A turnaround document is an...
A turnaround document is an effective completeness control because they list essential information for further processing of the collection on account. (Points: 4) True False 17.
Contingencies are considered by the auditor in relation to the SFAS No. 5 criteria to determine whether material contingencies exist with the client and, if so, that they are properly accrued or disclosed. (Points: 4) True False 18.
A report on agreed-upon procedures issued by accountants provides the lowest form of attestation assurance. (Points: 4)
True or False 19.
The need for assurance services arises for all of the following reasons EXCEPT: (Points: 4)
potential bias in providing information.
closeness between a user and the organization.
complexity of the processing systems.
remoteness between a user and the organization. 20.
Which one of the following is not part of the attest process? (Points: 4)
evaluating evidence against objective criteria
gathering evidence about assertions
proving the accuracy of the books and records
communicating the conclusions reached 21.
Users can reasonably expect audited financial statements to be (Points: 4)
complete and contain all important financial disclosures, be free from material misstatements and be presented fairly.
complete and contain all-important financial disclosures, be free from material misstatements and be presented fairly according to GAAP.
complete, be accurate and be presented fairly according to GAAP.
complete and contain all-important financial disclosures, be free from all misstatements and be presented fairly according to the substance of GAAP. 22.
Which one of the following is not a provider of assurance services? (Points: 4)
The primary governing board that performs quality reviews on registered CPA firms that audit public companies is the (Points: 4)
Management of an organization has the responsibility for all of the following except: (Points: 4)
accounting principles used in financial reporting
engagement of a qualified auditor
internal control over financial reporting
financial statements and disclosures 25.
The financial statement auditor must understand the client's internal control as a component of the fieldwork standards. The one of the reason for this understanding is so that the auditor may (Points: 4)
provide individual comments on internal control non-compliance.
become comfortable that the client will pay its audit bills.
assess the risk of possible misstatements in the financial statements. 26.
For an auditor to be independent, he or she must be independent in (Points: 4)
fact and appearance.
either fact or appearance. 27.
An auditor is concerned with materiality for which of the following reasons? (Points: 4)
to assess internal control
to comply with the quality assurance standards of GAAS
to determine the effects of misstatements on the users of financial information
to cut down on audit procedures and testing 28.
A proper system of corporate governance is one that demands (Points: 4)
decision making by auditors in place of management.
internal audit representation on the board of directors.
audit planning to obtain competent and sufficient audit evidence.
accountability back through the system to the shareholders. 29.
In determining the types of activities, engagements and interactions an auditor should have with a client, the CPA and the audit firm must (select the best answer) (Points: 4)
follow the rules exactly as they are written.
assess all of their relationships with every client to ensure that independence is intact.
focus on client satisfaction above all other considerations
realize that ethics are only guidelines and a matter of personal judgment. 30.
In the Code of Professional Conduct, Rule 101 as interpreted by 101-1 gives guidance as to the types of activities that will cause impairment to the independence of a firm or its members and it includes all of the following impairment issues except: (Points: 4)
direct financial interests in the client
joint ventures with officers of the client audit fees paid by the client company rather than the shareholders of the client company
loans from the client company or its officers 31.
The AICPA Principles of Professional Conduct include (Points: 4)
due professional care and supervision.
scope and nature of services and adequate training.
integrity and independence
public interest, integrity and objectivity. 32.
Among other things, internal control is designed to provide reasonable assurance that: (Points: 4)
assets are properly protected.
an audit is performed efficiently.
laws are reliably followed.
processes are safeguarded. 34.
Programs written to accomplish specific processing tasks, such as computing payroll, are (Points: 4)
operating system programs.
access control programs. 35.
The combination of which functions in an information technology environment are not necessarily a control weakness? (Points: 4)
user and programming functions
database administrator and data input functions
programmers and authorization of changes
users and certain data access 36.
Which one of the following is an example of an edit test for limits? (Points: 4)
Only numbers are allowed to be input into the social security number field and dashes are pre-formatted.
Each sales order is given an identifier that is also tagged to the receipt of goods record, the customer invoice record and the cash receipts record
The purchasing department may order materials up to $5,000 in total before a second electronic authorization is required.
Supplies may not be purchased from any vendor not authorized and existing in the vendor table. 37.
The control totals used to ensure the completeness of processing in a batch processing environment include (Points: 4)
all of the above. 38.
