Beruflich Dokumente
Kultur Dokumente
Test Bank Auditing Assurance Services 14th Arens, Elder & Beasley
B)
can enforce disciplinary
action against the accounting firm report the matter to the
Securities and Exchange
Commission suspend the license to
practice of the CPA
guilty of the violation
Yes Yes No
C)
can enforce disciplinary
action against the
accounting firm report the matter to the
Securities and Exchange
Commission suspend the license to
practice of the CPA
guilty of the violation
Yes No No
D)
can enforce disciplinary
action against the
accounting firm report the matter to the
Securities and Exchange
Commission suspend the license to
practice of the CPA
guilty of the violation
No No No
15) The Sarbanes-Oxley Act established the Public Company Accounting Oversight
Board (PCAOB). What are the PCAOB’s primary functions? Who performed these
functions prior to the PCAOB?
16) The Public Company Accounting Oversight Board (PCAOB) provides oversight
to auditors of publically traded and private companies.
A) True B) False
17) All CPA firms registered with the PCAOB are required to undergo a peer review
annually.
A) True B) False
18) The form that must be completed and filed with the Securities and Exchange
Commission whenever a company experiences a significant event that is of interest to
public investors is the:
A) Form S-1.
B) Form 8-K.
C) Form 10-K.
D) Form 10-Q.
19) The form that must be filed with the Securities and Exchange Commission
whenever a company plans to issue new securities to the public is the:
A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q.
20) The AICPA has authority to establish standards and rules in all but which of the
following areas?
A) Auditing standards applicable to financial statements of private companies
B) Compilation and review standards
C) Professional conduct
D) Auditing standards applicable to financial statements of private and public
companies
B)
Company Controller Shareholders Board of Directors
No No Yes
C)
Company Controller Shareholders Board of Directors
Yes Yes No
D)
Company Controller Shareholders Board of Directors
Yes No No
4) The scope paragraph of the standard unqualified audit report states that the audit is
designed to:
A) discover all errors and/or irregularities.
B) discover material errors and/or irregularities.
C) conform to generally accepted accounting principles.
D) obtain reasonable assurance whether the statements are free of material
misstatement.
5) The audit report date on a standard unqualified report indicates:
A) the last day of the fiscal period.
B) the date on which the financial statements were filed with the Securities and
Exchange Commission.
C) the last date on which users may institute a lawsuit against either client or auditor.
D) the last day of the auditor’s responsibility for the review of significant events that
occurred subsequent to the date of the financial statements.
6) The standard audit report refers to GAAS and GAAP in which paragraphs?
A)
GAAS GAAP
Scope only Opinion only
B)
GAAS GAAP
Intro only Scope and Opinion
C)
GAAS GAAP
Intro and Scope Opinion only
D)
GAAS GAAP
Intro only All paragraphs
7) Which of the following is not explicitly stated in the standard unqualified audit
report?
A) The financial statements are the responsibility of management.
B) The audit was conducted in accordance with generally accepted accounting
principles.
C) The auditors believe that the audit provides a reasonable basis for their opinion.
D) An audit includes assessing the accounting estimates used.
8) If an auditor performs an audit of a public company, the scope paragraph should
make reference to which standards?
A) GAAP.
B) GAAS.
C) Standards issued by the PCAOB (U.S.).
D) International Audit Standards.
9) The introductory paragraph of the standard audit report states that the financial
statements are: A) the responsibility of the auditor.
B) the responsibility of management.
C) the joint responsibility of management and the auditor.
D) none of the above.
10) 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
11) Which of the following statements are true?
I. The introductory paragraph states that management is responsible for the
preparation and content of the financial statements.
II. The scope paragraph states that the auditor evaluates the appropriateness of those
accounting principles, estimates, and financial statement disclosures.
A) I only B) II only C) I and II D) Neither I nor II
12) The introductory paragraph of the standard audit report states that the auditor is:
A) responsible for the financial statements and the opinion on them.
B) responsible for the financial statements.
C) responsible for the opinion on the financial statements.
D) jointly responsible for the financial statements with management.
13) If the balance sheet of a company is dated December 31, 2011, the audit report is
dated February 8, 2012, and both are released on February 15, 2012, this indicates that
the auditor has searched for subsequent events that occurred up to:
A) December 31, 2011. B) January 1, 2012. C) February 8, 2012. D) February 15,
2012.
14) Which of the following is true concerning financial statements issued by a U.S.
entity to the Securities and Exchange Commission?
A) Financial statements can be prepared using International Financial Reporting
Standards.
