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1) When the auditor suspects that fraud may be present, SAS No. 99 requires the
auditor to:
A) terminate the engagement with sufficient notice given to the client
B) issue an adverse opinion or a disclaimer of opinion
C) obtain additional evidence to determine whether material fraud has occurred
D) re-issue the engagement letter
2) The most commonly used method of statistical sampling for tests of details of
balances is:
A) attributes sampling
B) systematic sampling
C) discovery sampling
D) monetary-unit sampling
3) Quality controls are established for the entire CPA firm whereas GAAS are
applicable to the individual engagement.
A) True
B) False
4) The accounts payable department usually has responsibility for approving
acquisitions for payment by comparing the details on the:
A) vendor's invoice and the receiving report
B) vendor's invoice and the purchase requisition
C) purchase order, receiving report, and vendor's invoice
D) purchase requisition, purchase order, and receiving report
5) Audit procedures are concerned with the nature, extent, and timing in gathering audit
evidence. Which, of the following, is true as to the timing of audit procedures?
A)
B)
C)
D)
6) The tolerable exception rate is the rate that the auditor will permit in the population
and still be willing to conclude a control is effective.
A) True
B) False
7) The auditor is responsible for communicating significant internal control deficiencies
to the audit committee, or those charged with governance. This communication:
A) may be oral or written
B) must be oral
C) must be written
D) must be oral via direct communication
8) In determining the level of audit efficiency, once the auditor has identified the key
internal controls and identified any deficiencies in order to determine the level of
control risk appropriate for a private company client, it is appropriate to decide
whether:
A) substantive tests can be reduced sufficiently to justify costs of performing tests of
controls
B) substantive tests can be increased sufficiently to justify costs of performing tests of
controls
C) tests of controls can be increased sufficiently to justify costs of performing
substantive tests
D) tests of controls can be reduced sufficiently to justify costs of performing
substantive tests
9) In a CPA firm operating as a limited liability partnership (LLP), the liability for one
partner's actions does extend to the firm's assets.
A) True
B) False
10) When performing audit tests of pricing and compilation for inventory, the client's
perpetual inventory master file may be used in place of vendors' invoices if controls
over the perpetual inventory master file are adequate.
A) True
B) False
11) Under which of the following circumstances would an auditor be most likely to
intensify an examination of a $500 imprest petty cash fund?
A) Reimbursement occurs twice each week
B) The custodian endorses reimbursement checks
C) Reimbursement vouchers are not prenumbered
D) The custodian occasionally uses the cash fund to cash employee checks
12) The same three defenses available to auditors in common lawsuits by third
parties-non-negligent performance, lack of duty, and absence of causal connectionare
also available for suits under the Securities Exchange Act of 1934 .
A) True
B) False
13) The United States Supreme Court has ruled that outside professionals such as
accountants who don't help run corrupt businesses cannot be sued under the provisions
of the Foreign Corrupt Practices Act.
A) True
B) False
14) Before goods are shipped on account, a properly authorized person must:
A) prepare the sales invoice
B) approve the journal entry
C) approve the customer's credit
D) verify that the unit price is accurate
15) Financial statement users often receive unreliable financial information from
companies. Which of the following is not a common reason for this?
A) Complex exchange transactions
B) Voluminous data
C) Remoteness of information
D) Each of these choices is a common reason for unreliable financial information
16) Match six of the terms (a-l) with the definitions provided below (1-6):
a.Acceptable risk of incorrect acceptance
b.Acceptable risk of incorrect rejection
c.Difference estimation
d.Misstatement bounds
e.Monetary-unit sampling
f.Mean-per-unit estimation
g.Point estimate
h.Probability proportional to size sample selection
i.Ratio estimation
j.Statistical inferences
k.Stratified sampling
l.Variable sampling
________ 1> Conclusions drawn from sample results based on knowledge of sampling
distributions.
________ 2> Sampling techniques for tests of details that use the statistical inference
processes.
________ 3> The risk that the auditor is willing to take of concluding a balance is
materially misstated when it is, in fact, fairly stated.
________ 4> A statistical sampling method that provides upper and lower misstatement
bounds expressed in monetary amounts.
________ 5> A method of variables sampling in which the auditor estimates the
population misstatement by multiplying the average misstatement in the sample by the
total number of population items and also calculates sampling risk.
________ 6> The risk that the auditor is willing to take of accepting a balance as
correct when the true misstatement in the balance is greater than tolerable misstatement.
17) The partnership of Booth & Haynes, CPAs, has been engaged to examine the
financial statements of Paul, Inc., in connection with the registration of Paul's securities
with the Securities and Exchange Commission. Under these circumstances, which of
the following statements is true?
