Internal controls that the auditor expects to rely on to reduce substantive testing must be
tested.
When the value of a long-lived asset has been impaired, the organization must write
down the asset reflecting the decline in economic benefit of the asset.
An attribute is defined as a characteristic of the population of interest to the auditor.
Sources of information regarding a client’s inventory obsolescence can be partially
noted during the inventory observation.
A common technique used to fraudulently misstate financial statements involves the
understatement of long-lived assets through undervaluing existing long-lived assets.
Projected misstatements are developed by extrapolation from the misstatements in
sample items to the population.
Audit procedures can be classified as risk assessment procedures, test of controls or
substantive tests.
While inspecting documents, the reliability depends on the nature and source of the
documentation.
When there is a ready market for financial instruments, the audit procedures related to
valuation and disclosures are more straightforward than when the instrument is not
readily marketable.
Some auditors may be reluctant to issue a going-concern audit opinion because it may
hasten the failure of the client company.
The IAASB and the AICPA identify three levels of assurance that can be provided in an
attestation engagement.
An example of a test for completeness in the revenue cycle includes the sampling of
shipping documents and tracing them to the sales journal and general ledger.
An independent bank reconciliation provides evidence of the correctness of the
year-end cash balance.
The focus of forensic accounting is similar to financial statement auditing in that it is
directed to the fairness of financial statements.
Exceptions found in the confirmations of accounts receivable balances need not be
projected as errors to the population as they are typically isolated errors.
The primary evidence in support of an auditor’s conclusions is the auditor’s
documentation.
A financial statement audit is a systematic process of objectively obtaining and
evaluating evidence.
Monitoring of the internal controls involves assessment by appropriate personnel of the
design and operation of controls on a timely basis and taking necessary actions.
The acquisition cycle begins with the receipt of goods and services and ends with their
payment as reflected in cash disbursements.
Currently, there are various frameworks and standards to assist companies in producing
relevant and reliable sustainability data for external users.
A perception of being underpaid is not a typical incentive for a fraudster
A material weakness in internal control is a deficiency, or a combination of deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that
a material misstatement of the company’s annual or interim financial statements will not
be prevented or detected on a timely basis.
A management letter is the same as a management representation letter.
Many frauds are committed by overstating inventory accounts.
Preventative controls are designed to prevent the occurrence of a misstatement.
The tolerable misstatement is the confidence level needed to infer population values.
The auditor would be most likely to request a schedule of repairs and maintenance
expense to satisfy the auditor about the existence of long-lived assets.
Extracting data from the client’s computer system is one of the tasks that can be
performed by GAS.
Goodwill has to be evaluated for impairment once a year, as well as on an interim basis
as the time events and circumstances warrant.
Audits of Level 3 assets are the most straightforward as they involve an observable,
active market.
The audit committee should have the authority to hire and fire the external auditor.
A purchase order identifies the quantity and description of products that have been
received.
Which of the following engagements is sometimes referred to as bookkeeping services?
A.Reviews.
B.Special reports.
C.Compilations.
D.Audits.
Which of the following is not required of auditors to satisfying the interdependence
standards?
A.The auditor must be appointed by the SEC.
B.The auditor must be intellectually honest.
C.The auditor must be unbiased.
D.The auditor must be objective.
A reference to another auditor under U.S. auditing standards may result in which of the
following?
A.A disclaimer of an audit opinion.
B.A qualified audit opinion.
C.An adverse opinion.
D.An unqualified audit opinion with modified wording for all three paragraphs.
Congress authorized which of the following organizations to establish generally
accepted accounting principles?
A.SEC.
B.APB.
C.AICPA.
D.FASB.
Which one of the following would be the least reliable type of evidence?
A.Confirmations returned by bank directly to the auditor.
B.Letters of communication from the Securities Exchange Commission.
C.Physical examination of perpetual inventory.
D.Evidence from an easily overridden information system.
Which of the following would not result in an unqualified audit report with an
explanatory paragraph?
A.Going concern issue.
B.Scope limitation.
C.Emphasis of a matter.
D.Consistency of presentation.
A common accounts receivable fraud is lapping. Which of the following is a more
sophisticated accounts receivable fraud?