B) The United States now allows an auditor to perform an audit of financial
statements of a U.S. entity in accordance with both GAAS and International Audit
Standards.
C) The United States only allows an auditor to perform an audit of financial statement
of an entity in accordance with GAAS if they are using International Financial
Reporting Standards.
D) An audit that uses both the GAAS and International Audit standards must modify
the scope paragraph to include both sets of standards.
15) Most auditors believe that financial statements are “presented fairly” when the
statements are in accordance with GAAP, and that it is also necessary to:
A) determine that they are not in violation of FASB statements.
B) examine the substance of transactions and balances for possible misinformation.
C) review the statements using the accounting principles promulgated by the SEC.
D) assure investors that net income reported this year will be exceeded in the future.
16) In which of the following situations would the auditor most likely issue an
unqualified report?
A) The client valued ending inventory by using the replacement cost method.
B) The client valued ending inventory by using the Next-In-First-Out (NIFO) method.
C) The client valued ending inventory at selling price rather than historical cost.
D) The client valued ending inventory by using the First-In-First-Out (FIFO) method,
but showed the replacement cost of inventory in the Notes to the Financial
Statements.
17) Brown Co.’s financial statements adequately disclose uncertainties that concern
future events, the outcome of which are not reasonably estimable. The auditor’s report
should be a(n):
A) unqualified opinion. B) disclaimer. C) qualified opinion. D) adverse opinion.
18) An audit report prepared by Garrett and Brown, CPAs, is provided below. The
audit for the year ended December 31, 2012 was completed on March 1, 2013, and the
report was issued to Javlin Corporation, a private company, on March 13, 2013. List
any deficiencies in this report. Do not rewrite the report.
We have examined the accompanying financial statements of Dalton Corporation as
of December 31, 2012. These financial statements are the responsibility of the
company’s management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted accounting principles.
Those principles require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements are free of misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, except for the effects of not capitalizing certain lease obligations that
should be capitalized in order to conform with generally accepted accounting
principles, the financial statements referred to above present accurately the financial
position of Jacob Corporation as of December 31, 2012, in conformity with
accounting principles generally accepted in the United States of America.
19) Describe the standard unqualified report to be issued for an audit of a private
company. Begin by specifying the seven parts of the report, and then discuss the
contents of each part.
20) Presented below is an independent auditor’s report for a private company
prepared by the firm of Harrington and Perry, LLP.
Auditor’s Report
To the president and management of EPM, Inc.
We have examined the accompanying balance sheets and statements of income,
retained earnings, and cash flows of EPM, Inc., as of December 31, 2012 and 2011.
We performed our examination in accordance with auditing standards generally
accepted in the United States of America and examined, on a test basis, evidence
supporting the accounting principles used and estimates made by management.
In our opinion, the financial statements referred to above accurately present the
financial position of EPM, Inc., in conformity with generally accepted accounting
principles.
Harrington and Perry, LLP December 31, 2012
Other information:
EPM, Inc., is a for-profit corporation and publishes comparative financial statements
for distribution to shareholders, potential investors, and the general public. The client
has a calendar year-end. For the most recent audit, the auditor completed all
significant fieldwork on March 5, 2013 and issued the audit report on March 16,
2013. During 2012, EPM changed its method of depreciating long-term assets and
properly reflected the effect of the change in the current year’s financial statements,
restated the prior year’s financial statements, and properly discussed the change in a
footnote (Note 4) to those statements. The auditors are satisfied that the change was
preferable.
Required:
Consider all the facts given and rewrite the complete auditor’s report, including report
title, address, body of report, name of firm, and audit report date.
6) One of the AICPA’s Ethical Pr inciples deals w ith the public inter est. It states that
member s should accept the obligation to act in a w ay that w ill:
A)
C)
Honor the pub lic tr ust Ser ve the client’s inter est
Yes No
D)
7) Accor ding to the Pr inciples section of the Code of Pr ofessional Conduct, all
member s:
A) should be ind ependent in fact and in appear ance at all times.
B) in public pr actice should be independent in fact and in appear ance at all times.
C) in public pr actice should be independent in fact and in appearance w hen pr
oviding auditing and other attestations ser vices.
D) in public pr actice should be independent in fact and in appear ance when pr
oviding auditing, tax, and other attestation services.
8) W hich of the follow ing statements best descr ibes the enfor ceability of the Inter
pr etations of the Rules of Conduct?
A) The Inter pr etations ar e not enfor ceable.
B) The Inter pr etations ar e enfor ceable.
C) Th e Inter pr etations may be enfor ceable if they have been r eview ed and appr
oved by the AICPA’s Division of Pr ofessional Ethics.
