If the audit team established a tolerable rate of deviation of 5%, an expected population
deviation rate of 3%, and desired to control the risk of overreliance to 5%, what sample
size would be appropriate in this situation?
A. 132 items
B. 195 items
C. 258 items
D. 361 items
In auditing the long term debt account, an auditor’s procedures most likely would focus
primarily on management’s assertion of
A. existence.
B. completeness.
C. allocation.
D. rights and obligations.
In a compilation engagement, the accountant
A. provides reasonable assurance that no material misstatements exist.
B. provides assurance that no material misstatement came to the auditors attention.
C. provides a list of procedures performed and results found.
D. does not express an opinion.
In a classical variables sampling application, which of the following outcomes would
typically not result from stratifying a population?
A. A decrease in the population variability
B. A decrease in the expected sample size
C. An increase in the standard deviation
D. A higher likelihood of selecting higher dollar items
Which of the following is not included in the auditors’ standard report representing an
unmodified opinion?
A. A brief indication of the responsibility of auditors and management for the financial
statements
B. An indication that all appropriate disclosures have been made and included in the
financial statements
C. An indication that the audit was conducted in accordance with standards established
by the PCAOB
D. The auditors’ opinion on the fairness of the financial statements
Taking a “big bath” in the financial statements refers to
A. overstating income.
B. overstating revenues.
C. understating income.
D. an economic downturn.
The audit team is using monetary unit sampling to examine an entity’s accounts
receivable balance, which is recorded at $500,000. The team has determined the
tolerable misstatement to be $25,000, the risk of incorrect acceptance to be 5 percent,
and the expected misstatement to be 2 percent. Using the monetary unit sampling
Sample Size table, what is the appropriate sample size?
A. 75
B. 162
C. 231
D. 300
Assume that Rory is auditing the financial statements of Augusta Inc. Rory completes
his fieldwork on February 25 and his report (along with Augusta’s financial statements)
is issued on March 1. On March 3, a hurricane destroys a warehouse that contains a
significant amount of uninsured inventory. Which of the following best describes Rory’s
responsibility with respect to the effects of this hurricane on Augusta’s financial
statements?
A. Because the inventory was included in the financial statements audited by Rory, he is
required to perform additional procedures and reissue his report on the revised financial
statements.
B. Because the hurricane occurred after the date of Rory’s report, he has no
responsibility to perform additional procedures or reissue his report.
C. Because the hurricane occurred prior to the next fiscal quarter, Rory is required to
perform additional procedures and reissue his report on the revised financial statements.
D. Because the hurricane occurred after the release of the financial statements and
Rory’s report, he has no responsibility to perform additional procedures or reissue his
report.
Which of the following presumptions is correct about the reliability of audit evidence?
A. Information obtained indirectly from outside sources is the most reliable form of
audit evidence.
B. To be reliable, audit evidence should be convincing rather than persuasive.
C. Reliability of audit evidence refers to the amount of corroborative evidence obtained.
D. An effective system of internal control provides more assurance about the reliability
of audit evidence.
An auditor is reviewing a sample of cash disbursements to ensure that the appropriate
supporting documents were received prior to payment. Which type of sampling
approach would the auditor use to perform this test?
A. Collective sampling
B. Attributes sampling
C. Variables sampling
D. Quality sampling
In which of the following circumstances may auditors issue the standard (unmodified)
report on the entity’s financial statements?
A. The entity changed accounting principles having an immaterial effect on the entity’s
financial position, results of operations, and cash flows.
B. The auditors wish to emphasize a matter regarding the financial statements.
C. The auditors reference component auditors who examined a subsidiary of group
financial statements.
D. The auditors have not been able to audit a substantial portion of the balance sheet
because of a circumstance-imposed scope limitation.
Which of the following is true according to Government Independence Standards?
A. Nonaudit services cannot be provided to a government entity that is an attest client.
B. Nonaudit services are allowed providing the audit organization does not perform
management functions, make management decisions, or audit its own work.
C. Nonaudit services are allowed as long as the nature of the service is publicly
disclosed including a statement that independence has not been compromised.
D. Nonaudit services are allowed if they have been approved by the executive body of
the governing organization.
Which of the following procedures would an auditor most likely perform in searching
for unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the
unmatched receiving report file.
B. Compare a sample of purchase orders issued just after year-end with the year-end
accounts payable trial balance.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving
reports and vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions.
