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The completeness assertion would be violated if A. disclosure
The completeness assertion would be violated if A. disclosure in the statements of pledged receivables was inadequate. B. fictitious sales transactions were included in accounts receivable. C. unbilled shipments occurred during the period. D. the allowance for doubtful accounts was understated. 2) Determining whether amounts are in conformity with generally accepted accounting principles addresses the proper measurement of assets, liabilities, revenues, and expenses, which includes all of the following EXCEPT the A. reasonableness of management’s accounting policies. B. reasonableness of management’s accounting estimates. C. consistency in applying accounting principles. D. proper application of valuation principles, such as cost, net reliable value, market value, and present value. 3) The rights and obligations assertion applies to A. balance sheet items only. B. current liability items only. C. income statement and balance sheet items. D. revenue and expense items only. 4) Section 18 liability is relatively narrow in scope because it relates to a false or misleading statement in documents filed with the A. American Institute of Certified Public Accountants (AICPA). B. FASB. C. Securities and Exchanges Commission (SEC). D. Internal Revenue Service (IRS). 5) Auditor liability under the Securities Act of 1933 extends to the A. effective date of the registration statement. B. financial statement date. C. filing date of the registration statement. D. auditor’s report date. 6) Anyone identified to the auditor by name prior to the audit who is the principal recipient of the auditor’s report is a A. foreseeable party. B. third party. C. primary beneficiary. D. foreseen beneficiary. 7) Which of the following best describes the relationship that should exist between the external auditor and the management of the client company? A. Mutual caution and suspicion B. Adversarial relationship C. Advocacy of management’s position D. Mutual trust and respect 8) What level of assurance does the reader of a private company financial statement receive on the company’s system of internal controls? A. None B. Positive C. Negative D. Reasonable 9) There are several paragraphs in the auditor’s standard report in internal control over financial reporting. Which paragraph defines internal control over financial reporting? A. Definition B. Introductory C. Inherent limitations D. Scope 10) The Government Accounting Office reports directly to the A. President. B. IRS. C. U.S. Congress. D. public via the news media. 11) When providing audit services, the certified public accountant (CPA) is expected to be A. an advocate for the client. B. an advocate for the general public. C. indifferent to the effect of the financial statements and the audit report. D. independent of the client. 12) Which of the following is the service in which the CPA firm issues a written communication that expresses a conclusion about the reliability of a written assertion that is another party’s responsibility? A. Attest service B. Accounting service C. Compilation service D. Consulting service 13) The five management assertions outlined in generally accepted auditing standards include all of the following EXCEPT A. materiality. B. existence and occurrence. C. presentation and disclosure. D. rights and obligations. 14) Specific audit objectives are normally A. developed for each item in the financial statements and derived from the categories of management’s financial statement assertions. B. derived from the categories of management’s financial statement assertions. C. developed for each item in the financial statements. D. the same as the categories of management’s financial statement assertions. 15) Because of the effects of circulation, some audit evidence is more reliable than other evidence. Which of the following is generally considered to be most reliable? A. Suppliers’ invoices B. Receipted bank deposit slips C. Cutoff bank statements D. Purchase requisitions 16) The susceptibility of an assertion to a material misstatement, assuming there are no controls, is A. control risk. B. analytical procedures risk. C. inherent risk. D. audit risk. 17) The risk that the auditor will NOT detect a material misstatement that exists in an assertion is A. audit risk. B. inherent risk. C. detection risk. D. control risk. 18) The assessment of inherent risk requires considering matters that have a pervasive effect on assertions for all or many accounts and matters that may pertain only to assertions for specific accounts. Which of the following is an example of a specific account matter? A. Profitability of the entity relative to the industry B. Sensitivity of operating results to economic factors C. Complexity of calculations D. Going concern problems, such as a lack of sufficient working capital 19) The importance of the accept/reject decision for a particular client is reflected in the inclusion of acceptance and continuation of clients as A. a quality control element for CPA firms. B. the subject of SAS 96. C. a separate rule in the AICPA Code of Conduct. D. the subject of SAS 7. 20) Auditor changes result from a variety of factors EXCEPT A. a desire to reduce the audit fee. B. mergers between CPA firms. C. satisfaction with a firm. D. mergers between corporations with different independent auditors. 21) Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client’s auditability. Which of the following factors would be least likely to cause concern about an entity’s auditability? A. Important evidence available only in electronic form B. Related party transactions C. Disregard of responsibility to maintain adequate internal controls D. Lack of audit trail 22) When setting the level of materiality on a particular engagement, the auditor must consider A. both the unique circumstances pertaining to the entity and the users’ information needs. B. the unique circumstances pertaining to the entity. C. neither the unique circumstances pertaining to the entity nor the users’ information needs. D. the users’ information needs. 