Which of the following is not one of management’s responsibilities?
A.Ensuring accounting principles are following in preparing financial statements.
B.Engaging a qualified auditor.
C.Implementing effective internal controls.
D.Ensuring financial statements and disclosures are accurate.
For which of the following special purpose financial statements is an other-matter
paragraph restricting the use of the auditor’s report required?
A.Cash basis.
B.Tax basis.
C.Regulatory basis for general use.
D.Contractual basis.
Auditing reporting standards for financial statement and integrated audits require
auditors to provide which of the following?
A.Positive assurance.
B.Negative assurance.
C.Materiality assurance.
D.No assurance.
As inherent risk increases, what happens to the audit work?
A.Increases.
B.Decreases.
C.Stays the same.
D.Becomes less reliable.
When may audit procedures be performed?
I – on the balance sheet date.
II – prior to the balance sheet date.
III – subsequent to the balance sheet date.
A.I only.
B.I and III only.
C.II only.
D.I, II, and III.
When testing cash balances at the balance sheet date, the auditor foots the bank
reconciliation and traces its reported book balance to the trial balance and its bank
balance to the standard confirmation. Which of the following assertions is being tested
with these procedures?
A.Rights.
B.Valuation.
C.Existence.
D.All of the above.
Unreturned positive confirmations for accounts receivable warrant which of the
following actions?
A.Replacing the sample selection with a new customer.
B.Sending second requests and possibly performing subsequent procedures.
C.The projection of larger misstatements to the population.
D.Requesting that the client send additional audit correspondence to customers.
Which of the following controls would be most successful in mitigating the theft of
customer checks received in the mail?
A.Custody of receipts by the accounts receivable manager.
B.Restricted endorsements placed on the check as soon as it arrives.
C.Weekly deposits to a secure bank.
D.Reconciliation of bank accounts each month.
When a client has significant and nonrecurring charges to nonoperating expenses,
which of the following would be the most appropriate materiality benchmark?
A.Net profit.
B.Income from continuing operations.
C.Cash inflows.
D.Cash outflows.
The auditor will send a standard bank confirmation to which of the following?
A.Financial institutions of customers using the lockbox.
B.Financial institutions for which the client has a balance greater than $0 at the end of
the year.
C.Financial institutions with which the client has transacted during the year.
D.Financial institutions used by significant shareholders.
Which of the following procedures is the least useful analytical procedure to indicate
that further audit work needs to be performed before rendering the audit opinion?
A.Developing a common-size analysis.
B.Analyzing the dollar and percentage changes in each income statement item over the
previous year.
C.Comparing current earnings per share with earnings per share of the client’s primary
competitor.
D.Developing a ratio analysis.
Which of the following is one of the most important drivers of audit quality in cases
where an auditor may feel some pressure to acquiesce to management’s demands to not
require that misstatements be corrected in order to preserve a harmonious working
relationship?
A.Firm culture.
B.Ethics training.
C.Annual income of the CPA firm.
D.PCAOB guidance.
There are many important reasons to diligently plan for an audit. If an audit firm
wrongly skips the planning stage of an audit, what will be effect relative to fraud
detection?
A.The firm will not be able to apply GAAP to the financial statements.
B.The firm will not adequately identify the types of fraud that may occur in the client
company.
C.The firm will not be able to perform direct tests of account balances.
D.The firm will lack the competency and technical training necessary to complete the
audit in accordance with GAAS.
According to the Financial Reporting Council (FRC), when is the culture of an audit
firm likely to provide a positive contribution to audit quality?
A.When the leadership of the audit firm ensures partners and other staff have sufficient
time and resources to deal with difficult issues as they arise.
B.When the leadership of the audit firm ensures robust systems for client acceptance
and continuation based on ability to pay fees.
C.When the leadership of the audit firm creates an environment where achieving
efficiency is valued, invested in and rewarded.
D.When the leadership of the audit firm ensures financial considerations drive actions.
Assume that the audit team notes the client has made a significant change in its product
line which requires that new equipment be purchased. Which of the following would be
of greatest concern to the auditor?
A.Inappropriate book value of new equipment.
B.Impaired value of new equipment.
C.Impaired value of old equipment.
D.Inappropriate depreciation calculation for new equipment.
