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Match six of the terms (a-l) with the definitions provided below (1-6):
a. acceptable risk of incorrect acceptance
b. acceptable risk of incorrect rejection
c. difference estimation
d. misstatement bounds
e. monetary unit sampling
f. mean-per-unit estimation
g. point estimate
h. probability proportional to size sample selection
i. ratio estimation
j. statistical inferences
k. stratified sampling
l. variable sampling
________ 1. conclusions drawn from sample results based on knowledge of sampling
distributions
________ 2. sampling techniques for tests of details of balances that use the statistical
inference processes
________ 3. the risk that the auditor is willing to take of rejecting a balance as incorrect
when it is not misstated by a material amount
________ 4. a statistical sampling method that provides misstatement bounds expressed
in monetary amounts
________ 5. a method of variables sampling in which the auditor estimates the
population misstatement by multiplying the average misstatement in the sample by the
total number of population items and also calculates sampling risk
________ 6. the risk that the auditor is willing to take of accepting a balance as correct
when the true misstatement in the balance exceeds the tolerable misstatement
Programmers should only be allowed to work with test copies of programs and data.
When can audit procedures be performed?
A)
B)
C)
D)
When there is a scope restriction, what type of audit report can be issued?
A) unmodified opinion
B) qualification of scope and opinion
C) disclaimer of opinion
D) any of the above
The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to
A) the auditor.
B) management.
C) both management and the auditor equally.
D) management for the statements and the auditor for the notes.
An auditor selects a random sampling of tag numbers and identifies the tag with that
number attached to the actual inventory. The purpose of the procedure is to
A) obtain proper cutoff information.
B) uncover the inclusion of nonexistent items as inventory.
C) determine if the client has adequately priced the inventory item.
D) verify that the client has not changed the recorded counts after the auditor left the
premises.
Which of the following is an accurate statement regarding inherent risk?
A) The profession has established guidelines for setting inherent risk.
B) Auditors are generally conservative in setting inherent risk.
C) Factors impacting inherent risk will affect all cycles, balances, and disclosures.
D) Inherent risk has no impact on the amount of evidence gathered.
On the last day of the fiscal year, the cash disbursements clerk drew a company check
on bank A and deposited the check in the company account in bank B to cover a
previous theft of cash. The disbursement has not been recorded. The auditor will best
detect this form of kiting by
A) examining the composition of deposits in both bank A and bank B subsequent to
year-end.
B) examining paid checks returned with the bank statement of the next account period
after year-end.
C) preparing, from the cash disbursements records, a summary of bank transfers for one
week prior to and subsequent to year-end.
D) comparing the detail of cash receipts as shown by the client's cash receipts records
with the detail on the confirmed duplicate deposit tickets for three days prior to and
subsequent to year-end.
Which of the following is correct regarding IFRS?
A) Companies that are required to file their financial statements with the SEC must
follow IFRS starting in 2015.
B) Recent developments suggest that the SEC may be slowing down its efforts towards
adopting IFRS any time soon.
C) When an auditor is engaged to report on financial statements prepared in accordance
with IFRS, they must issue a qualified opinion.
D) The introductory paragraph of the audit report is modified to indicate that the audit
was conducted in accordance with International Standards on Auditing.
The Foreign Corrupt Practices Act (FCPA) of 1977
A) requires auditors to review and evaluate systems of internal control as a part of an
audit.
B) requires SEC registrants to maintain a reasonably complete and accurate set of
records and an adequate system of internal control.
C) requires auditors to review client's internal control system in a manner which is
thorough enough to judge whether client meets the requirements of the FCPA.
D) requires auditors to file a report with the SEC if client's internal control system is
inadequate.
A sample in which the characteristics of the sample are the same as those of the
population is a(n)
A) variables sample.
B) representative sample.
C) attributes sample.
D) random sample.
Which balance-related audit objective is not relevant to an audit of prepaid expenses?
A) rights
B) accuracy
C) detail tie-in
D) realizable value
The upper limit of the probable population exception rate is the
A) upper exception rate.
B) estimated population exception rate.
C) computed upper exception rate.
D) the tolerable exception rate.
A document generally received from the vendor which indicates a reduction in the
amount owed due to the company granting an allowance is a
A) vendor invoice.
B) debit memo.
C) credit adjustment form.
D) credit memo.
Confirmation of accounts receivable selected from the trial balance is the most common
test of details of balances for the ________ of accounts receivable.
A) presentation
B) valuation
C) accuracy.
D) detail tie-in
A group typically included as "third parties" in common law is
A)
B)
C)
D)
A CPA's financial interests in nonclients may have an effect on independence if the
nonclients are investors in or investees of the client. Which situation would not impair a
CPA's independence?
A) The client has an immaterial investment in a nonclient investee in which the CPA
has an immaterial investment.
B) The CPA has a material indirect financial interest in a nonclient in which the client
has a material investment.
C) The client investor has a nonmaterial investment in the nonclient investee in which
the CPA has a material investment.
