Which of the following is not explicitly a part of the IIA’s definition of internal
auditing?
A. Internal auditing is an objective assurance activity.
B. Internal auditing is a consulting activity.
C. Internal auditing should help an organization accomplish its objectives.
D. Internal auditors should help external auditors complete the annual financial
statement audit.
Two months before year-end, the bookkeeper erroneously recorded the receipt of a
long-term bank loan by a debit to cash and a credit to sales. Which of the following is
the most effective procedure for detecting this type of error?
A. Analysis of the notes payable journal.
B. Analysis of bank confirmation information.
C. Preparation of a year-end bank reconciliation.
D. Preparation of a year-end bank transfer schedule.
To be successful in a civil action under Section 11 of the Securities Act of 1933
concerning liability for a misleading registration statement, the plaintiff must prove
A. the plaintiff’s reliance on the registration statement and the defendant’s intent to
deceive.
B. neither the plaintiff’s reliance on the registration statement nor the defendant’s intent
to deceive.
C. the plaintiff’s reliance on the registration statement but not the defendant’s intent to
deceive.
D. the defendant’s intent to deceive but not the plaintiff’s reliance on the registration
statement.
An auditor testing long-term investments would ordinarily use substantive analytical
procedures as the primary audit evidence to support the reasonableness of the
A. valuation of marketable equity securities.
B. classification of gains and losses on the disposal of securities.
C. completeness of recorded investment income.
D. existence and ownership of investments.
All of the following are true with respect to the auditor’s consideration of information
other than the audited financial statements that are included in an entity’s annual report
except:
A. the auditor is under no obligation to perform audit procedures on this other
information.
B. the auditor must consider whether the other information is consistent with the
information contained in the audited financial statements.
C. the auditor must request that material inconsistencies be corrected.
D. the auditor must perform audit procedures on this other information.
If the objective of a test of details is to detect the overstatement of sales, the auditor
should trace transactions from the
A. cash receipts journal to the sales journal.
B. sales journal to the cash receipts journal.
C. shipping documents to the accounting records.
D. accounting records to the shipping documents.
A CPA, while performing an audit, strives to achieve independence in appearance in
order to
A. reduce risk and liability.
B. comply with the generally accepted standards of fieldwork.
C. become independent in fact.
D. maintain public confidence in the profession.
If the ratio of repairs and maintenance expense to property, plant, and equipment is
higher than expected, which of the following is a plausible explanation?
A. Routine maintenance on an important piece of machinery was charged to repairs and
maintenance expense.
B. An addition to a building was charged to repairs and maintenance expense.
C. The company forgot to depreciate all of its equipment.
D. The company purchased an unusual amount of new equipment.
When an auditor concludes there is substantial doubt about an entity’s ability to
continue as a going concern for a reasonable period of time, the auditor’s responsibility
is to
A. prepare prospective financial information to verify whether management’s plans can
be effectively implemented.
B. project future conditions and events for a period of time not to exceed one year
following the date of the financial statements.
C. issue a qualified or adverse opinion, depending upon materiality, because of the
possible effects on the financial statements.
D. consider the adequacy of disclosure about the entity’s possible inability to continue
as a going concern.
Typically, an external auditor first gets supervisory experience at what level of
authority?
A. Associate.
B. Senior.
C. Manager.
D. Partner.
An entity’s internal control requires that for every check request there be an approved
voucher, supported by a prenumbered purchase order and a prenumbered receiving
report. To determine whether checks are being issued for unauthorized expenditures, an
auditor most likely would select items for testing from the population of all
A. purchase orders.
B. canceled checks.
C. receiving reports.
D. approved vouchers.
An advantage of using statistical over nonstatistical sampling methods in tests of
controls is that the statistical methods
A. afford greater assurance than a nonstatistical sample of equal size.
B. provide an objective basis for quantitatively evaluating sample risks.
C. can more easily convert the sample into a dual-purpose test useful for substantive
testing.
D. eliminate the need to use judgment in determining appropriate sample sizes.
Cooper, CPA is auditing the financial statements of a small rural municipality. The
receivable balances represent residents’ delinquent real estate taxes. Internal control at
the municipality is weak. To determine the existence of the accounts receivable
balances at the balance sheet date, Cooper would most likely
A. send positive confirmation requests.
B. send negative confirmation requests.
C. examine evidence of subsequent cash receipts.
D. inspect the internal records, such as copies of the tax invoices that were mailed to the
residents.
Which of the following matters generally is included in an auditor’s engagement letter?
A. Management’s responsibility for the entity’s compliance with laws and regulations.
B. The factors to be considered in setting preliminary judgments about materiality.
C. Management’s liability for illegal acts committed by its employees.
D. The auditor’s responsibility to guarantee accuracy of the financial statements.
The auditor is most likely to verify accrued commissions payable in conjunction with
the
A. sales cutoff review.
B. verification of employees.
C. review of post balance sheet date disbursements.
D. examination of trade accounts payable.
A field test is a
A. Test to ensure that a numerical value in a field does not exceed some predetermined
value.
B. Check to ensure that the value in a field falls within an allowable range of values.
C. Check to ensure that the data in a field have the proper arithmetic sign.
D. Check on a field to ensure that it contains either all numeric or all alphabetic
characters.
