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AUD Mock Exam 2 Actual Solution!!
Which of the following is least likely to affect an auditors judgment about materiality? A) the dollar amount of key figures in the previous year's financial statements B) the clients evaluation of materiality C) the nature of an item, such as an illegal but very small payment D) consideration of what a reasonable person would thing - Answers B Adam, CPA, is a staff accountant assigned to audit both the cash account and the fixed asset account for one of his clients. The cash account has many transactions that occurred during year, while the fixed asset account had very few transactions during the year. Both accounts were audited by Adam's firm last year, and were found to be fairly stated. Which of the following accurately describes the strategies that would likely be applied to these accounts? A) Adam would likely focus on the ending balance for both the cash account and the fixed asset account, since it is the ending balance that is included in the financial statements. B) Adam would likely focus on the transactions that occurred during the year for cash, but would focus more in the ending balance for fixed assets.
C) Adam would likely focus on the ending balance for cash, but would focus more on the transactions occur during the year for fixed assets. - Answers C Which situation would constitute an improper segregation of duties related to payroll? A) the personnel department, which authorizes new hires, is also responsible for improving annual pay rate increases. B) the payroll department, which computes and records payroll information, also prepares the paychecks. C) the department supervisor, who approves employee time sheets, distributes paychecks to the employees in his/her department. D) the treasure signs paychecks, distribute them, and holds any unclaimed checks. - Answers C Which of the following circumstances requires modification of the accountant report on a review of interim financial information of a publicly held entities prepared on the basis of generally accepted accounting principles? A) lack of adherence to generally accepted accounting principles and lack of adequate disclosure. B) an uncertainty, lack of inherence to generally accepted accounting principles, and lack of adequate disclosure. C) an accounting change, lack of adequate disclosure, and lack of adherence to generally accepted accounting principles.
D) recommend that treating Corporation revise the financial statements to conform with generally accepted accounting principles - Answers D The risk of incorrect rejection and the likelihood of assessing control risks too high relate to the: A) efficiency of the audit B) preliminary estimate for materiality levels C) effectiveness of the audit D) allowable risk of tolerable misstatement - Answers A The auditor would not express an unmodified opinion which of the following situations? A) there exists a remote chance that the client may lose substantial amounts any lawsuit recently filed against the client B) there is been a justifiable change in accounting principle inseparable from the change in accounting estimate, which the client has accounted for as a change in principle. C) there is been an justifiable change in accounting principle inseparable from a change in accounting estimate, which the client has accounted for as a change and estimate. D) there's been a justifiable change in the method of accounting for long- term contracts - Answers B
In order to gain knowledge of new clients business during the audit planning phase, the auditor may engage in civil information gathering activities. Which of the following is not one of those activities? A) performing inquiries with outside legal counsel to gain understanding of existing lawsuits B) reviewing the minutes of the stockholder and Board of Directors meetings C) Taking a tour of the clients facilities D) Reviewing the client's policies and procedures manual to gather information on the client's accounting process - Answers A In auditor decides not to perform test of the operating effectiveness of control surrounding receivables. Which of the following is not likely to be a reason for this decision? A) due to the lack of paper audit trail, it is not possible for appropriate control test to be performed B) the design of control surrounding accounts receivables and adequate C) it would be faster to do extensive substantive testing of the year-end receivables balance it would be to test the related controls D) a very material error is noted an accounts receivable account - Answers D Nissen, CPA, is a registered public accounting firm. Which situation is least likely to violate PCAOB independent standards?
II. To a successor auditor when the successor makes appropriate inquires III. To a government funding agency from which the client receives financial assistance A) II and III, only B) I and III, only C) I, II, and III D) I and II, only - Answers C Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may except is engagement only if: A) party also audits gold income statement and balance sheet B) Field owns controlling interest in Gold C) Gold financial statements are prepared in conformity with GAAP D) Hardy's report is available for distribution to Gold other employees - Answers A Which of the following best describes these auditors responsibility with respect to statements on auditing standards (SASs)? A) the auditor should have sufficient knowledge of the SAS to identify relevant provisions, should be prepared to justify any departures from such
provisions, and this clearly indicate the relevant SAS section and paragraph numbers within audit documentation B) the auditor should have sufficient knowledge of the SASs to identify relevant provisions, and may not depart from such provisions C) the auditor should have sufficient knowledge of the SASs to identify relevant provisions, and should be prepared to justify departures from such provisions D) the auditor should have sufficient knowledge of the SASs to identify relevant provisions, it may not depart from such provisions, and must clearly indicate the relevant SAS section and paragraph numbers within the audit documentation - Answers C In which situations should disagreements with management and significant audit adjustments be communicated to those charged with governance? Disagreements____________Significant Adujstments A) Always______________________________Sometimes B) Sometimes__________________________Sometimes C) Sometimes__________________________Always D) Always________________________________Always - Answers D Procedures performed by an internal auditor can be used to: I. Help the external auditor understand internal control
A) the auditor has not identified instances of noncompliance B) the auditor identifies instances of noncompliance C) the report provides negative assurance D) the report is available for general distribution - Answers B Davis, CPA, compiled financial statements for XYZ co. As of an for the year ending December 31, year 7 that omitted substantially all disclosures required by generally accepted accounting principles (GAAP). Davis was asked to compile the financial statements again for the year ended December 31, year 8 and to include all necessary disclosures. XYZ co- plans to prepare the year 8 financial statements in comparative form. In this situation, Davis may: A) issue and adverse opinion or a qualified (except for) opinion for lack of adequate disclosure B) issue a standard compilation report on the current year and add a paragraph to the prior year compilation report indicating that the financial statement omitted substantially all disclosures C) issue two separate reports so that a clear indication maybe provided that one year contains substantially all disclosures and the other does not D) not issue a report on comparative - Answers D While performing the current neurotic, the auditor gathers several types of evidence, including:
- An accounts receivable confirmation sent to the auditor
- Oral statements from the client regarding a transaction
- The results of an auditor's physical inspection of the client's original documents.
