Evidence about whether an ICFR is operating as designed and whether the control is
being performed by someone with appropriate authority and qualifications are provided
by:
a. the risk level.
b. management responsibility.
c. effective operations.
d. complimentary tests.
e. tests of controls.
Which of the following is a subsequent event:
a. Sale of a bond or capital stock issues.
b. Purchase of a business.
c. Loss of inventories due to flooding.
d. All of the above.
Tort law addresses:
a. Situations in which negligence occurs
b. Situations in which a party suffers a loss and wants to collect damages.
c. Situations in which a party suffers a loss and wants to collect punitive damages.
d. None of the above.
In a corporate environment:
A. stockholders own the company and directly hire the management team.
B. board of directors delegates the responsibility to oversee shareholder interest to the
management team.
C. the audit committee is part of the management team.
D. the shareholders own the company and elect the board the directors.
Wrap-up audit procedures include which of the following:
a. subsequent events review.
b. going concern evaluation.
c. inquiry of a client’s lawyer.
d. All of the above.
Which types of inventory transactions are not likely to create variable interest entities
that would require consolidation?
a. Land purchase contracts.
b. Joint ventures.
c. Percentage of completion contracts.
d. Options for future land purchases.
A material weakness will always exist when a company has:
(a) a decentralized structure and authority is shared in a system of matrix management.
(b) an audit committee that provides ineffective oversight of financial reporting and
ICFR.
(c) a corporate culture with a strong emphasis on achieving profitability.
(d) inexperienced workers serving in demanding positions.
Joint and severally liable means that:
a. Each defendant is liable for the whole judgment if the other party cannot pay.
b. Each defendant is liable for only his portion of the judgment.
c. Each defendant is liable for the compensatory, but not punitive judgment.
d. None of the above.
The GASB:
a. Sets audit standards for auditors engaged in auditing not-for-profit entities.
b. Regulates state and local governments.
c. Set reporting standards for state and local government entities.
d. All of the above.
Which of the following is not an audit procedure used to gain an understanding of
specific controls in ICFR?
(a) Making inquiries of appropriate personnel.
(b) Inspecting company records.
(c) Confirming transactions with external parties.
(d) Observing specific actions, behaviors, and procedures.
Assessing the design effectiveness of the internal control system involves:
(a) determining if the controls are appropriate.
(b) determining if the controls operate as designed.
(c) determining who is responsible for internal control.
(d) All of the above.
Who is responsible for the contents and filing of the 10K?
a. The auditors.
b. Management.
c. The audit committee.
d. All of the above.
Which is the correct order for the tests listed below?
a. Substantive analytical procedures, dual purpose tests, detail tests of balances.
b. Detail tests of balances, substantive analytical procedures, dual purpose tests.
c. Dual purpose tests, detail tests of balances, substantive analytical procedures.
d. None of the above.
As part of the wrap-up procedures, Mary Ellen Dillon reviews the minutes of the Board
of Directors for a client. During her review, she discovers that a major acquisition is
planned in the coming months. This planned acquisition should:
a. be disclosed in the footnotes to the financial statements.
b. be disclosed in an explanatory paragraph of the audit report.
c. be audited by the audit firm as part of its wrap-up work.
d. None of the above.
ABC Auditors are auditing Jersey Charities, which is incorporated as a not-for-profit
charitable organization. The fiscal year-end is June 30, 20X0. The auditors concluded
their work on July 15th, 20X0 and dated their audit report on that date. On July 20th, a
major donor declared bankruptcy, leaving in serious doubt collection by Jersey of
material pledges owed. The auditors should:
a. recall the audit report and re-issue a new one.
b. issue an amendment to the audit report dated July 20th.
c. determine if the financial statements have been made available.
d. depending on the circumstances, the auditor may choose any of the above.
All things being equal, as the risk of assessing control risk too low __________; sample
size __________:
(a) increases; decreases.
(b) increases; increases.
(c) decreases; decreases.
(d) None of the above.
