1. Ratio analysis only involves a year-to-year comparison of…
1. Ratio analysis only involves...
1. Ratio analysis only involves a year-to-year comparison of account balances. (Points: 4)Submitted: 10 years ago.Category: Homework
2. When control risk is assessed at a maximum level, the auditor assumes that the internal controls are reliable in preventing or detecting material misstatements. (Points: 4)
3. Accounting subsystems are accounting cycles composed of one or more accounting applications. (Points: 4)
4. Presentation and disclosure assertions imply that all transactions and balances are properly presented, disclosures represent what actually happened, and the footnote disclosures are appropriate and adequate. (Points: 4)
5. Vouching recorded transactions involves taking a sample from the journal and tracing them back to the source documents to ensure they occurred. (Points: 4)
6. In analysis of the results of audit sampling, an auditor may determine that the sample size must be increased. (Points: 4)
7. The revenue cycle considered by auditors includes the sales process but not collections. (Points: 4)
8. Inventory is complex and typically considered a high-risk area in audits of service firms. (Points: 4)
9. An auditor can utilize a cross-sectional analysis for a client operating in multiple locations to identify areas of further inventory testing. (Points: 4)
10. Legal expenses are reviewed by auditors for possible litigation and related FAS 5 treatment. (Points: 4)
11. An imprest payroll account will never reach a zero balance. (Points: 4)
12. Strong internal control over the cash account requires that the same person who is responsible for making the bank deposit not post the increase to cash in the accounting system. (Points: 4)
13. A turnaround document is an effective completeness control because they list essential information for further processing of the collection on account. (Points: 4)
14. Auditors will perform an analysis of leases using SFAS 13 criteria and other EITF statements to substantiate the accounting treatment. (Points: 4)
15. 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)
16. An example of a Type II Subsequent Event includes the settlement two months after year-end of a liability for an amount well in excess of the amount that was accrued at year-end. (Points: 4)
17. A report on agreed-upon procedures issued by accountants provides the lowest form of attestation assurance. (Points: 4)
18. 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.
19. 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
20. 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.
21. Which one of the following is not a provider of assurance services? (Points: 4)
22. The primary governing board that performs quality reviews on registered CPA firms that audit public companies is the (Points: 4)
23. 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
24. 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.
25. For an auditor to be independent, he or she must be independent in (Points: 4)
fact and appearance.
either fact or appearance.
26. 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.
27. 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.
28. 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
29. 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.
30. 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.
31. All of the following are pervasive accounting controls except (Points: 4)
adequate segregation of duties.
physical controls to safeguard the assets.
understanding documented internal procedures.
32. Programs written to accomplish specific processing tasks, such as computing payroll, are (Points: 4)
operating system programs.
access control programs.
33. 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
34. Backup controls, used to prevent data and software loss would include procedures to: (Points: 4)
load balance in the event of heavy traffic across the network.
constantly monitor the network for intrusion and attack.
provide an alternate form of electricity to the corporate facilities.
fail-over to a mirrored storage device in the event of interruption or loss.
35. 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.
36. The control totals used to ensure the completeness of processing in a batch processing environment include (Points: 4)
all of the above.
37. 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.
38. 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.
39. 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.
40. The primary support of an audit is (are) (Points: 4)
the financial statements.
the audit working papers.
the audit report.
the confirmation documentation.
41. The primary assertion that is satisfied by physically observing the client's count of inventory is (Points: 4)
42. 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.
43. 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.
44. 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.
45. 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.
46. 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.
47. 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.
48. 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)
49. 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.
50. 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
51. The steps used in sampling during substantive testing includes the determination of each of the following except (Points: 4)
the audit objective.
the method of selecting a sample.
expected misstatement conditions
control failure risk.
52. The design of a PPS sample requires the auditor to determine all of the following except (Points: 4)
expected misstatement in the account balance.
53. 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.
54. 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.
55. 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.
56. When a purchasing agent benefits personally by accepting payment from a vendor, the purchasing agent is guilty of (Points: 4)
stealing company assets.
57. 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.
58. 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.
59. 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.
60. 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
61. 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.
62. 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.
63. 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.
64. 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.
65. 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.
66. Management of Megadile, Inc. refuses to sign the management representation letter given to them in the course of the audit on the grounds that it invades the company's privacy. Such actions will be considered by the auditors to be (Points: 4)
a violation of full and fair disclosure.
securities law violation.
a scope limitation.
a breakdown in internal controls.
67. 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.
68. An additional partner review of the audit and its findings is typically performed by an experienced member of the firm. Which of the following individuals is qualified to perform this concurring review? (Points: 4)
The engagement partner who has worked on the client for three years.
An experienced partner of the firm who did not actively participate on the audit.
A partner of another firm or office who knows the client well and who was a vital member of the audit team.
An employee of the enforcement division of the SEC.
69. Rock School, Inc. has a matter of material litigation that is threatened, but that has not gone to trial. The auditor's consideration of such a matter will most likely include all of the following except (Points: 4)
sending a letter to the client's attorneys for more information
discussions of the matter with the client and the client's insurance adjuster.
confirmation with the harmed party regarding the amount that will be claimed.
assessment of proper accrual or disclosure by the client in accordance with SFAS No. 5.
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.