23) In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is that A. the former is lower than the latter. B. they must be identical. C. the former is higher than the latter. D. the former may be higher or lower than the latter. 24) In planning the audit, the auditor should assess materiality at two levels: A. financial statement and account balance. B. preliminary and final. C. account balance and detailed item. D. company and divisional. 25) The Foreign Corrupt Practices Act is administered by the A. National Commission on Fraudulent Financial Reporting. B. IRS. C. Central Intelligence Agency. D. SEC. 26) The Committee of Sponsoring Organizations (COSO) report identified five interrelated components of internal control. Since then, a sixth category has been identified, which is A. antifraud programs and controls. B. monitoring. C. information and communication. D. risk assessment. 27) Which of the following is NOT one of the interrelated components of internal controls identified by the COSO report? A. Control activities B. Information and communication C. Regulating D. Control environment 28) Which of the following statements is TRUE about an auditor’s responsibility to communicate with respect to a public company’s internal controls? A. The auditor will issue an adverse report on the effectiveness of internal controls if a material weakness in internal controls over financial reporting exists. B. Auditors are required to communicate all significant deficiencies in internal control to the audit committee, but not necessarily to management. C. The difference between a material weakness and a significant deficiency is inconsequential. D. Auditors are required to communicate all significant deficiencies in internal control to management, but not necessarily to the audit committee. 29) The nature of tests of controls relates to the type of evidence obtained. Which of the following is NOT an example of a type of evidence relevant to tests of controls? A. Inquiries of entity personnel B. Observation of application of the control C. Reperformance of the application of the control by entity personnel D. Inspecting documents 30) Which of the following is NOT one of the four basic functions of every transaction? A. Consideration B. Initiation C. Delivery and receipt D. Recording 31) To emphasize the importance of integrity and ethical values among all personnel or an organization, the chief executive officer and other top managers should do all of the following EXCEPT A. set the tone by example. B. send e-mail messages to all employees, promoting ethical values. C. reduce or eliminate incentives and temptations. D. communicate to all employees. 32) Which of the following is NOT one of the factors that make up the control environment? A. Accounting personnel B. Organizational structure C. Human resource policies and practices D. Board of directors and audit committee 33) Management’s risk assessment should include the following special consideration of risks that may arise from changed circumstances EXCEPT A. new personnel. B. new technology. C. domestic operations. D. rapid growth. 34) When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following EXCEPT A. evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls. B. assessing inherent risk. C. evidence of effectiveness of computer control procedures and related follow-up. D. procedures to understand the business and industry, and related completed analytical procedures. E. assessing detection risk. 35) Who is responsible for establishing the process and controls for preparing accounting estimates? A. The independent auditor B. Management C. The audit committee D. The internal auditor 36) An inaccurate form of the audit risk model would show that A. audit risk is directly related to all other risks in the model. B. detection risk may be determined from audit risk, inherent risk, and control risk. C. detection risk is inversely related to audit risk. D. increases in control risk will cause decreases in detection risk. E. detection risk is inversely related to inherent risk. 37) Which of the following is NOT an advantage of PPS sampling? A. PPS sampling automatically results in a stratified sample. B. PPS systematic sample selection automatically identifies any item that is individually significant if its value is less than an upper monetary cutoff. C. PPS sampling, if the auditor expects no misstatements, will usually result in a smaller sample size than under classical sampling. D. PPS sampling is generally easier to use than classical variables sampling. 38) Probability-proportional-to-size (PPS) sampling should NOT be used when A. book values for sampling units are not available. B. the number of units in the population is unknown at the start of sampling. C. the variability of the population is unknown. D. transactions and balances are tested for overstatement. 39) Audit sampling in involved whenever an auditor A. performs tests of controls. B. examines 100% of the population. C. makes an inference about a population characteristic based on a partial examination of that population. D. performs tests of details. 40) Which of the following management responsibilities is NOT established under PCAOB standards? A. To evaluate the effectiveness of the company’s internal control over financial reporting using suitable criteria B. To present a written assessment of the effectiveness of the company’s internal control over financial reporting as of the end of the company’s most recent fiscal year C. To accept responsibility for the effectiveness of the company’s internal control over financial reporting D. To perform cost-benefit analysis with respect to internal controls relating to assertions having a material effect on the financial statements 41) Which of the following is NOT an example of incompatible duties? A. The individual who approves the vouchers signs and mails the checks. B. The authorized check signer prepares the bank reconciliation. C. The individual who prepares the bank deposit also takes it to the bank. D. The warehouse manager maintains the perpetual inventory records. 42) Which of the following is NOT a hardware and systems software control? A. Data dictionary or directory B. Echo check C. Read after write D. Dual read
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