1) A bill of lading is a special type of sales invoice used when goods are shipped
interstate.
A) True
B) False
2) An audit report prepared by Garrett and Brown, CPAs, is provided below. The audit
for the year ended December 31, 2012 was completed on March 1, 2013, and the report
was issued to Javlin Corporation, a private company, on March 13, 2013 . List any
deficiencies in this report. Do not rewrite the report.
We have examined the accompanying financial statements of Dalton Corporation as of
December 31, 2012 . These financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these statements based on
our audit.
We conducted our audit in accordance with generally accepted accounting principles.
Those principles require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements are free of misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, except for the effects of not capitalizing certain lease obligations that
should be capitalized in order to conform with generally accepted accounting
principles, the financial statements referred to above present accurately the financial
position of Jacob Corporation as of December 31, 2012, in conformity with accounting
principles generally accepted in the United States of America.
Garrett and Brown, CPAs
March, 2013
3) Which of the following is most correct with regard to the auditor’s search of
indirect-effect illegal acts that may have been committed by the client?
A) No reason to search unless there is sufficient evidence to believe they have occurred
B) Same audit responsibility as the search for financial statement fraud
C) Same audit responsibility as the search for misappropriated assets
D) No reason to search as they would have an indirect effect on the financial statements
4) After accounting for a sequence of inventory tags, an auditor traces a sample of tags
to the physical inventory listing to obtain evidence that all items:
A) included in the listing have been counted
B) represented by inventory tags actually exist
C) represented by inventory tags are included in the listing
D) included in the listing are represented by inventory tags
5) Although the letter of representation is typed on the client’s letterhead and signed by
the client, it is common for the auditor to prepare the letter.
A) True
B) False
6) When the auditor is attempting to determine the extent to which external users rely
on a client’s financial statements, they may consider several factors except for:
A) client size
B) concentration of ownership
C) types and amounts of liabilities
D) assessment of detection risk
7) A pervasive exception is one that affects different parts of the financial statements.
A) True
B) False
8) One result from the Escott et al. v. Bar Chris case was a greater emphasis being
placed on audit staff understanding the client’s business and industry.
A) True
B) False
9) An examination of part of an organization’s procedures and methods for the purpose
of evaluating efficiency and effectiveness is what type of audit?
A) Operational audit
B) Compliance audit
C) Financial statement audit
D) Production audit
10) Which of the following underlies the application of generally accepted auditing
standards?
A) the elements of materiality and relative risk
B) the element of internal control
C) the element of corroborating evidence
D) the element of reasonable assurance
11) Which of the following audit tests is usually the most costly to perform?
A) Analytical procedures
B) Tests of controls
C) Tests of balances
D) Substantive tests of transactions
12) Analytical procedures are substantive tests and, if the results of the analytical
procedures are favorable, the auditor would normally:
A) reduce the extent of tests of details of balances
B) reduce the extent of tests of controls
C) reduce the tests of transactions
D) reduce all of the other tests
13) An auditor selects a sample from the file of shipping documents to determine
whether invoices were prepared. This test is performed to satisfy the audit objective of:
A) accuracy
B) existence
C) control
D) completeness
14) The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes
to auditing and financial reporting.
A) True
B) False
15) The audit procedure which is least useful in gathering evidence on significant
computer processes is:
A) documentation
B) observation
C) test decks
D) generalized audit software
16) Which of the following statements is not true?
A) Balance-related audit objectives are applied to ending account balances
B) Transaction-related audit objectives are applied to classes of transactions
C) Balance-related audit objectives are applied to the ending balance in balance sheet
accounts
D) Balance-related audit objectives are applied to both beginning and ending balances
in balance sheet accounts
17) Auditors begin their assessments of inherent risk during audit planning. Which of
the following would not help in assessing inherent risk during the planning phase?
A) Obtaining client’s agreement on the engagement letter
B) Obtaining knowledge about the client’s business and industry
C) Touring the client’s plant and offices
D) Identifying related parties
18) Auditors of public companies should, in the absence of guidance issued by the
PCAOB, follow auditing standards issued by the SEC.
A) True
B) False
19) Generally Accepted Auditing Standards (GAAS) and Statements on Auditing
Standards (SAS) should be looked upon 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
20) The Auditing Standards Board of the
IThe General Standards will be termed Responsibilities Principles.
II.The Fieldwork Standards will be termed Performance Principles.
III.The Reporting Standards will be termed Communication Principles.
A) I and II
B) I and III
C) II and III
D) I, II and III
21) In the
A) True
B) False
22) In the course of your audit over the acquisitions cycle you need to determine
whether the client billings from vendors were received by the client. You have decided
to perform a sample test. The population for the sample would be comprised of:
A) Vendor Invoices
B) Receiving reports
C) Cash Disbursements
D) Accounts Payable Subsidiary Ledger for Vendors
23) Which of the following statement is most correct with concerning the quantification
of sampling risk?
