What is the best reason that standards prohibit accepting an engagement on a projection
for general use?
A) The CPA’s procedures would violate SSARS.
B) Reports on projections are not well understood by the general public.
C) Underlying hypothetical assumptions are difficult to interpret without obtaining
additional information.
D) The CPA is not qualified to report on the use of GAAP in the projected financial
statement.
The total of the individual employee earnings in the payroll master file should equal the
total
A) balance of gross payroll in general ledger accounts.
B) of the checks drawn to employees for payroll.
C) gross payroll plus the total contributed by the employer for payroll taxes.
D) gross pay for the current week’s payroll.
Risk assessment procedures include
A) a required discussion among the staff members of the audit and the client regarding
material misstatements in the financial statement.
B) determination of the type of audit opinion to issue.
C) observation of the entity’s operations.
D) assessing acceptable audit risk.
Prenumbered documents will only be useful for control purposes if
A) a different numerical sequence is used for each company.
B) the sequence is accounted for periodically.
C) employees are allowed to use documents out of numerical sequence.
D) the same numerical sequence is used each accounting period.
Which of the following is a correct statement regarding the misappropriation of receipts
involving revenue?
A) One of the easiest frauds to detect is when a sale is not recorded and the cash from
the sale is stolen.
B) If a customer’s payment is stolen, regular billing of unpaid accounts can uncover the
fraud unless the fraud perpetrator does something to hide the theft.
C) Misappropriation of cash receipts is generally as material as fraudulent reporting of
revenues.
D) Analytical procedures can detect relatively small thefts of sales and related cash
receipts.
One of the changes in auditing procedures which was brought about as a result of the
1136 Tenants case was that auditors were encouraged to begin using
A) letters of representation.
B) confirmation letters.
C) engagement letters.
D) billet doux letters.
Which of the following statements is not true?
A) Balance-related audit objectives are applied to ending account balances.
B) Transaction-related audit objectives are applied to classes of transactions.
C) Balance-related audit objectives are applied to the ending balance in balance sheet
accounts.
D) Balance-related audit objectives are applied to both beginning and ending balances
in balance sheet accounts.
When planning the audit sample, the ________ is (are) those items about which the
auditor wishes to generalize.
A) attributes
B) sampling unit
C) population
D) sample
When preparing and organizing audit files,
A) the rules established by the SEC and PCAOB must be followed.
B) a lead schedule contains the detailed accounts from the general ledger making up the
line item on the trial balance.
C) a working trial balance is considered part of the permanent file.
D) the audit program is not part of the audit files.
Analytical procedures must be used during which phase(s) of the audit?
A)
B)
C)
D)
Which of the following is not an important control over notes payable?
A) There is proper authorization over the issuance of new notes payable.
B) Notes payable are issued when the business climate is favorable.
C) Adequate controls exist over repayment of interest and principal.
D) There exist proper documents and records.
When auditors observe the client counting inventory, they should be careful to do all of
the following except
A) inquire about items that are likely to be obsolete or damaged.
B) calculate the unit cost of the inventory items.
C) discuss with management the reasons for excluding any material items.
D) observe the counting of the most significant items.
Which of the following is an attestation standard under the standards of reporting?
A) The practitioner must have adequate technical training.
B) The practitioner must adequately plan the work.
C) The practitioner must evaluate internal controls.
D) The practitioner must identify the subject matter or assertion being reported on.
Which of the following audit tests would provide evidence regarding the
balance-related audit objective of existence for an audit of notes payable?
A) Examine due dates on duplicate copies of notes.
B) Examine balance sheet for proper presentation and disclosure of notes payable.
C) Examine corporate minutes for loan approval.
D) Foot the notes payable list for notes payable and accrued interest.
The Sarbanes-Oxley Act ________ a CPA firm from doing both bookkeeping and
auditing services for the same public company client.
A) encourages
B) prohibits
C) allows
D) allows on a case-by-case basis
When the accountant has performed a review and has determined that no material
changes to the financial statements are needed, the first paragraph of the review report
A) expresses positive assurance about the financial statements.
B) notes the accountant’s responsibility to conduct the review.
C) identifies the entity and the period of financial statements subject to the review.
D) specifies that management is responsible for the financial statements.
Which of the following statements best describes the auditor’s responsibility with
respect to illegal acts that do not have a material effect on the client’s financial
statements?
A) Generally, the auditor is under no obligation to notify parties other than personnel
within the client’s organization.
B) Generally, the auditor is under an obligation to inform the PCAOB.
C) Generally, the auditor is obligated to disclose the relevant facts in the auditor’s
report.
D) Generally, the auditor is expected to compel the client to adhere to requirements of
the Foreign Corrupt Practices Act.
