The computer file used for recording payroll transactions for each employee and
maintaining total wages paid for the year to date is the
A) payroll transaction file.
B) payroll master file.
C) payroll bank account reconciliation.
D) payroll tax returns.
The auditor generally decides whether the inventory count can be taken before year-end
primarily on the basis of
A) audit efficiency.
B) accuracy of the perpetual inventory master files.
C) client convenience.
D) audit staff availability.
A restriction on the scope of the auditor’s examination requires
A) a qualifying paragraph to be included in the introduction.
B) a qualifying paragraph preceding the opinion paragraph.
C) a disclaimer opinion.
D) a basis for a qualified opinion paragraph.
Which of the following is an accurate statement regarding nonexistent employees?
A) In order to prevent this type of fraud, the foreman should distribute the paychecks
and approve the time cards.
B) Records for all terminated employees should be destroyed to prevent this type of
fraud.
C) The person committing this type of fraud is generally the CEO or CFO of the
company.
D) This type of fraud often results from the continuance of an employee on the payroll
after the employee has been terminated.
The most reliable evidence from confirmations is obtained when they are sent
A) as close to the balance sheet date as possible.
B) at various times throughout the year to different segments of the sample, so that the
entire sample is representative of account balances scattered throughout the year.
C) several months before the year-end, so the auditor will have adequate time to
perform alternate procedures if they are required.
D) at various times throughout the year to the same group in the sample, so that the
sample will not have a time bias.
Which of the following best expresses the understanding of the terms of the
engagement that exist between the client and the CPA firm?
A) Management asserts there are no errors, material or immaterial, in the general
ledger.
B) Auditors assert that the primary audit goal is audit efficiency.
C) Auditors assert that their primary responsibility is to plan and perform the audit in
order to provide reasonable assurance as to the detection of material misstatement due
to error or fraud.
D) Management asserts that they will provide the auditor with a risk assessment as to
material misstatements due to errors or fraud in the company’s financial statements.
Which of the following is incorrect concerning scope limitations?
A) If client imposed, the auditor should be concerned about the client trying to prevent
discovery of a material misstatement.
B) An unqualified opinion can result if auditors can perform alternative procedures and
are satisfied that the information is fairly stated.
C) The most common circumstance imposed scope restriction is due to the client
changing their auditors.
D) The most common circumstance imposed scope limitation is when the auditor is
appointed after the balance sheet date.
Improperly classifying a fixed asset by recording the amount in the repairs and
maintenance expense account will have an effect on which of the following financial
statements until the asset would normally have been depreciated?
A) the balance sheet
B) the income statement
C) the cash flow statement
D) both the income statement and the balance sheet
The standard bank confirmation form has been agreed upon by the
A) SEC and FASB.
B) AICPA and the SEC.
C) SEC and the American Bankers’ Association.
D) AICPA and the American Bankers’ Association.
Auditors may be liable to their clients if they are found guilty of
A)
B)
C)
D)
Which of the following may represent the biggest challenge smaller public companies
and nonpublic companies face in implementing effective internal control?
A) a lack of competent, trustworthy personnel
B) no clear lines of authority
C) no adequate separation of duties
D) a lack of adequate documents and records
While the Foreign Corrupt Practices Act of 1977 remains in effect, its internal control
provisions have been largely superseded by which of the following?
A) Sarbanes-Oxley Act of 2002
B) Racketeer Influenced and Corrupt Organization Act
C) Federal False Statements Statute
D) Federal Mail Fraud Statute
The auditing standards of the Yellow Book are consistent with the ten generally
accepted auditing standards of the AICPA. There are, however, important
additions/modifications in the Yellow Book. For example, the Yellow Book recognizes
that materiality and risk are lower due to the nature of the government enterprise.
Discuss the other additions/modifications.
The use of unobservable inputs such as a pricing model or discounted cash flow is an
example of a level ________ estimate.
A) 1
B) 2
C) 3
D) 1 and 3
The standard audit report for nonpublic entities refers to GAAS and GAAP in which
sections?
A)
B)
C)
D)
Which of the following explanations might satisfy an auditor who discovers significant
debits to an accumulated depreciation account?
A) Extraordinary repairs have lengthened the life of an asset.
B) Prior years’ depreciation charges were erroneously understated.
C) A reserve for possible loss on retirement has been recorded.
D) An asset has been recorded at its fair value.
The auditor is testing for unrecorded retirements/disposals of equipment. Which of the
following audit procedures would the auditor most likely use?