Auditors are auditing the warehouse of Huge Lots Corporation. The auditors performed
the audit procedures listed 1-5. For each audit procedure select the ASB balance
assertion that is most likely being tested.
A. Existence
B. Rights and obligations
C. Completeness
D. Accuracy
E. Valuation
1. The auditors walked through the warehouse looking for obsolete inventory.
2. The auditors compared invoices received from suppliers with the cost of inventory
listed in the inventory accounts.
3. The auditors reviewed purchase orders to determine if any inventory was on
consignment.
4. The auditors reviewed vendor invoices to determine if freight costs, taxes, tariffs or
other costs had been included in inventory costs.
5. The auditors selected items from the inventory and reviewed inventory records to
ensure these items were included in those records.
When auditors qualify their opinion on the entity’s financial statements because of
inadequate disclosure, the auditors should describe the nature of the omission in an
additional paragraph and modify
A. the introductory paragraph and Auditor’s Responsibility sections.
B. the introductory paragraph only.
C. the Auditor’s Responsibility section only.
D. neither the introductory paragraph nor Auditor’s Responsibility section.
When programs or files can be accessed from terminals, users should be required to
enter a(n)
A. parity check.
B. personal identification code.
C. self diagnosis test.
D. echo check.
In a system of quality control, leadership responsibilities for quality within the firm are
best characterized by
A. basing personnel performance evaluations on the employees’ ability to generate
revenues from existing clients or by acquiring new clients.
B. management’s evaluation of the integrity and business reputation of the client.
C. management’s clear and consistent demonstration of its own commitment to quality
control and high-quality work.
D. assigning management responsibilities in such a manner that commercial
considerations are the firm’s top priority.
What assurance does the auditor provide that errors, frauds, and direct effect
noncompliance that are material to the financial statements will be detected?
A. Errors: Limited; Frauds: Negative; Direct effect noncompliance: Limited
B. Errors: Limited; Frauds: Limited; Direct effect noncompliance: Reasonable
C. Errors: Reasonable; Frauds: Limited; Direct effect noncompliance: Limited
D. Errors: Reasonable; Frauds: Reasonable; Direct effect noncompliance: Reasonable
When reporting on comparative financial statements, auditors ordinarily should modify
their previously expressed opinion on the prior-years’ financial statements if the
A. prior-years’ financial statements are restated to conform with generally accepted
accounting principles.
B. auditors were predecessor auditors who have been requested by a former client to
reissue the previous report.
C. prior-years’ opinions were unmodified and the opinion on the current-year’s financial
statements is modified due to a lack of consistency.
D. prior-years’ financial statements are restated following an acquisition in the current
year.
The probability that an audit team will give an inappropriate opinion on financial
statements best describes
A. audit risk.
B. inherent risk.
C. control risk.
D. detection risk.
Below is a list of events that occur throughout an audit examination. Indicate, using the
correct letter, the time period during which these events are most likely to occur. An
event may occur in more than one time period.
A. Prior to the date of the financial statements.
B. Between the date of the financial statements and the date of the auditors’ report.
C. Between the date of the auditors’ report and the audit report release date.
D. After the audit report release date.
___ 1. Subsequently discovered facts.
___ 2. Roll-forward work.
___ 3. Attorney letters.
___ 4. Interim testing relating to substantive procedures.
___ 5. Preparation of proposed adjusting journal entries.
___ 6. Dual dating for subsequently discovered facts.
___ 7. Communications with the individuals charged with governance.
___ 8. Written representations.
___ 9. Identification of subsequent events.
___ 10. Interim testing related to tests of controls.
The interpretation of Rule 501, Acts Discreditable to the Profession, would not include
A. membership in an activist political party.
B. withholding a client’s books until a professional fee is paid.
C. failure to follow government audit standards in government audits.
D. permitting others to make misleading entries in records.
Which of the following is true with respect to the use of sequential sampling when used
with attributes sampling?
A. Sequential sampling is normally used when expected deviations occur at a relatively
low rate in the population.
B. Sequential sampling is normally used when the audit team wishes to place greater
reliance on internal control.
C. Sequential sampling may provide a more efficient sample size than the use of
traditional attributes sampling.
D. Sequential sampling will always provide auditors with the smallest final sample size
for a given set of sampling parameters.
