Appendix B Wrong Answers

Question 0

If the auditor’s checking account held at a client financial institution is…

Answer 0

Not an impairment of independence if it is fully insured by

appropriate deposit insurance agency

Question 1

If the auditor is officially appointed stock transfer agent of a client…

Answer 1

The auditor’s independence is impaired since the function of
transfer agent is equivalent to being a member of management

Question 2

Authorization of credit memos by personnel who receive cash…

Answer 2

Presents a situation where those individuals may issue fraudulent
Credit memos an misappropriate cash

And it is unlikely to be detected quickly

Question 3

Overstatement of inventory balances is…

Answer 3

Likely to be detected though an inventory observation

Question 4

In planning an audit an auditor’s knowledge about design of relevant controls is used to…3

Answer 4

1 identify types of potential misstatements

2 consider factors that affect risk of material misstatement

3 design substantive tests

Question 5

During a review of a Nonpublic entity if the accountant discovers a departure from GAAP, the accountant should…

Answer 5

Include a separate paragraph describing the departure

Question 6

An adverse opinion may only be issued…

Answer 6

When an audit is performed, not a review

Question 7

What is the best substantive procedure to confirm that inventories represent items held for sale or use in normal course of business?

2) why?

Answer 7

A review of perpetual inventory records, production records, and purchasing records for indication of current activity

2) will reveal inventory is being sold