D) The Inter pr etations ar e not enfor ceable, but a pr a ctitioner must j ustify depar
tur e fr om them.
9) Of the four par ts of the AICPA’s Co de of Pr ofessional Conduct , w hich par t is
enfor ceable?
A) Ethical Rulings
B) Rules o f Conduct
C) Pr inciples
D) Inter pr etations
10) Ethical Rulings ar e:
I. Explanations r elating to br oad hypothetical cir cumstances. II. Not enfor ceable,
but one must j ustify depar tur e. III. Explanations r elating to specific factual cir
cumstances.
A) I and II B) I and III C) II and III D) I, II, and III
11) The A ICP A’s Co de of Pr ofessional Conduct r equir es independence for all:
A) attestation engagements.
B) ser vices per for med by accountants in public pr actice.
C) accounting and auditing ser vices per formed.
D) pr ofessional w or k per for med by CPAs.
12) A member fir m of the A ICP A is not only r esponsible for its complianc e w ith
the Rules of Conduct, but it is also r esponsible for compliance by its:
A)
B)
C)
D)
13) Four of the six Ethical Pr inciples in the AICP A’s Code of P rofess ional Conduct
ar e equally applicable to all members of the A ICPA . W hich of the follow ing pr
inciples applies only to members in public pr actice?
A) Scop e and Natur e of S er vices
B) Integr ity
C) Due Car e
D) The Public Inter est
14) The Code of Pr ofessional Conduct is established by the membership of the
AICPA, and the Inter pr etations of the Rules of Conduct ar e pr epar ed by the:
A) Financial Accounting Standar ds Boar d.
B) Secur it ies and Exchange Commission.
C) CPA lic ensing agencies w ithin each state.
D) Pr ofessional Ethics Executive Committee of the AICPA .
15) Identify and descr ibe each of the four par ts to the AICP A’s Code of P rofess
ional Conduct . Also discuss w hich parts ar e officially enfor ceable and w hich ar e
not.
16) Br iefly descr ibe the advantages and disadvantages of a cod e o f conduct based
on gener al statements of ideal c onduct as opposed to specific r ules that define
unacceptable behavior .
17) W hat ar e the six Ethical Pr inciples stated in the Code of P rofess ional Conduct
? Br iefly discuss each pr inciple. Ar e these pr inciples enfor ceable?
18) An advantage of specific r ules in the Code of P rofess ional Conduct is the enfor
ceability of minimum behavior and per for mance standar ds.
A) Tr ue B) False
19) The Sar banes-Oxley Act per mits the auditor to per for m a w ide var iety of non -
audit ser vices for audit clients.
A) Tr ue B) False
20) An advantage of the pr inciples of pr ofessional conduct in the Code of P rofess
ional Conduct is that they ar e mor e easily enfor ced than ar e the specific r ules of
conduct.
A) Tr ue B) False
B)
C)
Punitive damages Compensatory damages
Yes No
D)
9) Under the law s of agency, par tner s of a CPA fir m may be liable for the w or k of
other s on w hom they r ely. This w ould not include:
A) employees of the CPA fir m.
B) employees of the audit client.
C) other CPA fir ms engaged to do par t of the audit w or k.
D) specialists employed by the CPA fir m to pr ovide technical advice on the audit.
10) “Absence of r easonable car e that can be expected o f a p er son in a set of cir
cumstances” defines:
A) p ecuniar y negligence.
B) gr oss negligence.
C) extr eme negligence.
D) or dinar y negligence.
11) An example of a br each of contr act w ould likely include:
A) an auditor ‘s r efusal to r etur n the client’s gener al ledger book until the client
paid last year ‘s audit fees.
B) a bank’s claim that an auditor had a duty to uncover mater ial er r or s in financial
statements that had been r elied on in making a loan.
C) a CPA fir m’s failur e to complete an audit on the agr eed -upon date because the
fir m ha d a backlog of other w or k w hich was mor e lucrative.
D) an auditor ‘s claim that the client staff is unqualified.
12) Pr ivity of contract exists betw een:
A) auditor and the feder al gover nment.
B) auditor and thir d parties.
C) auditor and client.
D) auditor and client attor ney.
13) An individual w ho is n ot party to the contr act betw een a CPA and the client,
but w ho is known by both and is intended to r eceive cer tain benefits fr om the contr
act is known as:
A) a thir d party.
B) a common law inher itor .
C) a tor t.
D) a thir d-party beneficiary.
14) Law s that have been passed by the U.S. Con gr ess and other gover nmental units
ar e:
A) statut or y laws. B) j udicial law s. C) fed er al law s. D) common law s.
