AUD Flashcards
What is the primary duty of an auditor?
To provide users of financial information with REASONABLE ASSURANCE that the financial statements are not materially misstated.
What is the auditor’s responsibility for detecting theft or fraud?
Auditors are not responsible for detecting theft or fraud.
Instead- they are responsible for providing REASONABLE ASSURANCE that the financial statements are not materially misstated.
When should an auditor be hired in relation to the balance sheet date for optimum audit planning and efficiency?
The earlier the auditor is hired- the better for audit planning and efficiency.
When can audit procedures be performed at interim dates?
If Control Risk for the accounts and/or transactions is low- audit procedures can be performed at interim dates.
The auditor then reviews changes in the balances at year-end.
When can an auditor accept an engagement offered after the year is already closed?
The auditor can take the engagement if they are able to overcome the limitations of the engagement.
For what does an auditor use professional skepticism?
To plan the scope of the audit
To plan the objectives of the audit
How can analytical procedures be performed in audit planning?
The auditor can compare actual versus forecasted numbers.
What must an auditor have in order to discuss issues relating to a predecessor auditor’s work?
If issues relating to predecessor auditor’s work on previous Financial Statements come up during the current audit- Auditor must have client’s permission to discuss the issue.
What questions must an auditor ask with respect to procedures carried out by assistants?
Were they adequately performed? (Review the working papers)
Are the results consistent with the audit report?
How is audit strategy mapped out?
Auditor determines what the reporting objectives are.
Auditor determines the scope of the audit.
Describe the key components of maintaining auditor independence.
Auditor must be independent in fact and appearance
Honesty
No direct financial interest
No indirect material financial interest
Describe Due Professional Care
Technical abilities mirror those held by peers in the profession
Follow GAAS Standards
Obtain a Reasonable Level of Assurance
Maintain Reasonable Level of Skepticism
Supervise Audit Staff
Review judgment at every level
What should an auditor do prior to accepting an audit engagement?
Review the previous financial statements
Speak to third parties
Contact predecessor auditor to evaluate whether engagement should be accepted (must have client permission)
What questions should be asked by an auditor prior to taking an engagement?
Note: must have permission of client to contact predecessor auditor (no permission = no engagement)
Why the Auditor Change?
Any Serious Discussions with Audit Committee?
How is Management Integrity? Disagreements?
How was Internal Control?
Understand Industry or Be Willing to Learn
Consider Scope Limitation - Limited evidence available = no engagement
What should be included in an audit engagement agreement?
Note: must be written
Objectives of Engagement
Limitations of Engagement
Responsibilities of Management - Provide written assertions
Responsibilities of Auditor - Limited error/fraud responsibility
Expectations of Access to Records
Financial Statements (and Disclosures) are Management’s Responsibility
Compliance with Laws
Internal Control
What is management’s responsibility with respect to the financial statements?
Management is responsible for financial statements and adequacy of disclosures.
Presentation & Disclosure
Existence (Tests Overstatements)
Rights & Obligations
Completeness (Tests Understatements)
Valuation & Allocation
What is the purpose of the Audit Committee?
Responsible for Hiring Auditor
Oversees Internal Control
Must Agree with Auditor on: Responsibility of the Parties- Audit Fee- Timing of the Audit- Audit Plan
Acts as Liaison Between Auditor and the Board
Auditor Communicates Concerns about: Internal Control Deficiencies- Errors- Fraud- Illegal Activities
How is Audit Risk calculated?
Inherent Risk x Control Risk x Detection Risk
Risk that material mistakes- errors- omissions- or fraud will result in an inaccurate audit report
Based on Auditor Judgment
Measured in both Qualitative and Quantitative
Describe Control Risk
Risk that internal control will not detect error or fraud
Auditor cannot control this.
Describe Inherent Risk.
Which transactions have a higher level of risk?
Auditor cannot control
Describe Detection Risk.
Will the auditor fail to detect a material misstatement?
Auditor CAN control
Do testing at year-end
Increase substantive testing
Run more effective tests
What responses should an auditor take based on different levels of acceptable detection risk (DR)? What type of tests should be performed?
Less Acceptable DR = Run More Substantive Tests
More Acceptable DR = Run Less Substantive Tests
More Substantive Tests (DR down) = Less Audit Risk; (AR = IR x CR x DR)
Less Substantive Tests (DR up) = More Audit Risk; (AR = IR x CR x DR)
What are quantitative measurements versus non-quantitative measurements with respect to risk?
Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of percentages
Non-Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of acceptable ranges
Whose responsibility is it to FIND and PREVENT fraud?
It is Management’s responsibility.
What is the auditor’s responsibility with respect to fraud and illegal acts?
Assess the RISK that such things will lead to material misstatements
Design the audit to provide reasonable assurance against fraud- illegal acts that directly and materially affect the financial statements
Report ALL management fraud to the audit committee (minor fraud by low-level employees not reported to committee)
Perform required inquiries and procedures (management inquiries- analytical procedures- discussions with audit personnel about fraud)
What are the three factors that affect/influence fraud?
Fraud is born out of:
Rationalization
Incentive
Opportunity
(RIO)
What is the difference between fraud and errors?
Errors are unintentional- fraud is intentional.
What red flags may indicate higher risk in an audit?
Management compensation tied to stock
Aggressive financial forecasting
Former auditor disagreed with Management
Records not available for audit
Current audit procedures may need to be reconsidered if red flags exist.
Describe the characteristics of a Fraud Risk Factor.
Has been observed in similar situations
Does NOT necessarily mean that there is a material weakness in internal control
Leads to an auditor taking action
What does an examination of internal control accomplish with respect to illegal acts?
Internal control analysis can result in the conclusion that IC is weak- but probably won’t identify illegal acts
What is the purpose of adjusting audit procedures in light of fraud risk factors identified during an audit?
Strives to make audit engagement procedures less patterned and predictable
Re-evaluates management’s application of accounting procedures
Finds and assigns audit personnel with relevant skills in this area
What should be documented with respect to fraud risk factors in an audit?
Any fraud risks identified that could lead to material misstatement
Audit procedures performed to assess risks
Nature of communication made to audit committee and company management
Disclosure to third parties regarding fraud not normally the auditor’s responsibility
Fraud by management should normally be reported to the audit committee- NOT the SEC.
What was the effect of the SOX Act of 2002?
Created PCAOB
Designates Officer responsibility for internal control
Must disclose significant internal control weaknesses to auditor and audit committee
Must disclose any level of fraud discovered by employees with internal control responsibilities
What is the Hierarchy of Authoritative Literature?
- Statements on Auditing Standards (SAS)
- Auditing Interpretations- AICPA Guides & SOPs
- Industry Articles (no authority)
What quality control activities are undertaken by CPA firms with audit practices?
Firm Leadership exhibits quality and leads by example and sets the tone for the organization
Firm should Monitor and document that its policies and procedures are being followed
Firm should have Relevant Ethical Requirements
Acceptance and continuance of client engagements should continue to be evaluated for client integrity- auditor competency- and legality
Firm should have competent and ethical personnel
Firm engagements are performed- supervised- and reviewed in accordance with professional standards and regulations.
Which literature governs Compilation services?
SSARS - Statements on Standards for Accounting and Review Services
These govern reporting for non-public entities only
What is the independence requirement for Compilations?
Independence NOT required for Compilations
No Internal Control work allowed
No assurance given
What type of assurance is provided by a Compilation?
Compilations are not an assurance service. No assurance is provided.
What type of assurance is provided by Review services?
Reviews provide NEGATIVE assurance.
What is the independence requirement for a Review?
Reviews require independence.
No Internal Control work allowed
Performs analytical procedures
No material indirect financial interest allowed
No immaterial direct financial interest allowed
For compilations and reviews- what knowledge must a service provider have?
Must have an understanding of the client industry.
What are attestation services?
CPA expresses a conclusion about an assertion - Compliance with laws
NOT considered a Consulting engagement
Independence Required
What is the independence requirement for consulting services?
Independence is not required for consulting services.
Describe the limitations on Prospective Financial Statements?
Report is restricted to specified users.
Agreed-upon procedures are implemented.
What is the role of the Group Engagement Team?
Develop Audit Strategy; Communicate with Component Auditors; Perform work on the Consolidation Process; Evaluate Audit Conclusions; Understand work of Component Auditors;
Who is on the Group Engagement Team?
Firm Partners; Group Engagement Partner; Audit Staff
Who establishes the Materiality threshold for the Component Auditor?
The Group Engagement Team; The Materiality threshold must be lower than the Group Materiality threshold
What is the Group Engagement Partner responsible for?
