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Auditing and Assurance Exam
1 (Ch 1-5, 19) Multiple Choice
2024-2025. Quizs & Correct
Ans. Graded A+
A - ANSA violation of the profession's ethical standards is least likely to occur when a CPA: a. purchases another CPA's accounting practice and bases the price on a percentage of all fees accruing from entities over a three-year period b. receives a percentage of the amounts invested by the CPA's audit entities in a tax shelter with the entities' knowledge and approval c. has a public accounting practice and is president and sole stockholder of a corporation that engages in data processing services to the public. The CPA often refers his attest entities to the data processing company d. forms an association--not a legally binding partnership--with two other sole practitioners and calls the association Adams, Betts & Associates A - ANSAccording to the SEC's SAB No. 101, which of the following is not necessary for revenue recognition? a. the seller has determined that the buyer will take the discount b. the seller's price to the buyer is fixed c. persuasive evidence of an arrangement exists d. collectability is reasonably assured A - ANSAn audit document that reflects the major components of an amount reported in the financial statements is referred to as
a(n): a. Lead schedule b. Supporting schedule c. Audit control account d. Working trial balance A - ANSAs discussed in class, which of the following is NOT specifically an element of quality control as defined by the AICPA's "Statements of Quality Control Standards" (SQCS)? a. auditing, tax and consulting standards b. human resources c. Acceptance and continuance of client relationships d. monitoring e. leadership responsibilities A - ANSAs lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to: a. find smaller errors b. find larger errors c. increase the tolerable misstatements in the accounts d. decrease the risk of overreliance A - ANSIf the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the timing, nature, and extent of audit procedures, they should assess the internal auditors': a. Competence and objectivity b. Efficiency and experience c. Independence and review skills d. Training and supervisory skills A - ANSIn auditing controls of A/P, an auditor's procedures most likely would focus primarily on management's assertion of: a. completeness b. valuation and allocation c. existence d. rights and obligations A - ANSIn connection with the element of engagement performance, a CPA firm's system of quality control should ordinarily include procedures covering all of the following except: a. performance
aggregate, are important, while other matters are not important d. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management A - ANSThe Public Company Accounting Oversight Board: a. Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies b. Is a quasi-governmental organization that has legal authority to set accounting standards for public companies c. Is a quasi-governmental organization that has a policy to ignore public comment and input in the process of setting auditing standards d. Is a quasi-governmental organization that is independent of the SEC in setting auditing standards. A - ANSThe purpose of segregating the duties of distributing payroll checks and hiring personnel is to separate the: a. authorization of transactions from the custody of related assets b. operational responsibility from record keeping responsibility c. duties within the accounting function d. custody of assets from the accounting for those assets` A - ANSTracing a sample of time sheets before and after period end to the weekly payroll report and tracing the weekly payroll report to the general ledger to verify that payroll transactions are recorded in the proper period would provide evidence primarily for which assertion? a. cutoff b. occurrence c. valuation d. classification A - ANSTracing is used primarily to
test which of the following assertions about classes of transactions? a. completeness b. occurrence c. authorization d. cutoff A - ANSVouching is used primarily to test which of the following assertions about classes of transactions? a. occurrence b. classification c. authorization d. completeness A - ANSWhen control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying substantive analytical procedures and: a. recalculating payroll accruals b. footing and cross- footing the payroll register c. observing the distribution of payroll checks d. inspecting payroll tax returns A - ANSWhich of the following best describes the relationship between business objectives, strategies, processes, controls, and transactions? a. To achieve its objectives, a business formulates strategies and implements processes, which are carried out through business transactions. The entity's information and internal control systems must be designed to ensure that the transactions are properly executed, captured, and processed. b. To achieve its strategies, a business formulates objectives and implements processes, which are carried out through the entity's information and internal control systems. Transactions are conducted to ensure that the processes are properly executed, captured, and processed. c. To achieve its objectives, a business formulates strategies to implement its transactions, which are
the responsibility of management and not that of the auditor d. the professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities A - ANSWhich of the following is the most important reason for an auditor to gain an understanding of an audit client's system of internal control over financial reporting? a. understanding a client's system of internal control can help the auditor assess risk and identify areas where financial statemetn misstatements might be more likely b. understanding a client's system of internal control can help the auditor make valuable recommendations to management at the end of the engagement c. understanding a client's system of internal control can help the auditor sell consulting services to the client d. understanding a client's system of internal control is not a required part of the audit process A - ANSWhich of the following most likely would give the most assurance concerning the valuation assertion for A/R? a. assessing the allowance for uncollectible accounts for reasonableness b. tracing amounts in the subsidiary ledger to details on the shipping documents c. inquiring about receivables pledged under loan agreements d. comparing receivable turnover ratios to industry statistics for reasonableness A - ANSWhich of the following statements is correct regarding the relationships