That auditor will do which of the following when the results of sample testing conclude
that there is misstatement in excess of the tolerable misstatement?
A.Issue a disclaimer of opinion.
B.Throw out the sample.
C.Propose adjustments to the client.
D.Disclose the misstatement in the client’s financial statements.
Which of the following is NOT an example of fraud in the acquisition and payment
cycle?
A.Theft of inventory by employees.
B.Inventory shrinkage.
C.Large manual adjustments to inventory accounts.
D.Excess inventory because of a production slowdown.
Which of the following is the best example of a Type I subsequent event?
A.A related-party transaction occurs during the course of the audit.
B.The company defaults on its line-of-credit with the bank subsequent to year end but
previous to the release of the audit opinion.
C.Litigation that was accrued as a liability in the year under audit is settled subsequent
to year-end for an amount in excess of estimates.
D.The company initiates an initial public offering subsequent to year-end.
What evidence is utilized by the auditor for analytical purposes in substantiating the
completeness of the allowance for bad debt estimate?
A.Accounts receivable aging schedule.
B.Copies of checks received from customers.
C.Confirmations returned without exception.
D.Stock prices of customer companies.
Which of the following is not a planning procedure performed to develop an audit
program?
A.Determination of client company risks.
B.Determination of the audit opinion that will be rendered.
C.Development of a preliminary understanding of the quality of the client’s internal
control.
D.Anticipation of audit adjustments that will be required.
What is the audit committee of the board of directors of a company is responsible for?
A.Hiring the auditor.
B.Preparing the financial statements.
C.The audit workpapers.
D.Obtaining evidence.
Which one of the following would be the most effective procedure for discovering
material Type II subsequent events?
A.Updating the search for unrecorded liabilities.
B.Resending all bank confirmations returned.
C.Reading of the minutes of board of directors’ meetings
D.Surprise cash count at random locations.
The fraud triangle says three conditions are generally present in the client’s organization
when fraud occurs. Which of the following is not one of those conditions?
A.Incentives.
B.Professional Skepticism.
C.Opportunity.
D.Ability to rationalize fraud.
Which of the following factors can mitigate concerns that the auditor might otherwise
have about a material weakness that was identified at an interim date?
A.Remediation of the control deficiency after the interim date.
B.Existence of a compensating control at the year-end date that was also present at the
interim date.
C.Weaknesses in the control environment.
D.Ineffectiveness of oversight and governance.
The proper supervision of audit assistants is a requirement of which of the Generally
Accepted Auditing Standards?
A.General Standards.
B.Standards of Fieldwork.
C.Standards of Reporting.
D.Standards of Quality Control.
E.None of the above.
Which of the following characteristics are not normally included in good audit
documentation?
A.Initials of the person preparing and reviewing the document.
B.An assessment of whether the test indicates the possibility of material misstatement
in an account.
C.A cross-reference.
D.All are included in good audit documentation.
Requiring the mail clerk to prepare a listing of all checks received, with copies of the
list going to the cashier and to accounting, is an example of which type of control?
A.Preventive.
B.Corrective.
C.Detective.
D.Directive.
Sources of audit planning information may come from which of the following?
A.Knowledge of client’s business and industry.
B.Assessment of risk of material misstatement.
C.Results of analytical procedures.
D.All of the above.
The Center for Audit Quality (CAQ) report identifies which of the following ways in
which individuals involved in the financial reporting process can mitigate the risk of
fraudulent financial reporting?
A.Individuals involved in financial reporting need to acknowledge that there needs to
exist a strong, highly ethical tone at the top of an organization that permeates the
corporate culture, including an effective fraud risk management program.
B.Individuals involved in financial reporting need to continually exercise professional
skepticism.
C.Individuals involved in financial reporting need to remember that strong
communication among those involved in the financial reporting process is critical.
D.All of the above.
Directional testing is important to an auditor because of which of the following factors?
A.Certain accounts are more prone to be misstated by overstatement than others.
B.The auditor must remain organized when conducting an audit.
C.The primary concern of the auditor is the understatement of asset and revenue
accounts.
D.It tests for existence and completeness simultaneously.
When performing sampling, the auditor is most concerned with which of the following?
A.Risk of incorrect rejection.
B.Risk of incorrect acceptance.
C.Risk of excess sample size.
D.Risk of errors in the population.