The moral intensity criteria that cause a decision maker to realize that a situation has
moral components include:
A. consequences are very large or significant.
B. identify alternative courses of action.
C. ethical issues need to be identified.
D. the consequences are not likely to happen.
Changes to direct deposit information should:
a. be vested with the Treasury Department.
b. be vested with Human Resources.
c. be detected by proper access controls.
d. Both a and c.
Which of the following is not a form of evidence obtained through the auditor’s direct
personal knowledge?
(a) observation
(b) reperformance
(c) inquiry
(d) inspection
A deferred tax liability is recognized for:
(a) temporary differences resulting from net operating loss carry forwards.
(b) temporary differences related to depreciation.
(c) permanent tax difference related to depreciation.
(d) All of the above.
Control risk is defined as:
a. the risk that a material misstatement will go undetected by the client.
b. the risk that a material misstatement will go undetected by the auditor.
c. Both a and b.
d. Neither a nor b.
Earnings management pertains to:
(a) accounting manipulations for the purpose of presenting the company in a biased
manner.
(b) conservative accounting treatments included in the financial disclosures.
(c) the company’s ability to limit production, if needed.
(d) assigning responsibility for new accounting requirements.
The auditors should communicate any material concerns regarding internal control:
a. to the audit committee.
b. to the shareholders via the audit report of the ICFR.
c. to the SEC directly.
d. Both “a” and “b”.
The three sections or groups of audit standards are:
(a) field work, general, and final.
(b) field work, reporting, and general.
(c) field work, testing, and internal control review.
(d) field work, general, and overall.
A test for revenue is:
a. analyzing the gross margin for the current and prior periods.
b. analyzing the changes in inventory, accounts receivable, and cash for any indication
that their trend differs from that implied by the change in sales year over year.
c. analyzing sales returns and allowances for proper disclosure.
d. Both a and b.
The ICFR attests that the controls were operating effectively:
(a) for the entire period under audit.
(b) since the date of the previous ICFR.
(c) for the majority of time under audit.
(d) None of the above.
The auditor selects 25 invoices for testing and detects no errors. As a result, she
concludes that the expense account is fairly stated. Unbeknown to the auditor, the client
has altered some of the invoices to reduce the amount reported as expense. This is an
example of:
a. an efficiency problem.
b. incorrect acceptance.
c. a sampling error.
d. Both b and c.
COSO:
a. is the body that established an internal control standards framework referenced by the
PCAOB.
b. published a document that explains what an internal control system should be like to
be effective.
c. is the acronym widely used to refer to the Committee of Sponsoring Organizations of
the Treadway Commission.
d. All of the above.
Which of the following items would an audit engagement partner likely communicate
with the members of his or her audit team during a planning meeting?
(a) Responsibility for notifying appropriate individuals of any significant issues or
difficulties encountered during the audit.
(b) Identification of the type of audit report to be issued.
(c) The need to complete the quarterly review before communicating with any tax
professionals assigned to the audit engagement.
(d) Responsibility for notifying the audit committee and internal auditors of the firm’s
specific audit approach.
An audit report should be reissued by the predecessor auditor if:
a. the predecessor auditor has access to the current year’s financial statements.
b. the predecessor auditor has access to the successor auditor’s working papers.
c. the predecessor auditor has access to management and to the successor auditor.
d. All of the above.
Going concern issues should be addressed by the auditor:
a. in an explanatory paragraph.
b. in the scope paragraph.
c. in the annual report.
d. All of the above.
Dual purpose tests of asset acquisitions should:
a. be timed as close as possible to year-end.
b. must consider both the ICFR and financial statement impact.
c. must be examined as close to the acquisition date as possible.
d. Both b and c.
Hedges are used to:
a. protect against supply disruptions.
b. protect against price decreases.
c. protect against foreign currency fluctuations.
d. All of the above.
Which of the following would be an example of an operating deficiency?
(a) The control operates as intended but the person assigned to perform the control lacks
sufficient knowledge.
(b) The control fails to detect material misstatements.
(c) The control fails to detect material misstatements on a timely basis.
(d) The control fails to prevent material misstatements on a timely basis.
When the accounts payable department posts a liability:
a. an asset is recognized.
b. an expense is recognized.
c. a liability is reduced.
d. Either a or b depending on the transaction.
Refer to the case facts presented in Problem 32.
(a)What defenses are available to an auditor when charged with negligence under
common law?
(b)Which defense is the auditor most likely to use in this case? Explain.
In regard to a review of a of a nonpublic company’s financial statements, the level of
assurance provided by the accountant’s report falls between an audit and a(n):
a. forecast.
b. projection.
c. examination.
d. compilation.
e. agreed upon procedures engagement.