D) The CPA has a joint closely held investment with the client in a nonclient that is
material to the client as well as the CPA.
When dealing with the processing and recording of cash receipts,
A) the most important concern is the theft of cash.
B) theft can only occur before the receipts are entered into the records.
C) cash receipts should be deposited at least monthly.
D) the monthly statement is used to prepare the cash receipts journal.
When analyzing exceptions, the auditor should keep in mind that
A) all exceptions must be reported to management.
B) they should determine the breakdown in the internal controls that allowed the
exceptions to occur.
C) the nature of an exception and its causes have no effect on the qualitative evaluation
of the system.
D) exceptions do not need to be analyzed if it is too costly.
Each of the following situations involves a possible violation of the rule on
independence. For each situation, (1) decide whether the Code of Professional Conduct
has been violated, and (2) briefly explain how the situation violates (or does not violate)
the Code of Professional Conduct.
a. Harry Brown is a partner in the Topeka office of Hedley & Co., CPAs. Harry's
brother is employed in an audit-sensitive position by Jensen Appliances, a publicly held
company in Kansas. Jensen Appliances is one of Hedley & Co.'s audit clients. Neither
Harry nor personnel from the Topeka office is involved in the audit of Jensen.
Violation? Yes No
Explanation:
b. John Woods is an audit manager with Calden & Co., CPAs, a one-office CPA firm.
John owns 100 shares of common stock in one of the firm's audit clients, but he does
not provide any audit or non-audit services to the company.
Violation? Yes No
Explanation:
c. The accounting firm of Fine & Herman, CPAs, provides bookkeeping and tax
services for Henderson Corporation, a privately held company. Fine & Herman also
performs the annual audit of Henderson Corporation.
Violation? Yes No
Explanation:
d. Bob Shelton, CPA, is the auditor of Cafe Ecko. A couple of weeks ago, Cafe Ecko's
management commenced litigation against Bob, alleging he was negligent in last year's
audit.
Violation? Yes No
Explanation:
e. Hamilton Appliance has not paid Karen Linwood, CPA, her audit fee for the past two
years. Karen is starting work on the current year's audit of Hamilton.
Violation? Yes No
Explanation:
The purpose of tests of controls is to provide reasonable assurance that the
A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.
Which of the following is not one of the steps used to develop audit objectives?
A) know the proper type of audit opinion to issue
B) divide the financial statements into cycles
C) know the management assertions about the financial statements
D) know the specific audit objectives for classes of transactions
Which of the following is not a purpose of a program audit as performed by
government auditors?
A) determination of the extent to which the desired results established by the legislature
are being achieved
B) determination of the causes of inefficiencies in sponsored programs
C) determination of the effectiveness of organizations, programs, activities, or functions
D) determination as to whether the entity has complied with laws and regulations
applicable to the program
________ protect(s) the security of electronic communication when information is
transmitted and when it is stored.
A) Firewalls
B) Digital signatures
C) Encryption
D) A database
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
Which one of the following statements is false?
A) Confidentiality is broken when an auditor is presented with a subpoena concerning
an audit client.
B) Information that a CPA obtains from a client is generally not privileged.
C) When a CPA firm conducts an AICPA-authorized peer review of the quality controls
of another CPA firm, permission of the client is not needed to examine audit
documentation.
D) A CPA firm which observes substandard audit documentation of another firm during
a peer review can initiate a complaint to the AICPA.
Two overriding considerations affect the many ways an auditor can accumulate
evidence:
1. Sufficient appropriate evidence must be accumulated to meet the auditor's
professional responsibility.
2. Cost of accumulating evidence should be minimized.
In evaluating these considerations
A) the first is more important than the second.
B) the second is more important than the first.
C) they are equally important.
D) it is impossible to prioritize them.
Which of the following would lead to a larger sample size?
A) low inherent risk
B) low control risk
C) larger tolerable misstatement
D) unsatisfactory results in other related substantive procedures
When the auditor uses the audit procedure vouching she is primarily concerned with
which of the following audit objectives when testing classes of transactions?
A) occurrence
B) completeness
C) authorization
D) classification
General use statements are prepared for use by
A) known contractual parties.
B) any third party.
C) regulators.
D) internal auditors.
Which of the following services is performed under the attestation standards?
A)
B)
C)
D)
Which of the following is an accurate statement regarding a public company's code of
ethics?
A) A code of ethics is required under The Foreign Corrupt Practices Act.
B) A code of ethics is required only for mid-level managers and below.
C) The SEC requires companies to disclose amendments and waivers to the code of
ethics for the CEO, CFO and principal accounting officer.
D) The PCAOB requires companies to review their code of ethics every five years.
A benefit obtained from using industry averages is that it provides a(n)
A) benchmark to compare the company's results.
B) indication where errors exist in the statements.
C) benchmark to be used in evaluating a client's budgets.
D) comparison of "what is" with "what should be."
Controls that are designed for each software application and are intended to help a
company satisfy the transaction-related audit objectives are
A) user controls.
B) general controls.
C) audit controls.
D) application controls.
