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23. If sales were overstated by recording a false credit sale at year end, where could you find the false
"dangling debt"?
A. Inventory
B. Cost of Goods Sold
C. Bad Debt Expense
D. Accounts Receivable
25. Which of the following circumstances would cause auditors to perform extended procedures?
A. supporting documents are produced when requested
B. the company made several large adjustment at or near YE
C. the company has recently hired a new chief financial officer after the previous one retired
D. the company maintains several different petty cash fund
26. The likelihood that material misstatements may have entered the accounting system and not been
detected and corrected by the client's internal control is referred to as?
A. Inherent risk
B. Control risk
C. Detection risk
D. Risk of Material misstatement
27. The risk of material misstatements is composed of which audit risk components?
A. Inherent risk & control risk
B. Control risk & detection risk
C. Inherent risk & detection risk
D. Inherent risk, control risk, & detection risk
28. The risk that the auditors' own procedures will lead to the decision that material misstatements do not
exist in the financial statements when in fact such misstatement do exist if?
A. Audit risk
B. Inherent risk
C. Control risk
D. Detection risk
29. Auditors assessed risk of material misstatement is 0.50 and they want to achieve a 0.05 risk of failing to
express a correct opinion. What detection risk do the auditors plan to use for planning the remainder of
the audit work?
A. 0.20
B. 0.10
C. 0.75
D. 0.00
30. If tests of controls induce the audit team to change the assessed level of control risk for fixed assets from
0.4 to 1.0 and the audit risk (0.05) and inherent risk remain constant, the acceptable level of detection
risk is most likely to
A. Change from 0.1 to 0.04
B. Change from 0.2 to 0.3
C. Change from 0.25 to 0.1
D. Be Unchanged
31. What is a specific procedural response to a particular fraud risk in an account balance or class of
transactions?
A. Exercising more professional skepticism
B. Carefully avoiding conducting interviews with people in areas that are most susceptible to fraud
C. Performing procedures such as inventory observation and cash counts on a surprise or
unannounced basis
D. Studying management's selection and application of accounting principles more carefully
33. Which of the following relationships between types of analytical procedures and sources of information
are most logical?
36. When a company that sells its products for a (gross) profit increases its sales by 15% and its cost of
goods sold by 7%, the cost of goods ratio will
A. Increase
B. Decrease
C. Remain unchanged
D. Not be able to be determined with the information provided
37. Auditors are not responsible for accounting estimates with respect to
A. making the estimates
B. determining the reasonableness of estimates
C. determining that estimates are presented in conformity with GAAP
D. Determining that estimates are adequately disclosed in the financial statements
40. Under the Private Securities Litigation Reform Act, independent auditors are required to first
A. Report in writing all instances of noncompliance with the act to the client's board of directors
B. Report to the SEC all instances of noncompliance thy believe have a material effect on financial
statements if the board of directors does not first report to the SEC
C. Report clearly inconsequential noncompliance with the act to the audit committee of the client's
board of directors
D. Resign from the audit engagement and report the instances of noncompliance with the act to the
SEC
41. When evaluating whether accounting estimates made by management are reasonable, auditors would be
most interested in what?
A. Key factors that are consistent with prior periods
B. Assumptions that are similar to industry guidelines
C. Measurements that are objective and non-susceptible to bias
D. Evidence of a conservative systematic bias
43. When auditors become aware of noncompliance with a law or regulation committed by client personnel,
the primary reason that the auditors should obtain a better understanding of the nature of the act is to:
A. Recommend remedial actions to the audit committee
B. Evaluate the effect of noncompliance on the financial statements
C. Determine whether to contact law enforcement officials
D. Determine whether other similar acts have occurred
44. Which of the following statements best describes auditor's responsibility for detecting a clients
noncompliance with a law or regulation
A. The responsibility for detecting noncompliance exactly parallels the responsibilities for errors
and fraud
B. Auditors must design tests to detect all material noncompliance that indirectly affects the
financial statements
C. Auditors must design tests to obtain reasonable assurance that all noncompliance with direct
material financial statements effects is detected.
D. Auditors must design tests to detect all noncompliance that directly affects the financial
statements.
45. Auditors perform analytical procedures in the planning stage of an audit for the purpose of
A. Deciding the matters to cover in an engagement letter.
B. Identifying unusual conditions that deserve more auditing effort.
C. Determining which of the financial statement assertions are the most important for the client's
financial statements.
D. Determining the nature, timing, and extent of further audit procedures for auditing the inventory
46. A primary objective of analytical procedures used in the final review stage of an audit is to
A. Identify account balances that represent specific risks relevant to the audit.
B. Gather evidence from tests of details to corroborate financial statement assertions.
C. Detect fraud that may cause the financial statements to be misstated.
D. Assist the auditor in evaluating the overall financial statement presentation
47. An auditor’s analytical procedures indicate a lower than expected return on an equity method
investment. This situation most likely could have been caused by
A. An error in recording amortization of the excess of the investor’s cost over the investment’s
underlying book value
B. The investee’s decision to reduce cash dividends declared per share of its common stock
C. An error in recording the unrealized gain from an increase in the fair value of available for sale
securities in the income account for trading securities
D. A substantial fluctuation in the price of the investee’s common stock on a national stock
exchange
48. Which of the following risk types increase when an auditor performs substantive analytical audit
procedures for financial statement accounts at an interim date?
A. Inherent.
B. Control.
C. Detection.
D. Sampling
49. Which of the following matters relating to an entity's operations would an auditor most likely consider
as an inherent risk factor in planning an audit?
A. The entity's fiscal year ends on June 30.
B. The entity enters into significant derivative transactions as hedges.
C. The entity's financial statements are generated at an outside service center.
D. The entity's financial data is available only in computer-readable form