To perform an audit, it is necessary for the information to be in a verifiable form and
there must be some criteria by which the auditor can evaluate the information. Detail
the information and criteria that would be used when
(A) an independent CPA firm audits a company’s historical financial statements.
(B) an Internal Revenue Service auditor audits that same company’s tax return.
(C) an internal auditor performs an operational audit to evaluate whether the company’s
computerized payroll processing system is operating efficiently and effectively.
An adequate system of internal control for SEC registrants was originally required by
the
A) Sarbanes-Oxley Act of 2002.
B) Securities Act of 1933.
C) Foreign Corrupt Practices Act of 1977.
D) Securities Act of 1934.
Which of the following balance-related audit objectives typically is assessed as having
high inherent risk for cash?
A) existence
B) cutoff
C) detail tie-in
D) presentation and disclosure
As a result of management’s refusal to permit the auditor to physically examine
inventory, the auditor must depart from the unmodified opinion audit report because
A) the financial statements have not been prepared in accordance with GAAP.
B) the scope of the audit has been restricted by circumstances beyond either the client’s
or auditor’s control.
C) the financial statements have not been audited in accordance with GAAS.
D) the scope of the audit has been restricted.
There are three phases in both statistical and nonstatistical sampling. The first phase is
to
A) generate random numbers for the sample.
B) evaluate the results.
C) plan the sample.
D) select the sample.
Inquiries of management regarding the possibility of unrecorded contingencies will be
useful in uncovering
A)
B)
C)
D)
The International Standards on Auditing (ISA)
A) are issued by the AICPA.
B) override a country’s regulations governing the audit of a company.
C) has many of the same standards as the Auditing Standards Board (ASB).
D) must be followed by companies whose stock is traded in the U.S.
A database management system
A) allows clients to create databases that include information that can be shared across
multiple applications.
B) stores data on different files for different purposes, but always knows where they are
and how to retrieve them.
C) allows quick retrieval of data, but at a cost of inefficient use of file space.
D) allows quick retrieval of data, but it needs to update files continually.
Which of the following is not an important aspect of billing?
A) All shipments made have been billed.
B) No shipment has been billed more than once.
C) Each customer is billed for the proper amount.
D) Credit is approved to customers for sales on account.
In a review service where the client has failed to follow applicable accounting
standards, the accountant is
A) not required to determine the effect of a departure if management has not done so,
but that fact must be disclosed in the report.
B) required to determine the effect of a departure if management has not done so, and
that fact must be disclosed in the report.
C) not required to determine the effect of a departure if management has not done so,
and that fact need not be disclosed in the report.
D) required to determine the effect of a departure if management has not done so, and
that fact need not be disclosed in the report.
The following are definitions of terms that are listed on the right. Match the definition
with its associated term. Each term can be used once, more than once or not at all.
Definition
1. an organizational structure where professional services are provided by one or more
shareholders
2. the grantor of the right to practice public accounting.
3. a report filed to indicate a significant event
4. sets professional standards and rules for members.
5. oversees accounting firms who audit public companies
6. an organizational structure where the owners are taxed like a partnership and have
limited personal liability
7. a report that is filed when a company wishes to issue new securities
8. the methods used to ensure the firm meets its professional responsibilities to clients
and others
9. assists in providing investors with reliable information
10. requires annual inspections of accounting firms auditing more than 100 public
companies
11. practice monitoring by a CPA firm for another CPA firm
12. fulfilling duties diligently and carefully
13. requires a registration statement
Audit Term
a. AICPA
b. PCAOB
c. Securities Exchange Commission
d. Form 10-K
e. IAASB
f. Form S-1
g. due professional care
h. limited liability partnership
i. professional corporation
j. limited liability company
k. peer review
l. 1933 Securities Act
m. 1934 Securities Act
n. Form 8-K o. state regulation
p. Code of Professional Conduct
q. quality control standards
r. auditing standards
Which type of auditor audits the financial information prepared by various federal
government agencies before it is submitted to Congress?
A) internal auditor
B) revenue agent
C) independent auditor
D) GAO auditor
Auditors often identify less significant internal control-related issues, as well as
opportunities for the client to make operational improvements in the
A) adverse opinion.
B) Section 404 report.
C) management letter.
D) Type 1 report.
If an auditor desires a greater level of assurance in auditing a balance, the acceptable
risk of incorrect acceptance
A) is reduced.
B) is increased.
C) is not changed.
D) may be reduced or increased depending upon other circumstances.
_______ is the risk that the financial statements contain a material misstatement due to
fraud or error prior to the audit.
A) Inherent risk
B) Client business risk
C) Acceptable audit risk
D) Risk of material misstatement