Archives: Quiz

1) The carrying amount of bonds at maturity should be equal to the face value of the bonds. 2) Since we live in a global economy, all countries have adopted the same accounting standards for business transactions. Answer: FALSE[/cpmembership] 3) […]

1) When bonds payable are converted into common stock, the carrying value of the bonds is transferred to paid-in capital. 2) A budget is a financial plan that helps coordinate business activities. Answer: TRUE 3) Accounting is moving in the […]

1) Under the indirect method to prepare the statement of cash flows, a decrease in accounts payable is deducted from net income when calculating Net Cash Provided by Operating Activities. 2) Unrealized gains and losses on trading securities are reported […]

1) In the statement of cash flows, more purchases of long-term assets than sales of long-term assets are considered a sign of a healthy company. 2) External auditors are responsible for maintaining the internal controls for each company they audit. […]

1) The inventory turnover ratio should be the same for all types of industries. 2) Cost of Goods Sold is an operating expense on the income statement. Answer: FALSE 3) A corporation is not an entity that is separate from […]

1) Accounts payable turnover is an important measure of liquidity for a retail business. 2) The choice of an inventory costing method does not impact a company’s balance sheet. Answer: FALSE 3) If a corporation pays taxes on its income, […]

1) Fraud is a major problem in many businesses throughout the world. 2) The net of foreign-currency transaction gains and losses will appear on the income statement. Answer: TRUE 3) The process of determining the present value of a sum […]

1) At the end of the period, the difference between the total credits and the total debits is the balance in the account 2) Under the equity method, the investor applies his percentage of ownership in recording his share of […]

1) The cost of land may include the cost of any back property taxes that the purchaser pays. 2) A company can sell common stock in exchange for assets other than cash. Answer: TRUE 3) The statement of cash flows […]

1) Accepting credit cards can increase revenue for a company, but the added revenue comes at a cost. 2) The indirect method of preparing the statement of cash flows provides the clearest picture of the cash inflows and cash outflows […]

1) A compensating balance maintained for a loan increases the actual interest rate on a loan. 2) The Sarbanes-Oxley Act created the American Institute of Certified Public Accountants to oversee the audits of public companies. Answer: FALSE 3) Comprehensive income […]

1) The word “payable” always signifies a liability. 2) In the units-of production method, a fixed amount of depreciation expense is assigned to each unit of output. Answer: TRUE 3) A note payable may require the borrower to accrue interest […]

1) An error in ending inventory creates errors for two accounting periods. 2) Trend analysis using income statement data is widely used for predicting the future. Answer: TRUE 3) Trend percentages are computed only for balance sheet items. Answer: FALSE […]

1) Items of comprehensive income, other than net income, do not enter into the determination of earnings per share. 2) Common stockholders receive dividends even if the total dividend is not large enough to pay the preferred stockholders first. Answer: […]

1) The maker of a note records interest expense. 2) Foreign-Currency Transaction Losses can be avoided if international transactions are settled in U.S. dollars instead of the foreign currency. Answer: TRUE 3) The principal of a note payable is the […]

1) A system walkthrough is primarily used to: A) test balances B) test details of transactions C) gain an understanding of internal controls D) determine acceptance of the client 2) Which of the following is not a general control? A) […]

1) Which balance-related audit objective cannot be assessed using monetary unit sampling? A) Accuracy B) Completeness C) Existence D) All of the above can be assessed using monetary unit sampling. 2) The acquisition and payment cycle is highly controlled and […]

1) One purpose of performing preliminary analytical procedures in the planning phase of an audit is to help the auditor make a preliminary assessment of control risk. A) True B) False 2) Service auditors do not issue which of the […]

1) The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the: A) existence objective B) completeness objective C) ownership objective D) valuation objective 2) Which one of the following […]

1) What client information is needed by auditors in creating lead schedules? A) Interim statements prepared by the client for the company’s 3rd quarter financial results B) General ledger information, including unadjusted ending balances and beginning balances for accounts C) […]

1) Governmental Auditing Standards recognize that because of public accountability over governmental activities the acceptable tolerable misstatement as compared to commercial businesses may be: A) equal B) lower C) higher D) indeterminable 2) The audit procedure “Test clerical accuracy by […]

1) Directed sample selection, block sample selection, and haphazard sample selection are three types of probabilistic sample selection methods. A) True B) False 2) A high detection risk equates to a low amount of audit evidence needed. A) True B) […]