Group Audit Engagement Direction - Supervision - Performance and the Audit Report
What is the role of a Component Auditor
Audit a component of the entity
What should the Group Engagement Team do if a Component Auditor audits a Significant Component due to Financial Materiality?
Audit the Financial Information
What should the Group Engagement Team do if a Component Auditor audits a Significant Component due to Risk of Material Misstatement?
Perform Audit Procedures
What should the Group Engagement Team do if a Component Auditor audits a Non-Significant Component?
Analytical Procedures performed at Group Level
Why does an Auditor do if they suspect legal proceedings could contribute to a Material Misstagement?
Contact Client external counsel through a Letter of Inquiry
https://www.cwu.edu/~atkinsom/cpaindex.htm
1 - AUDIT
An auditor confirms a representative number of A/R and investigates respondents exceptions and comments. By this procedure the auditor would be most likely to learn which of the following?
a) One of the cashiers has been engaged in lapping.
b) One of the sales clerks has not been preparing charge slips for credit sales to family and friends.
c) The EDP control clerk has been removing all sales invoices applicable to his account from the data file.
d) The credit manager has misappropriated remittances from customers whose accounts have been written-off.
A
2 - AUDIT
Customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?
a) Examine shipping documents.
b) Review collections during the year being examined.
c) Intensify the study of the client’s internal control system with respect to receivables.
d) Increase the balance in the accounts receivable allowance (contra) account.
A
3 - AUDIT
To determine that sales transactions have been recorded in the proper accounting period, the auditor performs a cut-off review. Which of the following best describes the overall approach used when performing a cut-off review?
a) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period.
b) Confirm year-end transactions with regular customers.
c) Examine cash receipts in the subsequent period.
d) Analyze transactions occurring within a few days before and after year-end.
D
4 - AUDIT The confirmation of the client's trade accounts receivable is a means of obtaining evidential matter and is specifically considered to be generally accepted auditing a) Principle. c) Procedure. b) Standard. d) Practice.
C
5 - AUDIT
Approximately 95% of returned accounts receivable confirmations indicated that the customer owed a smaller balance than the amount confirmed. This might be explained by the fact that
a) The cash receipts journal was held open after year-end.
b) There is a large number of unrecorded liabilities.
c) The sales journal was closed prior to year end.
d) The sales journal was held open after year-end.
D
6 - AUDIT
Which of the following is not a principal objective of the auditor in the examination of revenues?
a) To verify cash deposited during the year.
b) To evaluate internal control, with particular emphasis on the use of accrual accounting to record revenue.
c) To verify that earned revenue has been recorded, and recorded revenue has been earned.
d) To identify and interpret significant trends and variations in the amounts of various categories of revenue.
A
7 - AUDIT
Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?
a) Compare shipping documents with sales records.
b) Apply gross profit rates to inventory disposed of during the period.
c) Trace payments received subsequent to the balance sheet date.
d) Send accounts receivable confirmation requests.
A
8 - AUDIT
If accounts receivable turned over 7.1 times in 1979 as compared to only 5.6 times in 1980, it is possible that there were
a) Unrecorded credit sales in 1980.
b) Unrecorded cash receipts in 1979.
c) More thorough credit investigations made by the company late in 1979.
d) Fictitious sales in 1980.
D
9 - AUDIT
Lapping would most likely be detected by
a) Examination of canceled checks clearing in the bank cut-off period.
b) Confirming year-end bank balances.
c) Preparing a schedule of interbank transfers.
d) Investigating responses to accounts receivable confirmations.
D
10 - AUDIT
When there are a large number of relatively small account balances, negative confirmation of A/R is feasible if I/C is
a) Strong, and the individuals receiving the confirmation requests are unlikely to give them adequate consideration.
b) Weak, and the individuals receiving the confirmation requests are likely to give them adequate consideration.
c) Weak, and the individuals receiving the confirmation requests are unlikely to give them adequate consideration
d) Strong, and the individuals receiving the confirmation requests are likely to give them adequate consideration.
D
11 - AUDIT
An examination of the A/P account is ordinarily not designed to
a) Detect accounts payable which are substantially past due.
b) Verify that accounts payable were properly authorized.
c) Ascertain the reasonableness of recorded liabilities.
d) Determine that all existing liabilities at B/S date are recorded.
B
12 - AUDIT When title to merchandise in transit has passed to the audit client, the auditor engaged in the performance of a purchase cutoff will encounter the greatest difficulty in gaining assurance with respect to the a) Quantity. b) Quality c) Price. d) Terms.
