1) Acceptable risk of assessing control risk too low (ARACR) and acceptable risk of
incorrect acceptance (ARIA) are inversely related; that is, a decrease in ARACR is
accompanied by an increase in ARIA.
A) True
B) False
2) The higher the assessed control risk, the lower will be the acceptable risk of
assessing control risk too low.
A) True
B) False
3) Match eight of the terms (a-n) with the definitions provided below (1-8):
a.Application controls
b.Auditing around the computer
c.Auditing through the computer
d.Error listing
e.General controls
f.Generalized audit software
g.Hardware controls
h.Input controls
i.Output controls
j.Parallel simulation
k.Parallel testing
l.Pilot testing
m.Processing controls
n.Test data approach
________ 1> The new and old systems operate simultaneously in all locations.
________ 2> Controls that relate to all parts of the IT system.
________ 3> Involves the use of a computer program written by the auditor that
replicates some part of a client’s application system.
________ 4> A method of auditing IT systems which uses data created by the auditor to
determine whether the client’s computer program can correctly process valid and invalid
transactions.
________ 5> Controls such as review of data for reasonableness, designed to assure
that data generated by the computer is valid, accurate, complete, and distributed only to
authorized people.
________ 6> Controls that apply to processing of transactions.
________ 7> A new system is implemented in one part of the organization while other
locations continue to rely on the old system.
________ 8> Controls such as proper authorization of documents, check digits, and
adequate documentation, designed to assure that the information to be processed by the
computer is authorized, complete, and accurate.
4) Which of the following types of engagement reports would provide positive
assurance?
A) an examination
B) a review
C) an agreed-upon procedures engagement
D) a compilation
5) Who is most likely to perpetrate fraudulent financial reporting?
A) members of the board of directors
B) production employees
C) management of the company
D) the internal auditors
6) Which of the following types of audit procedures is ordinarily emphasized the least
when auditing payroll?
A) Tests of controls
B) Tests of transactions
C) Analytical procedures
D) Tests of details of balances
7) Which of the following statements is not true?
A) A one-paragraph report is generally used when the auditor is not independent
B) A three-paragraph report ordinarily indicates there are no exceptions in the audit
C) More than three paragraphs in the report indicates there must be some type of
qualification in the audit
D) An unqualified opinion with an explanation or modified wording would require
more than three paragraphs
8) Which of the following methods of sample selection is appropriately used when
selecting a random sample?
A)
B)
C)
D)
9) The criteria by which an auditor evaluates the information under audit may vary with
the information being audited.
A) True
B) False
10) The assessment against a defendant of the full loss suffered by a plaintiff regardless
of the extent to which other parties shared in the wrongdoing is called:
A) separate and proportionate liability
B) shared liability
C) unitary liability
D) joint and several liability
11) Interpretations of Independence Rule 101 prohibit covered members from owning
any stock or other direct investment in audit clients. Covered members would include
which of the following?
A)
B)
C)
D)
12) Which of the following services is not prohibited by the SEC whenever a CPA also
audits the company?
A) actuarial services
B) assisting the company in preparing certain SEC registration statements (e.g., 10-Q,
10-K)
C) investment banker services
D) bookkeeping services
13) To minimize the opportunity for fraud, unclaimed salary checks should be:
A) deposited in a special bank account
B) kept in the payroll department
C) left with the employee’s supervisor
D) held for the employee in the personnel department
14) Proper authorization for acquisition is useful for management as an internal control
procedure, because it:
A) ensures that goods/services are used efficiently by company employees
B) ensures that goods/services were purchased from approved vendors
C) ensures that goods/services were purchased according to company policy
D) ensures that goods/services were purchased at the lowest possible price
15) Only companies that file annual statements with the Securities and Exchange
Commission are required to have an annual external audit.
A) True
B) False
16) International Standards on Auditing are issued by the International Auditing
Practices Committee.
A) True
B) False
17) Laws that have been passed by the U.S. Congress and other governmental units are:
A) statutory laws
B) judicial laws
C) federal laws
D) common laws
18) Many auditors perform extensive analytical procedures on audits because:
A) they are required by GAAS
B) they pinpoint errors in accounts
C) they indicate areas of potential risk and misstatement
D) they are required for tests of controls
19) Which of the following, if present, would most likely support a finding of
constructive fraud on the part of a CPA?
A) Gross negligence in applying GAAS
B) Ordinary negligence in applying GAAS
C) Lack of duty to perform
D) Contributory negligence
20) Under the Securities Act of 1933, a third-party plaintiff does not have the burden of
proof that he or she relied on the financial statements or that the auditor was negligent
or fraudulent in doing the audit. Rather, the plaintiff need only prove that the audited
financial statements contained a material misrepresentation or omission.
A) True
B) False
21) Smaller companies usually have less extensive internal controls than larger
companies which result in more frauds being committed at small companies.
A) True
B) False
22) The auditor’s independent estimate of interest expense from notes payable uses
average interest rates and:
A) average notes payable outstanding
B) year-end notes payable outstanding
C) only notes payable above the level of materiality
D) only notes payable to major lenders
23) When auditing acquisitions of property, plant, and equipment, the auditor’s review
of lease and rental agreements most closely relate to the cutoff objective.
A) True
B) False
24) While petty cash is often immaterial in amount, the auditor verifies the account
primarily because it is easy to do so.
A) True
B) False
25) When there are not numerous transactions involving notes payable during the year,
the normal starting point for the audit of notes payable is:
A) a schedule of notes payable and accrued interest prepared by the audit team
B) a schedule of notes payable and accrued interest obtained from the client
C) a schedule of only those notes with unpaid balances at the end of the year prepared
by the client
D) the notes payable account in the general ledger
26) A CPA may wish to emphasize specific matters regarding the financial statements
even though an unqualified opinion will be issued. Normally, such explanatory
information is:
A) included in the scope paragraph
B) included in the opinion paragraph
C) included in a separate paragraph in the report
D) included in the introductory paragraph
27) The process of transferring money from one bank account to another and
improperly recording the transaction is referred to as:
A) kiting
B) lapping
C) scamming
D) embezzling
28) Which of the following parties provides an assessment of the effectiveness of
internal control over financial reporting for public companies?
A)
B)
C)
D)