The type of test used to check that no hourly employee is paid more than $400.00 in one week is: (Points: 4)
an edit test.
a batch control test.
an output control test.
none of the above. 39.
Tagging and tracing might best be used to test which of the following? (Points: 4)
The number of confirmations returned compared to the number of confirmations sent out.
The corporate credit card is only being used for business transactions.
All customer orders shipped were also invoiced and that cash was received.
Quantities of product F411029 have been accurately counted in the warehouse. 40.
Which one of the following would be the least persuasive type of evidence? (Points: 4)
Confirmations returned by bank directly to the auditor.
Letters of communication from the Securities Exchange Commission.
Physical examination of perpetual inventory.
General ledger in a newly developed information system. 41.
The primary support of an audit is (are) (Points: 4)
the financial statements.
the audit working papers.
the audit report.
the confirmation documentation. 42.
The primary assertion that is satisfied by physically observing the client's count of inventory is (Points: 4)
The audit team asks the client to pull a sample vendor files and examines the invoices supporting the purchases of inventory items during the year. What is the most probable reason for the use of this evidence? (Points: 4)
Confirmation of vendors supplying inventory for existence.
Analytical procedures to determine completeness of inventory.
Testing for the valuation of inventory using the FIFO cost flow assumption.
Reading the terms of the arrangements with vendors for disclosure. 44.
The extent of procedures is affected mostly by: (Points: 4)
the sheer volume of procedures to be applied by the auditor.
the time of year in which the client takes a physical inventory in the warehouse.
the auditor's judgment that misstatements are probable in certain balances.
the availability of the client's staff at or near the balance sheet date. 45.
An audit program is created to specify: (Points: 4)
the type of audit opinion to be rendered based upon procedures performed.
the audit procedures that will be performed each year for the client.
how an auditor should think while performing audit procedures.
objectives and procedures to be followed during the audit process. 46.
Which one of the following is primary reason for documenting audit work? (Points: 4)
to prevent litigation by other parties that question the audit performance.
to provide a stand-alone medium that gives audit conclusions and supports the opinion.
to supply a point of reference for all auditors performing the work subsequently.
to supply a point of reference for all auditors performing the work subsequently. 47.
Which of the following would most likely be considered intentional misapplication of accounting principles on financial statements? (Points: 4)
A capital lease is presented as periodic rent expense rather than interest and depreciation.
A deferred tax asset is reduced to zero with a valuation allowance.
A stock option is expensed even though the fair value of the underlying stock on the date of grant was the same as the option's exercise price.
Revenues for up-front fees are deferred rather than recognized immediately. 48.
The audit of financial statements includes the initial approach of addressing fraud. How must an auditor address fraud in the planning stage? (Points: 4)
The auditor must test for fraud in the planning stage by sampling accounts.
The auditor must consider the likelihood of fraud existing in the company in the planning stage.
The auditor must realize that most people are honest and not automatically assume that fraud exists when planning the audit.
The auditor must not be aggressive in its initial approach to fraud as trust may be lost by the client. 49.
Which of the following creates an opportunity for fraud to be committed in an organization? (Points: 4)
Management demands financial success.
Poor internal control.
Commitments tied to debt covenants.
Management is aggressive in its application of accounting rules. 50.
XXXXX XXXXX, controller of Mitnikco, spends three days researching the accounting statements to find loopholes in the "rules" and to make a case for recognizing revenue earlier, rather than in later years. In the end, Sam and the other members of management determine that they will reduce the company's deferred revenue accounts and begin accounting for all revenues as agreements are signed. What are the motivations of Mitnikco management based solely on the information above? (Points: 4)
Sampling risk is the risk that (Points: 4)
the sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect.
the population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect.
Neither A nor B is correct.
Both A and B are correct. 52.
The sample size varies directly with (Points: 4)
the expected failure rate.
the tolerable error rate.
the allowable risk of assessing control risk too low.
the nonsampling risk 53.
The design of a PPS sample requires the auditor to determine all of the following except (Points: 4)
expected misstatement in the account balance. 54.
Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately? (Points: 4)
Sales are recorded at the invoice price expected to be collected from customers.
Sales orders have sequential numbering.
Recorded sales transactions are evidenced by valid invoices and shipping documents.
Credits to customer accounts are classified as liabilities. 55.