B
13 - AUDIT
Auditor confirmation of A/P balances may not be necessary because
a) This is a duplication of cutoff tests.
b) A/P balances may not be paid before the audit is completed.
c) Correspondence with the audit client’s attorney will reveal all legal action by vendors for non-payment.
d) There is likely to be other reliable external evidence available to support the balances.
D
14 - AUDIT
Which of the following would detect an understatement of a purchase discount?
a) Verify footing and crossfooting of purchases and disbursements.
b) Compare purchase invoice terms with disbursement records and checks.
c) Compare approved purchase orders to receiving reports.
d) Verify the receipt of items ordered and invoiced.
B
15 - AUDIT
Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?
a) Review composition of authenticated deposit slips.
b) Review subsequent bank statements and canceled checks received directly from the bank.
c) Prepare a schedule of bank transfers from the client’s books.
d) Prepare year-end bank reconciliations.
B
17 - AUDIT
When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that
a) All goods purchased before year-end are received before the physical inventory count.
b) No goods held on consignment for customers are included in the inventory balance.
c) No goods observed during the physical count are pledged or sold.
d) All goods owned at year-end are included in the inventory balance.
D
18 - AUDIT
On receiving the bank cutoff statement, the auditor should trace
a) Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.
b) Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
c) Deposits listed on the cutoff statement to deposits in the cash receipts journal.
d) Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation.
B
19 - AUDIT
An auditor ordinarily should send a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance, because this procedure
a) Provides for confirmation regarding compensating balance arrangements.
b) Detects kiting activities that may otherwise not be discovered.
c) Seeks information about indebtedness to the bank.
d) Verifies securities held by the bank in safekeeping.
C
20 - AUDIT
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities at year-end?
a) Examine a sample of invoices dated a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded.
b) Examine a sample of cash disbursements in the period subsequent to year-end.
c) Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of A/P.
d) Examine unusual relationships between monthly accounts payable balances and recorded purchases.
B
21 - AUDIT
Instead of taking a physical count on the balance sheet date, the client may take physical counts prior to the year-end if internal controls are adequate and
a) Computerized records of perpetual inventory are maintained.
b) Inventory is slow-moving.
c) EDP error reports are generated for missing prenumbered inventory tickets.
d) Obsolete inventory items are segregated and excluded.
A
22 - AUDIT
After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items
a) Included in the listing have been counted.
b) Represented by inventory tags are included in the listing.
c) Included in the listing are represented by inventory tags.
d) Represented by inventory tags are bona fide.
B
23 - AUDIT In verifying debits to perpetual inventory records of a non-manufacturing company, the auditor would investigate the a) Purchase journal. b) Purchase requisitions. c) Purchase orders. d) Vendors invoices.
D
24 - AUDIT An auditor would be most likely to learn of slow-moving inventory through a) Inquiry of sales personnel. b) Inquiry of stores' personnel. c) Purchase orders. d) Review of perpetual inv. records.
D
25 - AUDIT A client's physical count of inventories was higher than the inventory quantities per the perpetual records. This situation could be the results of the failure to record a) Sales. b) Sales Discounts. c) Purchases. d) Purchase returns.
C
26 - AUDIT
A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that
a) Only bona fide employees worked and their pay was properly computed.
b) Jobs on which employees worked were charged with the appropriate labor cost.
c) Internal controls relating to payroll disbursements are operating effectively.
d) All employees worked the number of hours used to compute their pay.
D
27 - AUDIT
A bookkeeper perpetrated a theft by preparing erroneous W-2 forms. The bookkeeper’s FICA withheld was overstated by $500.00 and the FICA withheld from all other employees was understated. Which of the following is an audit procedure which would detect such a fraud?
a) Multiplication of the applicable rate by the individual gross taxable earnings.
b) Utilizing form W-4 and withholding charts to determine whether deductions authorized per pay period agree with amounts deducted per pay period.
c) Footing and crossfooting of the payroll register followed by tracing postings to the general ledger.
d) Vouching canceled checks to federal tax forms 941.
A
28 - AUDIT
In testing the payroll of a large company, the auditor wants to establish that the individuals included in a sample actually were employees of the company during the period under review. What will be the best source to determine this?
a) Telephone contacts with the employees.
b) Tracing from the payroll register to the employees’ earnings records.
c) Confirmation with the union or other independent organizations.
d) Examination of personnel department records.