- A monthly bank statement provided by the client Which of the following is the correct hierarchy of audit evidence from most to least reliable? A) 3,4,2, B) 1,4,3, C) 1,3,2, D) 3,1,4,2 - Answers D When an auditor qualifies an opinion for a nonissue were due to a scope limitation, the auditor should describe the nature of the scope limitation in a separate paragraph and modify the: I. Introductory Paragraph II. Basis for Qualified Opinion paragraph III. Opinion Paragraph A) I, II, and III B) None of the above C) III only D) II and III, only - Answers D
D) Advise management that Bell's report was restricted for use only by management. - Answers B A letter issued on significant deficiencies relating to an entities internal control observed during audit of the financial statements of a non-issuer should include a: A) description of task performed to search for material weaknesses B) restriction on the use of the report C) statement of compliance with applicable laws and regulations D) paragraph describing management evaluations of the effectiveness of internal control - Answers B The likelihood of assessing control risks to highs the rest that the sample selected to test controls: A) contains misstatements that could be material to the financial statements when aggregated with misstatements and other account balances are transaction classes B) does not support the auditors plan to assess level of control risk when the true operating effectiveness of internal control justify such an assessment C) contains proportionately fewer monetary errors or deviations from prescribed internal controls then exist in the balance or class as a whole D) does not support the tolerable error for summer all of managements assertions - Answers B
According to the professions ethical standards, CPA would be considered independent in which of the following instances? A) this CPA owns an office building in the mortgage and the building is guaranteed by client B) a client lease as part of an office building from the CPA, resulting in a material indirect financial interest of the CPA C) the CPA has material direct financial interest in the client, but transfers interest into a blind trust D) the CPA belongs to a country club client which membership requires the acquisition of the pro rata share of equity - Answers D Which of the following would most likely be an advantage in using classical variables sampling rather than probability proportional to size (PPS) sampling? A) inclusion of zero negative balance is generally didn't not require special design considerations B) an estimate of the standard deviation of the populations recorded amounts is not required C) any amount that is individually significant is automatically identified and selected D) the auditor rarely needs the assistance of a computer program to design an efficient sample - Answers A
B) accurate management job descriptions delineate specific duties C) management is dominated by one individual D) the internal auditor reports directly to management - Answers C A company hires one of its board members, A CPA, to issue accounting reports to the company. Assuming any required disclosures are made, which of the following reports me the CPA issue without violating independence rules? A) audits B) reviews C) compilations D) agreed-upon procedures - Answers C Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control? A) confirmation with outside parties B) observation of client personnel C) inquiry of client personnel D) re-computation of account balance amounts - Answers B Which of the following procedures what an auditor most likely perform to identify unusual sales transactions?
A) tracing credits in the accounts receivable ledger to source documentation B) performing a trend analysis of quarterly sales C) tracing cash receipt entries to the bank statement deposit for amount and date D) examining duplicate sales invoices for credit approval by the credit manager - Answers B According to the Sarbanes-Oxley act of 2002, which of the following non- audit services can be provided by registered public accounting firm to the client contemporaneously with the audit when preapproval is granted by the audit committee action? A) tax services B) internal audit outsourcing services C) advice on financial information system design D) actuarial services related to the audit - Answers A Which of the following procedure should an auditor generally perform regarding subsequent events? A) review the cutoff bank statement for several months after year-end B) communicate material weaknesses in the internal control structure to those charged with governance
C) dividend records on file with the SEC D) annual audited financial statements of investee companies - Answers B Which of the following audit procedures, if used, should be combined with other auto procedures when testing the operating effectiveness of controls? A) reperformance B) inspection C) inquiry D) observation - Answers C All of the following would be associated with fraud risk in the revenue cycle, except for: A) Recording revenue on "trial sales" after the consignment period to the customer expires B) failure to record sales returns by customers on timely basis C) materially understating the allowance for uncollectible accounts D) holding the company's books open past the close of the accounting. - Answers A A written client representation letter most likely would be an auditor's best source of corroborative information of a client's plans to:
A) terminate an employee pension plan B) discontinue a line of business C) make a public offering of its common stock D) settle an outstanding lawsuit for an amount less than the accrued loss contingency - Answers B All of the following are effective ways to prevent and/or depict lapping, except for: A) independently comparing to a cash receipt with funds actually deposited in the bank B) comparing a dollar amounts and dates on the banks deposit slips with customer remittance credits entered into the Accounts Receivable ledger C) requiring that customer center payments directly to a lockbox D) preparing a bank transfer schedule - Answers D Proper authorization of write-offs on uncollectible accounts should be approved and which of the following departments? A) accounts receivable B) accounts payable C) Credit D) treasurer - Answers D
