The rule of independence would relate to which of the following accounting
professionals?
A. Internal auditor.
B. CPA performing an audit.
C. Controller preparing the firm’s financial statements.
D. Tax accountant.
If serious control deficiencies are detected prior to year-end and management
implements changes to its systems to correct the deficiencies, the auditor:
(a) must retest the ITGC again to ensure no additional deficiencies exist.
(b) cannot rely on the ICFR in planning its financial statement audit.
(c) must test the changes made to the system to determine if the deficiency was
resolved.
(d) All of the above.
If the auditor concludes that audit committee oversight of financial reporting and ICFR
is ineffective and that a material weakness exists, the auditor should:
a. communicate this directly to the SEC.
b. communicate this to the audit committee.
c. communicate this to the predecessor auditor.
d. communicate this to the board of directors.
An experienced audit team will begin planning the audit before it knows all the specific
information about a particular client company because
(a) experienced auditors know the general framework of what needs to be done on any
audit.
(b) auditors experienced in the client’s industry understand the activities and risks of the
industry, which gives them an understanding of the important financial statement
accounts and ICFR areas.
(c) auditors experienced with this client company have already gained quite a bit of
information from the client acceptance or continuance processes.
(d) all of the above
Non-assurance type work performed by CPAs includes:
a. Tax preparation.
b. Consulting.
c. Bookkeeping.
d. All of the above.
Which of the following best describes the conclusions an auditor makes in an integrated
audit that results in an audit report that is unqualified?
a. The financial statements are fair according to GAAP.
b. The financial statements are free of material misstatement based on U.S. GAAP and
management’s report on internal control over financial reporting states that there are no
material weaknesses.
c. The financial statements and internal control over financial reporting are materially
correct.
d. The financial statements are free of material misstatement based on U.S. GAAP and
based on the audit, the auditor agrees with management’s report that internal control
over financial reporting is effective and does not have any material weaknesses.
A manufacturer’s definition of raw materials would be:
a. natural goods that have never been processed.
b. inputs to production.
c. outputs from production.
d. processed goods that await inventory recordkeeping.
Each of the following represents a risk of relying on computerized information systems
except:
(a) unauthorized access.
(b) inappropriate manual intervention.
(c) reduction in circumvention of controls.
(d) potential loss of data.
FlexBandage, Inc., manufactures surgical wraps, which it distributes to hospitals and
clinics around the country. FlexBandage uses primarily trade accounts when dealing
with its customers and bases its accounts receivable valuation at year end on an aging
schedule and prior history of overall collections.
(a)When should FlexBandage recognize revenue from its sales transactions?
(b)What are potential problems auditors need to consider for revenue recognition?
Use of statistical sampling:
a. prevents errors.
b. is easier to defend in court.
c. allows the auditor to infer conclusions about the sample.
d. None of the above.
When a payment is received through the mail, it is usually in the form of a check and is
accompanied by a(n):
a. invoice.
b. remittance advice.
c. bill of lading.
d. purchase order.
e. purchase requisition.
One of the first procedures performed by auditors during on-location audit work is the
(a) Development of the firm’s audit strategy.
(b) Preparation of the audit report.
(c) Design of the audit plan.
(d) Establishment of an understanding of the company’s ICFR systems.
When inquiry, observation, and inspection are all used to trace a transaction as it is
initiated, authorized, processed, and recorded, the process is called a(n)
(a) inspection
(b) walkthrough
(c) assertion
(d) analytical procedure
Manufacturers differ from retailers in that manufacturers:
a. purchase from suppliers.
b. purchase raw materials from suppliers.
c. add labor to raw material.
d. Both b and c.
Arbitration may occur:
a. Before a trial.
b. During a trial.
c. After a trial.
d. Both a and b.
An integrated audit consists of:
(a) examining the effectiveness of internal control.
(b) examining the fairness of the financial statements.
(c) Both a and b.
(d) Neither a nor b.
An auditor expresses an unqualified opinion on the financial statements of a publically
held client. Subsequent to the audit, the client files for bankruptcy protection. If the
bankruptcy was caused by poor internal controls at a service provider, the auditor may
use as a valid defense which of the following?
a. It relied on the work of another auditor.
b. It extended its testing of the client’s internal control environment.
c. It extended its testing of client internal controls by performing tests of controls at the
service provider.
d. Any of the above depending on the circumstances.
The ICFR is important because:
(a) it links the client’s financial statements and the risks associated with financial
reporting.
(b) it links the information system and the risks associated with financial reporting.
