When the entity fails to include information that is necessary for the fair presentation of
financial statements in the body of the statements or in the related footnotes, it is the
responsibility of the auditor to present the information, if practicable, in the auditor’s
report and express a(n)
A. qualified opinion or a disclaimer of opinion.
B. qualified opinion or an adverse opinion.
C. adverse opinion or a disclaimer of opinion.
D. qualified opinion or an unqualified opinion.
Which of the following statements is correct concerning statistical sampling in tests of
controls?
A. As the population size increases, the sample size should increase proportionately.
B. Deviations from specific internal control procedures at a given rate ordinarily result
in misstatements at a lower rate.
C. There is an inverse relationship between the expected population deviation rate and
the sample size.
D. In determining tolerable deviation rate, an auditor considers detection risk and the
sample size.
A CPA firm’s personnel partner periodically studies the CPA firm’s personnel
advancement experience to ascertain whether the individuals who were assigned
increased degrees of responsibility met predetermined criteria. This is evidence of the
CPA firm’s adherence to prescribed standards of
A. quality control.
B. due professional care.
C. supervision and review.
D. fieldwork.
Which of the following is not an important consideration in an auditor’s evaluation of
an entity’s business risk?
A. The specific business risks an entity faces that may result in financial statement
errors and fraud.
B. Business risk factors that impact the ability of the entity to be profitable and survive.
C. Audit standards include many entity business risk factors that identify circumstances
that increase the likelihood of material misstatements.
D. Audit standards require the auditor to evaluate the entity’s business risk in order to
provide suggestions to improve the entity’s profitability.
The auditor generally gives most emphasis to ratio and trend analysis in the
examination of the
A. Statement of Changes in Stockholders’ Equity and Retained Earnings.
B. Income Statement.
C. Balance Sheet.
D. Statement of Cash Flows.
Which of the following statements concerning audit evidence is correct?
A. Appropriate evidence supporting management’s assertions should be convincing
rather than persuasive.
B. Effective internal controls contribute little to the reliability of the evidence created
within the entity.
C. The cost of obtaining evidence is not an important consideration to an auditor in
deciding what evidence should be obtained.
D. A company’s accounting data cannot be considered sufficient audit evidence to
support the financial statements.
Auditors who prefer statistical to nonstatistical sampling believe that the principal
advantage of statistical sampling flows from its unique ability to
A. define the precision required to provide audit satisfaction.
B. mathematically measure uncertainty.
C. establish conclusive audit evidence with decreased audit effort.
D. promote a more legally defensible procedural approach.
All audit documentation should have a heading, which includes
A. Name of the company under audit.
B. Title of the working paper.
C. Company’s year-end date.
D. All of these.
Forensic audits include all of the following except
A. Criminal investigations.
B. Manufacturers’ assertions about product quality.
C. Employee fraud.
D. Management fraud.
In confirming with an outside agent, such as a financial institution, that the agent is
holding investment securities in the entity’s name, an auditor most likely gathers
evidence in support of management’s financial statement assertions regarding
A. existence.
B. rights and obligations.
C. completeness.
D. existence, rights and obligations, and completeness.
The assurance factor for nonstatistical sampling is based on
A. the number of items in the account.
B. auditor judgment.
C. the risk of misstatement in the account and the level of desired assurance.
D. variability in the population and the risk of misstatement in the account.
All corporate capital stock transactions should ultimately be traced to the
A. minutes of the board of directors.
B. cash receipts journal.
C. cash disbursements journal.
D. numbered stock certificates.
An auditor selected items for test counts while observing an entity’s physical inventory.
The auditor then traced the test counts to the entity’s inventory listing. This procedure
most likely provided evidence concerning management’s assertion of
A. rights and obligations.
B. completeness.
C. existence.
D. valuation.
Which of the following would be an improper technique when using monetary-unit
statistical sampling in an audit of accounts receivable?
A. Combining negative and positive dollar misstatements in the appraisal of a sample.
B. Using a sampling technique in which the same account balance could be selected
more than once.
C. Selecting a random starting point and then sampling every nth dollar.
D. Defining the sampling unit in the population as an individual dollar and not as an
individual account balance.
Which of the following risks is related to effectiveness of testing?
A. The risk of incorrect rejection.
B. Inherent risk.
C. The risk of incorrect acceptance.
D. None of these.
Which of the following is the best way for an auditor to determine that every name on a
company’s payroll is that of a bona fide employee presently on the job?
A. Examine personnel records for accuracy and completeness.
B. Examine employees’ names listed on payroll accounting records.
C. Make a surprise observation of the company’s regular distribution of paychecks.
D. Visit the working areas and confirm with employees their badge or identification
numbers.
An independent auditor might consider the procedures performed by the internal audit
function because
A. They are employees whose work must be reviewed during substantive testing.
B. They are employees whose work might be relied upon.
C. Their work impacts the cost/benefit tradeoff in evaluating inherent limitations.
D. Their degree of independence may be inferred by the nature of their work.
To provide assurance that each voucher is submitted and paid only once, an auditor
most likely would examine a sample of paid vouchers and determine whether each
voucher is
A. supported by a vendor’s invoice.
B. stamped “paid” by the check signer.
C. prenumbered and accounted for.
D. approved for authorized purchases.
The auditor is least likely to use generalized audit software to
A. Perform analytical procedures on the entity’s data.
B. Access information stored on the entity’s IT files.
C. Identify material weaknesses in the entity’s IT controls.
D. Test the accuracy of the entity’s computations.
Several years ago, Conway, Inc., secured a conventional real estate mortgage loan.