A.Using journal entries to write off accounts against the allowance for doubtful
accounts.
B.Applying cash from one customer’s receivable to that of another to cover the earlier
deficit.
C.Recording large discounts for the clients.
D.Both A and C.
Which of the following are common brainstorming session guidelines?
A.Freedom of expression.
B.Respectful communication.
C.Suspension of criticism.
D.All of the above.
A compensating balance arrangement usually results in which of the following for a
company?
A.Increase its interest income.
B.Increase the effective interest rate on corporate borrowing.
C.Decrease the effective interest rate on corporate borrowing.
D.Exhibit no change in the effective interest rate on corporate borrowing.
In which one of the following instances would an auditor not issue a disclaimer of
opinion?
A.The auditors are not invited to the periodic inventory at year end.
B.There are significant misstatements in the financial statements.
C.There is a significant limitation on the scope of the engagement.
D.There is insufficient evidence for the auditor to form an opinion on the fairness of the
financial statements.
What is the role of the court system for the auditing profession?
A.To act as a quality-control mechanism.
B.To provide guidance on unclear legislation.
C.To punish audit firms that issue the wrong audit report.
D.All of the above.
Which of the following criteria must be met in order to recognize revenue in the current
accounting period?
A.Delivery has occurred or the services have been rendered.
B.Price is fixed or determinable.
C.Collectibility if reasonably assured.
D.All of the above.
Which of the following best describes the amount of misstatement an auditor is willing
to accept and still will not say the account balance is materially misstated?
A.Tolerable misstatement.
B.Performance materiality.
C.A clearly trivial amount.
D.Significant risk.
Which of the following does the public expect of auditors?
A.Understand and enforce principles that best portray the spirit of FASB concepts.
B.Be neutral to preparers and users of financial information.
C.Recognize that the investing public is the primary user of audit services.
D.Take responsibility for the discovery of fraud.
E.All of the above are expectations of the public.
According to professional auditing standards, which of the following best represents a
type of fraudulent financial reporting?
A.Management accrues a liability and discloses the possible outcome of a lawsuit prior
to settling the matter.
B.Management reclassifies a negative cash balance by increasing cash and also
increasing a current liability.
C.Management discloses its failure to meet loan covenants but states that a waiver has
been received.
D.Management intentionally excludes a subsidiary from its consolidated results that it
controls significantly.
Which of the following descriptions is not a key priority to support the work of
professional accountants in embedding sustainable practices?
A.Raising awareness and facilitating sharing and collaboration across the global
accountancy community.
B.Incorporating accounting for sustainability within professional training and
education.
C.Using traditional ways of thinking about organizational performance.
D.Establishing an international integrated reporting committee to develop a new
reporting model that will better reflect the interconnected impact of financial,
environmental, social, and governance factors on the long-term performance and
condition of an organization.
If the auditor is performing substantive procedure to determine whether the long-lived
asset balance is reflected on the balance sheet in the noncurrent section, which of the
following assertions is being tested?
A.Existence.
B.Completeness.
C.Presentation and Disclosure.
D.Rights and Obligations.
Which one of the following accounting constraints supports the concept of audit
sampling?
A.Conservatism.
B.Materiality.
C.Cost-benefit.
D.Industry practice.
Management of Premium Discovery Company is compensated through large salaries,
stock options and bonuses tied to the company’s working capital growth. The CEO is
constantly holding meetings to ensure that management is on target for increased
operating income each month. Based upon the above information only, what type of
probable motivation is there to commit fraud at the Premium Discovery Company?
A.Incentive.
B.Opportunity.
C.Rationalization.
D.Expectation.
Client continuance-related risks do not include which of the following key type of risk?
A.Client entity characteristics.
B.Quantitative risk factors.
C.Entity organizational or governance risks.
D.All of these are key types of client continuance-related risks.
How will the auditor most likely utilize the bank reconciliation as evidence in the audit
of cash?
A.The auditor sends the reconciliation to the bank for independent verification.
B.The auditor performs the reconciliation for the client to record the proper cash
balance.
C.The auditor traces the book balance of the reconciliation to the cutoff bank statement.
D.The auditor tests deposits-in-transit and outstanding items to other corroborating
evidence.
