1) One purpose of performing preliminary analytical procedures in the planning phase
of an audit is to help the auditor make a preliminary assessment of control risk.
A) True
B) False
2) Service auditors do not issue which of the following types of reports?
A) report on implemented controls
B) report on controls that have been implemented and tested for design effectiveness
C) report on controls that have been implemented and tested for operating effectiveness
D) each of the above is issued
3) There are many kinds of statistical estimates that an auditor may find useful, but
basically every accounting estimate is either of a quantity or of an error rate. The
statistical terms that roughly correspond to “quantities” and “error rate,” respectively,
are:
A) attributes and variables
B) variables and attributes
C) constants and attributes
D) constants and variables
4) Which of the following material events occurring subsequent to the balance sheet
date would require an adjustment to the financial statements before they could be
issued?
A) loss of a plant as a result of a flood
B) sale of long-term debt or capital stock
C) settlement of litigation in excess of the recorded liability
D) major purchase of a business that is expected to double the sales volume
5) For cash receipts, the occurrence transaction-related audit objective affects the
completeness balance-related audit objective.
A) True
B) False
6) A listing of the balances in the accounts receivable master file at the balance sheet
date, by total balance outstanding and by the amount of time the component parts have
been outstanding, is the:
A) customer list
B) aged trial balance
C) accounts receivable ledger
D) schedule of accounts receivable
7) Auditors need to distinguish between accounts payable and accrued liabilities in
designing the appropriate control and substantive tests. A liability is properly accounted
for as an account payable if:
A) the amount is known and owed as of the balance sheet date
B) the amount can be estimated and is owed at the balance sheet date
C) the amount is known at the balance sheet date and owed by the end of the next fiscal
year
D) the amount is estimated and owed within 90 days of the balance sheet date
8) An auditor need not abide by a particular auditing standard if the auditor believes
that:
A) the issue in question is immaterial in amount
B) more expertise is needed to fulfill the requirement
C) the requirement of the standard has not been addressed by the PCAOB
D) any of the above three are correct
9) Which of the following is not an account affected by the sales and collection cycle?
A) Cash
B) Accounts receivable
C) Allowance for doubtful accounts
D) Sales of Accounts Receivables
10) The major reason that the difference and ratio estimation methods would be
expected to produce audit efficiency is that the:
A) beta risk may be completely ignored
B) variability of the populations of differences or ratios is less than that of the
populations of book values or audited values
C) number of members of the populations of differences or ratios is smaller than the
number of members of the population of book values
D) calculations required in using difference or ratio estimation are less arduous and
fewer than those required when using direct estimation
11) For most companies, the only transactions involving retained earnings are net
earnings for the year and dividends declared.
A) True
B) False
12) Which of the following subsequent events is most likely to result in an adjustment
to a company’s financial statements?
A) merger or acquisition activities
B) bankruptcy (due to deteriorating financial condition) of a customer with an
outstanding accounts receivable balance
C) issuance of common stock
D) an uninsured loss of inventories due to a fire
13) Which of the following is the principle “weakness” of using negative confirmations
for your tests of details of balances for accounts receivable?
A) can only be used for large balance accounts
B) cannot not be used when account balances “bunch” around a mean value
C) conclusions drawn from receiving no reply may not be correct
D) response rates are generally too low to draw any conclusions
14) Which of the following is not a purpose of a program audit as performed by
government auditors?
A) Determination of the extent to which the desired results established by the
legislature are being achieved
B) Determination of the causes of inefficiencies in sponsored programs
C) Determination of the effectiveness of organizations, programs and activities
D) Determination as to whether the entity has complied with laws and regulations
applicable to the program
15) When documenting their understanding of a client’s internal controls, auditors are
required to use narratives.
A) True
B) False
16) You are auditing the long-term notes payable account for a client. Which of the
following audit procedures would you most likely employ?
A) compare interest expense recorded by the client with the notes payable account for
reasonableness
B) confirm bonds payable with individual bond holders
C) perform analytical procedures on the bond discount or premium account
D) examine bond documents for the presence of hybrid securities
17) After the balance sheet date but prior to issuance of the auditor’s report the auditor
learns that the client’s facility in a foreign country has been expropriated. Management
refuses to disclose this information in a financial statement footnote or present
pro-forma data as to the effect of the event. The auditor should:
A) add a footnote to the financial statements
B) disclaim an opinion due to the client imposed scope limitation
C) provide the information in the report and modify the opinion
D) issue an unqualified opinion but provide the information in the auditor report
18) The client may mail the bank confirmation requests if the auditor believes doing so
will increase the likelihood that the confirmation will be returned promptly.
A) True
B) False
19) When a company’s financial statements contain a departure from GAAP with which
the auditor concurs, the departure should be explained in:
A) the scope paragraph
B) an explanatory paragraph that appears before the opinion paragraph
C) the opinion paragraph
D) an explanatory paragraph after the opinion paragraph
20) Auditors who prefer statistical to nonstatistical sampling believe that the principal
advantage of statistical sampling flows from its ability to:
A) quantify sampling risk
B) promote a more legally defensible procedural approach
C) define the precision required to provide audit satisfaction
D) establish conclusive audit evidence with decreased audit effort
21) In which type of report would you read the following statement: “We believe that
our examination provides a reasonable basis for our opinion.”?
A) review
B) audit
C) examination
D) agreed-upon procedures
22) In order to provide reasonable assurance the audit must be performed with an
attitude of professional skepticism. Which of the following is most correct regarding the
“attitude” of professional skepticism?
A) auditors should assume that management is dishonest
B) auditors should assume that management is neither dishonest nor honest
C) auditors should assume that management is honest and mistakes are unintentional
D) auditors should assume that management is incumbent in preparing financial
statements
23) It is equally acceptable under professional auditing standards for auditors to use
either statistical or nonstatistical sampling methods.
A) True
B) False
24) The most important control for petty cash is that two individuals maintain joint
custody of the asset.
A) True
B) False
25) One of the changes in auditing procedure 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
26) Which of the following is most correct regarding the requirements under Section
404 of the Sarbanes Oxley Act?
A) The audits of internal control and the financial statements provide reasonable
assurance as to misstatements
B) The audit of internal control provides absolute assurance of misstatement
C) The audit of financial statements provides absolute assurance of misstatement
D) The audits of internal control and the financial statements provide absolute
assurance as to misstatements
27) Two key concepts that underlie management’s design and implementation of
internal control are:
A) costs and materiality
B) absolute assurance and costs
C) inherent limitations and reasonable assurance
D) collusion and materiality
28) When the auditor is obtaining an understanding of a service center’s internal
controls the auditor should:
A) use the same criteria used to evaluate the client’s internal controls
B) use different criteria because the service center resides outside the company
C) use the same criteria used to evaluate the client’s internal controls but omit tests of
transactions
D) use different criteria for the service center by including substantive tests of balances