(c) it provides readers with an assessment of how effective the internal control system
is.
(d) All of the above.
An auditor is rarely faced with a moral dilemma.
If an auditor has serious going concern issues regarding the client, but the financial
statements are correctly stated, then the auditor should:
a. issue an adverse opinion.
b. issue a disclaimer of opinion.
c. issue an unqualified opinion with appropriate explanatory language.
d. perform analytical procedures of the adjusted financial statements.
Who writes the SAS 70 report? TYPO
a. The user auditor.
b. The service auditor.
c. The service provider.
d. Any of the above depending on the circumstances.
The scope of the engagement depends upon all of the following considerations except
the
(a) presentation of the client’s accounting information.
(b) use and importance of IT to the client’s activities and ICFR.
(c) ability to use audit evidence performed by the client’s internal auditors.
(d) timing of the client’s fiscal year-end.
Auditing is defined as a:
a. set pattern of tests.
b. random process.
c. systematic process.
d. All of the above.
Incorrect acceptance can occur when:
a. there is an efficiency problem.
b. the sample size is too small.
c. there is a sampling error.
d. All of the above.
Detection risk is:
(a) the possibility that a misstatement will be missed when audit steps are performed.
(b) the possibility that accounts receivable will be uncollected.
(c) the possibility that inventory will not be sold.
(d) Both b and c.
The completeness assertion is audited by:
a. comparing payroll master file update control totals to the payroll register totals.
b. comparing the check numbers per the bank statement for missing checks.
c. comparing the deposits in transit to the bank statement.
d. Both a and b.
Scienter means:
a. The auditor exercised poor professional judgment.
b. The auditor knowingly sought to deceive the plaintiff.
c. The auditor failed to exercise due professional care.
d. All of the above.
Due professional care applies to:
(a) sample selection.
(b) follows appropriate audit standards.
(c) accepts professional guidance.
(d) All of the above apply to due professional care.
The search for unrecorded liabilities consists of:
a. a review of unmatched invoices.
b. a review of unmatched receiving reports.
c. a review of entries in the accounts payable subsidiary ledger.
d. Both a and b.
Pensions:
(a) can be defined benefit.
(b) can be defined contribution.
(c) Either a or b.
(d) must be fixed payments.
Auditor A accepts a client in an industry where change is constant and rapid. Such a
client presents which type of risk:
(a) engagement risk.
(b) inherent risk.
(c) control risk.
(d) detection risk.
Detection risk is a function of:
(a) tests of details of balances.
(b) the scope of substantive balances.
(c) the risk a material misstatement is missed by the audit’s analytical procedures.
(d) Both a and c.
How does the commitment to competence of the COSO IC Framework
control environment relate to the quality control concept of assignment of staff to
certain tasks on an audit engagement?
Identify the elements of quality control.
An allowance may be given to the purchaser even though the goods are not physically
returned.
An example of an unrestricted source of information is the Financial Crimes
Enforcement Network.
Sarah works in a clothing boutique whose return policy requires a manager to authorize
any returns or exchanges.While auditing the boutique, you interview Sarah and learn
that the weekend manager has given Sarah and several other employees the
authorization code to process returns and exchanges so that the register does not get
backed up when the store gets busy.As the auditor, would you continue to test this
control during your audit? What recommendations would you make to improve this
control?
The ACFE reported that frauds are never detected as a result of tips from
whistleblowers.
The Audit Committee of the Board of Directors performs the audit and reports the
results to shareholders and the Board of Directors.
The PCAOB (Public Company Accounting Oversight Board) is the primary
professional organization of CPAs.
If a client changes auditors, the new auditors may have to reissue the audit report for the
previous year.
Touring client facilities allows auditors an opportunity to inspect long-lived assets
possible impairment.
The scope of a forensic accountant’s work is limited to financial statement issues and
financial statement fraud.
Is it important whether an auditor is charged under common law or statutory law, and
why or why not? How do the laws differ? What are the reasons why a plaintiff might
prefer to bring a case in state or federal court?
Whether conducted by public accounting firms or accountants working within special
state offices, audits of state and local governments involve some activities not required
in the financial statement audits of for-profit corporations.
CPAs who audit public companies may only perform attest services.
A company’s recent restatement of previously issued financial statements is a favorable
indicator that the company’s internal controls are effective in the timely detection of
errors and misstatements.
A W-2 form is used to report earnings to the appropriate governmental bodies.
How do government auditors achieve objectivity?
The organization of a typical CPA firm is similar to that of a corporation.