By speaking with individuals inside the company, an auditor may learn about:
(a) Management’s philosophy and integrity.
(b) The composition of the Board of Directors and audit committee.
(c) The organizational structure and accounting functions.
(d) All of the above.
As AP risk decreases, then:
(a) detection risk increases.
(b) audit risk decreases.
(c) inherent risk increases.
(d) Both a and b.
The auditor reviews subsequent payments made to suppliers in order to detect: TYPO
a. unrecorded liabilities.
b. errors in postings.
c. errors in the bank reconciliation.
d. All of the above.
The war in Iraq would be contrary to the:
A. right is the decision made by a single ruler with ultimate authority.
B. right is whatever preserves the life of even one person.
C. right is whatever the law requires.
D. right is whatever creates the greatest good.
Which of the following is not a likely reason why an audit firm does not possess the
necessary resources to perform an audit engagement?
(a) The client company is very large and has multiple geographic locations.
(b) The client company is in a highly regulated industry for which significant industry
expertise is required.
(c) The client company has a very complex IT system for which significant technical
expertise is required.
(d) The client company has a decentralized structure for providing management
oversight.
Audit risk involves the risk that:
a. The financial statements contain a misstatement.
b. The ICFR fails to report material internal control weaknesses and the audit report
also fails to mention this fact.
c. The client lied to management.
d. All of the above.
Testing whether transactions are recorded in the correct journal and/or ledger is an
example of which assertion?
a. Occurrence.
b. Cut-off.
c. Rights and obligations.
d. Both a and b.
Which of the following would not be likely to participate in an audit planning meeting?
(a) The core audit engagement team.
(b) The audit team’s tax manager
(c) The audit team’s partner for IT
(d) The chair of the client’s audit committee.
Contributory negligence concerns:
a. The management of the corporation under audit.
b. Cases where management hides liabilities intentionally from the auditors.
c. Cases where management is responsible for the negligent act.
d. All of the above.
An integrated audit results in:
a. an audit opinion on the financial statements.
b. an audit opinion on ICFR.
c. a series of reports to major stakeholders.
d. Both a and b.
The payroll master file serves which purpose?
a. It is a repository of all employees currently employed and recently discharged.
b. It lists key employee data such as pay rate and deduction information.
c. It lists the year-to-date earnings information for each employee.
d. All of the above.
An example in the book cites the case of a young woman who received an incorrect
W-2 showing more wages than she received. How did this occur?
a. Her supervisor awarded her a bonus.
b. Her supervisor failed to notify human resources that she left the company.
c. Her supervisor forgot to sign her out.
d. None of the above.
Which of the following is not an entity-level control that monitors other controls?
(a) The internal audit function.
(b) The audit committee.
(c) The code of conduct.
(d) The self-assessment program.
Segregation of duties within the IT world is most concerned with separating the
functions of:
(a) hiring systems personnel and acquiring/modifying hardware and software.
(b) monitoring IT processes and overseeing third party service providers.
(c) operating IT systems and IT development.
(d) managing IT continuity programs and IT security.
The confirmation of customers’ accounts receivable rarely provides reliable evidence
about the completeness assertion because:
a. many customers merely sign and return the confirmation without verifying its details.
b. customers may not be inclined to report understatement errors in their accounts.
c. recipients usually respond only if they disagree with the information on the request.
d. auditors typically select many accounts with low recorded balances to be confirmed.
e. auditors typically select few accounts with low recorded balances to be confirmed.
Which of the following is one of the levels of the structure of the AICPA Code of
Conduct?
A. Membership in the AICPA.
B. Independence.
C. Interpretations of the Rules of Conduct.
D. Professional governance.
The management representation letter is used:
a. by the auditor in lieu of audit testing in cases of scope limitation.
b. by the auditor as evidence that management understands its responsibility for the
financial statements and internal control environment.
c. by the auditor as its sole defense in case of lawsuits arising from an audit failure.
d. All of the above.
An internal document listing customer orders that have received credit approval but
have not been shipped is a(n):
a. pick ticket.
b. bill of lading.
c. customer invoice.
d. shipping document.
e. unfilled order report.
The schedule of audit findings summarizes the:
a. objectives of the GAO.
b. objectives of the Yellow Book.
c. results of the audit.
d. objectives of field work.
e. objectives of integrity.
Which body regulates the audits of nonpublic companies in the United States?
a. PCAOB
b. AICPA
c. IFRS
d. SEC
Which of the following activities is usually performed by a service provider?
a. Updating the payroll master file.
b. Submitting summary information back to the organization for use in the accounting
process.
c. Distributing paychecks.
d. Both a and b.
The procedures in a review of interim financial information of a public company are
similar to those in a SSARS review of financial statements for a:
a. not-for-profit company.
b. private company.
c. governmental entity.
d. nonpublic company.
e. service entity.
