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1) The auditor traces items from the source documents to the journals in order to
accumulate audit evidence that will satisfy the:
A) existence objective
B) completeness objective
C) ownership objective
D) valuation objective
2) Which one of the following is not an inherent risk factor in the financial statements?
A) The company made 3 acquistions during the year in different lines of business
B) The company's industry is experiencing downward pricing pressure for its goods and
services
C) The company's inventory, because of multiple locations, is difficult to count
D) The company has hired 3 different chief accounting officers for the year
3) A control available in a small company, which may be necessitated because of lack
of competent personnel, is:
A) a wider segregation of duties
B) a voucher system
C) fewer transactions to process
D) the owner-manager's direct involvement in the control process
4) When an adverse opinion is issued, a scope paragraph would be:
A) qualified
B) unchanged
C) deleted
D) expanded to identify the additional procedures which the auditor performed
5) Whenever auditors use sampling, they risk making incorrect conclusions about the
population. For audit sampling of tests of transactions this risk is known as:
A) acceptable risk of assessing control risk too low
B) acceptable risk of assessing transaction testing as too low
C) risk that the sample is not representative of the population
D) risk that the sample conclusions cannot be useful because of non-probability
sampling
6) Analytical procedures must be used during which phase(s) of the audit?
A)
B)
C)
D)
7) Which of the following statements is true regarding the distinction between general
audit objectives and specific audit objectives for each account balance?
A) The specific audit objectives are applicable to every account balance on the financial
statements
B) The general audit objectives are applicable to every account balance on the financial
statements
C) The general audit objectives are stated in terms tailored to the engagement
D) For any given class of transactions, usually only one audit objective must be met to
conclude the transactions are properly recorded
8) Tests of the cutoff objective for prepaid insurance is normally not performed by
auditors.
A) True
B) False
9) While most cycles include at least two classes of transactions, the payroll and
personnel cycle includes only one class of transactions.
A) True
B) False
10) When inherent risk is high, there will need to be:
A)
B)
C)
D)
11) What is the primary objective of using stratified sampling in auditing?
A) To increase the confidence level at which a decision will be reached from the results
of the sample selected
B) To determine the occurrence rate for a given characteristic in the population being
studied
C) To decrease the effect of variance in the total population
D) To determine the precision range of the sample selected
12) The fieldwork for the December 31, 2007 audit of Treble Corporation ended on
March 17, 2008 . The financial statements and auditor's report were issued and mailed
to stockholders on March 29, 2008 . In each of the material situations (1 through 5)
below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as
follows:
a.Adjust the December 31, 2007 financial statements.
b.Disclose the information in a footnote in the December 31, 2007 financial statements.
c.Request the client revise and reissue the December 31, 2007 financial statements. The
revision should involve an adjustment to the December 31, 2007 financial statements.
d.Request the client revise and reissue the December 31, 2007 financial statements. The
revision should involve the addition of a footnote, but no adjustment, to the December
31, 2007 financial statements.
e.No action is required.
The situations are as follows:
________ 1> On January 16, 2008, a lawsuit was filed against Treble for a patent
infringement action that allegedly took place in early 2005. In the opinion of Treble's
attorneys, there is a reasonable (but not probable) danger of a significant loss to Treble.
________ 2> On February 19, 2008, Treble settled a lawsuit out of court that had
originated in 2002 and is currently listed as a contingent liability.
________ 3> On March 30, 2008, Treble settled a lawsuit out of court that had
originated in 2004 and is currently listed as a contingent liability.
________ 4> On February 2, 2008, you discovered an uninsured lawsuit against Treble
that had originated on August 30, 2007 .
________ 5> On April 7, 2008, you discovered that a debtor of Treble went bankrupt
on January 22, 2008, due to a major uninsured fire that occurred on January 2, 2008 .
13) A group typically included as "third parties" in common law is:
A)
B)
C)
D)
14) A four paragraph auditor opinion is required for:
A)
B)
C)
D)
15) Tests of the realizable value balance-related audit objective are for the purpose of
evaluating the allowance for doubtful accounts.
