ACCT 727 Test

subject Type Homework Help
subject Pages 9
subject Words 2281
subject Authors Alvin A. Arens, Mark S. Beasley, Randal J. Elder

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1) Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934 are often referred
to as:
A) the antifraud provisions
B) the new issues provisions
C) the full-employment act for accountants
D) the RICO provisions
2) A positive confirmation is more reliable evidence than a negative confirmation
because:
A) fewer confirmations can be sent out
B) the auditor has a document which can be used in court
C) the debtor's lack of response indicates agreement with the stated balance
D) follow-up procedures are performed if a response is not received from the debtor
3) In most audits, payroll tax expense is not tested because the audit risk does not
justify the time required to perform the tests.
A) True
B) False
4) An auditor would be least likely to use confirmations in connection with the
examination of:
A) inventories
B) long-term debt
C) property, plant, and equipment
D) stockholders' equity
5) Which of the following would have the least impact in determining sample size for
tests of controls?
A) Expected population exception rate
B) Risk of assessing control risk too low
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C) Tolerable exception rate
D) Population size
6) Under which of the following circumstances would it be advisable for the auditor to
confirm accounts payable with creditors?
A) Internal accounting control over accounts payable is adequate, and there is sufficient
evidence on hand to minimize the risk of a material misstatement
B) Confirmation response is expected to be favorable, and accounts payable balances
are of immaterial amounts
C) Creditor statements are not available and internal control over payables is
unsatisfactory
D) The majority of accounts payable balances are with associated companies
7) Internal controls are not designed to provide reasonable assurance that:
A) all frauds will be detected
B) transactions are executed in accordance with management's authorization
C) access to assets is permitted only in accordance with management's authorization
D) company personnel comply with applicable rules and regulations
8) What typically initiates the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of payment to vendor
C) approval of a new vendor
D) purchase requisition
9) The auditor may estimate the "estimated population exception rate" by taking a small
preliminary sample from the current year's data or by using the prior year's experience
with the client.
A) True
B) False
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10) The use of positive assurance is appropriate in review reports.
A) True
B) False
11) Which of the following types of evidence is not available when using substantive
tests of transactions?
A) Documentation
B) Confirmation
C) Inquiries of the client
D) Reperformance
12) Significant deficiencies need to be communicated to the company's audit committee
because:
A) they represent material weaknesses that allow fraud to be perpetrated
B) they represent significant design flaws in internal controls
C) they represent falsification of accounting records
D) they represent disclosure of information related to issuance of a "going-concern"
opinion
13) Total estimated misstatements include known misstatements and projected
misstatements plus a sampling error.
A) True
B) False
14) The auditor has considerable responsibility for notifying users as to whether or not
the statements are properly stated. This imposes upon the auditor a duty to:
A) provide reasonable assurance that material misstatements will be detected
B) be a guarantor of the fairness in the statements
C) be equally responsible with management for the preparation of the financial
statements
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D) be an insurer of the fairness in the statements
15) Acceptable risk of incorrect acceptance (ARIA) is directly related to the computed
precision interval in difference estimation; that is, as ARIA increases, the computed
precision interval decreases.
A) True
B) False
16) When the auditor is determining appropriate depreciation calculations for the
classifications in the client's fixed asset master file she is testing the audit objective of:
A) completeness
B) existence
C) classification
D) valuation and allocation
17) ________ accumulate costs by individual jobs as material is issued into production
and labor costs are incurred.
A) Just-in-time production systems
B) Job order cost systems
C) Process cost systems
D) Manufacturing systems
18) You are auditing the company's purchasing process for goods and services. You are
primarily concerned with the company not recording all purchase transactions. Which
audit procedure below would be the most effective audit procedure in this case?
A) Vouching from the accounts payable account to the vendor invoices
B) Tracing vendor invoices to recorded amounts in the accounts payable account
C) Confirmation accounts payable recorded amounts
D) Reconciling the accounts payable subsidiary ledger to the accounts payable account
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19) Under common law, an individual or company that (1) does not have a contract
with an auditor, (2) is known by the auditor in advance of the audit, and (3) will use the
auditor's report to make decisions about the client company has:
A) no rights unless an auditor is grossly negligent
B) no rights unless an auditor is fraudulent
C) no rights against an auditor
D) the same rights against an auditor as a client
20) The primary purpose of allocating the preliminary judgment about materiality to
financial statement accounts is to help the auditor decide the appropriate evidence to
accumulate.
A) True
B) False
21) The auditor uses a proof of cash to determine whether:
A)
B)
C)
D)
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22) Under the Securities Act of 1933, the auditor's responsibility for making sure the
financial statements were fairly stated extends to:
A) the date of the financial statements
B) the date the registration statement becomes effective
C) the date of the audit report
D) one year beyond the date of the financial statements
23) Which of the following is not a risk specific to IT environments?
A) reliance on the functioning capabilities of hardware and software
B) increased human involvement
C) loss of data due to insufficient backup
D) unauthorized access
24) When should auditors not perform alternative procedures in testing the accounts
receivable balance?
A) When customers do not return positive confirmation requests
B) When customers do not return negative confirmation requests
C) When confirmations are deemed to be ineffective as an audit procedure
D) When confirmations are too costly to use
25) When a client uses an outside payroll service for processing payroll, professional
auditing standards require the auditor to rely on the internal controls of the service
organization if the service organization's auditor has issued a favorable report on
internal controls.
A) True
B) False
26) Discuss what is meant by the term "control environment" and identify four control
environment subcomponents that the auditor should consider.
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27) The design of tests of details of balances for inventory is affected by audit results
from multiple cycles. Identify the cycles, other than the inventory and warehousing
cycle that affect the audit of inventory.
28) Material misstatement is the magnitude of misstatement that makes a reasonable
person either change their mind or be influenced by the misstatement. Audit standards
require the auditor to consider the combined amount of misstatement early in the audit.
This is known as preliminary materiality judgment. List and discuss the three main
factors that affect an auditor's preliminary judgment about materiality.
29) Define forecast and projection.
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30) When performing an attestation engagement a CPA is required to adhere to the
Statements on Standards for Attestation Engagements. Describe below the Standards of
Field Work for attestation engagements.
31) Discuss each of the four defenses a CPA firm can normally use when facing legal
claims by clients. Which of these defenses is ordinarily not available against third-party
suits?
32) Identify and describe each of the four parts to the
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33) Discuss the overall objectives of the audit of notes payable.
34) An important balance related objective is realizable value. Describe what is the
purpose of this audit objective, what it is concerned with, and give an example.
35) What are the four steps auditors follow when they plan to reduce assessed control
risk?

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