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 fairly stated in accordance with
accounting standards
D) to evaluate whether fraudulent payments were made
2) When an outside specialist has assumed full responsibility for taking the client’s
physical inventory, reliance on the specialist’s report is acceptable if:
A) the auditor’s report contains a reference to the assumption of full responsibility
B) the auditor is satisfied through application of appropriate procedures as to the
reputation and competence of the specialist
C) the auditor conducted the same audit tests and procedures as would have been
applicable if the client’s employees took the physical inventory
D) circumstances made it impracticable or impossible for the auditor either to do the
work personally or observe the work done by the inventory firm
3) What tools do companies use to limit access to sensitive company data?
A)
B)
C)
D)
4) The shareholders’ capital stock master file is used as the basis for the payment of
dividends and also acts as a check on the accuracy of the common stock balance in the
general ledger.
A) True
B) False
5) Auditing standards recommend that auditors observe physical inventory counts by
the client.
A) True
B) False
6) When auditing a private company, the auditor should obtain an understanding of
internal control sufficient to:
A) provide reasonable protection against client fraud and defalcations by client
employees
B) assess control risk
C) provide a basis for suggestions to the client for improving the accounting system
D) provide a method for safeguarding assets, checking the accuracy and reliability of
accounting data, promoting operational efficiency, and encouraging adherence to
prescribed managerial policies
7) Section 404 requires auditors to perform walkthroughs to assist in understanding
internal control.
A) True
B) False
8) Which of the following statements is correct regarding non-audit services that are not
prohibited by Sarbanes-Oxley or SEC?
A) They must be approved by management of the client
B) They must be approved by staff of the PCAOB
C) They must be approved by staff of the PCAOB and the SEC
D) They must be approved by the company’s audit committee
9) SAS No. 99 requires auditors to document which of the following matters related to
the auditor’s consideration of material misstatements due to fraud?
A) Reasons supporting a conclusion that there is not a significant risk of material
improper expense recognition
B) Procedures performed to obtain information necessary to identify and assess the
risks of material fraud
C) Results of the internal auditor’s procedures performed to address the risk of
management override of controls
D) Discussions with management regarding separation of duties
10) You are determining the significance of the following: you set a 5% risk of
assessing control risk to low and your computation of the upper deviation risk is 7%.
What could you conclude?
A) There is a 95% chance the deviation rate is the population is less than 5%
B) There is a 5% chance the deviation rate in the population is less than 7%
C) There is a 95% chance the deviation rate in the population exceeds 95%
D) There is a 5% chance the deviation rate in the population exceeds 7%
11) Audit documentation should possess certain characteristics. Which of the following
is true regarding those characteristics?
A)
B)
C)
D)
12) All of the Big Four and many of the smaller CPA firms now operate as Limited
Liability Partnerships.
A) True
B) False
13) Which of the following is not an essential component of quality control?
A) Policies and procedures to ensure that firm personnel are actively engaged in
marketing strategies
B) Policies and procedures to ensure that the work performed by firm personnel meet
applicable professional standards
C) Policies to ensure that personnel maintain their independence in fact and in
appearance
D) Policies that ensure that monitoring activities are effectively applied
14) The auditor’s starting point for verifying disposals of property, plant, and equipment
is the:
A) equipment account in the general ledger
B) file of shipping documents
C) client’s schedule of recorded disposals
D) equipment subsidiary ledger
15) Companies may intentionally understate earnings when income is high to create a
reserve of “earnings” that may be used in future years to increase earnings. This practice
is known as:
A) performance-based management
B) earnings management
C) asset management
D) expense management
16) Auditors involved in planning, performing, or reporting on audits under GAGAS
must complete ________ hours of continuing professional education in each two-year
period.
A) 20
B) 40
C) 60
D) 80
17) “Physical control over assets” is not a type of control that is applicable to the
payroll cycle.
A) True
B) False
18) When performing planning analytical procedures for a client the auditor detected
that the gross profit percentage had declined by 50% from the previous year to the year
currently under audit. The auditor should:
A) investgate the possibility the client may have made an error in their cost of goods
sold computation
B) assist management in developing greater cost efficiencies in their product line
C) prepare a going concern opinion for the client
D) advise the client to have extensive disclosure to alleviate investor concerns
19) In estimating the population misstatement, the first step in projecting from the
sample to the population is to:
A) make a point estimate
B) revise the upper error bound
C) calculate the precision interval
D) determine the population mean
20) When a disclaimer is issued because the auditor lacks independence:
A) no report title is included on the report
B) a one-paragraph audit report is issued
C) the only reason cited for issuing the disclaimer is the lack of independence
D) all of the above are correct
21) Generally, auditors assess inherent risk as moderate for related party transactions
because they expect clients to be aware of their scrutiny of such transactions.