A) True
B) False
16) Which of the following statements is true?
A) There is an inverse relationship between the interest and dividends accounts and
debt and equity
B) There is no relationship between the interest and dividends accounts and debt and
equity
C) There is a direct relationship between the interest and dividends accounts and debt
and equity
D) None of the above is true
17) Significant deficiencies are matters that come to an auditor's attention and should be
communicated to an entity's audit committee because they represent:
A) material frauds perpetrated by high-level management
B) internal control deficiencies that could adversely affect a company's ability to
initiate, record, process, or report external financial statements reliably
C) flagrant violations of the entity's documented conflict-of-interest policies
D) intentional attempts by client personnel to limit the scope of the auditor's field work
18) To emphasize the fact that the auditor is independent, a typical addressee of the
audit report could be:
A)
B)
C)
D)
19) Which of the following groups could not be involved in an operational audit?
A) CPA firms
B) Internal auditors
C) Government auditors
D) None of the above answers are correct; that is, all of the above could be involved.
20) Which of the following accounts would normally not be a part of the acquisition
and payment cycle of Prepaid Insurance?
A) Cash
B) Insurance Payable
C) Insurance Expense
D) Prepaid Insurance
21) The PCAOB places responsibility for the reliability of internal controls over the
financial reporting process to:
A) the company's board of directors
B) the audit committee of the board of directors
C) the CEO and the CFO
D) the CFO and the Independent Auditors
22) The auditor's tests for proper cutoff of current year acquisitions of property, plant,
and equipment are usually done as part of accounts payable cutoff tests.
A) True
B) False
23) Which of the following represents the best description of the tolerable exception?
A) The highest exception rate the auditor will permit in the control being tested and still
conclude it is operating effectively
B) The highest exception rate the auditor expects to find in the population
C) The number of exceptions found in the sample divided by the sample size
D) The highest estimated exception rate in a population at a given ARACR
24) The 1136 Tenants case was a criminal case concerning a CPA's failure to uncover
fraud during a financial statement audit.
A) True
B) False
25) Which of the following is an incorrect statement regarding the allocation of the
preliminary judgment about materiality to balance sheet accounts?
A) Auditors expect certain accounts to have more misstatements than others
B) The allocation has virtually no effect on audit costs because the auditor must collect
sufficient appropriate audit evidence
C) Auditors expect to identify overstatements as well as understatements in the
accounts
D) Relative audit costs affect the allocation
26) Auditors should provide debt compliance letters only for clients for whom the
auditor has done an audit of the overall financial statements.
A) True
B) False
27) Which of the following balance-related audit objectives is not applicable to the
audit of notes payable?
A) Realizable value
B) Detail tie-in
C) Cutoff
D) Classification
28) Which of the following is a customary audit procedure for the verification of the
legal ownership of real property?
A) Examination of correspondence with the corporate counsel concerning acquisition
matters
B) Examination of ownership documents registered and on file at a public hall of
records
C) Examination of corporate minutes and resolutions concerning the approval to
acquire property, plant, and equipment
D) Examination of deeds and title guaranty policies on hand
29) The internal control "Vouchers are prenumbered and accounted for" relates most
closely to the occurrence objective for acquisitions.
A) True
B) False
30) Which of the following fee arrangements is not a violation of the
A) Basing fees as an expert witness on the amount awarded to the plaintiff, even though
the CPA performs a compilation for client use
B) Basing consulting fees on a percentage of a bond issue, even though the CPA
performs a review of the client's financial statements
C) Basing fees for a tax service on the amount of the refund that the client will receive
D) Basing consulting fees on a percentage of a bond issue, even though the CPA
performs an audit of the client's financial statements
31) When using the test data approach:
A) test data should include data that the client's system should accept or reject
B) application programs tested must be virtually identical to those used by employees
C) select data may remain in the client system after testing
D) none of the above statements is correct
32) Sampling risk results from the auditor's failure to recognize exceptions in
transaction data.
A) True
B) False
33) Auditor tests of physical controls over raw materials, work-in-process, and finished
goods are performed by:
A)
B)
C)
D)
