Limited assurance is provided in
A. an audit engagement.
B. a compilation engagement.
C. a review engagement.
D. none of the items listed.
The fourth PCAOB standard of reporting requires an auditor to render a report
whenever an auditor’s name is associated with financial statements. The overall purpose
of the fourth standard of reporting is to require that reports
A. State that the examination of financial statements has been conducted in accordance
with generally accepted auditing standards.
B. Indicate the character of the auditor’s examination and the degree of responsibility
assumed by the auditor.
C. Imply that the auditor is independent in fact as well as in appearance with respect to
the financial statements under examination.
D. Express whether the accounting principles used in preparing the financial statements
have been applied consistently in the period under examination.
A well-prepared flowchart should make it easier for the auditor to
A. Prepare audit procedure manuals.
B. Prepare detailed job descriptions.
C. Perform walkthroughs.
D. Assess the degree of accuracy of financial data.
For which of the following audit tests would an auditor most likely use attributes
sampling?
A. Making an independent estimate of the amount of LIFO inventory.
B. Examining invoices in support of the valuation of fixed asset additions.
C. Selecting accounts receivable balances for confirmation.
D. Inspecting employee time cards for proper approval by supervisors.
Which of the following represents the order from the least assurance to the most
assurance provided for the types of services provided?
A. Review, compilation, audit.
B. Compilation, review, audit.
C. Audit, review, compilation.
D. Audit, compilation, review.
To obtain evidential matter about control risk, an auditor selects tests from a variety of
techniques including
A. Inquiry.
B. Analytical procedures.
C. Calculation.
D. Confirmation.
Prior to issuing a report on internal controls over financial reporting, an auditor is
required to
A. Perform procedures sufficient to identify all control deficiencies.
B. Communicate to management, in writing, all control deficiencies previously
included in written communication from the internal auditors.
C. Communicate to management, in writing, all control deficiencies identified during
the audit and inform the audit committee when such a communication has been made.
D. Represent that no significant deficiencies were noted during the audit of internal
control.
Purchase cutoff procedures should be designed to test whether or not all inventory
A. purchased and received before the year-end was recorded before year-end.
B. on the year-end balance sheet was carried at lower of cost or market.
C. on the year-end balance sheet was paid for by the company.
D. owned by the company is in the possession of the company.
Because of the risk of material misstatement, an audit of financial statements in
accordance with generally accepted auditing standards should be planned and
performed with an attitude of
A. Objective cynicism.
B. Independent differentialism.
C. Professional skepticism.
D. Impartial conservatism.
An auditor learns that a client’s employee in control of inventory gets divorced and is
responsible for paying a large amount of child support. All of the following for the audit
of inventory likely are true except:
A. Fraud risk increases.
B. The risk of misappropriation of assets increases.
C. Risk of material misstatement increases.
D. Detection risk increases.
While performing a substantive test of details during an audit, the auditor determined
that the sample results supported the conclusion that the recorded account balance was
materially misstated. It was, in fact, not materially misstated. Such a situation illustrates
the risk of
A. incorrect rejection.
B. incorrect acceptance.
C. assessing control risk too high.
D. assessing control risk too low.
The quality control standards are concerned primarily with
A. actions of individual auditors.
B. a firm’s monitoring of its practice.
C. disciplinary actions against individual auditors.
D. preventing legal action.
All of the following are inherent risk factors that are pervasive to the financial
statements except:
A. Highly complex significant transactions.
B. Non-routine transactions.
C. Classes of transactions are not processed systematically.
D. Supplies inventory is difficult to count.
A primary purpose of the proof of cash is to
A. prevent fraud.
B. reconcile actual cash receipts and disbursements to budgeted receipts and
disbursements.
C. investigate variances from expected cash balances.
D. ensure that all cash receipts recorded in the cash receipts journal were deposited in
the bank account.
Each of the following might, by itself, form a valid basis for an auditor to reduce
substantive testing except for the:
A. Difficulty and expense involved in testing a particular item.
B. Assessment of control risk at a low level.
C. Low inherent risk involved.
D. Relationship between the cost of obtaining evidence and its usefulness.
Which of the following audit procedures would provide the least reliable evidence that
the entity has legal title to inventories?
A. Confirmation of inventories at locations outside the entity’s facilities.
B. Analytical review of inventory balances compared to purchasing and sales activities.
C. Observation of physical inventory counts.
D. Examination of paid vendors’ invoices.
Which of the following procedures would be most important in the audit of an
investment valued at fair value?
A. Compare the balance in the investment account to the prior year.
B. Read the footnote disclosure related to the investment.
C. Inquire of management’s regarding the accuracy and reliability of the underlying
data.
D. Develop an independent estimate of the fair value measurement.
Data Corporation has just computerized its billing and accounts receivable record
keeping. You want to make maximum use of the new computer in your audit of Data
Corporation. Which of the following audit techniques could not be performed through a
computer program?
A. Tracing audited cash receipts to accounts receivable credits.
B. Selecting accounts to be confirmed on a random basis.
C. Examining sales invoices for completeness, consistency between different items,
valid conditions, and reasonable amounts.
