I would like fivestarlaw to assist me with these questions.
Hello, I would like fivestarlaw to...
I would like fivestarlaw to assist me with these questions.
1. In the first audit of a client, because of the client’s record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would
Be unable to express an opinion on the current year’s results of operations and cash flows
Express a qualified opinion on the financial statements because of a client-imposed scope limitation
Withdraw from the engagement and refuse to be associated with the financial statements
Specifically state that the financial statements are not comparable to the prior year because of an uncertainty
2. After issuance of the auditor’s report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor’s report unless a
Contingency is resolved
Development occurs which may affect the client’s ability to continue as a going concern
Material defalcation ensues
History of significant non-arms-length related party transactions is discovered
3. Which of the following would the accountant most likely investigate during the review of financial statements of a nonpublic entity if accounts receivable did not conform to a predictable pattern during the year?
Sales returns and allowances
Sales of consigned goods
4. The auditor is least likely to use generalized audit software to
Perform analytical procedures on the client’s data
Access information stored on the client’s IT files
Identify weaknesses in the client’s IT controls
Test the accuracy of the client’s computations
5. During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should
Disclose the departure in a separate paragraph of the report
Issue an adverse opinion
Attach a footnote explaining the effects of the departure
Issue a compilation report
6. For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the risk of assessing control risk too low is 5%. Which of the following is true?
The auditor must increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate
The auditor is likely to increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate
The auditor must increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate
The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate
7. The formula for nonstatistical sampling for tests of account balances provided by the AICPA
Must be used for nonstatistical sampling.
Includes a provision for the risk of incorrect acceptance.
Is affected by the nature of other substantive tests used to test the account balance.
Is largely based on the variation of items in the account.
8. An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that
There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement
There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements
The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement
The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements
9. When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why
A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded
Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions
Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate
A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement
10. Before issuing a report on the compilation of financial statements of a nonpublic entity, the accountant should
Apply analytical procedures to selected financial data to discover any material misstatements
Corroborate at least a sample of the assertions management has embodied in the financial statements
Inquire of the client’s personnel whether the financial statements omit substantially all disclosures
Read the financial statements to consider whether the financial statements are free from obvious material errors
11. An examination of a financial forecast is a professional service that involves
Compiling or assembling a financial forecast that is based on management’s assumptions
Limiting the distribution of the accountant’s report to management and the board of directors
Assuming responsibility to update management on key events for one year after the report’s date
Evaluating the preparation of a financial forecast and the support underlying management’s assumptions
12. An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude
The sampling distribution is not normal; therefore PPS sampling will more accurately define the nature of the population
The sampling distribution is normal; therefore the confidence coefficient value can be used to evaluate the sample results
The sampling distribution is not normal; thus attribute sampling is the only alternative statistical tool that can be appropriately used
None of the above answers is correct.
13. When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item. However, the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity’s
14. When a CPA is associated with the preparation of forecasts, all of the following should be disclosed except the
Sources of information
Character of the work performed by the CPA
Major assumptions in the preparation of the forecasts
Probability of achieving estimates
15. An auditor will use the IT test data method in order to gain certain assurances with respect to the
Procedures contained within the program
Degree of keypunching accuracy
16. In statistical sampling, setting the appropriate confidence level and desired sample precision are decisions made by the auditor that will affect sample size for a substantive test. Which of the following should not be a factor in the choice of desired precision?
The sampling risk.
The size of an account balance misstatement considered material
The audit resources available for execution of the sampling plan.
The objectives of the audit test being conducted
17. For an engagement in which the auditor performs a set of agreed-upon procedures, the auditor should do any of the following except
Compare the procedures to be applied to the specified users’ written requirements
Discuss the procedures with a representative of the users
Perform procedures similar to those applied in a review engagement
Review contracts or correspondence from the specified users
18. The auditor’s best course of action with respect to “other financial information” included in an annual report containing the auditor’s report is to
Indicate in the auditor’s report that the “other financial information” is unaudited
Consider whether the “other financial information” is accurate by performing a limited review
Obtain written representations from management as to the material accuracy of the “other financial information.”
Read and consider the manner of presentation of the “other financial information
19. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
Significant related party transactions are pervasive
Unusual trade credit from suppliers is denied
Arrearages in preferred stock dividends are paid
Restrictions on the disposal of principal assets are present
20. When an auditor reports on financial statements prepared on an entity’s income tax basis, the auditor’s report should
Disclose that the statements are not intended to conform with generally accepted accounting principles
Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards
Not express an opinion on whether the statements are presented in conformity with the comprehensive basis of accounting used
Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting
21. While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of
Assessing control risk too high.
Unable to determine
22. Which of the following is true of generalized audit software packages?
They can be used only in auditing on-line computer systems
They can be used on any computer without modification
They each have their own characteristics which the auditor must carefully consider before using in a given audit situation
They enable the auditor to perform all manual test procedures less expensively.
23. ACL is an example of
An EDI software package
An IT software package
Software that allows auditors to retrieve data from client systems
A type of networking
24. An auditor’s study and evaluation of the internal accounting control system made in connection with an annual audit is usually not sufficient to express an opinion on an entity’s system because
The evaluation of weaknesses is subjective enough that an auditor should not express an opinion on the internal accounting controls alone
The audit cost-benefit relationship permits an auditor to express only reasonable assurance that the system operates as designed
Management may change the internal accounting controls to correct weaknesses
Only those controls on which an auditor intends to rely are reviewed, tested, and evaluated
25. Which of the following statements is correct concerning statistical sampling in tests of controls?
As the population size increases, the sample size should increase proportionately
Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate
There is an inverse relationship between the expected population deviation rate and the sample size
In determining tolerable deviation rate, an auditor considers detection risk and the sample size