1) Which of the following would the auditor expect to find in the client’s management
representation letter?
A) management’s recommendations for internal control effectiveness improvements
B) management’s plans for improving product quality
C) management’s compliance with contractual arrangements that impact the financial
statements
D) management’s goals for improving earnings per share
2) The inventory and warehousing cycle can be thought of as having two separate but
closely related systems, one involving the actual physical flow of goods, and the other
the:
A) related documentation
B) storage of the goods
C) internal control over those goods
D) prevention of waste, obsolescence, and theft
3) The auditor must know the client’s capitalization policies to determine whether
acquisitions are:
A)
B)
C)
D)
4) When auditing petty cash, the emphasis should be on testing controls over petty cash
transactions rather than the ending balance in the account.
A) True
B) False
5) Which one of the following duties should not be assigned the purchases department?
A) finding the lowest cost vendor
B) reviewing vendors’ catalog descriptions and prices for standardized items
C) designing the purchase order form
D) authorizing the acquisition of goods
6) Which of the following is not an example of an applications control?
A) Back-up of data to a remote site for data security
B) There is a preprocessing authorization of the sales transactions
C) There are reasonableness tests for the unit selling price of a sale
D) After processing, all sales transactions are reviewed by the sales department
7) The acquisition and payment cycle typically begins with the initiation of purchase
requisition for goods and services from an authorized individual.
A) True
B) False
8) 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
9) Two overriding considerations affect the many ways an auditor can accumulate
evidence:
1>Sufficient appropriate evidence must be accumulated to meet the auditor’s
professional responsibility.
2>Cost of accumulating evidence should be minimized.
In evaluating these considerations:
A) the first is more important than the second
B) the second is more important than the first
C) they are equally important
D) it is impossible to prioritize them
10) When the auditor attempts to understand the operation of the accounting system by
tracing a few transactions through the accounting system, the auditor is said to be:
A) tracing
B) vouching
C) performing a walk-through
D) testing controls
11) The independent auditor must issue a qualified opinion when which of the
financial(s) are missing?
I.Balance Sheet
II.Income Statement
III.Statement of Cash Flows
A) I only
B) II only
C) III only
D) I, II, and III
12) After an auditor has issued an audit report on a nonpublic entity, there is no
obligation to make any further audit tests or inquiries with respect to the audited
financial statements covered by that report unless:
A) material adverse events occur after the date of the auditor’s report
B) final determination or resolution was made of a contingency which had been
disclosed in the financial statements
C) final determination or resolution was made on matters which had resulted in a
qualification in the auditor’s report
D) new information comes to the auditor’s attention concerning an event that occurred
prior to the date of the auditor’s report that may have affected the auditor’s report
13) Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from
providing many consulting services to their publically traded audit clients. Which of the
following is true for auditors of publically traded companies?
I. They are restricted from providing consulting services to privately held companies.
II. There is no restriction on providing consulting services to non-audit clients.
A) I only
B) II only
C) I and II
D) Neither I or II
14) If an auditor uncovers an illegal act at a public company, the auditor must notify:
A) local law enforcement officials
B) the Public Company Accounting Oversight Board
C) the Securities and Exchange Commission
D) all of the above
15) Which of the following ultimately determines the specific audit procedures
necessary to provide an independent auditor with a reasonable basis for the expression
of an opinion?
A) the audit program
B) the auditor’s judgment
C) generally accepted auditing standards
D) the auditor’s working papers
16) The acceptable risk of assessing control risk too low is:
A)
B)
C)
D)
17) Which of the following is not a benefit of using IT-based controls?
A) ability to process large volumes of transactions
B) ability to replace manual controls with computer-based controls
C) reduction in misstatements due to consistent processing of transactions
D) reduction in internal control evaluation in setting control risk
18) Companies are required to disclose in their proxy statement or annual filings with
the SEC the total amount of audit and non-audit fees paid to the audit firm for the two
most recent years. Which of the following is not one of the categories of fees that must
be disclosed?
A) tax fees
B) consulting fees
C) audit-related fees
D) all other fees
19) Describe an ethical dilemma that an auditor or an accountant might face in his or
her business career, then illustrate how the auditor or accountant might use the six-step
approach presented in the text to resolve that dilemma. Be specific.
20) To obtain an understanding of an entity’s control environment, an auditor should
concentrate on the substance of management’s policies and procedures rather than their
form because:
A) management may establish appropriate policies and procedures but not act on them
B) the board of directors may not be aware of management’s attitude toward the control
environment
C) the auditor may believe that the policies and procedures are inappropriate for that
particular entity
D) the policies and procedures may be so weak that no reliance is contemplated by the
auditor
21) Auditors have a higher degree of responsibility for detecting direct-effect illegal
acts than indirect-effect illegal acts.
A) True
B) False
22) Inventory is a complex area to audit for all but which of the following reasons?
A) Inventory is often in different locations
B) There are several acceptable valuation methods and some entities use different
methods for different types of inventory
C) Inventory is often the largest account in working capital
D) Inventory valuation includes few estimates
23) As the risk of material misstatement increases, detection risk should:
A) medium increase
B) decrease
C) stay the same
D) Is indeterminate
24) Which of the following is a substantive test of transactions?
A) Review personnel policies
B) Account for a sequence of payroll checks
C) Reconcile the disbursements in the payroll journal with the disbursements on the
payroll bank statement
D) Examine printouts of transactions rejected by the computer as having invalid
employee IDs
25) When the client’s perpetual inventory master files are inadequate, the auditor will
probably choose to test the physical inventory prior to the balance sheet date.
A) True
B) False
26) The auditors principal objective when using a sample of tests of details of balances
is whether the:
A) account balance being audited is fairly stated
B) transactions being audited are free of misstatements
C) controls being tested are operating effectively
D) transactions and account balances being audited are fairly stated
27) ________ misstatements are those where the auditor can determine the amount of
the misstatement in the account.
A) Potential
B) Likely
C) Known
D) Projected