1) When internal controls over a given financial statement account are assessed as
highly effective, the auditor need not obtain audit evidence for that account beyond
testing the controls.
A) True
B) False
2) Given the audit procedures below, which one provides the most reliable evidence?
A) Confirmations
B) Recalculation
C) Reperformance
D) Observations
3) You are a CPA retained by the manager of a cooperative retirement village to do
“write-up work.” You are expected to prepare unaudited financial statements with each
page marked “unaudited” and accompanied by a disclaimer of opinion stating no audit
was performed. In performing the work, you discover that there are no invoices to
support a claim for a $25,000 disbursement. The manager informs you that all the
disbursements are proper. What should you do?
A) Submit the expected statements but omit $25,000 of unsupported disbursements
B) Include the unsupported disbursements in the statements since you are not expected
to make an audit
C) Obtain from the manager a written statement that you informed him of the missing
invoices and include his assurance that the disbursements are proper
D) Notify the owners that some of the claimed disbursements are unsupported and
withdraw if the situation is not satisfactorily resolved
4) In audits of companies in which payroll is a significant portion of inventory, the
improper account classification of payroll can:
A)
B)
C)
D)
5) Which of the following errors would be least likely to be discovered during the audit
of the acquisitions and payments cycle?
A) Duplicate payment of a vendor’s invoice
B) Improper payments of officers’ personal expenditures
C) Payment of interest to a related party for an amount in excess of the going rate
D) Payment for raw materials that were not received
6) Independence is a fundamental ethical principle for internal auditors.
A) True
B) False
7) If the CPA negligently failed to properly prepare and file a client’s tax return, the
CPA may be liable for:
A) the penalties the client owes the IRS
B) the penalties and interest the client owes
C) the penalties and interest the client owes, plus the tax preparation fee the CPA
charged
D) the penalties and interest, the tax preparation fee, and the amount of tax that was
underpaid
8) A proof of cash is effective at identifying which of the following misstatements?
A) checks written for incorrect amounts
B) checks issued to invalid vendors
C) fraudulent checks
D) Checks recorded by the books for an amount different than the check.
9) The risk which the auditor is willing to take in accepting a control as being effective
when the true population exception rate is greater than a tolerable rate is the:
A) finite correction factor
B) tolerable exception rate
C) acceptable risk of assessing control risk too low
D) estimated population exception rate
10) Cutoff misstatements occur:
A) either by error or fraud
B) by error only
C) by fraud only
D) randomly without causes related to errors or fraud
11) Correspondence is established between the random number table and the population
by:
A) identifying each item in the population with a unique number
B) deciding the number of digits to use in the random number table and their
association with the population numbering system
C) defining which digits the auditor uses in a column and the method of reading the
table
D) selecting a random starting point on the table
12) A ________ is a document that indicates a request for merchandise by a customer.
A) sales invoice
B) vendor invoice
C) customer order
D) sales order
13) When an acquisition is on an FOB origin basis, the inventory and related accounts
payable must be recorded in the current period if the goods were:
A) received prior to the balance sheet date
B) shipped prior to the balance sheet date
C) both shipped and received prior to the balance sheet date
D) paid for in advance
14) Why does the auditor divide the financial statements into segments around the
financial statement cycles?
A) Most auditors are trained to audit cycles as opposed to entire financial statements
B) The approach aids in the assignment of tasks to different members of the audit team
C) The cycle approach is required by auditing standards
D) The cycle approach allows the auditor to detect indirect-effect illegal acts
15) Which of the following discoveries through the use of analytical procedures would
most likely indicate a relatively high risk of financial failure?
A) A decline in gross margin percentages
B) An increase in the balance in fixed assets
C) An increase in the ratio of allowance for uncollectible accounts to gross accounts
receivable, while at the same time accounts receivable turnover also decreased
D) A higher than normal ratio of long-term debt to net worth as well as a lower than
average ratio of profits to total assets
16) For most uses, flowcharts are superior to narratives as a method of communicating
the characteristics of internal control.
A) True
B) False
17) In valuing inventory, the auditor must consider all but which of the following
factors?