D
29 - AUDIT
A surprise observation by an auditor of a client’s regular distribution of payroll checks is primarily designed to satisfy the auditor that
a) All unclaimed payroll checks are properly returned to the cashier.
b) The paymaster is not involved in the payroll distribution.
c) All employees have in their possession proper employee ID.
d) Names on the company payroll are those of bona fide employees presently on the job.
D
30 - AUDIT
An auditor decides that it is important and necessary to observe a client’s distribution of payroll checks on a particular audit. The client organization is so large that the auditor cannot conveniently observe the distribution of the entire payroll. In these circumstances, which of the following is most acceptable to the auditor?
a) Observation should be limited to one or more selected departments.
b) Observation should be made for all departments regardless of the inconvenience.
c) Observation should be eliminated and other alternative auditing procedures should be utilized to obtain satisfaction.
d) Observation should be limited to those departments where employees are easily available.
A
31 - AUDIT
In an audit of inventories, an auditor would least likely verify that
a) All inventory owned by the clients is on hand at the time of the count.
b) The client has used proper inventory pricing.
c) The financial statement presentation of inventories is appropriate.
d) Damaged goods and obsolete items have been properly accounted for.
A
32 - AUDIT
When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection. The policy’s absence most likely indicates the possibility of a(an)
a) Insurance premium due but not recorded.
b) Deficiency in the coinsurance provision.
c) Lien on the plant equipment.
d) Understatement of insurance expense.
C
33 - AUDIT
A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably
a) Insist that the client perform physical counts of inventory items several times during the year.
b) Apply gross profit tests to ascertain the reasonableness of the physical counts.
c) Increase the extent of tests of controls of the inventory cycle.
d) Request the client to schedule the physical inventory count at the end of the year.
D
34 - AUDIT
An auditor should trace bank transfers for the last part of the audit period and first part of the subsequent period to detect whether
a) The cash receipts journal was held open for a few days after the year end.
b) The last checks recorded before the year end were actually mailed by the year end.
c) Cash balances were overstated because of kiting.
d) Any unusual payments to or receipts from related parties occurred.
C
35 - AUDIT
Periodic or cycle counts of selected inventory times are made at various times during the year rather than single inventory count at year end. Which of the following is necessary if the auditor plans to observe inventories at interim dates?
a) Complete recounts by independent teams are performed.
b) Perpetual inventory records are maintained.
c) Unit cost records are integrated with production accounting records.
d) Inventory balances are rarely at low levels.
B
36 - AUDIT
An auditor most likely would extend substantive tests of payroll when
a) Payroll is extensively audited by the state government.
b) Payroll expense is substantially higher than in the prior year.
c) Overpayments are discovered in performing tests of details.
d) Employees complain to management about too much overtime.
C
1 - INTRO TO AUDITING Auditing standards differ from auditing procedures in that procedures relate to a) Measure of performance. b) Audit principles. c) Acts to be performed. d) Audit judgments.
C
2 - INTRO TO AUDITING
The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the
a) Validity of the income statement.
b) Determination of fair presentation of financial statements.
c) Improvement of accounting systems.
d) Detection of irregularities.
D
3 - INTRO TO AUDITING
The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons having adequate technical training, requires that an auditor have
a) Education and experience in the field of auditing.
b) Ability in the planning and supervision of the audit work.
c) Proficiency in business and financial matters.
d) Knowledge in the areas of financial accounting.
A
4 - INTRO TO AUDITING
The first standard of field work, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
a) Early appointment of the auditor is advantageous to the auditor and the client.
b) Acceptance of an audit engagement after the close of the client’s fiscal year is generally not permissible.
c) Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion.
d) Performance of substantial parts of the examination is necessary at interim dates.
A
5 - INTRO TO AUDITING
An independent audit aids in the communication of economic data because the audit
a) Assures the reader of financial statements that any fraudulent activity has been corrected.
b) Confirms the accuracy of management’s financial representations.
c) Lends credibility to the financial statements.
d) Guarantees that financial data are fairly presented.
C
6 - INTRO TO AUDITING
A CPA is most likely to refer to one or more of the three general auditing standards in determining
a) Whether the CPA should undertake an audit engagement.
b) The nature of the CPA’s report qualification.
c) The scope of the CPA’s auditing procedures.
d) Requirements for the review of internal control.
