of the manufacturing plant may best assist the auditor in determining which of
the following?
A.Whether all purchases are authorized.
B.Whether any machinery is inoperative in the production cycle.
C.Management’s strategy for assessing impairment.
D.Estimates of depreciation expense.
According to professional audit standards, how might an understanding of the nature of
fraud that may occur in the client organization be identified by an audit firm?
A.Fraud training courses from actual corporate fraud ex-criminals.
B.Conducting a brainstorming session with the members of the audit team.
C.Circulating a survey to the client company employees for completion.
D.Discussions with other audit firms.
The FASB has set a hierarchy of inputs to consider in assessing fair value. Which of the
following relates to Level 3?
A.Quoted prices for identical items in active, liquid, and visible markets.
B.Unobservable inputs to be used in illiquid situations.
C.Observable information for similar items in active or inactive markets.
D.Unobservable inputs to be used in situations where markets do not exist.
Which of the following is not a standard procedure that the auditor normally should
follow in the observation of inventory at year-end?
A.Observe the client taking inventory.
B.Make selected test counts and trace into client’s inventory compilation.
C.Look for slow-moving, obsolete or damaged inventory.
D.Review disclosure of inventory valuation.
E.All of the above are standard audit procedures in the observation of inventory.
What is the component of COSO’s internal control system that concerns the process of
identifying, capturing, and exchanging information in a timely fashion to enable
accomplishment of the organization’s objective called?
A.Control activities.
B.Information and communication.
C.Monitoring.
D.Control environment.
Which of the following is not a way an auditor obtains evidence regarding the
effectiveness of internal control over the accounting system?
A.Performing a walkthrough of the accounting system.
B.Making inquiries of banks and attorneys.
C.Reviewing system flowcharts.
D.Taking plant and operational tours.
What is the primary objective of the independent auditor’s report on financial
statements?
A.To report on all incidence of fraud.
B.To assist the board in evaluating management’s effectiveness.
C.To express the auditors opinion on the internal controls.
D.To give credibility to management’s prepared financial statements.
In attribute sampling, the risk of incorrect rejection deals with which of the following?
A.Effectiveness.
B.Efficiency.
C.Reliability.
D.Both A and B.
According to auditing standards, accounts receivable confirmations are required to be
used in which of the following situations?
A.On every audit engagement.
B.If the client agrees in writing to the procedure.
C.If the balance is material.
D.If environmental risk is low.
Which of the following is an example of fraud?
A.A mistake in processing accounting data.
B.An incorrect accounting estimate arising from misinterpretation of facts.
C.Misappropriation of an asset.
D.A mistake in the application of accounting principles.
Which of the following is clearly a test of controls?
A.Walk-through of the expense cycle from performance of the service to the reporting
in the balance sheet.
B.Examination of a sample of purchase order records for electronic, authenticated,
authorization.
C.Observing the controller’s use of company owned equipment.
D.Sending a letter to the client’s attorney to determine litigation that is pending between
plaintiff and the defendant.
In which one of the following instances would an auditor most likely issue a disclaimer
of opinion?
A.Management will not sign a management representation letter.
B.Management declines to provide a statement of cash flow.
C.The auditor is independent of the client.
D.The auditor is unable to confirm receivables but performs alternative procedures.