A) Select items from the fixed asset master file and then physically locate them.
B) Examine the repairs and maintenance amount for large debits.
C) Compare current year’s depreciation expense with the previous year’s depreciation
expense.
D) Trace acquisition documents to the fixed asset master file.
Which of the following is most reliable for verifying the correct balance of accounts
payable?
A) vendors’ invoices
B) vendors’ statements
C) confirmations
D) bills of lading
When do most companies record sales returns and allowances?
A) during the month in which the sale occurs
B) during the accounting period in which the return occurs
C) whenever the customer contacts the company regarding the credit
D) during the month after the sale occurs
You are reviewing sales to discover cutoff problems. If the client’s policy is to record
sales when title to the merchandise passes to the buyer, then the books and records
would contain errors if the December 31 entries were for sales recorded
A) before the merchandise was shipped.
B) at the time the merchandise was shipped.
C) several days subsequent to shipment.
D) at a time after the point at which title passed.
A CPA who has been engaged to audit financial statements that were prepared on a cash
basis
A) must ascertain that there is proper disclosure of the fact that the cash basis has been
used.
B) may not be associated with such statements which are not in accordance with
generally accepted accounting principles.
C) must render a qualified report explaining the departure from generally accepted
accounting principles in the opinion paragraph.
D) must restate the financial statements on an accrual basis and then render the standard
(short-form) report.
When should auditors not perform alternative procedures in testing the accounts
receivable balance?
A) when customers do not return positive confirmation requests
B) when customers do not return negative confirmation requests
C) when confirmations are deemed to be ineffective as an audit procedure
D) when confirmations are too costly to use
Which of the following is ordinarily designed to detect material dollar errors on the
financial statements?
A) tests of controls
B) analytical review procedures
C) computer controls
D) tests of details of balances
A weak internal control system allows a department supervisor to “clock in” for a
fictitious employee and then approve the employee’s time card at the end of the pay
period. This fraud would be detected if other controls were in place, such as having an
independent party
A) distribute paychecks.
B) recompute hours worked from time cards.
C) foot the payroll journal and trace postings to the general ledger and the payroll
master file.
D) compare the date of the recorded check in the payroll journal with the date on the
canceled checks and time cards.
When the client fails to include information that is necessary for the fair presentation of
financial statements in the body of the statements or in the footnotes,
A) it is the auditor’s responsibility to present the information in the audit report.
B) the auditor should issue a qualified or an adverse opinion.
C) the qualification is put in an added paragraph preceding the opinion.
D) all of the above
When the auditor compares the cancelled check or direct deposit with the payroll
journal for amount, they are concerned with the transaction-related audit objective of
A) occurrence.
B) accuracy.
C) classification.
D) timing.
Analytical procedures
A) are only done during the planning of the audit and when performing detailed tests.
B) performed during the detailed testing phase are done before tests of details of
balances.
C) performed during the detailed testing phase are done before the balance sheet date.
D) are performed only on accounts receivable, not on the entire sales and collection
cycle.
Which of the following is not explicitly stated in the standard unmodified opinion audit
report?
A) The financial statements are the responsibility of management.
B) The audit was conducted in accordance with generally accepted accounting
principles.
C) The auditors believe that the audit evidence provides a reasonable basis for their
opinion.
D) An audit includes assessing the accounting estimates used.
In the fraud triangle, fraudulent financial reporting and misappropriation of assets
A) share little in common.
B) share most of the same risk factors.
C) share the same three conditions of the fraud triangle.
D) share most of the same conditions. of the fraud triangle.
Which of the following is true regarding the auditor’s opinion on the effectiveness of
internal control?
A) The auditor is attesting to the effectiveness of internal controls as of the end of the
fiscal year.
B) If the client remedies a material weakness before the end of the fiscal year, the
auditor must still issue a qualified opinion or a disclaimer of opinion.
C) A scope limitation requires the auditor to issues an adverse opinion.
D) Section 404 requires that the auditor design the audit to detect all deficiencies in
internal control.
The laws that have been developed through court decisions are called
A) common laws.
B) criminal laws.
C) statutory laws.
D) civil laws.
Which type of subsequent event requires consideration by management and evaluation
by the auditor?
A)
B)
C)
D)
Auditing standards require the auditor to ________ other information included in
annual reports pertaining directly to the financial statements.
A) audit
B) express an opinion on
C) read
D) analyze
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