A
7 - INTRO TO AUDITING
The first standard of field work recognizes that early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?
a) The auditor will be able to complete the audit work in less time.
b) The auditor will be able to perform the examination more efficiently.
c) The auditor will be able to better plan for the observation of the physical inventories.
d) The auditor will be able to plan the audit work so that it may be done expeditiously.
A
8 - INTRO TO AUDITING
Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.
d) Poorly designed internal control may exist.
B
9 - INTRO TO AUDITING
What is the general character of the three generally accepted auditing standard classified as general standards?
a) Criteria for content of the F/S and the auditor’s report.
b) Criteria of audit planning and supervision and evidence gathering.
c) The need to maintain an independence in mental attitude in all matters relating to the assignments.
d) Criteria for competence, independence and professional care of individuals performing the audit.
D
10 - INTRO TO AUDITING
A CPA, while performing an audit, strives to achieve independence in appearance in order to
a) Reduce risk and liability.
b) Comply with the generally accepted standards of field work.
c) Become independent in fact.
d) Maintain public confidence in the profession.
D
11 - INTRO TO AUDITING
The “generally accepted auditing standards” are standards which
a) Are sufficiently established so that independent auditors generally agree on their existence.
b) Are generally accepted based upon a pronouncement of the Financial Accounting Standards Board.
c) Are generally accepted in response to the changing needs of the business community.
d) Are generally accepted as a consequence of approval of the AICPA membership.
D
12 - INTRO TO AUDITING
The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on
a) The competence of management in accounting matters which is implied by whether the opinion is qualified or not.
b) The conformity of the statements with the book of account.
c) The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year.
d) The fairness with which the financial statements present cash flows and results of operations.
D
13 - INTRO TO AUDITING The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the a) Partner assigned to the engagement. b) Auditor in charge of field work. c) Management of the company. d) Securities & Exchange Commission.
C
14 - INTRO TO AUDITING
A CPA should comply with applicable GAAS on every engagement
a) Without exception.
b) Except in examinations that result in a qualified report.
c) Except in engagements where the CPA is associated with unaudited F/S.
d) Except in examinations of interim financial statements.
A
15 - INTRO TO AUDITING
Which of the following best describes what is meant by GAAS?
a) Audit objectives generally determined on audit engagements.
b) Acts to be performed by the auditor.
c) Measures of the quality of the auditor’s performance.
d) Procedures to be used to gather evidence to support financial statements.
C
16 - INTRO TO AUDITING
The first general standard recognizes that regardless of how capable an individual may be in other fields, the individual can not meet the requirements of the auditing standards without the proper
a) Business and finance course.
b) Quality control and peer review.
c) Education & experience in auditing.
d) Supervision and review skills.
C
17 - INTRO TO AUDITING
The first general standard requires that the examination of F/S is to be performed by a person having adequate technical training and
a) Independence with respect to the F/S and supplementary disclosures.
b) Exercising professional care as judged by peer reviewers.
c) Proficiency as an auditor which likely has been acquired from previous experience.
d) Objectivity as an auditor as verified by proper supervision.
C
18 - INTRO TO AUDITING
Due professional care requires
a) A critical review of the work done at every level of supervision.
b) The examination of all corroborating evidence available.
c) The exercise of error free judgment.
d) A study and review of the I/C’s that include tests of controls
A
19 - INTRO TO AUDITING
The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a CPA who undertakes an engagement assumes a duty to perform each audit
a) As a professional possessing the degree of skill commonly possessed by others in the field.
b) In conformity with generally accepted accounting principles.
c) With reasonable diligence and without fault or error.
d) To the satisfaction of governmental agencies and investors who rely upon the audit.
A
20 - INTRO TO AUDITING
According to court decision, GAAS established by the AICPA applies
a) Only to AICPA members.
b) To all CPA’s.
c) Only to those who choose to follow them.
d) Only when conducting audits subject to the AICPA jurisdiction.
B
21 - INTRO TO AUDITING
Which of the following best describes the reason why an independent auditor reports on financial statements?
a) A management fraud may exist and is more likely to be detected by independent auditors.
b) Different interests may exist between the company preparing the statements and the persons using the statements.
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.
d) Poorly designed internal control may exist.
(Yes, this is the same as #8, ask me why!!!)