15) The assessment against a defendant of the full loss suffer ed by a plaintiff regar
dless of the extent to w hich other parties shar ed in the wr ongdoing is called:
A) separ ate and pr oportionate liability.
B) shared liability.
C) unitary liability.
D) joint and sever al liability.
16) The assessment against a defendant of that por tion of the damage caused by the
defendant’s negligence is called:
A) separ ate and pr oportionate liability.
B) j oint and several liability.
C) shar ed liability.
D) unitar y liability.
17) Audit fr aud occur s when:
A) a misstatement is made and ther e is both know ledge of its falsity and the intent to
deceive.
B) a misstatement is made and ther e is know ledge o f its falsity but no intent to
deceive.
C) the auditor lacks even slight car e in the per for mance in per for ming the audit.
D) the auditor has an absence of r easonable car e in the per for mance of the audit.
18) W hich of the follow ing most accurately descr ibes c onstr uctive fr aud?
A) Absence of r easonable car e
B) Lack of slight car e
C) Know ledge and intent to deceive
D) Extr eme or unusual negligence w ithout the intent to deceive
19) W hich of the follow ing most accurately descr ibes fr aud?
A) Absence of r easonable car e
B) Lack of slight car e
C) Know ledge and intent to deceive
D) Extr eme or unusual negligence w ithout the intent to deceive
20) A thir d-party beneficiary is one w hich:
A) has failed to establish legal standing befor e the cour t.
B) do es not have pr ivity of contract and is unknow n to th e contr acting parties.
C) d oes not have pr ivity of contract, but is know n to the contr acting parties and
intended to benefit under the contr act.
D) may establish legal standing befor e the cour t after a contr act has been
consummated.
B)
C)
D)
6) In cer tifying their annual financial statements, the CEO and CFO of a public
company cer tify that the financial statements comply w ith the r equir ements of:
A) G AAP.
B) the Sar banes-Oxley Act.
C) the Secur ities Exchange Act of 1934.
D) G AAS.
7) W hich of the follow ing statements is tr ue of a public company’s financial
statements?
A) Sar banes-Oxley r equir es the CEO only to cer tify the financial statements.
B) Sar banes-Oxley r equir es the CFO only to cer tify the financial statements.
C) Sar banes-Oxley r equir es the CEO and CFO to c er tify the financial statements.
D) Sar banes-Oxley neither r equir es the CEO nor the CFO to cer tify the financial
statements.
8) The r esponsibility for the pr epar ation 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.
9) Responsibility for the fair pr esentation of financial statements r ests equally w ith
management and the auditor .
A) Tr ue B) False
10) The auditor ‘s best defense w hen mater ial misstatements ar e not uncover ed is to
have conducted the audit:
A) in accor dance w ith gener ally accepted auditing standar ds.
B) as effectively as r easonably possible.
C) in a timely manner .
D) only after an adequate investigation of the management team.
11) In or der to pr ovide r easonable assurance the audit must be per for med w ith an
attitude of pr ofessional skepticism. W hich of the follow ing is most cor r ect r egar
ding the “attitude” of pr ofessional skepticism?
A) auditor s should assume that management is dishonest
B) auditor s should assume that management is neither dishonest nor honest
C) auditor s should assume that management is honest and mistakes ar e unintentional
D) auditor s should assume that management is incumbent in pr epar ing financial
statements
12) W hich of the follow ing is not one of the r easons that auditors pr ovide only
reasonable assur ance on the financial statements?
A) The auditor commonly examines a sample, r ather than the entir e population of tr
ansactions.
B) Accounting pr esentations contain complex estimates w hich involve uncer tainty.
C) Fr audulently pr epar ed financial statements ar e often difficult to detect.
D) A uditor s believe that r easonable assur ance is sufficient in the vast maj or ity of
cases.
13) W hich of the follow ing statements is most corr ect r egar ding er r or s and fr
aud?
A) An er r or is unintentional, w her eas fr aud is intentional.
B) Fr auds occur mor e often than er r or s in financial statements.
C) Er r or s ar e always fraud and fr auds ar e always er r or s.
D) A uditor s have mor e r esponsibility for finding fr aud than err or s.
14) W hen an auditor believes that an illegal act may have occurr ed, the auditor
should first:
A) inquir e o f management at a level above those likely to be involved.
B) consult w ith legal counsel of other s know ledgeable about t he illegal acts.
C) accumulate additional evidence.
D) w ithdraw fr om the engagement.
