At which point in an ordinary sales transaction of a wholesaling business would a lack
of specific authorization be of least concern to the auditor?
A. Granting of credit.
B. Shipment of goods.
C. Determination of discounts.
D. Selling of goods for cash.
If a public company issues financial statements that purport to present its financial
position and results of operations but omits the statement of cash flows, the auditor
ordinarily will express a(an)
A. disclaimer of opinion.
B. qualified opinion.
C. review report.
D. unqualified opinion with a separate explanatory paragraph.
Determining that proper amounts of depreciation are expensed provides assurance
about management’s assertions of presentation and disclosure and
A. valuation and allocation.
B. completeness.
C. rights and obligations.
D. existence.
If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least
likely to
A. increase sample size.
B. conduct other substantive procedures.
C. adjust the account balance.
D. increase the risk of incorrect rejection.
Match each of the following intangible assets with its proper general category.
1)Trademark
2)Franchise
3)Copyright
4)Patented IT program
5)Order backlogs
6)Excess of purchase price over identifiable assets
a)Customer
b)Marketing
c)Contract
d)Technology
e)Artistic
f)Goodwill
The auditor tests 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.
When an accountant compiles a nonpublic entity’s financial statements that omit
substantially all disclosures required by generally accepted accounting principles, the
accountant should indicate in the compilation report that the financial statements are
A. restricted for internal use only by the entity’s management.
B. not to be given to financial institutions for the purpose of obtaining credit.
C. compiled in conformity with a comprehensive basis of accounting other than
generally accepted accounting principles.
D. not designed for those who are uninformed about the omitted disclosures.
Due to a weakness observed in internal control over recording retirements of
equipment, the auditor may decide to
A. inspect certain items of equipment in the plant and trace those items to the
accounting records.
B. review the subsidiary ledger to ascertain whether depreciation was taken on each
item of equipment during the year.
C. trace additions to the “other assets” account to search for equipment that is still on
hand but no longer is being used.
D. select certain items of equipment from the accounting records and locate them in the
plant.
Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and
has established a tolerable deviation rate of 5%. In the review of client invoices, Jones
should use
A. discovery sampling.
B. attributes sampling.
C. stratified sampling.
D. variables sampling.
A substantive strategy differs from a reliance strategy in that a substantive strategy
includes
A. Increased implementation of detailed tests of transactions and balances.
B. Extra tests of controls.
C. Increased emphasis on verbal representations from management.
D. Setting control risk at a minimum level.
Before accepting an engagement to audit a new client, a CPA is required to obtain
A. An understanding of the prospective client’s industry and business.
B. The prospective client’s signature on the engagement letter.
C. A preliminary understanding of the prospective client’s control environment.
D. The prospective client’s consent to make inquiries of the predecessor auditor.
A successor auditor should request the new client to authorize the predecessor auditor to
allow a review of the predecessor’s
A. Engagement letter.
B. Audit working papers.
C. Engagement letter and audit working papers.
D. It would not be typical to allow a review of either the engagement letter or the audit
working papers.
Which one of the following would the auditor consider to be an incompatible operation
if the cashier receives remittances from the mailroom?
A. The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
B. The cashier makes the daily deposit at a local bank.
C. The cashier prepares the daily deposit.
D. The cashier endorses the checks.
Testing a sample of repairs and maintenance items to ensure that they were properly
classified as repairs as opposed to property, plant, and equipment tests which of the
following assertions for the property, plant, and equipment account?
A. Occurrence.
B. Completeness.
C. Cutoff.
D. Authorization.
Monetary-unit sampling should not be used if
A. the population includes several large items.
B. the auditor expects overstatement errors.
C. many items in the account are expected to have errors.
D. no items in the account are expected to have errors.
Some firms that dispose of only a small part of their total output by consignment
shipments fail to make any distinction between consignment shipments and regular
sales. Which of the following would suggest that goods have been shipped on
consignment?
A. Numerous shipments of small quantities.
B. Numerous shipments of large quantities and few returns.
C. Large debits to accounts receivable followed by small periodic credits.
D. Large debits to accounts receivable followed by large periodic credits.
In determining the effectiveness of an entity’s policies and procedures relating to the
existence or occurrence assertion for payroll transactions, an auditor most likely would
inquire about and
A. observe the segregation of duties concerning human resource responsibilities and
payroll disbursement.
B. inspect evidence that all prenumbered payroll checks are accounted for.
C. recompute the payroll deductions for employee fringe benefits.
D. verify the preparation of the monthly payroll account bank reconciliation.
Which of the following arranges the general types of audit tests in the order they are
normally performed in an audit?
