1) An auditor who was engaged to perform an examination of the financial statements
of a nonpublic entity has been asked by the client to refrain from performing various
audit procedures and change the nature of the engagement to a review of the financial
statements in accordance with standards established by the
A) qualify the auditor’s report and refer to the scope limitation
B) view the request as an indication of a possible irregularity
C) complete the examination that was in progress
D) honor the client’s request
2) Statements on Auditing Standards issued by the
A) part of the generally accepted auditing standards under the
B) interpretations of generally accepted auditing standards and departures from such
statements must be justified
C) interpretations of generally accepted auditing standards and such standards must be
followed in every engagement
D) generally accepted auditing procedures that are not covered by the
3) Auditing standards ________ that the basis used to determine the preliminary
judgment about materiality be documented in the audit files.
A) permit
B) do not allow
C) require
D) strongly encourage
4) The Sarbanes-Oxley Act requires a cooling off period of ________ before a member
of an audit team can work for a client in a key management position?
A) one year
B) eighteen months
C) three years
D) five years
5) Directed sample selection is the selection of each item in the sample based on some
judgment criteria established by the auditor. Discuss three commonly used criteria.
6) When performing an audit the CPA is required to:
A) exercise the level of care of a reasonably prudent CPA
B) strictly adhere of GAAS
C) strictly be liable for detection of material misstatements in the financial statements
D) avoid gross negligence in the performance of their duties
7) Because cash is the most desirable asset for people to steal, it has a higher:
A) control risk
B) inherent risk
C) detection risk
D) liquidity risk
8) The auditor determines that Mathews Company occupies the 3rd floor of an office
tower for which it pays no rent. The most likely explanation is:
A) they got lucky the landlord hasn’t noticed the lack of payments
B) landlord has weak internal controls over billings
C) related party transaction in which a major shareholder owns the office tower
D) Matthews Company is engaging in fraudulent activities
9) The professional organization which is responsible for providing guidance for
internal auditors is the:
A) APA
B) IIA
C) ABA
D) AIA
10) Financial statements of all companies are potentially subject to manipulation.
A) True
B) False
11) A bill of lading is a written contract between the seller and the buyer.
A) True
B) False
12) What typically ends the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of a payment to a vendor
C) approval of a new vendor
D) purchase requisition
13) Auditors must make decisions regarding what evidence to gather and how much to
accumulate. Which of the following is a decision that must be made by auditors related
to evidence?
A)
B)
C)
D)
14) Supervisory personnel in the functional department is responsible for evaluating
employees who should be responsible for authorizing the addition and deletion of
employees from the payroll.
A) True
B) False
15) Auditors have found that the most efficient way to conduct audits is to focus
primarily on testing classes of transactions and performing tests of ending account
balances.
A) True
B) False
16) The phrase “auditing standards generally accepted in the United States of America”
can be found in the opinion paragraph of a standard, unqualified audit report for a
public company.
A) True
B) False
17) If an auditor wishes to test the completeness transaction-related audit objective in
the payroll and personnel cycle, which of the following would be a reasonable test of
control?
A) Account for a sequence of payroll checks
B) Examine procedures manual and observe the recording of transactions
C) Examine payroll records for indication of pay rate approval
D) Reconcile the payroll bank account
18) In the accounts receivable subsidiary ledger the length of time the account has been
due can be useful to the client and the auditor in preparing the:
A) trial balance
B) working trial balance
C) accounts receivable trial balance
D) aged accounts receivable trial balance
19) In determining independence with respect to any audit engagement, the ultimate
decision as to whether or not the auditor is independent must be made by the:
A) auditor
B) client
C) audit committee
D) public
20) If an auditor of a public company cannot find guidance issued by the PCAOB on a
particular audit matter, the auditor should generally seek guidance from which of the
following sources?
A) Statements on Auditing Standards
B) Statements on Standards for Accounting and Review Services
C) Regulations issued by the Securities and Exchange Commission
D) The
21) The auditor is performing tests of transactions for individual accounts payable
transactions with vendors. Which document provides more reliable information about
individual transactions with vendors?
