Which of the following is a reason that the auditors may change the preliminary
judgment about materiality?
A) The auditors decide that the preliminary judgment was too large.
B) The auditors decide that the preliminary judgment was too small.
C) Client circumstance may have changed due to qualitative events.
D) all of the above
The standard of due care to which the auditor is expected to adhere to in the
performance of the audit is referred to as the
A) prudent person concept.
B) common law doctrine.
C) constructive care concept.
D) vigilant person concept.
Internal controls
A) are implemented by and are the responsibility of the auditors.
B) consist of policies and procedures designed to provide reasonable assurance that the
company achieves its objectives and goals.
C) guarantee that the company complies with all laws and regulations.
D) only apply to SEC companies.
Which are prospective financial statements that present an entity’s financial position,
results of operations, and cash flows, to the best of the responsible party’s knowledge
and belief, given one or more hypothetical assumptions?
A)
B)
C)
D)
Which of the following fee arrangements is not a violation of the AICPA’s Code of
Professional Conduct?
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
Simple random sampling
A) is used when there is a need to emphasize one or more types of population items.
B) requires both input and output parameters to be set when using a random number
generator.
C) is generally used with replacement sampling.
D) is a probabilistic sampling method.
Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie’s
independence is impaired if
A) Lisa is the controller.
B) Lisa owns 2% of the company.
C) Lisa is the marketing manager.
D) all of the above.
Which document or record is used in the write-off of uncollectible accounts classes of
transactions?
A) general journal
B) remittance advice
C) sales transaction file
D) sales order
What critical event must take place before goods can be shipped in order to assure
payment can be reasonably expected?
A) determination of correct delivery address
B) credit approval
C) matching of shipping document with sales invoice
D) receipt of sales order from the customer
In certifying their annual financial statements, the CEO and CFO of a public company
certify that the financial statements comply with the requirements of
A) GAAP.
B) the Sarbanes-Oxley Act.
C) the Securities Exchange Act of 1934.
D) GAAS.
Whenever the client imposes restrictions on the scope of the audit, the auditor should be
concerned that management may be trying to prevent discovery of misstatements. In
such cases, the auditor will likely issue a
A) disclaimer of opinion in all cases.
B) qualification of both scope and opinion in all cases.
C) disclaimer of opinion whenever materiality is in question.
D) qualification of both scope and opinion whenever materiality is in question.
Verification of the legitimacy of year-end unpaid bonuses to officers and employees can
be accomplished by comparing the recorded accrual to the amount
A) in the expense account.
B) used in the prior period.
C) authorized in the minutes of the board.
D) paid in the subsequent period.
Audit documentation of the evidence gathered by the auditor should meet which of the
following criteria?
A) Workpapers are prepared in sufficient detail so that they can be given to the client
for future reference.
B) The content is sufficient to provide support for the auditor’s opinion, including the
auditor’s representation as to compliance with auditing standards.
C) Audit evidence is principally gathered to determine if the client’s financial
statements, as prepared by management, can be relied upon to make managerial
decisions about the firm.
D) Audit evidence as displayed in the workpapers is primarily performed to protect the
auditing firm in the case of a lawsuit by investors.
A qualified opinion can be issued for which of the following?
I. When a limitation on the scope of the audit has occurred
II. When the auditor lacks independence
III. When generally accepted accounting principles have not been used
A) I and II
B) I and III
C) II and III
D) I, II and III
What is the purpose of applying stratified sampling to a population?
A)
B)
C)
D)
An exception or deficiency found in a test of controls
A) indicates a financial statement misstatement.
B) indicates the likelihood of a misstatement.
C) indicates that the financial statements are fairly stated.
D) indicates that an adverse opinion is warranted on the audit of internal control.
The most common way for users to obtain reliable information is to
A) have an internal audit.
B) have an independent audit.
C) verify all information individually.
D) verify the information with management.
Statements on Standards for Accounting and Review Services (SSARS) are issued by
the
A) Accounting and Review Services Committee.
B) Professional Ethics Executive Committee.
C) Securities and Exchange Commission.
D) Financial Accounting Standards Board.
The understatement of sales and accounts receivable is best uncovered by
A) testing internal controls.
B) testing the aged accounts receivable trial balance.
C) substantive tests of transactions for shipments made but not recorded.
D) substantive tests of transactions for bad debts.
Under AICPA auditing standards, the primary auditor issuing the opinion on the
financial statements is called the
A) component auditor.
B) principal auditor.
C) group engagement partner.
D) majority auditor.
Likely misstatements can result from
A)
B)
C)
D)
When assessing fraud risk,
A) fraud risk is assessed only at the overall financial statement level.
B) the auditor’s assessment of fraud risk should be ongoing throughout the audit.
C) if the auditor concludes that there is a risk of material misstatement due to fraud,
auditing standards require that the risks be treated as pervasive.
D) auditing standards require that the auditor presume there is a risk of fraud in the
inventory account.
The employee in charge of authorizing credit to the company’s customers does not fully
understand the concept of credit risk. This lack of knowledge would
A) constitute a deficiency in operation of internal controls.
B) constitute a deficiency in design of internal controls.
C) constitute a deficiency of management.
D) not constitute a deficiency.
Which of the following groups has the responsibility for identifying and deciding the
appropriate accounting treatment for recording or disclosing contingent liabilities?
A) auditors
B) legal counsel
C) management
D) management and the auditors
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
Which of the following is the most effective control procedure to detect vouchers that
were prepared for the payment of goods that were not received?
A) Count goods upon receipt in storeroom.
B) Match purchase order, receiving report, and vendor’s invoice for each voucher in
accounts payable department.
C) Compare goods received with goods requisitioned in receiving department.
D) Verify vouchers for accuracy and approval in internal audit department.
Which one the following procedures performed for the billing function provides
evidence for the completeness assertion?
A) making sure that all shipments have been billed
B) making sure that no shipment has been billed more than twice
C) making sure that each shipment is billed at the correct amount
D) making sure that each shipment is billed to the proper customer
Monetary unit sampling is not particularly effective at detecting
A) overstatements.
B) understatements.
C) errors in current assets.
D) errors in noncurrent assets.
Which of the following audit procedures would most likely assist an auditor in
identifying conditions and events that may indicate there could be substantial doubt
about an entity’s ability to continue as a going concern?
A) review compliance with the terms of debt agreements
B) confirmation of accounts receivable from principal customers
C) reconciliation of interest expense with debt outstanding
D) confirmation of bank balances
Old and new systems operating simultaneously in all locations is a test approach known
as
A) pilot testing.
B) horizontal testing.
C) integrative testing.
D) parallel testing.
Which of the following are required to have a written report regarding the assertion of
another party?
A)
B)
C)
D)