D. Resolving differences reported by customers on confirmation requests.
Which of the following matters is an auditor required to communicate to those charged
with governance?
A. The basis for assessing control risk at low.
B. The process used by management in formulating sensitive accounting estimates.
C. The auditor’s preliminary judgments about materiality levels.
D. The justification for performing substantive procedures at interim dates.
The accuracy of perpetual inventory records may be established, in part, by comparing
perpetual inventory records with
A. purchase requisitions.
B. receiving reports.
C. purchase orders.
D. vendor payments.
An accountant’s standard report on a compilation of a projection should not include
A. a statement that he or she does not express an opinion on the statements or
assumptions.
B. a statement that a compilation of a projection is limited in scope.
C. a disclaimer of responsibility to update the report for events occurring after the
report’s date.
D. a statement that the accountant expresses only limited assurance that the results may
be achieved.
For attributes sampling, of the three factors that enter into sample size determination,
which two factors can the auditor adjust to reflect the importance of the control?
A. Tolerable deviation rate and confidence level.
B. Expected deviation rate and confidence level.
C. Population size and tolerable deviation rate.
D. Tolerable deviation rate and expected deviation rate.
Valuation and allocation is most likely an issue for long-term debt if
A. bonds are sold on the open market.
B. bonds are issued at a discount or premium.
C. the loans are from banks.
D. the company has many short-term leases.
Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As
a result of Ocean’s negligence in conducting the audit, a material misstatement in the
financial statements went undetected. Ocean was unaware of this fact. The financial
statements and Ocean’s unqualified opinion were included in a registration statement
and prospectus for an initial public offering of stock by Drain. Sharp purchased shares
in the offering. Sharp received a copy of the prospectus prior to the purchase but did not
read it. The shares declined in value as a result of the misstatements in Drain’s financial
statements becoming known. Under which of the following acts is Sharp most likely to
prevail in a lawsuit against Ocean?
A. The Securities Exchange Act of 1934, the Securities Act of 1933, and the
Sarbanes-Oxley Act of 2002 provide equal likelihoods of prevailing.
B. The Securities Exchange Act of 1934.
C. The Securities Act of 1933.
D. The Sarbanes-Oxley Act of 2002.
When a question arises about an entity’s continued existence, the auditor should
consider factors tending to mitigate the significance of negative information concerning
the entity’s means for maintaining adequate cash flow. An example of such a factor is
the
A. possibility of purchasing certain assets rather than leasing them.
B. capability of extending the due dates of existing debt.
C. appropriateness of changing depreciation methods from double declining balance to
straight line.
D. marketability of property and equipment that management plans to keep.
A CPA who fraudulently performs an audit of a corporation’s financial statements will
A. probably be liable to any person who suffered a loss as a result of the fraud.
B. be liable only to the corporation and to third parties who are members of a class of
intended users of the financial statements.
C. probably be liable to the corporation even though its management was aware of the
fraud and did not rely on the financial statements.
D. be liable only to third parties in privity of contract with the CPA.
The term precision relates to
A. the difference between confidence level and estimated error.
B. the difference between confidence level and tolerable error.
C. the difference between expected and tolerable deviation rate.
D. the difference between expected and sample deviation rate.
Confirmation is most likely to be a relevant form of evidence with regard to assertions
about accounts receivable when the auditor has concerns about the receivables’
A. valuation.
B. classification.
C. existence.
D. completeness.
ACL is an example of
A. An EDI software package.
B. An IT software package.
C. Software that allows auditors to retrieve and evaluate data from entity systems.
D. A type of networking.
Match the type of bank account with its definition:
1)This account is typically immaterial in amount and is used for paying certain types of
expenses and transactions
2)This account contains a stipulated amount of cash and is used for limited purposes
3)This account is the principal cash account of an entity
4)This account is a separate cash account maintained at the local bank of the entity
a) General cash account
b) Imprest cash account
c) Petty cash account
d) Branch account
When there are numerous property and equipment transactions during the year, an
auditor planning to set control risk at low usually plans to obtain an understanding of
internal control and to perform
A. tests of controls and extensive tests of property and equipment balances at the end of
the year.
B. extensive tests of current year property and equipment transactions.
C. tests of controls and limited tests of current year property and equipment
transactions.
D. analytical procedures for property and equipment balances at the end of the year.
An auditor concludes that there is substantial doubt about an entity’s ability to continue
as a going concern for a reasonable period of time. If the entity’s financial statements
adequately disclose its financial difficulties, the auditor’s report is required to include an
explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s)
A. “reasonable period of time, not to exceed one year” and “going concern.”
B. “reasonable period of time, not to exceed one year” but not “going concern.”
C. “going concern” but not “reasonable period of time, not to exceed one year.”
D. neither “going concern” nor “reasonable period of time, not to exceed one year.”
Tolerable misstatement is
A. Materiality allocated to an assertion.
B. Materiality for the balance sheet as a whole.
C. Materiality for the income statement as a whole.
D. Materiality allocated to a specific account.
Precision is a statistical measure of the maximum projected difference between the
sample estimate and the true but unknown population total and is directly related to
A. reliability of evidence.
B. relative risk.
C. confidence level.
D. cost benefit analysis.