Exam One

Question 1

Which of the following elements of a system of quality control is related to firms receiving independence of confirmations from its professionals with respect to clients

Acceptance and continuous client, relationships, and specific engagements

Engagement performance

Monitoring

Reverent ethical requirements

Answer 1

Relevant ethical requirements

Question 2

Which of the following is most closely related to the responsibility principle?

A the auditor responsibility to issue a report as a result of the examination

B the requirement that auditors gather significant, appropriate evidence upon which two based in opinion on the financial statements

C the auditors compliance with the reverent ethical requirements of independent and due care

D auditor is responsibility to plan the audit and properly supervise assistance

Answer 2

C

Question 3

Kramer, CPA, consulted an independent appraiser regarding the evaluation of fine art for a nonprofit museum. Consultation with the appraiser in this case would.

• be considered as exercising proper due care
• be considered a failure to follow genuinely accepted auditing standards because Kramer should’ve known how to value art before accepting the engagement
• Not be considered a violation of genuinely accepted auditing standards genuinely accepted auditing standard standards does not apply to not for profit entities

-None of the above are correct

Answer 3

Be considered as exercising proper due care

Question 4

Which of the following topics is not addressed in the auditors report for an issuer

• Responsibilities of the auditor and management in the financial reporting process
• Absolute assurance regarding the fairness of the entities financial statements and according with gaap
• a description of an audit engagement
• a summary of the auditor’s opinion of the effectiveness of the entities internal controls over financial recording

Answer 4

B

Question 5

Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material on the statement

A absolute assurance
B professional judgment
C reliability of audit evidence
D reasonable assurance

Answer 5

D

Question 6

Which of the following is most closely related to the relevant of audit evidence

A auditors decide to physically inspect investment securities held by a custodian instead of confirmation from the custodian

B in addition to confirmations of the account receivable, auditors performing analysis of the agent of a account receivable to evaluate the collectibility of the account receivable

C in response to less effective internal control, auditors increase the number of customer accounts receivable confirmation mailed compared to that in the prior year

D because of a large amount of transactions occurring near year end, auditors decide to confirm a larger number of the receivables following year and instead of during the intrum period.

Answer 6

B

Question 7

Which of the following statements is not true with respect to the performance principle?

A auditors are required to prepare a written audit plan during the planning stages of initial audits, but are not required to do so in consulting audits

B audit teams, consider materiality and planning the audit, performing the audit, and evaluating the effect of statements on the entities financial statements

C and assessing the risk of material statement, the audit team considers the effectiveness of the entities, internal controls and preventing and detecting the statements

D audits are required to consider both the relevance and reliability of evidence and evaluating whether the evidence they have gathered as appropriate

Answer 7

A

Question 8

Which of the following is true with respective PCAOB inspections of accounting firms

A all firms performing audits of issues are required to have an annual inspection conducted by PCAOB

B PCAOB inspections review a sample of audit conducted by firms as well as the firm system of quality control

C all results of PCA will be inspections are made available to the public following the inspection

D firm performing audits of 100 or issue where my elect to have a peer review conducted through a ICPA in lieu of PCA you’ll be inspection

Answer 8

B

Question 9

The particular and specialized actions that auditors take to obtain evidence during a specific engagement are known as

Answer 9

Audit procedures

Question 10

Which of the following combination of standard and types of audit are most closely related to the activities of the public company accounting oversight board? PCAOB.

A develop auditing standards for the audit of non-issue
B develop auditing standards for audit of issuers
C develop statements on auditing standards for audit of non-issues
D develop statements on auditing standards of the audits of issuers

Answer 10

B

Question 11

Which of the following best describes the general contents of the first paragraph of the” basis of opinion” section of the auditors report

A a description of audit examination, including the fact that the audit was conducted standards established by PCAOB

B the auditors conclusion with the respect to the fairness of the entities financial statements

C statements, identifying the responsibility of auditors and management in the financial reporting process

D the auditors conclusion with the respect to be effectiveness of the entities internal control over financial reporting

Answer 11

C

Question 12

Which of the following opinions would be issued if auditors believe that the entities financial statements were not presented in conformity with GAAP

Answer 12

Adverse opinion

Question 13

Which of the following principles is most clearly associated with the auditors conclusion as to the fair presentation of the entities financial statements

Answer 13

Reporting principal

Question 14

When initiating communications with the predecessors auditors, prospective auditor should expect

• to take responsibility for obtaining the clients constant for the predecessor to give information about prior audits
• to conduct any of these with the partner and manager in charge of the predecessor’s public accounting firm engagement
• to obtain copies of some or all of the predecessors auditors audit documentation

Answer 14

All

Question 15

Generally accepted auditing standards required the auditors always prepare and use

Answer 15

A written audit plan

Question 16

When planning an audit, which of the following is not a factor that affects auditors decisions about the quantity, type, and content of audit documentation

A the auditors need to document compliance with generally accepted auditing standards

B the auditor judgment about materiality

C the auditor’s judgment about their independence with regard to the client

D the auditors need to verify the existence of new sales contract important for the client’s business

Answer 16

C

Question 17

All documentation shows that detailed evidence and procedures regarding the balance in the accumulated depreciation account for the year under audit will be found in the

