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 audits, a proper cash receipts cutoff is less important than the sales cutoff
because the improper cutoff of cash:
A) is detected and correct when cash is separately audited
B) is unlikely to have a material impact on the balance sheet or the income statement
C) affects items on the balance sheet but does not affect net income
D) rarely occurs given the control consciousness of most entities
3) Which is a liquidity activity ratio?
A) Profit margin
B) Inventory turnover
C) Return on assets
D) Times interest earned
4) The difference between the Securities Act of 1933 and the Securities Act of 1934 is
that only the 1934 act requires audited financial statements.
A) True
B) False
5) When a customer does not return an accounts receivable confirmation, it is
acceptable, without performing alternative procedures, to assume the amount is 100%
overstated when generalizing from the sample to the population.
A) True
B) False
6) Fraudulent financial reporting usually involves manipulation of amounts rather than
disclosures.
A) True
B) False
7) The form that must be completed and filed with the Securities and Exchange
Commission whenever a company experiences a significant event that is of interest to
public investors is the:
A) Form S-1
B) Form 8-K
C) Form 10-K
D) Form 10-Q
8) You are the in-charge auditor and are designing audit procedures for accounts
payable. Which of the following management assertions would you normally be most
concerned about?
A) Occurrence
B) Accurancy
C) Completeness
D) Existence
9) Management’s assertions for sales and collection activities remain the same whether
sales are generated through traditional or e-commerce activities.
A) True
B) False
10) Under the Securities Exchange Act of 1934, which type of organization is required
to submit audited financial statements to the SEC?
A) Every company with securities traded on national and over-the-counter exchanges
B) Every corporation
C) Every company issuing new securities
D) Every corporation which is chartered by a state government
11) Which of the following is not explicitly stated in the standard unqualified audit
report?
A) The financial statements are the responsibility of management
B) The audit was conducted in accordance with generally accepted accounting
principles
C) The auditors believe that the audit provides a reasonable basis for their opinion
D) An audit includes assessing the accounting estimates used
12) Which of the following deficiency exists if a necessary control is missing or not
properly formulated?
A) control
B) significant
C) design
D) operating
13) The test of details of balance procedure which requires the auditor to perform tests
of lower-of-cost-or-market, selling price, and obsolescence is an attempt to satisfy the
objective of:
A) existence
B) completeness
C) accuracy
D) realizable value
14) The relationship of tolerable exception rate (TER) to sample size is:
A) direct (larger TER = larger sample)
B) inverse (larger TER = smaller sample)
C) variable (sometimes larger, sometimes smaller)
D) not determinable
15) Under normal circumstances, there should be no variation in the audit evidence mix
from cycle to cycle for a given audit engagement.
A) True
B) False
16) The starting point for the verification of the balance in the general bank account is
to obtain:
A) a bank reconciliation from the client
B) the client’s cash account from the general ledger
C) a cutoff bank statement directly from the bank
D) the client’s year-end bank statement and reconcile it
17) Management furnishes the independent auditor with information concerning
litigation, claims, and assessments. Which of the following is the auditor’s primary
means of initiating action to corroborate such information?
A) Request that client lawyers undertake a reconsideration of matters of litigation,
claims, and assessments with which they were consulted during the period under
examination
B) Request that client management send a letter of inquiry to those lawyers with whom
management consulted concerning litigation, claims, and assessments
C) Request that client lawyers provide a legal opinion concerning the policies and
procedures adopted by management to identify, evaluate, and account for litigation,
claims, and assessments
D) Request that client management engage outside attorneys to suggest wording for the
text of a footnote explaining the nature and probable outcome of existing litigation,
claims, and assessments
18) When auditing Accounts payable, the auditor is more concerned about the
possibility of understatements than overstatements.
A) True
B) False
19) A well-designed computerized system of perpetual inventory master files includes
information about the:
A) units of inventory purchased, sold, and on hand
B) unit costs of inventory purchased, sold, and on hand
C) units of raw materials, work-in-process, and finished goods
D) units and unit costs of inventory purchased, sold, and on hand
20) In an IT system, automated equipment controls or hardware controls are designed
to:
A) correct errors in the computer programs
B) monitor and detect errors in source documents
C) detect and control errors arising from the use of equipment
D) arrange data in a logical sequential manner for processing purposes
21) When a small preliminary sample is used to estimate the population exception rate,
it (the preliminary sample) cannot be included in the ultimate sample.
A) True
B) False
22) If an attorney refuses to provide the auditor with information about material
existing lawsuits or unasserted claims, current professional standards require that the
auditor consider the refusal as a scope limitation.