Harris & Thompson were engaged to audit Smart Corp’s comparative financial
statements for the years ended December 31, Year 1 and Year 2. The Year 1 financial
statements were presented in accordance with generally accepted accounting principles,
but the Year 2 financial statements were determined to be materially misstated. As a
result, Harris & Thompson should
A. issue a qualified opinion on the comparative financial statements as a whole.
B. issue an unmodified opinion on the Year 1 financial statements and disclaim an
opinion on the Year 2 financial statements.
C. issue an unmodified opinion on the Year 1 financial statements and a qualified
opinion on the Year 2 financial statements.
D. reissue the previous opinion on the Year 1 financial statements and withdraw from
the engagement.
For each term listed below (items 1-5) select the correct term (items A-F).
A. Attestation
B. Assurance Service
C. Compilation
D. Trust Services
E. Review Service
F. Service Organization
___ 1. An engagement whereby a practitioner provides limited assurance about
financial information.
___ 2. A service whereby the practitioner assists in assembling financial information.
___ 3. Professional services resulting in a report on subject matter or a claim about
subject matter that is the responsibility of another party.
___ 4. An entity that provides a service to another company regarding the processing of
transactions or information.
___ 5. Professional services aimed at improving the quality of information both
financial and non-financial for decision makers.
Which of the following statements is true about haphazard selection?
A. Under haphazard selection, bias in selecting items (either conscious or unconscious)
often exists.
B. Haphazard selection can be described in sufficient detail to allow sample selection to
be replicated by others.
C. Under haphazard selection, the items are selected in an unstructured and careless
manner.
D. Haphazard selection allows individuals to measure the probability of selecting
sample items.
Which of the following situations would result in the issuance of a disclaimer of
opinion?
A. The audit reveals weaknesses in the client’s internal control over financial reporting.
B. The auditor is discovered to own a financial interest in the entity.
C. The audit is performed, with limited exception, in accordance with generally
accepted auditing standards.
D. The entity’s financial statements are not presented in conformity with the applicable
financial reporting framework.
Which of the following auditor concerns most likely could be so serious that the auditor
would conclude that a financial statement audit cannot be conducted?
A. The entity has no formal written code of conduct.
B. The integrity of entity’s management is suspect.
C. Procedures requiring separation of duties are subject to management override.
D. Management fails to modify prescribed controls for changes in conditions.
Why does the risk of overreliance have an inverse relationship with sample size?
A. As the audit team expects fewer deviations from the control policy or procedure, the
audit team can appropriately examine fewer items.
B. As the audit team is less concerned with making an incorrect conclusion with respect
to reliance on the client’s internal control, the audit team can appropriately examine
fewer items.
C. As the level of control risk increases, the audit team is placing less reliance on
internal control and can appropriately examine fewer items.
D. As the audit team requires greater compliance with the control policy or procedure,
the audit team must examine a greater number of items.
Which of the following is considered to be an advantage of monetary unit sampling
compared to classical variables sampling?
A. Option A
B. Option B
C. Option C
D. Option D
An engagement quality review by a second partner of the audit documentation and
financial statements is performed to ensure that the:
A. “to-do lists” are reviewed and cleared.
B. audit plan procedures are ‘signed off.”
C. tick-mark notations are cleared.
D. audit work meets the quality standards of the firm.
The four basic requirements for becoming a CPA in most states are
A. education, the CPA Examination, experience, and substantial equivalency.
B. the CPA Examination, experience, continuing professional education, and a state
certificate.
C. continuing professional education, the CPA Examination, experience, and an AICPA
certificate.
D. education, the CPA Examination, experience, and a state certificate.
Which of the following is not true with regard to the relationship among control risk,
the risk of overreliance, and the tolerable rate of deviation?
A. Lower levels of control risk result in a higher level of the risk of overreliance.
B. Lower levels of the risk of overreliance result in a lower tolerable rate of deviation.
C. Lower levels of control risk result in a lower tolerable rate of deviation.
D. All of these are true.
For which of the following audit tests would an auditor most likely use attributes
sampling?
A. Making an independent estimate of the amount of a LIFO inventory
B. Examining invoices in support of the valuation of fixed asset additions
C. Selecting accounts receivable for confirmation of account balances
D. Inspecting employee time cards for proper approval by supervisors
Which of the following sets of information does an auditor usually confirm on one
form?
A. Accounts payable and purchase commitments
B. Cash in bank and collateral for loans
C. Inventory on consignment and contingent liabilities
D. Accounts receivable and accrued interest receivable