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1) Which of the following accounts is not included in the acquisitions class of
transactions?
A) Inventory
B) Prepaid expenses
C) Purchase discounts
D) Accounts payable
2) The trait that distinguishes auditors from accountants is the:
A) auditor's ability to interpret accounting principles generally accepted in the United
States
B) auditor's education beyond the Bachelor's degree
C) auditor's ability to interpret FASB Statements
D) auditor's accumulation and interpretation of evidence related to a company's
financial statements
3) You are responsible for the audit of payroll. You have assessed control risk as low for
the payroll transactions. Substantive tests of payroll would most likely be limited to
analytical procedures and:
A) tracing employee time records to the payroll transaction file
B) recomputing an entire payroll period and compare to the client's records
C) tracing amounts in the payroll transaction file to the payroll master file
D) recalculating payroll accruals
4) The primary purpose of a compliance audit is to determine whether the financial
statements are prepared in compliance with generally accepted accounting principles.
A) True
B) False
5) A measure of how willing the auditor is to accept that the financial statements may
be materially misstated after the audit is completed and an unqualified opinion has been
issued is the:
A) inherent risk
B) acceptable audit risk
C) statistical risk
D) financial risk
6) It would be appropriate for the payroll department to be responsible for which of the
following functions?
A) Approval of employee time records
B) Maintain records of employment, firings, and raises
C) Temporary retention of unclaimed employee paychecks
D) Preparation of governmental reports as to employees' earnings and withholding taxes
7) Which of the following best describes a trend in litigation involving CPAs?
A) A CPA cannot render an opinion unless the CPA has audited all affiliates of a
company
B) A CPA may not successfully assert that the CPA had no motive to be part of a fraud
C) A CPA may be exposed to criminal as well as civil liability
D) A CPA is primarily responsible for a client's footnotes filed with the SEC
8) Any audit report that contains more than three paragraphs means there is either a
qualified opinion or required explanation.
A) True
B) False
9) If auditors consider confirmations of accounts receivable to be ineffective evidence
because response rates will be very low, they need not confirm accounts receivable.
A) True
B) False
10) An auditor must inform a client's audit committee of an illegal act discovered
during an audit in writing.
A) True
B) False
11) It is generally more difficult for the auditor to detect payment of fraudulent hours
than payment of fictitious employees.
A) True
B) False
12) If an auditor conducted an audit in accordance with auditing standards, which of the
following would the auditor likely detect?
A) unrecorded transactions
B) errors in postings of recorded transactions
C) counterfeit signatures on paid checks
D) fraud involving collusion
13) Which of the following is not a contingent liability with which an auditor is
particularly concerned?
A)
B)
C)
D)
14) When management is evaluating the design of internal control, management
evaluates whether the control can do which of the following?
A)
B)
C)
D)
15) To test for cutoff errors which overstate liabilities, the auditor should trace, to
vendors' invoices, the receiving reports issued:
A) after year-end
B) before year-end
C) the last day of the fiscal year
D) both before and after year-end
16) The CPA must not subordinate his or her professional judgment to that of others in
any:
A) engagement
B) audit engagement
C) engagement excluding tax services
17) Below are five audit procedures, all of which are tests of transactions associated
with the audit of the sales and collection cycle. Also below are the six general
transaction-related audit objectives and the five management assertions. For each audit
procedure, indicate (1) its audit objective, and (2) the management assertion being
tested.
Audit Objectives A. Occurrence B. Completeness C. Accuracy D. Posting and
summarization E. Classification F. Timing Assertions V. Occurrence W. Completeness
X. Accuracy Y. Classification Z. Cutoff
18) Which of the following is not a factor that relates to opportunities to misappropriate
assets?
A) Inadequate internal controls over assets
B) Presence of large amounts of cash on hand
C) Inappropriate segregation of duties or independent checks on performance
D) Adverse relationships between management and employees
19) A CPA is subject to criminal liability if the CPA:
A) refuses to turn over requested audit documentation to a client
B) performs an audit in a negligent manner
C) willfully omits a material fact from a set of financial statements
D) willfully breaches a contract with a client
20) Which of the following is true?
A) tests of details of balances focus on the ending balances for accounts in the client's
ending trial balance
B) tests of details of balances focus on the transactions during the period
C) tests of details of balances focus on the auditor's understanding of internal controls
D) tests of details of balances focus on comparisons of recorded amounts to
expectations developed by the auditor
21) The audit procedure of tracing sales invoices to shipping documents will provide
the auditor evidence that:
A) billed sales were shipped
B) shipments were recorded as receivables in the subsidiary ledger
C) the accounts receivable master file and the accounts receivable subsidiary ledger
reconcile
D) goods shipped were billed to customers
22) Which of the following is not one of the three primary objectives of effective
internal control?
A) reliability of financial reporting
B) efficiency and effectiveness of operations
C) compliance with laws and regulations
D) assurance of elimination of business risk
23) Which of the following is not a primary consideration when assessing inherent
risk?
A) nature of client's business
B) existence of related parties
C) degree of separation of duties
D) susceptibility to defalcation
24) By tracing receiving reports issued at and before year-end to vendors' invoices and
making sure they are included in accounts payable, the auditor is testing for:
A) theft of merchandise by employees
B) unrecorded obligations
C) lapping
D) kiting
25) An audit of historical financial statements is most often performed to determine
whether the:
A) organization is operating efficiently and effectively
B) entity is following specific procedures or rules set down by some higher authority
C) management team is fulfilling its fiduciary responsibilities to shareholders
D) none of these choices
26) While separate perpetual inventory records are normally kept for raw materials and
finished goods, most companies do not use perpetual for work-in-process.
A) True
B) False
27) Ordinarily, all deposits-in-transit listed on the year-end bank reconciliation should
appear as deposits on the cutoff bank statement.
A) True
B) False
28) When the computed upper exception rate is greater than the tolerable exception rate,
it is necessary for the auditor to take specific action. Which of the following courses of
action would be most difficult to justify?
A) Reduce the tolerable exception rate so as to accept the sample results
B) Expand the sample size and perform more tests
C) Revise the assessed control risk
D) Write a letter to management which outlines the control deficiencies
29) Discuss two causes of nonsampling risk. Also discuss ways the auditor can control
nonsampling risk.
30) The risk of material misstatement is a combination of two client controlled factors:
inherent risk and control risk. What is inherent risk, why is it important and give
examples of inherent risk factors.
31) Consider the steps in sampling for tests of details and for tests of controls. Explain
the differences in applying sampling to these two types of tests.
32) Discuss the similarities and differences between the roles of independent auditors,
GAO auditors, internal revenue agents, and internal auditors.
33) What are the major factors affecting sample size for confirming accounts
receivable?
34) Discuss each of the four business functions that comprise the acquisition and
payment cycle.
35) Discuss the differences in the auditor's responsibilities for discovering (1) material
errors, (2) material fraud (3) direct-effect illegal acts, and (4) indirect-effect illegal acts.
36) Three factors the auditor considers when assessing control risk are: the auditor's
belief concerning the effectiveness of internal controls, the results of tests of controls,
and the cost-effectiveness of a reduced assessed control risk. Identify the combination
of conditions for these three factors that is required before a reduction in substantive
testing is permitted.
37) What types of inquiry techniques might an auditor use when making inquiries of
client personnel? What are the uses of each technique?