among auditing, attestation, and assurance services? a. auditing is a type (that is, a subset) of assurance service b. attestation is a type (that is, a subset) of audit service c. auditing and attestation are distinctly different and there is no overlap d. the words auditing, attestation, and assurance may be used interchangeably e. consulting services are permitted along with attestation and assurance engagements, but are prohibited in connection with auditing engagements A - ANSWhich of the following types of audit evidence is least reliable? a. prenumbered purchase order forms prepared by the entity b. bank statements obtained from the entity c. test counts of inventory performed by the auditor d. correspondence from the entity's attorney about litigation A - ANSWhich of these statements concerning illegal acts by clients is correct? a. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud b. An audit in accordance with GAAS normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements c. An auditor considers illegal acts from the perspective of the reliability of management's representations rather than their relation to the audit objectives derived from financial statement assertions d. An auditor has no responsibility to detect illegal acts by clients that
merchandise was received for which the entity was billed. The population for this test consists of all: a. canceled checks b. vendors' invoices c. receiving reports d. merchandise received B
- ANSAn auditor would be the least likely to use confirmations in connection with the examination of: a. inventory held in a third-party warehouse b. refundable income taxes c. long-term debt d. stockholder's equity B - ANSAn independent audit adds value to the communication of financial information because the audit: a. confirms the exact accuracy of managment's financial representations b. lends credibility to the financial statements c. guarantees that financial data are fairly presented d. assures the readers of financial statements that any fraudulent activity has been corrected B - ANSAudit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence? a. bank statements obtained from the entity b. computations made by the auditor c. prenumbered entity sales invoices d. vendors' invoices included in the entity's files B - ANSAuditing standards require auditors to make certain inquiries of management regarding fraud. Which of the following inquires is required? a. Whether management has ever intentionally violated the securities laws b. Whether management has any knowledge of fraud that has been perpetrated on or within the entity c. Management's attitudes
towards regulatory authorities d. Management's attitudes about hiring ethical employees B - ANSDuring the audit of Moon Co., the auditor disagrees with management's estimation of collectible accounts receivable. The possible misstatement amount is material. Which of the following statements below should weigh more heavily for the auditor in this instance? a. Moon management has the right to make company estimates b. requiring an adjustment to the allowance for doubtful accounts would give stockholders access to fair and adequate information c. accounts receivable as stated by Moon Co. might turn out to be fully collectible d. the interests of Moon Co., the auditor, and the public should be weighed equally in the decision B - ANSIn which of the following situations would a CPA's independence be considered impaired according to the Code of Professional Conduct? 1. The CPA has a car loan from a bank that is an audit entity. The loan was made under the same terms available to all customers 2. The CPA has a direct financial interest in an audit entity, but the interest is maintained in a blind trust 3. The CPA owns a commercial building and leases it to an audit entity. The rental income is material to the CPA a. 1 and 2 b. 2 and 3 c. 1 and 3 d. 1, 2, and 3 B - ANSThe AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and a: a. list of violations that would cause the automatic
the entity's management over accounting and auditing issues c. the amount of audit hours that the predecessor required for the engagement d. the predecessor's assessment as to what is material to the financial statements e. material weaknesses in internal control known to the predecessor B - ANSWhen planning an audit, an auditor should: a. Consider whether the extent of substantive procedures may be reduced based on the results of tests of controls b. Determine overall materiality for audit purposes c. Conclude whether changes in compliance with prescribed internal controls justify reliance on them d. Evaluate detected misstatements B - ANSWhich of the following best describes the reason why an independent auditor is often retained to report on financial statements? a. Management fraud may exist, and it is more likely to be detected by independent auditors than internal auditors b. different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements c. a misstatement of account balances may exist, and all misstatements are generally corrected as a result of the independent auditor's work d. an entity may have a poorly designed internal control system B - ANSWhich of the following is not a part of the role of internal auditors? a. assisting the external auditors b. providing reports on the reliability of
financial statements to investors and creditors c. consulting activities d. operational audits B - ANSWhich of the following is not an issue related to the valuation of A/R? a. a proper allowance for doubtful accounts b. proper cutoff c. the net realizable value of A/R d. the valuation of revenue that makes up the detail of A/R B - ANSWhich of the following presumptions is least likely to relate to the reliability of audit evidence? a. the more effective internal control, the more assurance it provides about the accounting data and financial statements b. an auditor's opinion is formed within a reasonable time to achieve a balance between benefit and cost c. evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity d. the independent auditor's direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly B - ANSWhich of the following procedures would an auditor most likely rely on to verify management's assertion of completeness? a. reviewing standard bank confirmations for indications of cash manipulations b. comparing a sample of shipping documents to related sales invoices c. observing the entity's distribution of payroll checks d. confirming a sample of recorded receivables by direct communications with the debtors B - ANSWhich of the following statements concerning audit evidence is correct?