B
22 - INTRO TO AUDITING
The independent audit is important to readers of F/S because it
a) Determines the future stewardship of the management of the company whose financial statements are audited.
b) Measures and communicates financial and business data in the F/S.
c) Involves the objective examination of, and reporting on, management-prepared statements.
d) Reports on the accuracy of all information in the F/S.
C
23 - INTRO TO AUDITING
Independent auditing can best be described as
a) A branch of accounting.
b) A discipline that attests to the results of accounting and other functional operations and data.
c) A professional activity that measures and communicates financial and business data.
d) A regulatory function that prevents the issuance of improper financial information.
B
24 - INTRO TO AUDITING
What is the meaning of the GAAS that requires the auditor to be independent?
a) The auditor must be without bias with respect to the client under audit.
b) The auditor must adopt a critical attitude during the audit.
c) The auditor’s sole obligation is to third parties.
d) The auditor may have a direct ownership interest in the client’s business if it is not material.
A
25 - INTRO TO AUDITING
The primary purpose of a management advisory services engagement is to help the client
a) Become more profitable by relying upon the CPA’s existing personal knowledge about the client’s business.
b) Improve the use of its capabilities and resources to achieve its objectives.
c) Document and quantify its future plans without impairing the CPA’s objectivity or allowing the CPA to assume the role of management.
d) Obtain benefits that are guaranteed implicitly by the CPA.
B
26 - INTRO TO AUDITING
Operational auditing is primarily oriented toward
a) Future improvements to accomplish the goals of management.
b) The accuracy of data reflected in management’s financial records.
c) The verification that a company’s financial statements are fairly presented.
d) Past protection provided by existing internal control.
A
27 - INTRO TO AUDITING Because an examination i/a/w GAAS is influenced by the possibility of material errors, the auditor should conduct the examination with an attitude of a) Professional responsiveness. b) Conservative advocacy. c) Objective judgment. d) Professional skepticism.
D
28 - INTRO TO AUDITING
The exercise of due professional care requires that an auditor
a) Use error-free judgment.
b) Consider the internal control structure, including tests of controls.
c) Critically review the work done at every level of supervision.
d) Examine all corroborating evidence available.
C
29 - INTRO TO AUDITING
CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that
a) Employees promoted possess the appropriate characteristics to perform competently.
b) Personnel will have the knowledge required to fulfill responsibilities assigned.
c) The extent of supervision and review in a given instance will be appropriate.
d) All of the above are reasons.
B
30 - INTRO TO AUDITING
The least important evidence of a CPA firm’s evaluation of its system of QC would concern the CPA firm’s policies and procedures for
a) Employment (hiring).
b) Confidentiality of audit engagements.
c) Assigning personnel to audit engagements.
d) Determination of audit fees.
D
31 - INTRO TO AUDITING
A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to
a) Enable the auditor to attest to the integrity or reliability of a client.
b) Comply with the quality control standards established by regulatory bodies.
c) Minimize the likelihood of association with clients whose management lacks integrity.
d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.
C
32 - INTRO TO AUDITING
In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to
a) Make inquiries of the proposed client’s legal counsel.
b) Review financial statements of the proposed client.
c) Make inquiries of previous auditors.
d) Review the personnel practices of the proposed client.
D
33 - INTRO TO AUDITING
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
a) Technical training that assures proficiency as an auditor.
b) Professional education that is required in order to perform with due professional care.
c) Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d) Knowledge required in order to perform a peer review.
C
34 - INTRO TO AUDITING In pursuing a CPA firms' quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy? a) Acceptance of client. b) Supervision. c) Independence. d) Monitoring.
C
35 - INTRO TO AUDITING
In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as
a) Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.
b) Prohibiting employees from owning stock of public companies.
c) Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms.
d) Assigning employees who may lack independence to research positions that do not require participation in field audit work.
A
36 - INTRO TO AUDITING Which of the following is an element of quality control? a) Supervision b) Inspection c) Personnel management d) Consultation
C
37 - INTRO TO AUDITING
In connection with the element of monitoring, a CPA firm’s system of quality control should ordinarily provide for the maintenance of
a) A file of minutes of staff meetings.
b) Updated personnel files.
c) Documentation to demonstrate compliance with its policies and procedures.
d) Documentation to demonstrate compliance with peer review directives.
C
38 - INTRO TO AUDITING
One element of the personnel management quality control standard is professional development. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to
a) Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms.
b) Establish, in fact as well as in appearance, that staff accountants are increasing their knowledge of accounting and auditing matters.
c) Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures.
d) Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.
D