A) True
B) False
23) The person responsible for reconciling sales invoices to customer orders does not
access to the company’s master price list in order to correctly compute sales. This is an
example of a(n):
A) operating deficiency
B) design deficiency
C) training deficiency
D) management deficiency
24) Match seven of the terms (a-o) with the descriptions/definitions provided below
(1-7):
a.Compliance audit
b.Economy and efficiency audit
c.Effectiveness
d.Efficiency
e.Functional audit
f.Government Auditing Standards
g.Government audit
h.Institute of Internal Auditors
i.Operational auditing
j.Organizational audit
k.Program audit
l.Single Audit Act
m.Special assignment
n.IIA Practice Standards
o.Statements on Internal Auditing Standards
________ 1> The official title of the Yellow Book.
________ 2> A management request for an operational audit for a specific purpose,
such as investigating the possibility of fraud in a division or making recommendations
for reducing the cost of a manufactured product.
________ 3> A government audit to determine whether an entity is acquiring,
protecting, and using its resources economically and efficiently and whether the entity
has complied with laws and regulations concerning such matters.
________ 4> The degree to which the organization’s objectives are accomplished.
________ 5> The review of an organization for efficiency and effectiveness.
________ 6> Federal legislation that provides for a single coordinated audit to satisfy
the audit requirements of all federal funding agencies.
________ 7> Statements issued by the Internal Auditing Standards Board of the IIA to
provide authoritative interpretation of the IIA Practice Standards.
25) The engagement and report on debt compliance letters should be limited to
compliance matters that the auditor is qualified to evaluate. Which of the following
engagements would be inappropriate for the CPA to attempt to evaluate?
A) Determining whether the client has properly restricted its business activities to the
requirements of an agreement
B) Determining whether principal and interest payments were made when due
C) Determining whether the proper limitations were maintained on dividends, working
capital, and debt ratios
D) Determining whether the accounting records were adequate for conducting an
ordinary audit
26) The standard of due care to which the auditor is expected to be held is referred to as
the prudent person concept.
A) True
B) False
27) The Internal Auditing Standards Board issues Statements on Internal Auditing
Standards.
A) True
B) False
28) Financial statement manipulation risk is arguably present for all companies’
financial statements. However, the risk is elevated for companies that:
A) are heavily regulated
B) have foreign subsidiaries
C) have to make significant judgments for accounting estimates
D) operate in stable economic environments
29) Which of the following operational audits are best described by “deals with one or
more of the activities as represented by functions within an organization”?
A) functional
B) special assignment
C) organizational
D) internal control
30) A member firm of the
A)
B)
C)
D)
31) If the auditor were responsible for making certain that all of management’s
assertions in the financial statements were absolutely correct:
A) bankruptcies could no longer occur
B) bankruptcies would be reduced to a very small number
C) audits would be much easier to complete
D) audits would not be economically practical
32) Which of the following statements best describes the auditor’s responsibility
regarding the detection of fraud?
A) The auditor is responsible for the failure to detect fraud only when such failure
clearly results from nonperformance of audit procedures specifically described in the
engagement letter
B) The auditor is required to provide reasonable assurance that the financial statements
are free of both material errors and fraud
C) The auditor may extend auditing procedures to actively search for evidence of fraud
where the examination indicates that fraud may exist
D) The auditor is responsible for the failure to detect fraud only when an unqualified
opinion is issued
33) General use statements are prepared for use by ________.
A) known contractual parties
B) any third party
C) regulators
D) internal auditor
34) Statements on Standards for Attestation Engagements are established by the:
A) Securities and Exchange Commission
B) Public Company Accounting Oversight Board
C) Auditing Standards Board
D) Accounting and Review Services Committee
35) Which of the following is not an assertion related to the classes of transactions
underlying the payroll cycle?
A) Classification
B) Accuracy
C) Existence
D) Occurrence
36) Auditing standards of the United States allow auditors to perform an audit in
accordance with International Standards on Auditing (ISAs).
A) True
B) False
37) Subsequent discoveries of facts requiring the reissuance of financial statements
arise from events occurring after the date of the auditor’s report.
A) True
B) False
38) The text suggested a five-step approach to identify deficiencies, significant
deficiencies, and material weaknesses. Describe this approach.
39) How might auditors include negative balances when using monetary-unit sampling
to evaluate a population?
40) Distinguish between what is meant by business failure and audit failure.
41) The examination of prospective financial statements contains four elements that
comprise the examination. List the four elements below.
42) Discuss at least 3 steps the