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1) In third-party suits, which of the auditor's defenses contends lack of privity of
contract?
A) Lack of duty
B) Non-negligent performance
C) Contributory negligence
D) Absence of causal connections
2) If an auditor "proves" the bank statement in the month subsequent to the balance
sheet date, it is primarily a test for:
A) errors
B) omissions
C) kiting
D) intentional misstatements
3) The purpose of stratified sampling is to achieve a greater confidence level (lower risk
of incorrect acceptance) for a given sample size.
A) True
B) False
4) Rule 201 - General Standards requires members to comply with certain standards and
interpretations. Which of the following is not a standard specifically addressed in Rule
201?
A) professional integrity
B) due professional care
C) planning and supervision
D) sufficient relevant data
5) In connection with the audit of financial statements, an independent auditor could be
responsible for failure to detect a material fraud if:
A) statistical sampling techniques were not used on the audit engagement
B) the auditor planned the audit in a negligent manner
C) accountants performing important parts of the work failed to discover a close
relationship between the treasurer and the cashier
D) the fraud was perpetrated by one employee who circumvented the existing internal
controls
6) An example of a breach of contract would likely include:
A) an auditor's refusal to return the client's general ledger book until the client paid last
year's audit fees
B) a bank's claim that an auditor had a duty to uncover material errors in financial
statements that had been relied on in making a loan
C) a CPA firm's failure to complete an audit on the agreed-upon date because the firm
had a backlog of other work which was more lucrative
D) an auditor's claim that the client staff is unqualified
7) Which of the following modifications of the auditor's report does not include an
explanatory paragraph?
A) A qualified report due to a GAAP departure
B) The report includes an emphasis of a matter
C) There is a very material scope limitation
D) A principle auditor accepts the work of an other auditor
8) At what point in the audit process are tests of details most appropriately designed?
A) plan and design audit approach
B) perform audit tests for controls and transactions
C) perform analytical procedures and tests of balances
D) complete the audit and issue the audit report
9) An audit procedure that compares the name, amount, and dates shown on remittance
advices, either paper of electronic via direct deposit, with cash receipts journal entries
and with related duplicate deposit slips would be effective in detecting:
A) kiting
B) lapping
C) illicit write-offs of customers as uncollectible accounts
D) sales without proper credit authorization
10) Which of the following best describes inherent risk for balance-related audit
objectives as they relate to payroll?
A) not considered
B) low
C) moderate
D) high
11) The auditor's primary concern in performing audit procedures of the write-off of
uncollectible accounts relates to the risk that the client writes offs customer accounts
that have already been collected. The primary control for preventing this fraud is:
A) examining authorized credit memos
B) examining the uncollectible account authorization form
C) examining debit memos
D) examining the vouchers payable register
12) The correct accounting for accounts receivable accounts with credit balances,
provided they are significant, would be:
A) written off
B) moved to the debit side
C) reclassified as accounts payable
D) corrected by making adjusting entries
13) Which of the following is the exception rate that the auditor expects to find before
testing?
A) Sample exception rate
B) Estimated population exception rate
C) Computed exception rate
D) Tolerable exception rate
14) An advantage of using statistical sampling techniques is that such techniques:
A) mathematically measure risk
B) eliminate the need for judgmental decisions
C) define the values of precision and reliability required to provide audit satisfaction
D) have been established in the courts to be superior to judgmental sampling
15) According to the principle established by the Restatement of Torts case, foreseen
users must be members of:
A) any potential user group
B) a legally protected class
C) a reasonably limited and identifiable user group
D) a reasonably limited and established user group
16) 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
17) "Cookie jar reserves" are often created by companies whenever their earnings are
high to create reserves for future periods when earnings need to be "boosted" upward.
A) True
B) False
18) The only way to know with certainty whether a sample is representative is to
subsequently audit the entire population.
A) True
B) False
19) The statistical results when Monetary-Unit Sampling (MUS) is used are called
exception bounds.
A) True
B) False
20) The most important consideration in developing the audit plan and audit program is
the:
A) client's size
B) client's industry
C) audit firm's available personnel
D) audit risk model used in its planning form
21) An auditor's flowchart of the client's IT system is a graphical representation that
depicts the auditor's:
A) program for tests of controls
B) understanding of the system of how the IT system functions
C) understanding of the types of errors that are probable given the present system
D) documentation of the study and evaluation of the system
22) The population standard deviation of the misstatements from the sample is inversely
related to the computed precision interval in difference estimation; that is, as the
standard deviation increases, the computed precision interval decreases.
A) True
B) False
23) The difference between the tolerable exception rate and the estimated population
exception rate is called:
A) accuracy of the initial sample estimate
B) inflation factor of the initial sample estimate
C) precision of the initial sample estimate
D) reliability of the initial sample estimate
24) Which of the following statements is true when the CPA has been engaged to
perform an audit of financial statements?
A) The CPA firm is engaged and paid by the client; therefore, the firm has primary
responsibility to be an advocate for the client
B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the
audit are those who rely on the financial statements
C) Should a situation arise where there is no convincing authoritative standard
available, and there is a choice of actions which could impact a client's financial
statements, the CPA is free to endorse the choice which is in the investors' interests
D) The CPA firm has primary responsibility to the FASB
25) Match seven of the legal terms (a-j) with the definitions provided below (1-7):
a.Common law
b.Constructive fraud
c.Breach of contract
d.Joint and several liability
e.Ordinary negligence
f.Third-party beneficiary
g.Gross negligence
h.Statutory law
i.Fraud
j.Separate and proportionate liability
________ 1> Laws that have been passed by the U.S. Congress and other governmental
units.
________ 2> Absence of reasonable care that can be expected of a person in a set of
circumstances.
________ 3> Lack of even slight care, tantamount to reckless behavior that can be
expected of a person.
________ 4> The assessment against a defendant of that portion of the damage caused
by the defendant's negligence.
________ 5> Failure of one or both parties in a contract to fulfill the requirements of
the contract.
________ 6> The assessment against a defendant of the full loss suffered by a plaintiff
regardless of the extent to which other parties shared in the wrongdoing.
________ 7> Existence of extreme or unusual negligence even though there was no
intent to deceive or do harm; also termed recklessness.
26) Which of the following audit procedures would be least likely to lead the auditor to
find an unrecorded fixed asset disposal?
A) Examination of insurance policies
B) Review of repairs and maintenance expense
C) Review of property tax files
D) Scanning of invoices for fixed asset additions