Account analyses are performed for:
a. accounts that do not consist of complex transactions.
b. accounts that relate to other, larger accounts.
c. accounts that change frequently.
d. All of the above.
An audit report on a client’s ICFR differs from the audit report for a financial statement
by:
a. being separate from the audit report for the financial statements.
b. including an explanatory paragraph.
c. including a definition paragraph.
d. All of the above.
In the land development and home building industry, materials costs are typically added
to the inventory cost of a specific unit based on actual purchases prices except when:
a. subcontractors are used, in which case the costs cannot be directly traced to plan
specifications.
b. multifamily residences are constructed, in which case it is necessary to allocate
common costs.
c. job order costing is used, in which case the specific identification method cannot be
applied.
d. large quantities of building materials are purchased that cannot be tracked to
individual units.
As the expected population deviation rate increases, the:
(a) degree of assurance desired by the sample’s audit evidence increases.
(b) tolerable rate of deviation decreases.
(c) tolerable rate of deviation increases.
(d) degree of assurance desired by the sample’s audit evidence decreases.
A client decides to change accounting procedures for certain types of transactions
which have a material impact on the financial statements. The client changes from the
LIFO method of inventory valuation to the FIFO method without justification. The
auditor should issue what type of opinion?
a. Adverse opinion.
b. Disclaimer of opinion.
c. Qualified opinion.
d. Depending on the circumstances, the auditor may choose either “a” or “c” above.
An accrual is different from a payable in that:
a. the accrual amount is unknown.
b. the accrual is an estimate.
c. the payment is not yet due.
d. Both b and c.
Overhead costs are also known as:
a. direct costs.
b. work-in-process costs.
c. tracked costs.
d. indirect costs.
An auditor tests a sample of transactions for proper authorization. She concludes that
the control is not operating effectively, although it actually is. This is an example of:
(a) sampling error.
(b) sampling risk.
(c) detection risk.
(d) All of the above.
In general, scope limitations beyond the control of management:
a. result in a qualified opinion, subject to the scope limitation.
b. result in an unqualified opinion.
c. result in an adverse opinion.
d. result in a qualified opinion, except for the scope limitation.
Which of the following could cause an auditor to refuse to submit a proposal for a
prospective audit client:
(a) a senior sales V.P.’s 10 year-old conviction for tax evasion.
(b) a board of directors comprised of management’s close friends.
(c) a reputation for high employee turnover.
(d) None of the above.
Management has responsibility for designing the controls and the effective operations
of the:
a. ICFR.
b. IPSR.
c. ISOT.
d. ITAT.
e. ICTW.
Which of the following is not a form of audit evidence?
(a) recalculation
(b) reperformance
(c) repetition
(d) inquiry
Deferred tax liabilities are estimated using both current and estimated tax rates.
Ballpark Distributors, Inc. is a large public company with a calendar year end that
distributes sports memorabilia to various retailers. Ballpark conducted an inventory
count on November 30 of the year being audited. Instead of conducting another
inventory count at year end, the company decided to estimate the year-end inventory
using a sample of the year-end inventory on hand. The company uses a perpetual
inventory system and feels that sampling to estimate the year-end inventory will
produce a reliable financial statement amount.
Assume that the auditor observed and tested Ballpark’s physical inventory count on
November 30, and was satisfied that the count and resulting adjustments produced an
appropriate inventory account balance on November 30.
(a)What roll-forward procedures between the inventory count date and year end might
the auditor perform?
(b)What additional tests of details of balances can the auditor perform?
Documented approvals of write-offs of accounts receivable are required before
transactions are recorded.
Manual controls require more testing than automated controls.
As a result of the requirement for accountability, auditors must determine whether
government units are in compliance with the provisions of any federal awards received.
For accounts that involve significant estimates, require a high degree of judgment, or
are susceptible to management override of controls, a principal auditor may completely
rely on the work of others in determining whether those accounts are materially
misstated.
Forensic accountants often investigate fraud.
Among other responsibilities, the Government Accountability Office conducts and
reports on reviews every three months on how the stimulus funds are used by states and
localities.
The Securities Act of 1933 requires that the plaintiff show that the financial statements
were relied upon.
Verification of prices and terms of the sale must also be performed prior to completing
the transaction.
Is it possible that an auditor can make a professional judgment error and still be
behaving with due professional care? Explain.
Dual purpose tests for payroll cash disbursements involve both the transfer of money
from the general bank account to the payroll account and the cash disbursements from
the payroll bank account to the employees.
The PCAOB was formed to meet one of the requirements in the Sarbanes-Oxley Act of
2002.
F A forensic accountant, searching for illegal acts and fraud, usually investigates them
with a lack of intensity.
The AICPA Auditing Standards Board was created by the Sarbanes-Oxley Act.
The purchase requisition, purchase order, and supplier invoice comprise a payment
support package.