Calculating the turnover of receivables is often used in testing the sales cycle by
auditors when performing which of the following?
A.Trend analysis.
B.Ratio analysis.
C.Reasonableness testing.
D.Non-statistical sampling.
Which assertion addresses whether the financial statements items are properly classified
in the financial statements?
A.Completeness.
B.Existence.
C.Valuation.
D.Presentation and Disclosure.
Which of the following factors affect the substantive procedures performed in an audit?
A.The subjectivity of accounting process.
B.Size of the account.
C.Effectiveness of the relevant controls.
D.All of the above affect the substantive procedure that are performed.
The opinion paragraph of the audit report for Schnook Co. states that the financial
statements “do not present fairly”. Which type of audit report is this?
A.Improper.
B.Adverse.
C.Disclaimer.
D.Qualified.
When the auditor is not independent with respect to a client, what must the auditor do?
A.Not accept an audit engagement.
B.Include a separate paragraph in the audit report stating the lack of independence.
C.Provide a review report.
D.Report the non-compliance to the AICPA.
When using confirmations with outside parties, the auditor must assure which of the
following about the outside party?
A.The outside party exists.
B.The outside party is able to respond objectively and independently.
C.The outside party is unbiased in responding.
D.All the above.
When the financial statements contain a material departure from GAAP that the auditor
believes is justified, where should the justification appear?
A.In a footnote.
B.In a paragraph added before the scope paragraph.
C.In the opening paragraph.
D.In a paragraph added before the opinion paragraph.
What type of fraud occurs when the deposits of current investors are used to pay returns
on the deposits of previous investors with no real investment happening?
A.Skimming.
B.Ponzi Scheme
C.Channel Stuffing.
D.Payroll Fraud.
The scope paragraph of an unqualified opinion primarily gives information relating to
which of the following?
A.The division of responsibilities.
B.The final assessment of a company’s standings with the audit firm.
C.The statements and dates under audit.
D.Audit planning and procedure.
Which of the following procedures does the auditor typically perform when testing the
existence of cash?
A.Counting cash at the depository institution.
B.Inquiry of management.
C.Sending a standard bank confirmation.
D.Tracing the bank reconciliation to the general ledger.
Discuss the audit standards that must be applied to the auditor’s documentation. Give
five examples the types of documentation will be found in the audit work papers.
Describe MUS sampling and identify the conditions that would cause an auditor choose
to use MUS sampling.
Explain input controls.
Provide examples of audit judgments made by the external auditor which would not
typically be delegated to the internal auditor.
Historically the accounting profession has come under fire for fraudulent financial
reporting due to questionable improper revenue recognition. Identify at least six
examples of questionable revenue recognition practices that an auditor must consider in
performing an audit engagement.
When evaluating the MUS sample results, the auditor calculates the total estimated
misstatement in the account balance based on the sampling process. Describe the four
components that make up this total.
For each of the five components of internal control, list at least two related principles of
internal control.
n gathering the information and briefly describe each one.
What were the failures that allowed the Enron fraud to occur?
What are some of the important controls that are expected to be included in a
well-conceived inventory control system?
List the reasons why an amount that is quantitatively immaterial might be considered
material due to qualitative reasons.
During the course of an audit of the financial statements of Glover Industries, a CPA is
refused permission to inspect the minutes from the board of directors meetings. The
CPA is instead offered a certified copy of all resolutions and actions involving
accounting matters.
REQUIRED:
Which type of audit report would you suggest be issued this year and why?
Explain how management explicitly asserts their confidence and responsibility over the
financial statements of the company.
Provide two examples of a Type II subsequent event and explain how these events
would be treated in the financial statements.
Explain why professional skepticism is important in making professional judgments.
What are the types of actions that a professionally skeptical auditor will take?
Discuss the information management should provide related to litigation, claims and
assessments. Also describe the purpose of the letter of audit inquiry, who writes it, who
it is addressed to, and the important inquiries that are made of the client’s lawyer in the
letter of audit inquiry.
List some factors that would lead an auditor to assess inherent risk relating to
operations at a higher level.
List the four important decisions an auditor must make when deciding to use sampling.
List the audit procedures to be performed to determine if subsequent events have
occurred and have been appropriately addressed.