In an audit of financial statements, the risk of the high rate of return of products sold includes that of (Points: 4)
sales that are recorded improperly.
an estimate of accrued returns that reduces net income.
a reduction of net sales for an increase to the sales returns and allowance account.
consignment goods that are returned and forwarded to third parties. 56.
Confirmations that are sent to select customers asking them to review the current balance due the client as shown on the client's statement and return the letters directly to the auditor indicating whether they agree with the indicated balance, are known as (Points: 4)
negative confirmations. 57.
Alternative procedures that would provide evidence of the existence of receivables would include (Points: 4)
physical observation of customer facilities.
review of subsequent collections.
analysis of the aged trial balance.
a confirmation to the client management for customer accounts. 58.
When a purchasing agent benefits personally by accepting payment from a vendor, the purchasing agent is guilty of (Points: 4)
stealing company assets. 59.
Which of the following is an example of the type of analytics that an auditor would use for inventory? (Points: 4)
Number of day's sales in receivables compared to industry averages.
Inventory turnover for the previous five years.
Number of obsolete units this period compared to last.
Salaries of marketing personnel as a percent of total inventory. 60.
For testing the completeness assertion for accounts payable, the auditor would (Points: 4)
examine a sample of cash disbursements made after year end to determine whether the disbursements were for goods applicable to the previous year.
reconcile vendor's statements with the accounts receivable trial balance.
examine production equipment for useful lives.
gather purchase orders immediately previous to and subsequent to year-end. 61.
Which one of the following accounts would an auditor most likely test by performing analytical procedures? (Points: 4)
Sales commissions expense.
Repairs and maintenance expense.
Travel expense. 62.
Operational audits of cash management seek to identify areas in which cash management may be improved to contribute to the overall profitability and effectiveness of the organization. The internal auditor would use which of the following procedures on an operational audit of cash? (Points: 4)
determine the compliance of treasury activities with company policy
review procedures for identifying and investing excess funds
review procedures for handling cash receipts
all of the above 63.
Which of the following represents a primary audit concern for errors in the recording of intangible assets? (Points: 4)
Capitalized research and development costs.
Amortization of patents.
Capitalized costs to successfully defend a patent.
Amortization of franchise fees. 64.
Which represents the most significant risk associated with restructuring liabilities on the financial statements? (Points: 4)
Future smoothing of income by releasing the reserves.
Related party transactions that are not recorded at arms-length.
Understatement of assets in the period of recording the liabilities.
Payroll liabilities that are not disclosed in the notes. 65.
All of the following are significant issues for consideration when auditing for the impairment of goodwill, except (Points: 4)
timing of the assessment by management.
amortization in years of the goodwill.
clear objective evidence supporting the assessment.
understanding the client's business and its risks. 66.
Simco's shaving products division was acquired over ten years ago in a purchase transaction by BlizzardCraft. The related goodwill was amortized until 2002 and $4.5 million remained on the books thereafter. In 2008, Simco's production machinery was assessed for impairment as a long-lived asset because of obsolescence issues. What relationship will the auditors most likely make between the facts stated above? (Points: 4)
BlizzardCraft erroneously treated the acquisition of Simco as a purchase transaction when it should have been a pooling of interests.
Simco should not have amortized goodwill previous to 2002.
Simco's goodwill should have been written off when purchased by BlizzardCraft in a one-time transaction.
The goodwill related to Simco may have been impaired during 2008. 67.
All of the following represent equity issuance requiring prominent accounting, presentation and disclosure treatment, except (Points: 4)
stock with beneficial conversion features.
Warrants issued to a consultant for services performed.
Preferred stock that is cumulative and par value is $0.50 per share.
Dividends have not been paid on common stock since inception.
Which of the following is a tool that is best used by the audit team to determine if the client has included all disclosures? (Points: 4)
Management representation letter.
Inquiry of the CFO.
The auditor is responsible for evaluating the likelihood of a client continuing as a going concern for a reasonable period of time. A reasonable period of time is (Points: 4)
one year from the audit report date.
one year from the last day of field work.
one year from the balance sheet date.
two years from the balance sheet date. 70.
When the financial statements contain a material departure from GAAP that the auditor believes is justified, justification (Points: 4)
should appear in a footnote.
should appear in a paragraph added before the scope paragraph.
should appear in the opening paragraph.
should appear in a paragraph added before the opinion paragraph.