In testing acquisitions the auditor needs to understand the appropriate accounting
guidance related to acquisition accounting. Which of the following is not an accounting
consideration for the auditor as regards to acquisition cost?
A) inclusion of material transportation and installation costs
B) recording of trade-in costs
C) allocating costs when building and equipment are purchased at one price
D) verifying that purchased equipment amounts correspond to the budgeted amount
An example of a document the auditor receives from the client, but which was prepared
by someone outside the client’s organization is a
A) confirmation.
B) sales invoice.
C) vendor invoice.
D) bank reconciliation.
Although significant client business risks affecting payroll are unlikely for most
companies, an area that would have the most business risk would be
A) payment of hourly employees.
B) payment of salaried employees.
C) payments to employees for stock options and bonus plans.
D) payments to employees who have direct deposit of their payroll checks.
As a CPA you have been asked to examine an entity’s financial projections. Acceptance
of the engagement would be appropriate if distribution is limited to
A) stockholders of record as of the date of the report.
B) potential investors and creditors by posting on the company’s website.
C) general public by posting on the company’s website.
D) a financial institution for which the company is negotiating a loan.
Which of the following activities would be least likely to strengthen a company’s
internal control?
A) separating accounting from other financial operations
B) maintaining insurance for fire and theft
C) fixing responsibility for the performance of employee duties
D) carefully selecting and training employees
Which of the following most accurately describes fraud?
A) absence of reasonable care
B) lack of slight care
C) knowledge and intent to deceive
D) extreme or unusual negligence without the intent to deceive
When conducting the audit of stockholders’ equity, it is normal practice to verify all
capital stock transactions
A) only when the client is small.
B) that are in excess of a material amount.
C) if there aren’t very many during the year.
D) regardless of the controls in existence, because of their materiality and permanence
in the records.
If the result obtained from a particular sample for control and substantive tests of
transactions is critical to the formation of an audit opinion, which of the following is the
most important to the auditor in concluding of the appropriateness and sufficiency of
evidence gathered?
A) acceptable risk of overreliance
B) estimated population exception rate
C) tolerable exception rate
D) size of the population
In the auditing environment, failure to meet auditing standards is often
A) an accepted practice.
B) a suggestion of negligence.
C) conclusive evidence of negligence.
D) tantamount to criminal behavior.
The ________ is the combination of the types of tests to obtain sufficient appropriate
evidence for a cycle. There are likely to be variations in the mix from cycle to cycle
depending on the circumstances of the audit.
A) testing mix
B) evidence mix
C) audit process mix
D) procedures mix
Imprisonment for a period of six months or longer will result in automatic expulsion
from the AICPA.
Hanlon Corp. maintains a large internal audit staff that reports directly to the accounting
department. Audit reports prepared by the internal auditors indicate that the system is
functioning as it should and that the accounting records are reliable. An independent
auditor will probably
A) eliminate tests of controls.
B) increase the depth of the study and evaluation of administrative controls.
C) avoid duplicating the work performed by the internal audit staff.
D) place limited reliance on the work performed by the internal audit staff.
A CPA firm may charge a contingent fee for
A) an audit.
B) consulting services for a client for which they do not perform any attestation
services.
C) the preparation of an original tax return for a client for which they do not perform
any attestation services.
D) the preparation of an amended tax return.
A major consideration in the audit of the general cash balance is the possibility of fraud.
The auditor must extend his or her procedures in the audit of year-end cash to determine
the possibility of a material fraud when there are
A) large cash balances at the end of the year.
B) large cash receipts and disbursements during the year.
C) no imprest accounts used for payroll.
D) inadequate internal controls.
The careful and timely preparation of all payroll tax returns is necessary to avoid
penalties and criminal charges. The most important control in the timely preparation of
these returns is
A) computerized preparation of tax returns.
B) a well-defined set of policies that indicate when each form must be filed.
C) independent verification of computer output by a competent individual.