establish a scope for the audit procedures for the individual account balance or disclosures" is associated with which term? a. planning-stage materiality judgment b. sampling risk c. tolerable misstatement d. evaluation-stage materiality judgment e. analytical procedures C - ANSAn audited entity company has not paid its 2015 audit fees. According to the AICPA Code of Professional Conduct, for the auditor to be considered independent with respect to the 2016 audit, the 2015 audit fees must be paid before the: a. 2015 report is issued b. 2016 fieldwork is started c. 2016 report is issued d. 2017 fieldwork is started C - ANSAn auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of: a. cutoff b. occurrence c. completeness d. authorization and accuracy C - ANSAuditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations? a. the positive confirmation form must always be used to confirm all balances regardless of size b. a combo of the two confirmation types can be used, with positive form used for trade receivables and the negative form for other receivables c. a combo of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances d. the positive
confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory C - ANSComparing amounts selected from the payroll account analysis for payroll accruals to supporting documentation would provide evidence primarily for which assertion? a. presentation and disclosure b. classification c. existence d. completeness C - ANSConfirmation is most likely to be a relevant form of evidence with regard to assertions about A/R when the auditor has concerns about the receivables': a. valuation b. completeness c. existence d. classification C - ANSDuring the initial planning phase of the audit, a CPA most likely would: a. Identify specific internal control activities that are likely to prevent fraud b. Evaluate the reasonableness of the entity's accounting estimates c. Discuss the timing of the audit procedures with the entity's management d. Inquire of the entity's attorney if it is probably that any unrecorded claims will be asserted C - ANSFor what primary purpose does the auditor obtain an understanding of the entity and its environment? a. to determine the audit fee b. to decide which facts about the entity to include in an audit report c. to plan the audit and determine the nature, timing, and extent of the audit procedures to be performed d. to limit audit risk to an appropriately high level C - ANSIf the objective of a test of
and inherent risk b. Audit risk and control risk c. Inherent risk and control risk d. Control risk and detection risk C - ANSThe AICPA's Auditing Standards Board, in conjunction with the International Federation of Accountants, replaced it's longstanding 10 authoritative criteria formerly known as "GAAS" with 7 "Principles" classified into 4 categories of matters. Which of the following is NOT one of the 4 new categories associated with these 7 principles? a. purpose and premise b. responsibilities c. consistency d. performance e. reporting C - ANSThe current file of the auditor's working papers should generally include: a. a flowchart of the accounting system b. organization charts c. a copy of the financial statements d. copies of bond and note indentures C - ANSThe primary objective of final analytical procedures is to: a. obtain evidence from details tested to corroborate particular assertions b. identify areas that represent specific risks relevant to the audit c. assist the auditor in assessing the validity of the conclusions reached on the audit d. satisfy doubts when questions arise about an entity's ability to continue in existence C - ANSThe substantive analytical procedure known as trend analysis is best described by: a. the comparison, across time or to a benchmark, of relationships between financial statement accounts or between an account and nonfinancial data b. development of a model to form an expectation using financial
data, nonfinancial data, or both to test account balances or changes in account balances between accounting periods c. the examination of changes in an account over time d. comparison of common-size financial statements over time C - ANSTracing copies of sales invoices to shipping documents will provide evidence that all: a. shipments to customers were billed b. accounts receivable ledger is complete c. billed sales were shipped d. shipments to customers were recorded as receivables C - ANSUnder the SEC's rules regarding independence, which of the following must a public company ("registrants") disclose? a. only fees for the external audit b. only fees for internal and external audit services provided by the audit firm c. fees for the external audit, audit-related fees, tax fees, and fees for other nonaudit services performed by the audit firm d. only fees for systems implementation and design and nonaudit services performed by the audit firm C - ANSUpon receipt of customers' checks in the mailroom, a responsible employee should prepare a listing of remittances that is forwarded to the cashier. A copy of the listing should be sent to the: a. entity's bank to compare the listing with the cahsier's deposit slip b. treasurer to compare the listing with the monthly bank statement c. A/R bookkeeper to update the subsidiary A/R records d. internal auditor to investigate the listing for unusual transactions C - ANSWhen is a duty to