15) The auditor has no r esponsibility to plan and per for m the audit to obtain r
easonable assur ance that misstatements, w hether caused by err or s or fr aud, that ar
e not _ __ _ are detected.
A) impor tant to the financial statements
B) statistically significant to the financial statements
C) mater ial to the financial statements
D) id entified by the client
16) Fr audulent financial r epor ting is most likely to be committed by w hom?
A) line employees o f the company
B) outside member s of the company’s boar d of dir ector s
C) company management
D) the company’s auditor s
17) W hich of the follow ing w ould most likely be deemed a dir ect -effect illegal
act?
A) violation of feder al employment laws
B) violation of feder al envir onmental r egulations
C) violation of fed er al income tax law s
D) violation of civil r ights laws
18) The concept o f r easonable assur ance indicates that the auditor is:
A) not a guar antor of the cor r ectness of the financial statements.
B) not r esponsible for the fair ness of the financial statements.
C) r esponsible only for issuing an opinion on the financial statements.
D) r esponsible for finding all misstatements.
19) W hich of the follow ing is the auditor least likely to do w hen aw ar e of an
illegal act?
A) Discuss the matter w ith the client’s legal counsel.
B) Obtain evidence about th e potential effect of the illegal act on the financial
statements.
C) Contact the local law enfor cement officials r egar ding potential cr iminal wr
ongdoing.
D) Consider the impact of the illegal act on the r elationship w ith the company’s
management.
20) Auditing standar ds r equir e that an audit be designed to pr ovide r easonable
assurance of detecting:
A) mater ial err or s in the financial statements.
B) fr aud in the financial statements.
C) mater ial err or s and fr aud in the financial statements.
D) inadequate disclosur e in the notes to the financial statements.
B)
C)
D)
Sample size Timing of audit pr ocedur es
No Yes
2) Audit pr ocedur es ar e concer ned w ith the natur e, extent, and timing in gathering
audit evidence. W hich, of the follow ing, is tr ue as to the timing of audit pr ocedur
es?
A)
B)
C)
D)
3) Audit evidence has tw o pr imary qualities for the auditor ; r elevance and r
eliability. Gi ven the choices below which pr ovides the auditor w ith the most r
eliable audit evidence?
A) gener al ledger account balances
B) confir mation of accounts r eceivable balance r eceived fr om a customer
C) inter nal memo explaining the issuance of a cr edit memo
D) copy o f month-end adj usting entr ies
4) W hich of the follow ing is not a char acter istic of the r eliability of evidence?
A) effectiveness of client inter nal contr ols
B) ed ucation of auditor
C) indep endence of infor mation pr ovider
D) timeliness
5) The auditor must gather sufficient and appr opr iate evidence dur ing the cour se of
the audit. Sufficient evidence must:
A) be w ell documented and cr oss -r efer enced in the audit documents.
B) be based on sour ces that ar e exter nal to company.
C) pr ovide evidenc e that pr ove or dispr ove an audit obj ective/assertion.
D) be p er suasive enough to enable the auditor to issue an audit r eport.
6) Audit evidence obtained dir ectly by the auditor w ill not be r eliable if:
A) the auditor lacks the competence to evaluate the evidence.
B) it is pr ovided by the client’s attor ney.
C) the client denies its ver acity.
D) it is impossible for the auditor to obtain additional corr obor atory evi dence.
7) Appr opr iateness of evidence is a measur e of the:
A) quantity of evidence.
B) quality of evidence.
C) sufficiency of evidence.
D) meaning o f evidence.
8) W hich of the follow ing statements r egar ding the r elevance of evidence is cor r
ect?
A) T o be r elevant, evidence must per tain to the audit obj ective of the evidence.
B) To be r elevant, evidence must be per suasive.
C) T o be r elevant, evidence must r elate to multiple audit obj ectives.
D) T o be r elevant, evidence must be der ived fr om a system including effective i
nter nal controls.
9) Tw o deter minants of the per suasiveness of evidence ar e:
A) comp etence and sufficiency.
B) r elevance and r eliability.
C) appr opr iateness and sufficiency.
D) indep endence and effectiveness.
10) The tw o character istics of the appr opriateness of evidence ar e:
A) r elevance and timeliness.
B) r elevance and accur acy.
C) r elevance and r eliability.
D) r eliability and accur acy.
11) W hich of the follow ing for ms of evidence w ould be least per suasive in for
ming the auditor ‘s opinion about mar ketable secur ities and other investments held
by the company?
A) Responses to auditor ‘s questions by the pr esident and contr oller r egar ding the
investments account.
B) Cor r espondence w ith a stockbr oker r egar ding the quantity of client’s
investments held in str eet name by the br oker .