A) The valuation method must be in accordance with GAAP
B) The valuation method must be applied on a consistent basis
C) The inventory must be valued at the lower of cost or market
D) All inventory must be valued using the same valuation method under GAAP
18) An auditor should consider two key issues when obtaining an understanding of a
client’s internal controls. These issues are:
A) the effectiveness and efficiency of the controls
B) the frequency and effectiveness of the controls
C) the design and implementation of the controls
D) the implementation and efficiency of the controls
19) Misappropriation of assets is normally perpetrated at the lowest levels of the
organization hierarchy.
A) True
B) False
20) Management must disclose material weaknesses in internal control in its audit
report:
A) whenever the weakness is deemed significant to a single class of transactions
B) whenever the weakness is significant to overall financial reporting objectives
C) if the weakness exists at the end of the year
D) only if the auditor identifies the weakness as significant
21) The document that the accounting staff will use as the primary basis for recording
sales transactions and updating the customers accounts receivable subsidiary ledger is
the:
A) sales order
B) bill of lading
C) sales journal
D) sales invoice
22) Which of the following internal control objectives is likely to be the most important
in the audit of the payroll cycle?
A) Payroll transactions are properly disclosed and presented in the notes to the financial
statements
B) Payroll transactions are processed by an outside service provider
C) Recorded transactions represent valid payments
D) Recorded transactions are recorded in the proper accounting period
23) Which of the following statements is not correct?
A) Analytical procedures used in the planning phase of the audit are primarily directed
at understanding the client’s business and directing the auditor’s attention to areas that
may contain possible misstatements
B) Analytical procedures used in the completion phase are primarily aimed at assessing
going concern and secondarily aimed at directing the auditor’s attention to areas that
may contain possible misstatements
C) Analytical procedures must be used in the planning and completion phases of the
audit, and are optional in the testing phase
D) Analytical procedures used in the completion phase are primarily aimed at directing
the auditor’s attention to areas that may contain possible misstatements and secondarily
aimed at assessing going concern
24) Refusal by a client to prepare and sign the representation letter would require the
auditor to issue a:
A) qualified opinion or a disclaimer
B) adverse opinion or a disclaimer
C) qualified or an adverse opinion
D) unqualified opinion with an explanatory paragraph
25) There are a number of offenses that may expel a CPA from membership in the
A) The willful failure to file any income tax return that the CPA, as an individual
taxpayer, is required by law to file
B) The willful filing of a fraudulent income tax return on a client’s behalf
C) Conviction of a crime punishable resulting in 6 months in incarceration
D) The willful aiding in the preparation of a false and fraudulent income tax return
26) An auditor can express a qualified opinion due to a:
A)
B)
C)
D)
27) One of the auditor’s primary objectives when auditing manufacturing equipment is
completeness.
A) True
B) False
28) When deciding on the acceptable risk of assessing control risk too low, the auditor
needs to:
A) rely on his/her professional judgment
B) err on the side of conservatism
C) consult the professional standards
D) follow SEC guidelines
29) Cutoff information for inventory acquisitions should be obtained during:
A) the interim period prior to year-end
B) the interim period immediately following year-end
C) the physical observation of inventory
D) either the interim period prior to or immediately following year-end
30) Mathews and Company has $112,000 in an accrued payroll account. The company’s
weekly payroll is $186,700 and the accrual represents 3 days out o 5 working days. If
the auditor has determined that controls are effective over payroll, what additional work
should the auditor perform for this account?
31) A proof of cash includes four reconciliation tasks. List below at least TWO of those
tasks.
32) You are designing the audit plan for Mathews & Company. You are a strong
proponent for statistical sampling over nonstatistical sampling. Make your case.
33) The occurrence objective (assertion) is of primary importance when performing
transaction testing for sales. List and discuss the three potential misstatements that audit
procedures are designed to detect.
34) Describe the five types of audit tests. Identify which of the five types are
substantive tests, and which are used to reduce assessed control risk.
35) State four of the seven specific balance-related audit objectives for property, plant,
and equipment additions and, for each objective, describe one common test of details of
balances.
36) There are five conditions that must be met before an auditor can issue a standard
unqualified report for the audit of a private company. Please discuss each of these five
conditions.
37) List the ten generally accepted auditing standards and divide them into their proper
category.
38) Discuss the four primary purposes of analytical procedures performed during the
planning phase of an audit.
39) There are several factors that affect an audit firm’s business risk and, therefore,
acceptable audit risk. Discuss three of these factors.