A) Receiving report
B) Vendors Invoices
C) Vendor Statements
D) Purchase Orders
22) When errors are found in a sample, auditors in practice generally make the
assumption:
A) of a 100% assumption for all errors
B) that the population errors are larger than the sample errors
C) that the population errors are smaller than the sample errors
D) that the actual sample errors are representative of the population errors
23) Fraud awareness training should be:
A) broad and all-encompassing
B) extensive and include details for all functional areas
C) specifically related to the employee’s job responsibility
D) focused on employees understanding the importance of ethics
24) Which of the following best describes the test data approach?
A) auditors process their own test data using the client’s computer system and
application program
B) auditors process their own test data using their own computers that simulate the
client’s computer system
C) auditors use auditor-controlled software to do the same operations that the client’s
software does, using the same data files
D) auditors use client-controlled software to do the same operations that the client’s
software does, using auditor created data files
25) Authorizations can be either general or specific. Which of the following is not an
example of a general authorization?
A) Automatic reorder points for raw materials inventory
B) A sales manager’s authorization for a sales return
C) Credit limits for various classes of customers
D) A sales price list for merchandise
26) Under the laws of agency, partners of a CPA firm may be liable for the work of
others on whom they rely. This would not include:
A) employees of the CPA firm
B) employees of the audit client
C) other CPA firms engaged to do part of the audit work
D) specialists employed by the CPA firm to provide technical advice on the audit
27) An auditor should recognize that the application of auditing procedures may
produce evidence indicating the possibility of errors or fraud and therefore should:
A) plan and perform the engagement with an attitude of professional skepticism
B) not rely on internal controls that are designed to prevent or detect errors or fraud
C) design audit tests to detect unrecorded transactions
D) extend the work to audit most recorded transactions and records of an entity
28) Analytical procedures can be very effective in detecting inventory fraud. Which of
the following analytical procedures would NOT be useful in detecting fraud?
A) Gross margin percentage
B) Inventory Turnover
C) Cost of sales percentage
D) Accounts payable turnover
29) Amounts involving fraud are not usually considered qualitative factors affecting the
preliminary materiality judgment.
A) True
B) False
30) Inherent risk is often high for an account such as:
A) inventory
B) land
C) cash
D) notes payable
31) Auditors have difficulty applying the concept of materiality in practice because they
often do not know who the users of the financial statements are or what decisions will
be made.
A) True
B) False
32) When a company maintains its own records of stock transactions and outstanding
stock, internal controls must be adequate to ensure that:
A) actual owners are recorded in the bylaws
B) the correct amount of dividends is paid to stockholders owning the stock on the
dividend record date
C) the correct amount of dividends is paid to stockholders owning the stock on the
declaration date
D) actual owners are recorded in the minutes
33) Which of the following is not one of the five classes of transactions included in the
sales and collection cycle?
A) Sales returns and allowances
B) Write-off of uncollectible accounts
C) Bad debt expense
D) Interest Income
34) When a successor auditor requests information from a company’s previous auditor,
and there are legal problems or disputes between the client and the predecessor auditor,
the predecessor auditor’s response to the new auditor may be limited to stating that no
information will be provided.
A) True
B) False
35) Auditor judgment is the primary determinant in determining the amount of evidence
gathered.
A) True
B) False
36) The appropriate and sufficient evidence to be obtained from tests of details must be
decided on an:
A) efficiency basis
B) effectiveness basis
C) audit objectives basis
D) none of the above
37) Which of the following best describes the coporate minutes of an entity?
A) official record of the meetings of the board of directors and the stockholders
B) unofficial record of the meeting of the board of directors
C) official record of management meeting with investors and creditors of the company
D) unofficial record of the board of directors meetings
38) Whenever an auditor issues a qualified report due to a scope limitation, he/she must
use the term “except for” in both the scope and opinion paragraph.
A) True
B) False
39) Separation of duties in the sales/collection cycle should mandate that the
credit-granting function be separate from the sales function.
A) True
B) False
40) In most manufacturing companies, the inventory and warehousing cycle begins
with the:
A) receipt of a customer’s order
B) completion of production of a customer’s order
C) initiation of production of a customer’s order
D) acquisition of raw materials for production of an order