The Securities and Exchange Commission:
a. Is a government entity.
b. Authorizes all PCAOB standards before they become effective.
c. Can reject company filings or suspend trading of company stocks.
d. All of the above.
Which of the following is NOT a characteristic of a profession?
A. Specific body of knowledge for which the group has expertise.
B. Graduate degree from a recognized university.
C. Controls standards for entry and continued membership.
D. Recognizable individual characteristics or traits.
The scope of an audit team’s work will be more extensive
(a) for a first year audit engagement as opposed to a continuing audit.
(b) when internal auditors perform work to be used as evidence by the external auditors.
(c) when a user company’s auditor relies upon a report provided by an auditor of the
service provider.
(d) for a company with effective entity-level controls.
Which of the following is true regarding perpetual inventory systems?
a. Detailed accounting records must be maintained so that changes in inventory
accounts can be posted when the transactions occur.
b. An end-of period physical inventory count is required to determine the changes in
inventory accounts.
c. Detailed accounting records must be maintained so that changes in inventory
accounts can be posted in a purchases account.
d. More accounting time is required at the end of the period to update the inventory
accounts for the period’s changes.
Use of benchmarking allows the auditor to:
(a) test the application controls only when changes are made to the application program.
(b) test the general controls only when changes are made to the operating system.
(c) reduce the scope of testing for general controls.
(d) All of the above.
Tests of controls provide audit evidence for both the ICFR, and financial statement
components of a(n):
a. evidential inquiry.
b. inquiry procedure.
c. test of control.
d. efficient audit.
e. integrated audit.
Auditors do not provide absolute assurance in an audit due to
(a) Financial statement numbers are based on estimates.
(b) Auditors usually examine a sample rather than all of a company’s transactions.
(c) Those who commit fraud go to great lengths to conceal their actions.
(d) All of the above.
Substantive analytical procedures:
a. can replace audit testing of balances.
b. can replace audit testing of transactions.
c. can augment audit testing if the ICFR is accurate.
d. None of the above.
Risks related to a company’s business units or functions are:
(a) activity-level risks.
(b) external risks.
(c) entity-level risks.
(d) critical risks.
The accounts payable subsidiary ledger provides what purpose?
a. It lists all payables.
b. It details the approved amounts owed to suppliers as of a certain date.
c. It supports both accrued and unaccrued liabilities.
d. All of the above.
An audit firm’s business risk is affected by:
(a) the client’s business risk.
(b) its ability to make profits from the work it performs.
(c) the integrity of client’s management.
(d) All of the above.
Assume the role of a senior auditor on Genetech Corp, a large public corporation that
performs evaluations of lab results submitted by physicians and hospitals. You have
been assigned the task of planning and performing tests over the client’s human
resources cycle.
(a)What are the primary processes about which your work should be concerned?
(b) Discuss the types of activities and transactions significant to the human resources
cycle.
(c) Which accounts might be significantly affected by this cycle?
The reporting standards addresses:
(a) an expression of an opinion.
(b) independence.
(c) supervision.
(d) understanding of internal control.
Section 105(c) of SOX:
a. Assesses penalties against public companies.
b. Assesses penalties against audit firms found to be in violation of SOX by the
PCAOB.
c. Provides for the suspension of an audit firm’s license.
d. All of the above.
Which of the following is not a relevant consideration in deciding whether an IT
specialist is needed:
(a) the client company’s capital structure
(b) the complexity of IT controls and systems
(c) the use of emerging technologies
(d) the use of data by multiple systems or processes
Stephanie is a senior auditor at Hart & Brand CPA firm. This is Hart & Brand’s first
year on a new public client, Bellezza Casa. Bellezza Casa is a home and garden
specialty retailer that consists of 120 retail locations nationwide and has no subsidiary
businesses. This year, Bellezza Casa books show gross profits of $1.2 million, net
income of $720,000, and total assets of $4.5 million. Stephanie is assigned the task of
determining materiality for Bellezza Casa’s financial statements.
(a) In which stage of the audit should Stephanie determine overall financial
statement materiality and planning materiality for the various accounts?
