1) In order to promote audit efficiency the auditor considers cost in selecting audit tests
to perform. Which of the following audit tests would be the most costly?
A) Analytical Procedures
B) Risk Assessment Procedures
C) Tests of Controls
D) Tests of Details of Balances
2) Statements on Standards for Accounting and Review Services (SSARS) govern the
CPA’s association with unaudited financial statements of nonpublic (private)
companies, but not public companies.
A) True
B) False
3) During audit planning, the auditor uses analytical procedures primarily to:
A) identify weaknesses in internal control
B) determine if the company’s financial statements appear reasonable and are free of
material misstatement
C) determine the correspondence of the company’s financial statements to the valuation
and accuracy audit objectives
D) understand the client’s business and industry and to indicate possible misstatements
4) An auditor using nonstatistical sampling cannot formally measure sampling error.
A) True
B) False
5) Which of the following would not likely be classified as a related-party transaction?
A) an advance of one week’s salary to an employee
B) sales of merchandise between affiliated companies
C) loans or credit sales to the principal owner of the client company
D) exchanges of equipment between two companies owned by the same person
6) Which of the following audit tests would be regarded as a test of controls?
A) Comparison of the inventory pricing to vendors’ invoices
B) Tests of the signatures on canceled checks to board of directors’ authorizations
C) Tests of the additions to property, plant, and equipment by physical inspections
D) Review of the specific items making up the balance in a given general ledger
account
7) Initial audit planning involves four matters. Which of the following is not one of
these?
A) Develop an overall audit strategy
B) Request that bank balances be confirmed
C) Schedule engagement staff and audit specialists
D) Identify the client’s reason for the audit
8) Which of the following tests commonly occur together?
A) substantive tests of transactions and tests of controls
B) substantive tests of transactions and obtaining an understanding of internal controls
C) analytical procedures and tests of controls
D) tests of controls and tests of details of balances
9) Changing circumstances may require a change in the useful life of an asset. When
this occurs, it involves a change in:
A) accounting estimate rather than a change in accounting principle
B) accounting principle rather than a change in accounting estimate
C) both accounting principle and accounting estimate
D) neither accounting principle nor accounting estimate
10) Receipt of ordered materials by the receiving department will generate the
completion of a form called the:
A) bill of lading
B) receiving report
C) materials requisition
D) inventory acquisition summary
11) Engagement risk is effectively the audit firm’s business risk.
A) True
B) False
12) Which of the following groups has the responsibility for identifying and deciding
the appropriate accounting treatment for recording or disclosing contingent liabilities?
A) auditors
B) legal counsel
C) management
D) management and the auditors
13) Listing all bank transfers made a few days before and after the balance sheet date
and tracing each to the accounting records for proper recording is a useful approach to
test for:
A) kiting
B) lapping
C) income smoothing
D) channel stuffing
14) Which of the following assertions is described as “this assertion addresses whether
all transactions that should be included in the financial statements are in fact included”?
A) occurrence
B) completeness
C) rights and obligations
D) existence
15) Which of the following does not need to be considered when the auditor generalizes
from the sample to the population?
A)
B)
C)
D)
16) Which of the following should sign checks under conditions of effective internal
control?
A) Treasurer
B) Purchasing agent
C) Accounts payable clerk
D) Person preparing the checks
17) If the auditor decides to assess control risk at the moderate level in a private
company audit, when in previous years the auditor set control risk at the maximum
level, then tests of controls for the current year would be:
A) increased in number
B) reduced in number
C) not performed
D) unchanged from prior planned settings
18) Assessed control risk and results of substantive tests of transactions are normally
unimportant for designing tests of details of balances for which of the following
accounts?
A) Accounts receivable
B) Inventory
C) Accounts payable
D) Notes payable
19) In the context of an audit of financial statements, substantive tests are audit
procedures that:
A) may be eliminated under certain conditions
B) are designed to discover significant subsequent events
C) are designed to test for dollar misstatements
D) will increase proportionately with the auditor’s reliance on internal control
20) Smith Manufacturing Company’s accounts receivable clerk has a friend who is also
a Smith’s customer. The accounts receivable clerk has issued fictitious credit memos to
his friend for goods supposedly returned. The most effective procedure for preventing
this activity is to:
A) prenumber and account for all credit memorandums
B) require receiving reports that provide evidence of returned inventory items to
support all credit memorandums before they are approved
C) have independent sales and accounts receivable departments
D) mail monthly statements to customers
21) Communication addressed to the debtor requesting him or her to confirm whether
the balance as stated on the communication is correct or incorrect is a:
A) representation letter
B) negative confirmation
C) bank confirmation
D) positive confirmation
22) Tests of details of balances are specific audit procedures that are intended to:
A) test for monetary errors in the financial statements
B) prove that the accounts with material balances are classified correctly
C) prove that the trial balance is in balance
D) identify the details of the internal control system
23) Which type of subsequent event requires consideration by management and
evaluation by the auditor?
A)
B)
C)
D)
24) Auditors test the quantity of materials charged to work-in-process by tracing these
quantities to:
A) cost ledgers
B) perpetual inventory records
C) receiving reports
D) material requisitions
25) Tests of controls provide an indication of the likelihood of misstatements in both the
income statement and the balance sheet, simultaneously.
A) True
B) False
26) When an auditor relies upon a different CPA firm to perform part of the audit and
chooses to issue a shared opinion, the wording of the report should be modified in all
three paragraphs.
A) True
B) False
27) Discuss three important differences between the payroll and personnel cycle and
other cycles in a typical audit.
28) The internal control framework developed by COSO includes five so-called
“components” of internal control. Discuss each of these five components.
29) Describe each of the three broad objectives management typically has for internal
control. With which of these objectives is the auditor primarily concerned?
30) Briefly describe the advantages and disadvantages of a code of conduct based on
general statements of ideal conduct as opposed to specific rules that define
unacceptable behavior.
31) Why do auditors use the audit risk model when planning an audit?
32) List six accounts in the capital acquisition and repayment cycle commonly found on
balance sheets. What characteristics do these accounts have in common that distinguish
them from other accounts?
33) The primary accounting record for property, plant, and equipment accounts is the
fixed asset master file. What is included for each fixed asset in the master file?