A) Booth & Haynes is assuming much greater third-party liability than it assumes on
engagements under common law
B) If its examination is not fraudulent, Booth & Haynes may issue an appropriate
disclaimer to the financial statements and thereby avoid liability
C) Booth & Haynes must incorporate if they wish to practice before the SEC
D) Booth & Haynes must be a large interstate firm if they wish to practice before the
SEC
18) Amounts involving fraud are usually considered ________ important than
unintentional errors of equal dollar amounts.
A) less
B) no less
C) no more
D) more
19) Which of the following audit tests form the basis for an auditor's report on internal
control over financial reporting?
A) Analytical procedures
B) Tests of transactions
C) Tests of controls
D) Tests of details of balances
20) The auditor must extend the audit procedures in the audit of year-end cash when
there are inadequate internal controls.
A) True
B) False
21) Auditors must maintain control of confirmations until they are returned from the
customer.
A) True
B) False
22) The record of the issuance and repurchase of capital stock for the life of the
corporation is maintained in the:
A) shareholders' capital stock master file
B) capital stock certificate record
C) schedule of stock owners
D) corporate directory
23) In comparing management fraud with employee fraud, the auditor's risk of failing to
discover the fraud is:
A) greater for management fraud because managers are inherently more deceptive than
employees
B) greater for management fraud because of management's ability to override existing
internal controls
C) greater for employee fraud because of the higher crime rate among blue collar
workers
D) greater for employee fraud because of the larger number of employees in the
organization
24) The most important consideration in evaluating the fairness of the amounts accrued
for vacation pay, sick pay, and other benefits is the:
A) consistent accrual of these liabilities relative to those of preceding periods
B) actual expense incurred for the prior period
C) amount expended to date in the current period
D) profitability of the client which will enable these liabilities to be met
25) The Sarbanes-Oxley Act applies to which of the following companies?
A) All companies
B) Privately held companies
C) Public companies
D) All public companies and privately held companies with assets greater than $500
million
26) An auditor performs a test to determine whether all merchandise for which the
client was billed was received. The population for this test consists of all:
A) merchandise received
B) vendors' invoices
C) canceled checks
D) receiving reports
27) Analytical procedures must be performed in:
A) the planning and test of control stages
B) conjunction with tests of transactions and tests of details of balances
C) the planning and completion stages
D) the planning, test of control, and completion stages
28) The permanent files included as part of audit documentation do not normally
include:
A) a copy of the current and prior years' audit programs
B) copies of articles of incorporation, bylaws and contracts
C) information related to the understanding of internal control
D) results of analytical procedures from prior years
29) CPAs may provide bookkeeping services to their non-public audit clients, but there
are a number of conditions that must be met if the auditor is to maintain independence.
Which of the following conditions is not necessary?
A) The CPA must not assume a management role or function
B) The client must hire an external CPA to approve all of the journal entries prepared by
the auditor
C) The auditor must comply with GAAS when auditing work prepared by his/her firm
D) The client must accept responsibility for the financial statements
30) A substantive test of transactions commonly used to test the completeness objective
for acquisitions is "Trace from a file of receiving reports to the acquisitions journal."
A) True
B) False
31) An effective procedure to test the existence objective for sales is to vouch sales
journal entries to copies of sales orders, shipping documents, and sales invoices.
A) True
B) False
32) Confirmation of accounts receivable balances normally provides evidence
concerning the:
A) valuation of the balances
B) rights of the balances
C) existence of the balances
D) completeness of the balances
33) To prevent fraud, management should deny cash access to anyone responsible for:
A)
B)
C)
D)
34) Items that materially affect the comparability of financial statements generally
require disclosure in the footnotes. If the client refuses to properly disclose the item, the
auditor will most likely issue:
A) a disclaimer
B) an unqualified opinion
C) a qualified opinion
D) an adverse opinion
35) Which is the following is most correct regarding the distinction(s) between the
auditor's responsibilities for searching for errors and fraud.
A) little
B) a significant
C) no
D) various
36) Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from
providing many consulting services to their publically traded audit clients.
A) True
B) False
37) When expressing an unqualified opinion, the auditor who evaluates the audit
findings should be satisfied that the:
A) amount of known misstatement is documented in the management representation
letter
B) estimate of the total known and likely misstatements is less than a material amount
C) estimate of the total likely misstatement includes sample error
D) amount of known misstatement is acknowledged and recorded by the client
38) When using the cycle approach to segmenting the audit, the reason for treating
capital acquisition and repayment separately from the acquisition of goods and services
is that:
A) the transactions are related to financing a company rather than to its operations
B) most capital acquisition and repayment cycle accounts involve few transactions, but
each is often highly material and therefore should be audited extensively
C) both A and B are correct
D) neither A nor B is correct