1) In third-party suits, which of the auditor’s defenses contends lack of privity of contract? A) Lack of duty B) Non-negligent performance C) Contributory negligence D) Absence of causal connections 2) If an auditor “proves” the bank statement in the […]

1) When a pervasive scope limitation exists which paragraphs will be included in the independent auditors report? A) B) C) D) 2) Which of the following is not defined as an act discreditable in either the Rules or the Interpretations […]

1) In the context of financial statement auditing, fraud is defined as an intentional misstatement of a material fact regarding balances, transactions or presentation of the financial statements. A) True B) False 2) Which of the following is most correct […]

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 […]

1) Inquiries of clients and reperformance normally have a low cost associated with them. A) True B) False 2) The primary purpose of a surprise payroll payoff is to detect employees who have reported more time than was actually worked […]

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 […]

1) A bill of lading is a special type of sales invoice used when goods are shipped interstate. A) True B) False 2) An audit report prepared by Garrett and Brown, CPAs, is provided below. The audit for the year […]

1) After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily […]

1) Which of the following audit risk components may be assessesed in non-quantitative terms? A) B) C) D) 2) A major consideration in assigning staff to an audit engagement is the experience levels required for the work, while a less […]

1) Auditors should evaluate which of the following before evaluating application controls because of the potential for pervasive effects. A) input controls B) control environment C) processing controls D) general controls 2) Whenever subsequent events are used to evaluate the […]

1) The overall objective in the audit of the acquisition and payment cycle is: A) to ensure the reliability of the affected accounts B) to ensure the accuracy of the affected accounts C) to evaluate whether the affected accounts are […]

1) Because of the cycle’s pervasive nature, audit tests of the payroll cycle are usually extensive. A) True B) False 2) Auditors should obtain copies of the client’s code of ethics and minutes of the meetings of the board of […]

1) The extent of tests of details of balances cannot be reduced when transaction-related audit objectives have been satisfied by tests of controls or substantive tests of transactions. A) True B) False 2) For a firm that practices good internal […]

1) When the auditor suspects that fraud may be present, SAS No. 99 requires the auditor to: A) terminate the engagement with sufficient notice given to the client B) issue an adverse opinion or a disclaimer of opinion C) obtain […]

1) Which of the following is considered audit evidence? A) B) C) D) 2) Which of the following audit procedures would normally be best expected to test the completeness objective (assertion) for sales? A) Compare shipping documents with sales records […]

1) When the amount in the petty cash account is immaterial, most auditors would choose to test the account for reasons of client expectations. A) True B) False 2) When preparing a standard inquiry of client’s attorney letter, the client’s […]

1) What is the purpose of applying stratified sampling to a population? A) B) C) D) 2) Which of the following is a factor that relates to incentives to misappropriate assets? A) Significant accounting estimates involving subjective judgments B) Significant […]

1) The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must: A) be well documented and cross-referenced in the audit documents B) be based on sources that are external to company C) provide […]

1) When auditing insurance expense, auditors normally rely on analytical procedures and limited testing of the debits to ensure that they arose from credits to prepaid insurance. A) True B) False 2) The four categories for describing the size of […]

1) Compilation reports may be of all but which of the following types? A) compilation with limited independence B) compilation with full disclosure C) compilation without independence D) compilation that omits substantially all disclosures 2) Limited liability companies are structured […]

1) As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company’s […]

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 […]

1) Which of the following statements is most correct about an auditor’s required communication with management and those charged with corporate governance? A) The auditor is required to inform those charged with governance about significant errors discovered and subsequently corrected […]

1) For privately held companies who of the following is responsible for establishing auditing standards? A) Securities and Exchange Commission B) Public Company Accounting Oversight Board C) Auditing Standards Board D) National Association of Accounting 2) A member in public […]

1) In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern. A) accuracy B) existence C) completeness D) none of the above 2) For most […]

1) What event initiates a transaction in the sales and collection cycle? A) receipt of cash B) delivery of product to a customer C) identification of a new customer D) customer request for goods 2) Because of the importance of […]

1) Presentation and disclosure related audit objectives would be performed in which phase of the audit process? A) plan and design audit approach B) perform audit tests for controls and transactions C) perform analytical procedures and tests of balances D) […]

1) Which is usually included in the engagement letter? A) B) C) D) 2) Research indicates that the most effective way to prevent and deter fraud is to: A) implement programs and controls that are based on core values embraced […]