A) True
B) False
22) The audit procedure “Examine notes payable, minutes, and bank confirmations for
restrictions” is performed when verifying the classification objective for notes payable.
A) True
B) False
23) The introductory paragraph of the standard audit report performs which functions?
I.State the CPA has performed an audit.
II.Lists the financials being audited.
III.States the financials are the responsibility of the auditor.
A) I and II
B) I and III
C) II and III
D) I, II and III
24) Indicate which changes would require an explanatory paragraph in the audit report.
A)
B)
C)
D)
25) The auditor is likely to accumulate more evidence when the audit is for a company:
A)
B)
C)
D)
26) Which of the following is the most objective type of evidence?
A) A letter written by the client’s attorney discussing the likely outcome of outstanding
lawsuits
B) The physical count of securities and cash
C) Inquiries of the credit manager about the collectability of noncurrent accounts
receivable
D) Observation of cobwebs on some inventory bins
27) Auditing standards indicate that reasonable assurance is a moderate, but not
absolute, level of assurance that the financial statements are free of material
misstatement.
A) True
B) True
28) Debt compliance letters are ordinarily addressed to:
A) underwriters of securities
B) the client’s audit committee
C) creditor financial institutions
D) the Securities and Exchange Commission
29) The test of transactions which requires one to “reconcile recorded cash
disbursements with the cash disbursements on the bank statement” satisfies the
objective of:
A) occurrence
B) completeness
C) accuracy
D) posting and summarization
30) A CPA has received an attorney’s letter in which no significant disagreements with
the client’s assessments of contingent liabilities were noted. The resignation of the
client’s lawyer shortly after receipt of the letter should alert the auditor that:
A) an adverse opinion will be necessary
B) undisclosed unasserted claims may have arisen
C) the auditor must begin a completely new examination of contingent liabilities
D) the attorney was unable to form a conclusion with respect to the significance of
litigation, claims, and assessments
31) Written communication that the auditor will provide reasonable assurance for the
detection of fraud is found in:
A) engagement letter
B) representation letter
C) responsibility letter
D) client letter
32) A procedure designed to test for monetary misstatements directly affecting the
correctness of financial statement balances is a:
A) test of controls
B) substantive test
C) test of attributes
D) monetary-unit sampling test
33) Which of the following occurrences would be least likely to warrant further audit
attention for the auditor?
A) Deviations from client’s established control procedures
B) Deviations from client’s budgeted values
C) Monetary misstatements in populations of transaction data
D) Monetary misstatements in populations of account balance details
34) If the client’s internal control for recording sales returns and allowances is evaluated
as ineffective:
A) a larger sample may be needed to verify cutoff
B) sampling is not appropriate
C) all sales returns must be traced to supporting documentation
D) all sales returns must be confirmed with the customer
35) Imprest accounts usually carry a significant balance.
A) True
B) False
36) Match seven of the terms for documents and records (a-k) used in the payroll and
personnel cycle with the descriptions provided below (1-7):
a.Human resource records
b.Deduction authorization form
c.Rate authorization form
d.Time card
e.Job time ticket
f.Summary payroll report
g.Payroll check
h.W-2 form
i.Payroll tax returns
j.Payroll journal
k.Payroll master file
________ 1> A file used for recording payroll transactions for each employee and
maintaining total employee wages paid for the year to date.
________ 2> A document indicating the time the hourly employee started and stopped
working.
________ 3> A document written in exchange for services received from an employee.
________ 4> Forms submitted to local, state, and federal units of government for the
payment of withheld taxes and the employer’s tax.
________ 5> A form authorizing payroll deductions, including the number of
exemptions for withholding of income taxes, U.S. savings bonds, and union dues.
________ 6> A form used to authorize the amount of pay.
________ 7> Records including date of employment, personnel investigations, rates of
pay, etc.
37) Although systematic sample selection is easy to use, its primary disadvantage is that
it is not a probabilistic sampling method.
A) True
B) False