C) Minutes of the boar d of dir ector s author izing the pur chase of stock as an
investment.
D) The auditor ‘s count of mar ketable secur ities.
12) W hich of the follow ing statements is not corr ect?
A) It is possible to var y the sample size fr om one unit to 100% of the items in th e
population.
B) The decision o f how many items to test should not be influenced by the incr eased
costs of per for ming the additional tests.
C) Th e decision o f how many items to test must be made by the auditor for each
audit pr ocedur e.
D) The sample size for any given pr ocedur e is likely to vary fr om audit to audit.
13) For audit evidence to be compelling to the auditor it must be sufficien t and appr
opr iate. W hich statement below is not corr ect r egar ding the appr opr iateness of
audit evidence?
A) The mor e effective the inter nal contr ol system, the mor e assur ance it pr ovides
the auditor about the r eliability of financial r eporting by the clien t.
B) An auditor ‘s opinion, to be economically useful and pr ofitable to the auditing fir
m needs to be for med w ithin a r easonable time and based on evidence obtained that
assur es pr ofits for the auditing fir m.
C) Evidence obtained fr om independent sour ces outside the entity is gener ally mor e
r eliable than evidence secur ed solely w ithin the entity.
D) The independ ent auditor ‘s dir ect per sonal know ledge, obtained thr ough inquir
y, obser vation and inspection, is gener ally mor e per suasive than infor mation
obtained indir ectly.
14) W hich one of the follow ing is not one of the pr imar y pur poses of audit
documentation pr epar ed by the audit team?
A) A basis for planning the audit.
B) A r ecor d of the evidence accumulated and the r esults of the tests.
C) A basis for r eview by super visor s and partners.
D) A basis for deter mining w or k deficiencies by peer r eview teams.
15) W hich of the follow ing is the most obj ective type of evidence?
A) A letter wr itten by the client’s attor ney discussing the likely outcome of
outstanding law suits.
B) The physical count of secur ities and cash.
C) Inquir ies of the cr edit manager about the collectability of noncur r ent accounts r
eceivable.
D) Obser vation of cobw ebs on some inventory bins.
16) Due professional car e, the third general standard, is concerned with what is done
by the independent auditor and how w ell it is done. For example, due car e in the
matter of audit documentation requires that audit documentation of the evidence
gather ed by the auditor meets which of the following criteria?
A) W or kpaper s be indexed to the gen er al ledger accounts and include both a
permanent file and a gener al file.
B) The content be sufficient to pr ov ide support for the auditor’s opinion, including
the auditor’s repr esentation as to compliance w ith auditing standar ds.
C) Audit evidence is pr incipally gather ed to deter mine if the client’s financial
statements, as pr epar ed by management, can be r elied upon to make manager ial
decisions about the fir m.
D) A udit evidence as displayed in the w or kpaper s is pr imar ily per for med to pr
otect the auditing fir m in the case of a law suit by investor s.
17) W hich items affect the sufficiency of evidence w hen choosing a sample?
A)
Selecting items w ith a high
likelihood o f misstatement The r andomness of the items
selected
Yes Yes
B)
Selecting items w ith a high
likelihood o f misstatement The r andomness of the items
selected
No No
C)
D)
18) Deter mine w hich of the follow ing is most cor r ect r egar ding the r eliability of
audit evidence.
A) Infor mation that is indir ectly obtained fr om exter nal sources is the most r eliable
audit evidence.
B) Reliability of audit evidence is dep endent upon the evidence being convincing.
C) R eliability of evidence r efer s to the amount of evidence obtained.
D) An effective inter nal contr ol system pr ovides mor e r eliable audit evidence.
19) Evidence is gener ally consider ed appr opr iate w hen:
A) it has been obtained by random selection.
B) ther e is enough of it to affor d a r easonable basis for an opinion on financial
statements.
C) it has the qualities of being r elevant, obj ective, and fr ee fr om know n bias.
D) it consists of w r itten statements made by managers of the enter pr ise under audit.
20) Given the economic and time constr aints in w hich auditors can collect evidence
about management assertions about the financial statements, the auditor nor mally
gather s evidence that is:
A) ir r efutable.
B) conclusive.
C) p er suasive.
D) completely convincing.
Chapter 8: Audit Planning and Analytical Procedures
1) A measur e of how w illing the auditor is to accept that the financial statements
may be mater ially misstated after the audit is com pleted and an unqualified opinion
has been issued is the:
A) inher ent r isk.
B) acceptable audit risk.
C) statistical r isk.
D) financial risk.