Which of the following audit procedures would least likely be performed by an auditor
examining the mortgage balance?
A. Examine the current year’s canceled checks.
B. Review the mortgage amortization schedule.
C. Inspect public records of lien balances.
D. Recompute mortgage interest expense.
Of the following, which is the most efficient audit procedure for verification of interest
earned on bond investments?
A. Tracing interest declarations to an independent record book.
B. Recomputing interest earned using the interest rate and bond amount.
C. Confirming the interest rate with the issuer of the bonds.
D. Vouching the receipt and deposit of interest checks.
Which statement concerning audit evidence is not valid?
A. The auditor is seldom convinced beyond all doubt with respect to all aspects of the
financial statements being audited.
B. The auditor performs tests to collect convincing evidence that the financial
statements are not misstated.
C. The auditor weighs the cost of obtaining evidence with its usefulness.
D. The auditor considers the amount of risk present in deciding the nature and extent of
evidence to be collected.
A CPA’s report on agreed-upon procedures related to management’s assertion about an
entity’s compliance with specified requirements should contain
A. a statement of limitations on the use of the report.
B. an opinion about whether management’s assertion is fairly stated.
C. negative assurance that control risk has not been assessed.
D. an acknowledgement of responsibility for the sufficiency of the procedures.
Auditors sometimes use ratios as audit evidence. For example, an unexplained increase
in the ratio of gross profit to sales may suggest which of the following possibilities?
A. Fictitious purchases.
B. Fictitious sales.
C. Selling and general expenses erroneously being recorded as merchandise purchases.
D. Unrecorded sales.
An auditor compares revenues and expenses reported for the year being audited (current
year) with those of the prior year and investigates all changes exceeding 10%. By this
procedure, the auditor would be most likely to learn that
A. an increase in property tax rates has not been recognized in the entity’s accrual.
B. the current year provision for uncollectible accounts is inadequate, because of
worsening economic conditions.
C. fourth quarter payroll taxes were not paid.
D. the entity changed its capitalization policy for small tools in the current year.
Tracing a sample of remittance advices to entries in the cash receipts journal tests which
of the following assertions for cash?
A. Occurrence.
B. Completeness.
C. Authorization.
D. Cutoff.
Which of the following is NOT a requirement of the Sarbanes-Oxley Act?
A. Audit firms cannot provide most types of nonaudit services to their public company
auditees.
B. Audit firms are required to rotate audit partners off audit engagements every five
years for public company audits.
C. Firms that audit public companies are subject to inspection by the PCAOB.
D. A certain number of hours, which is based on the size of the company being audited,
must be spent on each audit engagement.
In determining estimates of fees, an auditor may take into account each of the
following, except the:
A. Value of the service to the client.
B. Degree of responsibility assumed by undertaking the engagement.
C. Skills required to perform the service.
D. Attainment of specific findings.
Of the following statements about an internal control system, which one is correct?
A. The maintenance of the system of internal control is an important responsibility of
the internal audit function.
B. Administrative controls relate directly to the safeguarding of assets.
C. Because of the cost/benefit relationship, tests of controls may be applied on a test
basis in some circumstances.
D. Well designed internal control activities always prevent collusion among employees.
Quincy bought Teal Corp. common stock in an offering registered under the Securities
Act of 1933. Worth & Co., CPAs, gave an unqualified opinion on Teal’s financial
statements that were included in the registration statement filed with the SEC. Quincy
sued Worth under the provisions of the 1933 Act that deal with omission of facts
required to be in the registration statement. Quincy must prove that
A. there was fraudulent activity by Worth.
B. there was a material misstatement in the financial statements.
C. quincy relied on Worth’s opinion.
D. quincy was in privity with Worth.
An IT specialist is least likely to be necessary when
A. Data are shared extensively among systems.
B. The entity participates heavily in electronic commerce.
C. The system has not changed from the prior year.
D. Significant audit evidence is in electronic form.
Which of the following statements best describes the guidance developed by the AICPA
related to WebTrust services?
A. The Trust Services principles require the CPA to focus exclusively on the financial
information presented on a website.
B. Once earned, the WebTrust seal can remain on a website until the entity controlling
the site informs the CPA that the information on the site has changed.
C. In performing a WebTrust assurance engagement, a CPA does not have to consider
auditing or attestation standards.
D. The Trust Services principles provide a broad set of criteria that guide practitioners
in testing and evaluating websites.
For the most effective internal control, monthly bank statements should be received
directly from the banks and reviewed by the
A. controller.
B. cash receipts accountant.
C. cash disbursement accountant.
D. internal auditor.
IIA Standards include
A. practice advisories.
B. code of Ethics.
C. interpretations.
D. both practice advisories and the Code of Ethics.