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Several factors influence the auditor's choice of the types of tests to select, including
A) the availability of the types of evidence.
B) the relative costs of each type of test.
C) the effectiveness of the internal controls.
D) all of the above.
Which of the following components of the control environment define the existing lines
of responsibility and authority?
A) organizational structure
B) management philosophy and operating style
C) human resource policies and practices
D) management integrity and ethical values
A proof of cash is not an effective procedure for identifying which of the following
types of misstatements?
A) All recorded disbursements were paid by the bank.
B) All recorded cash receipts were deposited.
C) All amounts that were paid by the bank were recorded.
D) Some checks were written for incorrect amounts.
Which of the following balance-related objectives applies to auditing the general cash
account?
A)
B)
C)
D)
________ expense is rarely analyzed unless analytical procedures indicate high
potential for material misstatement.
A) Repairs and maintenance
B) Legal
C) Utilities
D) Rent and lease
The usefulness of analytical procedures as audit evidence depends significantly on
appropriate comparison data.
An auditor discovers that the company's bookkeeper unintentionally made an mistake in
calculating the amount of the quarterly sales. This is an example of
A) employee fraud.
B) an error.
C) misappropriation of assets.
D) a defalcation.
An imprest petty cash fund would least likely be used to pay for which of the following
items?
A) minor office supplies
B) monthly interest expense
C) stamps for small mailings
D) small contributions to a local charity
Which of the following is an accurate statement regarding control activities?
A) As the level of complexity of IT systems increases, the separation of duties often
becomes blurred.
B) Segregation of duties would be violated if the same person authorizes the payment
of a vendor's invoice and also approves the disbursement of funds to pay the bill.
C) The most important type of protective measure for safeguarding assets and records is
the us of physical precautions.
D) all of the above
Using statistical sampling to assist in verifying the year-end accounts payable balance,
an auditor has accumulated the following data
Projecting the misstatement to the population, the auditor's estimate of year-end
accounts payable balance would be:
A) $5,050,000.
B) $5,125,000.
C) $6,000,000.
D) $6,150,000.
When a pervasive scope limitation exists,
A) a disclaimer of opinion rather than a qualified opinion is generally required.
B) the auditor's responsibility paragraph is modified to indicate that the auditor was not
able to obtain sufficient appropriate evidence to express an audit opinion.
C) sections of the auditor's responsibility paragraph are eliminated to avoid stating
anything that might lead readers to believe that other parts of the financial statements
might be fairly stated.
D) all of the above
The acceptable risk of incorrect rejection is important only when there is a ________
cost to increasing the sample size.
A) high
B) low
C) moderate
D) marginal
If a client intends to count inventory at an interim date, the auditor should expect there
to be all of the following except
A) controls over the preparation and maintenance of perpetual inventory records.
B) competent personnel assigned to count the inventory.
C) third-party inventory counting specialists.
D) an adequately designed plan to count the inventory.
Which of the following is a significant audit concern related to the transfer of inventory
from one location to another?
A) Recorded transfers occurred.
B) Transfers were properly transported.
C) Transfers were properly planned.
D) Transfers represent efficient movement of assets.
Internal controls are not designed to provide reasonable assurance that
A) all frauds will be detected.
B) transactions are executed in accordance with management's authorization.
C) the company's resources are used efficiently and effectively.
D) company personnel comply with applicable rules and regulations.
The purpose of an engagement letter is to
A) document the CPA firm's responsibility to external users of the audited financial
statements.
B) document the terms of the engagement.
C) notify the audit staff of an upcoming engagement so that personnel scheduling can
be facilitated.
D) emphasize management's responsibility for approving the audit program.
The primary emphasis in most tests of details of balances is on the
A) balance sheet accounts.
B) revenue accounts.
C) cash flow statement accounts.
D) expense accounts.
The test of details of balances procedure to "examine vendors' invoices of closely
related accounts such as repairs to uncover items that should be property, plant, and
equipment" satisfies the audit objective of
A) completeness.
B) detail tie-in.
C) cutoff.
D) existence.
Risk assessment procedures include inquiries of management and others by the auditor.
As part of these procedures, the auditor should talk to
A) internal auditors.
B) board of directors.
C) individuals involved with regulatory compliance.
D) all of the above.
Independence is required of a CPA when performing
A) management advisory services.
B) all attestation services.
C) all attestation and tax services.
D) all professional services.
Interpretations of the independence rule of the AICPA Code prohibit covered members
from owning any stock or other direct investment in audit clients. Covered members
would include which of the following?
A)
B)
C)
D)
If an attorney refuses to provide the auditor with information about material existing
lawsuits or unasserted claims,
A) the attorney may face sanctions from the American Bar Association.
B) the auditors must modify their audit report to reflect the lack of available evidence.
C) the attorney can no longer represent the client.
D) the auditor must withdraw from the engagement.
Which of the following is a key control for the transaction-related audit objective of
accuracy?
A) The time records are approved by a supervisor.
B) The payroll checks are prenumbered and accounted for.
C) The payroll master file contents are internally verified.
D) The batch totals are compared with computer summary reports.
The auditor's responsibility section in an audit report states that "the standards require
that we plan and perform the audit to obtain ________ assurance about whether the
financial statements are free of material misstatement." What type of assurance is
given?
A) immediate
B) limited
C) reasonable
D) absolute
Which of the following is not defined as an act discreditable in either the Rules or the
Interpretations of the AICPA's Code of Professional Conduct?
A) The CPA firm's partner in charge failed to file his tax return for the past year.
B) The CPA firm discriminates in its hiring practices based on the age of the applicant.
C) The CPA retains the client's books and records to enforce past-due payment of the
CPA's bill, even after the client has demanded they be returned.
D) The CPA firm's partner-in-charge was a passenger in a car driven by his wife. On the
way home from the firm's Christmas party, she was charged with "driving while
intoxicated."
In connection with the annual audit, which of the following is not a 'subsequent events"
procedure?
A) Prepare any necessary closing journal entries.
B) Examine the minutes of stockholders and directors meetings subsequent to the
balance sheet date.
C) Review journals and ledgers.
D) Obtain a letter of representation.
________ is normally characterized as a difficult and complex account to audit.
A) Property, plant and equipment
B) Cash
C) Inventory
D) Prepaid insurance
The auditor has determined that a key control in the audit of the sales and collection
cycle is that recorded sales are supported by authorized shipping documents and
approved customer orders. What typical test of controls should be used in this situation?
A) Examine a sample of duplicate sales invoices to determine that each on is supported
by an authorized shipping document and approved customer order.
B) Observe whether shipping documents are forwarded daily to billing and observe
when they are billed.
C) Examine a sample of sales invoices and agree prices to the authorized computer
price list.
D) Use audit software to trace postings from the batch of sales transactions to the
subsidiary and general ledgers.
What are the two major balance-related audit objectives in testing payroll liabilities?
A) accuracy and detail tie-in
B) completeness and valuation
C) completeness and rights and obligations
D) accuracy and cutoff
Rather than maintain an internal IT center, many companies outsource their basic IT
functions such as payroll to an
A) external general service provider.
B) independent computer service center.
C) internal control service provider.
D) internal auditor.
As part of designing and performing procedures to address management override of
controls, auditors must perform which of the following procedures?
A)
B)
C)
D)
The auditor's main objectives in the verification of the sale, trade-in, or abandonment of
equipment are to gather sufficient appropriate evidence that all disposals are ________
and at the ________.
A) verified; historical cost
B) recorded; correct amounts
C) accurate; proper gain or loss amount
D) classified properly; net realizable value