2) A measur e of the auditor ‘s assessment of the likelihood that ther e ar e mater ial
misstatements in an account befor e consider ing the effectiveness of the cl ient’s inter
nal contr ol is called:
A) contr ol r isk.
B) acceptable audit risk.
C) statistical r isk.
D) inher ent r isk.
3) W hen inher ent r isk is high, ther e will need to be:
A)
A low er assessment of audit r isk Mor e evidence accumulated by the auditor
Yes Yes
B)
C)
D)
B)
C)
D)
12) The auditor is likely to accumulate mor e evidence w hen the audit is for a
company:
A)
W hich has lar ge amounts of debt W hich is to be sold in the near futur e
Yes Yes
B)
W hich has lar ge amounts of debt W hich is to be sold in the near futur e
No No
C)
W hich has lar ge amounts of debt W hich is to be sold in the near futur e
Yes No
D)
W hich has lar ge amounts of debt W hich is to be sold in the near futur e
No Yes
13) Initial audit planning involves four matter s. W hich of the follow ing is not one o
f these?
A) Develop an over all audit str ategy.
B) Request that bank balances be confir med.
C) Sched ule engagement staff and audit specialists.
D) Identify the client’s r eason for the audit.
14) Rodger s CPA has r equested per mission to communicate w ith pr edecessor
auditor in or der to r eview cer tain w or kpaper s for high r isk accounts for a new
audit client. The new audit clients r efusal to allow this communication to occur w
ould impact Rodger s decision concerning:
A) the auditor ‘s ability to design audit tests.
B) possible scope exc eption due to lack of access.
C) int egr ity of management concer ning possible accounting misstatements.
D) violation of the GA AP r ules concer ning consistency and comparability of
financial infor mation.
15) A successor auditor may per for m w hich of the follow ing for a new audit client?
A)
Speak to local attorneys, banks and other
businesses r egar ding the company’s r eput ation Speak to the pr edecessor auditor s
about
disagr eements they had w ith management
Yes Yes
B)
C)
D)
16) W hich of the follow ing is not cor r ect r egar ding an auditor ‘s decision that a
low er acceptable audit r isk is appr opr iate?
A) Mor e evidence is accumulated.
B) Less evidenc e is accumulated.
C) Sp ecial car e is r equir ed in assigning exper ienced staff.
D) Review of audit documentation is per formed by per sonnel not assigned to the
engagement.
17) A w r itten under standing detailing w hat the auditors w ill do in deter mining if
the financial statements ar e fair r epr esentations of the company’s financial
statements and w hat the auditor expects fr om the client in per for ming an audit w ill
nor mally be expr essed in the:
A) management letter r equested by the auditor .
B) enga gement letter .
C) Audit Plan.
D) A udit Str ategy for the client.
18) If an auditor is r equested to per for m nonaudit ser vices for a public company
audit client, w ho is r esponsible for agr eeing to those ser vices w ith the audit fir m?
A) the client’s management
B) the client’s chief executive officer
C) the client’s chief financial officer
D) the client’s audit committee
19) W hich of the follow ing statements is tr ue r egar ding communications betw een
pr edecessor and successor auditors?
A) The bur den of initiating the communication r ests w ith the pr edecessor .
B) The pr edecessor ‘s r esponse can be limited to stating that no infor mation w ill be
pr ovided.
C) Th e pr edecessor should communicate w ith the successor only if the client is
public.
D) Ther e must be communication betw een the pr edecessor and successor if the
successor is to accept the engagement.
20) The pur pose o f an engagement letter is to:
A) d ocument the CPA fir m’s r esponsibility to external users of the audited financial
statements.
B) document the ter ms of the engagement.
C) notify the audit staff of an upcoming engagement so that per sonnel scheduling can
be facilitated.
D) emphasize management’s r esponsibility for appr oving the audit pr ogr am.
B)
C)
D)
Chapter 10: Section 404 Audits of Internal Control and Control Risk
1) Which of the following is not one of the three primary objectives of effective
internal control?
A) reliability of financial reporting
B) efficiency and effectiveness of operations
C) compliance with laws and regulations
D) assurance of elimination of business risk
2) The Public Company Accounting Oversight Board states that reasonable assurance
allows a:
A) small likelihood of ineffective internal controls.
B) remote likelihood that material misstatements will not be prevented or detected by
internal control.
C) likelihood that material misstatements will not be prevented or detected by internal
control.
D) high likelihood that material misstatements will not be prevented or detected by
internal control.
3) Which of the following is most correct regarding the requirements under Section
404 of the Sarbanes
Oxley Act?