(b) If Stephanie is assigned the task of testing the accounts receivable account
during the year-end audit, should she use the same level of materiality she
formulated for financial statement materiality? If not, will materiality for
accounts receivable be higher or lower? Explain.
Approved customer orders, sales orders, pick tickets, or similar documents authorize
the release of goods from storage or warehousing.
One of the fundamental concepts concerns valuation and allocation.
What do we mean when we use the phrases “independence in fact” and
“independence in appearance”? Why does the auditing profession use both phrases?
How do both relate to ideal behavior and the rules that govern auditors.
The Foreign Corrupt Practices Act prompted a definition of internal control that is
broader than COSO’s definition because COSO does not consider operating efficiency
and effectiveness.
How do management reports produced by a public accounting firm’s engagement
management system for the current year engagement assist them in bidding on the job
in subsequent years? In justifying to the client human resources cost overruns in the
current year?
The PCAOB is a for-profit entity that was structured by the SEC in response to the
Sarbanes-Oxley Act.
Post-employment benefits refer to health benefits for retired employees.
List appropriate steps and documents that an auditor could use in a walkthrough of the
following human resources processes:
– Hiring, authorizing input of a new employee to the payroll master file
– Change of pay rate, input of a change of pay rate to the payroll master file
– Obtaining employee authorization for voluntary withholdings from payroll payout
such as medical and life insurance
– Separation of employees from the company, changes to the payroll master file
following
Separation
Annie’s audit firm has recently won the bidding for the audit of Big Spending, an
organization supported by public funds provided from the federal government. Annie
has never been involved in an audit of a government organization and is unfamiliar with
the standards governing an audit of a government-related entity. The night before she is
scheduled to begin the engagement,Annie decides to do her homework. First, she goes
to the PCAOB Web site and searches for any relevant information. Since the PCAOB
governs audits of publicly traded companies, she finds no guidance from the ASs and
the AUs. Next, she searches on the AICPA Web site, but once again finds no guidance
from the SASs. Since she has exhausted all of the resources she is aware of, she gives
up. Where can Annie find guidance on standards affecting the Big Spending audit?
What are governmental auditing standards called? How do audits of government
entities vary from those of for-profit entities? How do entities that receive funds from
government grants fit in?
List the four levels of structure within the AICPA Code of Conduct.
The last steps of an integrated audit are to understand the industry and contract with the
client to do the audit.
Pensions can be either defined-benefit or defined-contribution plans.
You are on an engagement to provide an integrated audit on the financial statements of
Carson’s Orthopedic Shoes. This company is a small-size online retailer that sells
custom shoes to the public. All orders are processed, packaged, and shipped by
company employees at a small warehouse. At the beginning of the audit engagement,
the company provided your senior with the process diagram related to the shipping
process.After reviewing the diagram, you have identified two “omissions” in the
diagram. First, the diagram does not identify how the shipping department receives the
signal to ship the product. Second, the diagram indicates that no invoice is included
with the shipped shoes. You are assigned by your senior to conduct inquiries of the
shipping process. Prepare a list of questions that will provide you with an understanding
of the controls that are in place. In addition, what documentation would you ask
management for?
The document used by a company when it bills a customer directly for a credit sales is
called an invoice.
Gloria is a newly hired inexperienced staff associate at a local accounting firm. She is
given the task of performing a control test on the ICFR portion of the integrated audit
for one of her firm’s larger clients. Gloria conducts her test and finds no control
deviations. She concludes that the control she tested is effective. Gloria marked the step
complete in the audit program.When the senior on the engagement started the review,
there were no work papers that documented Gloria’s work.
(a) List the information Gloria should have included in her work paper documentation.
(b)Would any aspect of the procedure Gloria performed affect the permanent
work paper file?
All assertions apply to every account.
Payment authorization only requires internal documents.
FASB codification section 712 addresses pension obligations.
The accountant has to perform steps to verify the accuracy or integrity of the
information provided by management for a compilation engagement.
Segregation of duties is easy to accomplish in a small-business setting because their
operating structure and IT controls are less complex than larger organizations.