Apendix C Wrong Answers Flashcards
An economic downturn would…
Decrease cost of goods sold
When sales managers are recording fraudulent sales to receive larger commissions this would…
Increase sales and accounts receivable
Ultimately decreasing the accounts receivable turnover ratio
What audit procedure is done to test the completeness assertion for accounts payable?
Examine invoices paid subsequent to year end and trace to
subsidiary ledger
What is the CPA’s responsibility when, subsequent to issuing a report on audited financial statements, the CPA discovers that the accounts receivable process omitted a number of accounts, that in aggregate are material?
CPA should assess the importance of the omitted procedures to
audit opinion and attempt to perform omitted/alternative procedures
the CPA’s responsibility when, subsequent to issuing a report on audited financial statements, the CPA discovers that the accounts receivable process omitted a number of accounts, that in aggregate are material. When should this be brought to the attention of the board and audit committee?
Subsequent to attempting to perform alternative procedures
An out of town client taking the audit engagement team out to dinner at a renowned local restaurant is…
Considered a reasonable gift and would not impair objectivity, integrity, or independence with respect to the audit.
An auditor takes the client’s audit committee to Las Vegas for the weekend is…
A costly unreasonable gift
When an accountant compiles projected financial statements, the accountant’s report should include a separate paragraph that…
Describes the limitations on the usefulness of the projection
Hypothetical assumptions are not…
Evaluated in a separate paragraph to the compilation report
What would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?
Inquiry on matters as review of working papers related to opening
Balances and consistency of application of accounting principles
1 Disagreements between predecessor auditor and management as to significant accounting policies and principles
2 the predecessor auditor’s understanding of the reasons for the change of auditors and
3 facts known to the predecessor auditor that might bear on the integrity of management
All relate to a…
Potential successor’s inquiries prior to accepting the engagement
Management assertion regarding account balances…4
1 rights and obligations
2 existence
3 completeness
4 valuation
Information processing is a…
Control activity, not a factor in the control environment
A factor in control environment under the Committee of Sponsoring Organizations’ is…
Management’s philosophy and operating style
Identify the purpose of an auditor designing test of details to ensure sufficient audit evidence 2
1 Test of details are used to limit detection risk
2 and provide assurance at the relevant assertion and account level