A) The audits of internal control and the financial statements provide reasonable
assurance as to misstatements.
B) The audit of internal control provides absolute assurance of misstatement.
C) The audit of financial statements provides absolute assurance of misstatement.
D) The audits of internal control and the financial statements provide absolute
assurance as to misstatements.
4) Which of management’s assertions with respect to implementing internal controls
is the auditor primarily concerned?
A) efficiency of operations
B) reliability of financial reporting
C) effectiveness of operations
D) compliance with applicable laws and regulations
5) To issue a report on internal control over financial reporting for a public company,
an auditor must:
A) evaluate management’s assessment process.
B) independently assess the design and operating effectiveness of internal control.
C) evaluate management’s assessment process and independently assess the design
and operating
effectiveness of internal control.
D) test controls over significant account balances.
6) A company frequently sells products at a price below inventory cost. Essential
controls in the risk assessment process would include:
A) adequate controls that address the risk of overstating inventory.
B) adequate controls that address the risk of not including a purchased item in
inventory.
C) adequate controls that address the risk of understatement of inventory.
D) adequate controls that address the risk of overstatement of cost of goods sold.
7) Internal controls are not designed to provide reasonable assurance that:
A) all frauds will be detected.
B) transactions are executed in accordance with management’s authorization.
C) access to assets is permitted only in accordance with management’s authorization.
D) company personnel comply with applicable rules and regulations.
8) Describe each of the three broad objectives management typically has for internal
control. With which of these objectives is the auditor primarily concerned?
9) The Sarbanes-Oxley Act of 2002 requires that public companies issue an internal
control report.
A) True
B) False
10) The primary emphasis by auditors when evaluating and testing internal control is
on controls over classes of transactions rather than controls over account balances.
A) True B) False
11) Which of the following is responsible for establishing a private company’s
internal control?
A) Senior Management
B) Internal Auditors
C) Senior Management and auditors
D) Audit committee
12) Two key concepts that underlie management’s design and implementation of
internal control are:
A) costs and materiality.
B) absolute assurance and costs.
C) inherent limitations and reasonable assurance.
D) collusion and materiality.
13) The PCAOB places responsibility for the reliability of internal controls over the
financial reporting process to:
A) the company’s board of directors.
B) the audit committee of the board of directors.
C) the CEO and the CFO.
D) the CFO and the Independent Auditors.
14) Which of the following parties provides an assessment of the effectiveness of
internal control over financial reporting for public companies?
A)
Management Financial statement auditors
Yes Yes
B)
Management Financial statement auditors
No No
C)
Management Financial statement auditors
Yes No
D)
Management Financial statement auditors
No Yes
15) An act of two or more employees to steal assets and cover their theft by misstating
the accounting records would be referred to as:
A) collusion.
B) a material weakness.
C) a control deficiency.
D) a significant deficiency.
16) Sarbanes-Oxley requires management to issue an internal control report that
includes two specific items. Which of the following is one of these two requirements?
A) A statement that management is responsible for establishing and maintaining an
adequate internal control structure and procedures for financial reporting.
B) A statement that management and the board of directors are jointly responsible for
establishing and maintaining an adequate internal control structure and procedures for
financial reporting.
C) A statement that management, the board of directors, and the external auditors are
jointly responsible for establishing and maintaining an adequate internal control
structure and procedures for financial reporting.
D) A statement that the external auditors are solely responsible.
17) When management is evaluating the design of internal control, management
evaluates whether the control can do which of the following?
A)
Detect material misstatements Correct material misstatements
Yes Yes
B)
Detect material misstatements Correct material misstatements
No No
C)
Detect material misstatements Correct material misstatements
Yes No
D)
Detect material misstatements Correct material misstatements
No Yes
18) When one material weakness is present at the end of the year, management of a
public company must conclude that internal control over financial reporting is:
A) insufficient. B) inadequate. C) ineffective. D) inefficient.
19) The auditors primary purpose in auditing the client’s system of internal control
over financial reporting is:
A) to prevent fraudulent financial statements from being issued to the public.
B) to evaluate the effectiveness of the company’s internal controls over all relevant
assertions in the financial statements.
C) to report to management that the internal controls are effective in preventing
misstatements from appearing on the financial statements.
D) to efficiently conduct the Audit of Financial Statements.
20) Management must disclose material weaknesses in internal control in its audit
report:
A) whenever the weakness is deemed significant to a single class of transactions.
B) whenever the weakness is significant to overall financial reporting objectives.
C) if the weakness exists at the end of the year.
D) only if the auditor identifies the weakness as significant.