A SAS 8 review:
a. requires auditors review other information provided in the financial statements by the
client.
b. requires the auditor investigates inconsistencies between the annual report and the
financial statements.
c. allows the auditor to include an explanatory paragraph in the audit report for
inconsistencies between the other information and the financial statements.
d. All of the above.
The auditor’s finding with respect to internal control is:
(a) assessed at the beginning of the audit as part of the ICFR review.
(b) assessed during substantive testing procedures.
(c) assessed during testing of internal control.
(d) All of the above.
The objective of an integrated audit is to report on ICFR and the financial statements of
a public company. How does an auditor express these two opinions?
(a) Issue a single report to include both opinions.
(b) Issue two separate reports: one on ICFR and one on the financial statements.
(c) Issue three separate reports: one on ICFR design effectiveness; one of ICFR
operating effectiveness; and one on the financial statements.
(d) Either a or b.
A principal auditor may share responsibility for an audit opinion with
(a) another independent auditor who has performed a significant portion of the audit
work.
(b) the client’s internal audit staff, if they provide significant assistance to the audit
team.
(c) a specialist who provides expert advice on the valuation of inventory.
(d) an attorney who provides expert advice on a pending legal matter.
FASB ASC 505-10-50 requires:
(a) entities disclose a summary of pertinent rights and obligations of outstanding
securities.
(b) entities disclose a summary of pertinent rights and privileges of outstanding
securities.
(c) entities disclose all stock owned and in what format.
(d) All of the above.
Physical controls over inventories are important in a manufacturing environment
because they enhance management’s ability to:
a. produce credible financial reports.
b. prevent “in-house” losses such as theft and damage of inventory.
c. detect inefficient or ineffective manufacturing operations.
d. correct errors resulting from the physical inventory count.
The audit report states that the audit provides:
a. a guarantee of quality.
b. complete assurance that the financial statements are free from misstatements.
c. absolute assurance that the internal control environment is operating effectively.
d. None of the above.
An auditor generally concludes that a client’s estimate is appropriate if:
a. it is consistent with a prior year amount.
b. the underlying amount is not known with certainty.
c. it is within a range of acceptable amounts.
d. the underlying assumptions are subjective.
Disclosures relating to debt include:
(a) future cash payments.
(b) the amount of current debt maturities.
(c) the amount of sinking fund requirements.
(d) All of the above.
SAB #108 promulgates that:
a. the accuracy of the liability accounts is important.
b. the accuracy of the expense accounts is important.
c. Both a and b.
d. None of the above.
SAB 108 dictates that auditors consider materiality for the balance sheet only.
Failure to provide the auditor information regarding pending litigation is grounds for a
scope limitation.
Commercial paper is considered a debt investment.
Most auditors perform an audit of outsourced service firms themselves.
Tracing refers to looking at the supporting documentation for a recorded number.
Rule 201 of the AICPA Rules of Conduct states that a member is to exercise due
professional care. This rule means that each member is to remain up-to-date on all rules
and regulations.
The ACFE is one of the premier organizations for forensic accountants.
In a compilation engagement, an accountant drafts financial statements of an entity
based on information provided by the audit committee.
An IT specialist may be used to inspect systems documentation and perform other
procedures for an audit engagement when the client company uses new, emerging
technology.
Why would an auditor be concerned about a potential client with an overworked
accounting staff? With a potential client that has had multiple turnover of people in top
accounting positions?
Manufacturing entities using standard costing systems should avoid the use of
accounting estimates in order to reduce the likelihood of audit adjustments.
When the invoice is also the remittance advice, it is sometimes called a turnaround
document.
Preliminary time budget information is compared to actual time worked and is used for
purposes of billing, performance evaluation, and future bidding.
A CPA who performs an audit for an enterprise is considered an advocate of the
enterprise, in the same way that a doctor is an advocate for the patient.
Direct deposit of net pay into a checking account often is through an ACH.
Because of the need for objectivity in internal audit activities, the Institute of Internal
Auditors recommends that the Chief Audit Executive report directly to the corporate
controller.
For many manufacturing and retail companies, the inventory account is a high-risk
account because of its nature and size. Imagine that you are the audit partner
responsible for signing off on a large retailer’s financial statements. In the planning
stages of the audit, the new senior on your job walks into your office to discuss the
audit procedures involving inventory.
(a)What are the objectives in the audit of the inventory account?
(b)How will you advise your senior to use analytical procedures?
(c) How will you advise your senior concerning responsibilities for an effective
observation of the client’s physical inventory count?
(d)How will you advise your senior to test for obsolete, excess, or slow-moving items?
(e) For each audit process, what will your audit team need to document?