In determining the adequacy of the allowance for uncollectible accounts, the least
reliance should be placed upon which of the following?
A. The credit manager’s opinion.
B. An aging schedule of past due accounts.
C. Subsequent year collections of amounts in accounts receivable at the balance sheet
date.
D. Ratios calculated showing the past relationship of the valuation allowance to net
credit sales.
Which of the following internal control activities most likely would prevent direct labor
hours from being charged to manufacturing overhead?
A. Periodic independent counts of work-in-process for comparison to recorded
amounts.
B. Comparison of daily journal entries with approved production orders.
C. Use of time tickets to record actual labor worked on production orders.
D. Reconciliation of work-in-process inventory with periodic cost budgets.
All of the following are typically in the current file except:
A. Adjusting journal entries.
B. Copies of the audit report.
C. Chart of accounts.
D. Lead schedules.
Where no independent stock transfer agents are employed and the corporation issues its
own stocks and maintains stock records, canceled stock certificates should
A. be defaced to prevent reissuance and attached to their corresponding stubs.
B. not be defaced, but segregated from other stock certificates and retained in a
canceled certificates file.
C. be destroyed to prevent fraudulent reissuance.
D. be defaced and sent to the Secretary of State.
Which one of the following procedures would not be appropriate for an auditor in
discharging his or her responsibilities concerning the entity’s physical inventories?
A. Confirmation of goods in the hands of public warehouses.
B. Supervising the annual physical inventory count.
C. Carrying out physical inventory procedures at an interim date.
D. Obtaining written representation from the entity as to the existence, quality, and
dollar amount of the inventory.
Which of the following is true with respect to the auditor’s report?
A. The report indicates that the company’s financial statements were audited in
accordance with generally accepted accounting standards.
B. The report indicates that the company’s financial statements were audited in
accordance with applicable auditing standards.
C. The report indicates that the company’s financial statements were audited in
accordance with the auditor’s best judgment.
D. The report indicates that the company’s financial statements were audited in
accordance with statements issued by the FASB.
The objective of the second PCAOB Standard of Reporting is to provide assurance that
A. There are no variations in the format and presentation of financial statements.
B. Substantially different transactions and events are not accounted for on an identical
basis.
C. The auditor is consulted before material changes are made in the application of
accounting principles.
D. The comparability of financial statements between periods is not materially affected
by changes in accounting principles that are not disclosed.
The independent auditor should acquire an understanding of the internal audit function
as it relates to the assessment of control risk because
A. Internal audit programs, audit documents, and reports can eliminate the need for the
independent auditor’s staff.
B. The procedures performed by the internal audit staff may eliminate the independent
auditor’s need for an extensive study and evaluation of internal control.
C. The work performed by internal audit personnel may be a factor in determining the
nature, timing, and extent of the independent auditor’s procedures.
D. The understanding of the internal audit function is an important substantive
procedure to be performed by the independent auditor.
The profession’s ethical standards would most likely be considered to have been
violated when the CPA represents that specific consulting services will be performed for
a stated fee and it is apparent at the time of the representation that the
A. CPA would not be independent.
B. fee was a competitive bid.
C. actual fee would be substantially higher.
D. actual fee would be substantially lower than the fees charged by other CPAs for
comparable services.
The primary reason for preparing a reconciliation between interest-bearing obligations
outstanding during the year and interest expense presented in the financial statements is
to
A. evaluate internal control over securities.
B. determine the validity of prepaid interest expense.
C. ascertain the reasonableness of imputed interest.
D. detect unrecorded liabilities.
Jones was engaged to examine the financial statements of Virginia Corporation for the
year ended June 30. Having completed an examination of the investment securities,
which of the following is the best method of verifying the accuracy of recorded
dividend income?
A. Tracing recorded dividend income to cash receipts records and validated deposit
slips.
B. Utilizing analytical procedures and statistical sampling.
C. Comparing recorded dividends with amounts appearing on federal information forms
1099.
D. Comparing recorded dividends with a standard financial reporting service’s record of
dividends.
S&H Associates has just performed an audit of Bob’s Bikes. S&H was unable to obtain
a written representation from management about internal control. Which of the
following is true?
A. S&H must still assume that management has assessed the effectiveness of internal
control.
B. Depending on other factors in the audit, S&H can still issue an unqualified opinion.
C. S&H should consider this situation a limitation on the scope of the audit.
D. Management does not need to give S&H a letter if it has disclosed all known internal
control deficiencies.
In testing plant and equipment balances, an auditor examines new additions listed on an
analysis of plant and equipment. This procedure most likely obtains evidence
concerning management’s assertion of
A. completeness.
B. occurrence.
C. classification.
D. accuracy.
In which of the following situations would an auditor ordinarily choose between
expressing an “except for” qualified opinion and expressing an adverse opinion?
A. The auditor did not observe the entity’s physical inventory and is unable to become
satisfied as to its balance by other auditing procedures.
B. The financial statements fail to disclose information that is required by generally
accepted accounting principles.
C. The auditor is asked to report only on the entity’s balance sheet and not on the other
basic financial statements.
D. Events disclosed in the financial statements cause the auditor to have substantial
doubt about the entity’s ability to continue as a going concern.