D) the use of an outside payroll service.
Which of the following is an accurate statement regarding the four phases of the audit
process?
A) After the planning stage, the auditor should have a well-defined audit strategy and
plan and a specific audit program for the entire audit.
B) The objective of phase III is to perform tests of controls.
C) During phase II, the auditor must evaluate the going-concern assumption.
D) All of the above are correct statements.
An accounts receivable population contains a total of four customers. The accounts, the
amounts, and the cumulative total are shown below. Monetary unit sampling is to be
used.
Based on the information above, the population size is
A) 4.
B) 574.
C) 1,272.
D) $2,684.
Because cash is the most desirable asset for people to steal, it has a higher
A) control risk.
B) inherent risk.
C) detection risk.
D) liquidity risk.
If a company employs a capital stock registrar and/or transfer agent, the registrar or
agent, or both, should be requested to confirm directly to the auditor the number of
shares of each class of stock
A) surrendered and canceled during the year.
B) authorized at the balance sheet date.
C) issued and outstanding at the balance sheet date.
D) sold at a price above par during the year.
Which of the following is not an accurate statement regarding agreed-upon procedures
engagements?
A) These engagements are also known as procedures and findings engagements.
B) A report for such an engagement describes the findings resulting from the
procedures, but cannot describe the procedures agreed upon.
C) All agreed-upon procedure engagements are now under the scope of attestation
standards.
D) Agreed-upon procedures engagements appeal to CPAs because management, or a
third-party user, specifies the procedures they want done.
When a member observes the profession’s technical and ethical standards and strives to
continually improve her competence and quality of services, she is exercising
A) due care.
B) integrity.
C) independence.
D) objectivity.
For a firm that practices good internal controls in the sales and collections cycle, the
function of indicating credit approval should be recorded on which of the following
documents?
A) sales order
B) sales invoice
C) customer order
D) remittance advice
Listed below are policies or procedures that the Crystal Cove audit firm has in place.
For each identified policy or procedure state if it is an auditing standard or a quality
control standard.
In the case of an audit, recklessness is present if the auditor knew an adequate audit was
not done but still issued an opinion, even though there was no intent to deceive
financial statement users. This description is the legal term for
A) ordinary negligence.
B) gross negligence.
C) constructive fraud.
D) fraud.
Confirmation of accounts receivable provide evidence related to the ________
objectives.
A) existence
B) accuracy
C) cutoff
D) all if the above
When one material weakness is present at the end of the year, management of a public
company must conclude that internal control over financial reporting is
A) insufficient.
B) inadequate.
C) ineffective.
D) inefficient.
Vendors’ statements and vendors’ invoices are both relatively reliable evidence because
they
A) come directly to the auditor without being in client’s possession.
B) originate from a third party.
C) validate the effectiveness of the control system.
D) are compared to and reconciled with sales invoices.
Almost all companies need physical controls over their assets to prevent loss. Which of
the following is not an example of such a control?
A) perpetual inventory master files
B) segregated, limited-access storage areas
C) custody of assets assigned to specific responsible individuals
D) approved prenumbered documents for authorizing movement of inventory
Auditors should understand client objectives related to
A) reliability of financial reporting.
B) effectiveness and efficiency of operations.
C) compliance with laws and regulations.
D) all of the above.
The AICPA principles and the auditing standards should be viewed by practitioners as
A) ideals to work towards, but which are not achievable.
B) maximum standards that denote excellent work.
C) minimum standards of performance that must be achieved on each audit
engagement.
D) benchmarks to be used on all audits, reviews, and compilations.
To calculate the sample size in monetary unit sampling,
A) the confidence factor is multiplied by the tolerable misstatement as a percentage of
the population value.
B) the confidence factor is divided by the tolerable misstatement as a percentage of the
population value.
C) the tolerable misstatement is divided by the population recorded value.
D) the tolerable misstatement is multiplied by the population recorded value.