A. Substantive procedures, tests of controls, and risk assessment procedures.
B. Substantive procedures, risk assessment procedures, and tests of controls.
C. Risk assessment procedures, tests of controls, and substantive procedures.
D. Risk assessment procedures, substantive procedures, and tests of controls.
For several years, an entity’s physical inventory count has been lower than what was
shown on the books at the time of the count so that downward adjustments to the
inventory account were required. Contributing to the inventory problem could be
weaknesses in internal controls that led to the failure to record some
A. purchases returned to vendors.
B. sales returns received.
C. sales discounts allowed.
D. cash purchases.
Unrecorded liabilities are most likely to be found during the review of which of the
following documents?
A. Unpaid bills.
B. Shipping records.
C. Bills of lading.
D. Unmatched sales invoices.
The objectives of the engagement partner’s communication with the audit team include
A. Maintaining an adversarial atmosphere between the auditor and management.
B. Complying with SEC rules.
C. Complying with FASB rules.
D. Emphasizing the importance of professional skepticism.
To obtain an understanding of significant processes and relevant subprocesses, auditors
would be least likely to use which of the following techniques?
A. Reviewing management documentation.
B. Inquiry.
C. Scanning.
D. Transaction walkthroughs.
Which of the following is not a main goal of the internal auditing profession?
A. Add value to an organization’s operations.
B. Help an organization to accomplish its objectives.
C. Provide reliable information to external users.
D. Improve the effectiveness of risk management of an organization.
Given one or more hypothetical assumptions, a responsible party may prepare, to the
best of his knowledge and belief, an entity’s expected financial position, results of
operations, and changes in cash flows. Such prospective financial statements are known
as
A. pro forma financial statements.
B. financial projections.
C. partial presentations.
D. financial forecasts.
A debit memo
A. reduces the amount of accounts payable due to a vendor.
B. reduces accounts payable when payment is made.
C. is used by vendors to record cash payments received.
D. authorizes a debit to purchases when goods are received.
An entity’s WebTrust seal is managed by
A. the CPA who performed the service.
B. the AICPA.
C. a third-party service organization.
D. the entity receiving the seal.
Which of the following misstatements is not related to the completeness assertion for
revenue?
A. Goods are shipped, but revenue is not recorded.
B. This year’s revenue is recorded next year.
C. Next year’s revenue is recorded this year.
D. Revenue is not recognized for services that have been performed.
The purpose of segregating the duties of hiring personnel and distributing payroll
checks is to separate the
A. administrative controls from the internal accounting controls.
B. human resources function from the controllership function.
C. operational responsibility from the record-keeping responsibility.
D. authorization of transactions from the custody of related assets.
The Audit Committee consists of
A. Members of management.
B. A subcommittee of the AICPA who establish the SAS.
C. Members of the Board of Directors.
D. Appointed government overseers.
Which of the following sets of duties would ordinarily be considered basically
incompatible in terms of effective internal control?
A. Preparation of monthly statements to customers and maintenance of the accounts
receivable subsidiary ledger.
B. Posting to the general ledger and approval of additions and terminations relating to
the payroll.
C. Custody of unmailed signed checks and maintenance of expense subsidiary ledgers.
D. Collection of receipts on account and maintaining accounts receivable records.
Following are several statements regarding accounting records or audit documentation.
Which of the statements is correct?
A. Accounting records belong to the auditee.
B. Documentation of an auditor’s understanding of the entity’s internal control system is
not necessary.
C. Audit documents may be regarded as a substitute for the company’s accounting
records.
D. The independent auditor may discard audit documents after two years.
An entity has violated a minor requirement of its bond indenture that could result in the
trustee requiring immediate payment of the principal amount due. The entity refuses to
seek a waiver from the bond trustee. Request for immediate payment is not considered
likely. Under these circumstances, the auditor must
A. require classification of bonds payable as a current liability.
B. contact the bond trustee directly.
C. disclose the situation in the auditor’s report.
D. obtain an opinion from the company’s attorney as to the likelihood of the trustee’s
enforcement of the requirement.
Increased fraud risk could result in all of the following except:
A. Lower detection risk.
B. Higher inherent risk.
C. Lower control risk.
D. Higher client risk.
A CPA’s license to practice will ordinarily be suspended or revoked automatically for
A. controlling the bookkeeping for a compilation client.
B. conviction of willful failure to file personal income tax return.
C. refusing to respond to an inquiry by the AICPA practice review committee.
D. accepting compensation while honoring a subpoena to appear as an expert witness.
In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered
that a selected account receivable with a recorded amount of $5,000 had an audit
amount of $2,000. The projected misstatement of this sample was
A. $3,000.
B. $4,000.
C. $6,000.
D. $8,000.