A) Sampling risk cannot be quantified
B) Sampling risk can be quantified only when non-probabilistic selection techniques are
used to select the sample
C) Sampling risk can be quantified only when probabilistic selection techniques are
used to select the sample
D) None of the above
24) While the Foreign Corrupt Practices Act of 1977 remains in effect, its internal
control provisions have been largely superseded by which of the following?
A) The Sarbanes-Oxley Act of 2002
B) The Racketeer Influenced and Corrupt Organization Act
C) The Federal False Statements Statute
D) The Federal Mail Fraud Statute
25) Adequate documents and records is a subcomponent of the control environment.
A) True
B) False
26) In the sales and collection cycle when is, generally, the earliest point at which
revenue can be recognized?
A) sales approval
B) credit approval
C) cash collection
D) shipment of goods
27) Which of the following is not a function within the inventory and warehousing
cycle?
A) process the goods
B) store raw materials
C) ship finished goods
D) process invoices for shipped goods
28) Which department within a manufacturing company is often responsible for the
review of production and scrap reports?
A) Purchasing
B) Accounts Payable
C) Accounting
D) Production
29) To evaluate a specialist’s work the auditor must himself/herself be considered a
specialist.
A) True
B) False
30) Which of the following circumstances would not require more than one report
modification in from the standard unqualified independent auditor’s report?
A) There is a GAAP departure and accounting principles were not consistently applied
with that of the preceding year
B) There is a scope limitation and the auditor’s are not independent
C) There is a scope limitation and there is substantial doubt about the entity’s ability to
continue as a going concern
D) There is substantial doubt about the entity’s ability to continue as a going concern
and the causes of these uncertainties are not adequately disclosed in a footnote
31) When a dividend is declared by the board of directors, the source for determining
who should receive dividend checks is the:
A) shareholders’ capital stock master file
B) stock certificate books
C) common stock account in the general ledger
D) corporate directory
32) When auditors wish to evaluate a sample statistically, an acceptable selection
method is:
A) systematic sample selection
B) judgmental selection
C) haphazard selection
D) block sample selection
33) Which of the following results in a larger sample size?
A) decrease the desired confidence level and decrease the tolerable deviation rate
B) increase the desired confidence level and decrease the tolerable deviation rate
C) decrease the desired confidence level and increase the tolerable deviation rate
D) increase the desired confidence level and increase the tolerable deviation rate
34) Assume you are the partner in charge of the 2007 audit of Becker Corporation, a
private company. The audit report has not yet been prepared. In each independent
situation following (1-8), indicate the appropriate action (a-g) to be taken. The possible
actions are as follows:
a.Issue a standard unqualified report.
b.Qualify both the scope and opinion paragraphs.
c.Qualify the opinion paragraph.
d.Issue an unqualified opinion with an explanatory paragraph.
e.Issue an unqualified opinion with modified wording (no explanatory paragraph).
f. Issue an adverse opinion.
g.Disclaim an opinion.
The situations are as follows:
________ 1> Becker Corporation carries its property, plant, and equipment accounts at
current market values. Current market values exceed historical cost by a highly material
amount, and the effects are pervasive throughout the financial statements.
________ 2> Management of Becker Corporation refuses to allow you to observe, or
make, any counts of inventory. The recorded book value of inventory is highly material.
________ 3> You were unable to confirm accounts receivable with Becker’s customers.
However, because of detailed sales and cash receipts records, you were able to perform
reliable alternative audit procedures.
________ 4> One week before the end of fieldwork, you discover that the audit
manager on the Becker engagement owns a material amount of Becker’s common stock.
________ 5> You relied upon another CPA firm to perform part of the audit. Although
you were the principal auditor, the other firm audited a material portion of the financial
statements. You wish to refer to (but not name) the other firm in your report.
________ 6> You have substantial doubt about Becker’s ability to continue as a going
concern.
________ 7> Becker Corporation changed its method of computing depreciation in
2007. You concur with the change and the change is properly disclosed in the financial
statement footnotes.
________ 8> Ten days after the balance sheet date, one of Becker’s buildings was
destroyed by a fire. Becker refuses to disclose this information in a footnote to the
financial statements, but you believe disclosure is required to conform with GAAP. The
amount of the uninsured loss was material, but not highly material.
35) Audit evidence regarding the separation of duties is normally best obtained by:
A) preparing flowcharts of operational processes
B) preparing narratives of operational processes
C) observation of employees applying control activities
D) inquiries of employees applying control activities
36) 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