Answer 17

Current file audit documentation

Question 18

In auditors permanent file audit documentation will most likely contain

Answer 18

Excerpts of the corporate chart and bylaws

Question 19

Which of the following is not a benefit claimed for the practice of determining materiality in the initial planning stage of an audit

A avoiding the problem of doing two little work (under auditing)

B avoiding the problem of doing more work than necessary (over auditing)

C being able to find the audit work for effectiveness and efficiency

D being able to decide early what type of audit opinion to issue

Answer 19

D

Question 20

Which of the following is an advantage of computer assisted audit techniques

A all the CAAT programs are written in one computer language

B the use of CAT can be substituted for a relatively large part of the required testing

C the use of CAT has reduce the need for the auditor to study input controls for computer related procedures

D the software can be used for audit of clients that are using different computer equipment and file format

Answer 20

D

Question 21

An order engagement letter should normally include, which of the following matters of agreement between the auditor and the client

A methods of statistical sampling the auditor will use

B client representation about availability of all minutes of meetings of the board of directors

C schedules and analysis to be prepared by the client’s employees

D specifications online litigation and process against a client

Answer 21

C

Question 22

When auditing jewelry, Costanza, CPA, was not familiar with the quality and cut of the companies, precious rules in inventory. To adjust the shortcoming, Costanza hired Benny an expert in dual evaluation, to assist an audit specialist for the inventory evaluation. Should Costanza refer to Benny’s work in the audit report?

Answer 22

The auditor report should mention the use of an audit specialist only when the audit specialist is finding affect the auditor’s conclusion

Question 23

Which of the following engagement planning procedures would most likely assist in the auditor and identifying related party transactions before the balance sheet date

A reviewing accounting records for reoccurring transactions, occurring near year end

B scanning the minutes for significant transactions with members of the Board of Directors

C interviewing internal auditors about their reporting responsibilities

D inspecting communications with the client’s legal counsel regarding recorded contingent liabilities

Answer 23

B

Question 24

Which of the following communication is most likely to be written before the balance sheet date

A an engagement letter

B and attorney’s letter regarding contingent liabilities

C a report to the audit committee on the results of testing of internal control over cash receipt receipts

D confirmation letters to vendors, confirming the amount they owe of the client

Answer 24

A

Question 25

Which of the following procedures would most likely be performed during planning? A identifying related parties B reporting internal control deficiencies to the audit committee C surprise, counting the clients petty cash fund D performing a search for unrecorded liabilities

Answer 25

A

Question 26

Prior to accepting a new audit engagement, a public accounting firm should - Attempt to contact the predecessor auditors - Evaluate the integrity of management -Access the firms resources to ensure they are sufficient to provide the firm to accept the engagement

Answer 26

All

Question 27

The audit plan contains

Answer 27

Specifications of procedures that auditors believe appropriate for the financial statements under audit

Question 28

When auditing the existence assertion for an asset, auditors proceeded from the

Answer 28

General ledger back to supporting original transaction documents

Question 29

Confirmation of a account receivable, provide evidence primarily about what to assertions

Answer 29

Existence, rights and obligations

Question 30

When evaluating Weather account estimates made by management are reasonable, the audit team would be most concerned about which of the following Key factors that are consistent with prior periods Assumptions that are similar to industry guidelines Measurements that are objective and not suspectible to bias Evidence of a conservative, systematic bias

Answer 30

D

Question 31

Which of the following would be considered analytical procedure? Projecting the deviation rate of a statistical sample to the population Testing purchasing shipping and receiving cut off activities Reconciling physical counts to perpetual record and general ledge balance Comparing inventory balances to recent health activities

Answer 31

D

Question 32

Which of the following procedures would a CPA most likely perform in planning a financial statement audit? Re calculate the prior years, cruel and deferrals Perform cut off test of cash receipts, and disbursement Make inquiries of the clients lawyers concerning pending litigation Compare financial information with non-financial operating data

Answer 32

D

Question 33

Which of the following statements is correct concerning analytical procedure used in planning and audit engagement A they typically use financial and non-financial data aggregated at a high level B they often replace the test of controls that are performed to access control risk C they often used to develop an auditor preliminary judgment about materiality D that usually involves the comparison of assertion, developed by management to ratio is calculated by an auditor

Answer 33

A

Question 34

The company being audited has an internal auditor who is both competent and objective. The independent auditor wants to assign tasks for the internal auditor to perform. Under the circumstances, the independent auditor may.

Answer 34

Allow the internal auditor to perform certain test of internal controls

Question 35

Which of the following conditions, most likely would post the greatest risk and accepting a new audit engagement There will be a client in post scope limitation Staff will need to be rescheduled to cover this new client The firm will have to hire a specialist in in oneaudit area The clients financial reporting system has been in place for 10 years

Answer 35

A

Question 36

Auditing standards do not require auditors of financial statements to

Answer 36

Report all errors and frauds found to police authorities

Question 37

If sales were overstated by recording a false credit sale at the end of the year, where could you find the false dangling debit?

Answer 37

Accounts receivable

Question 38

One typical characteristic of management fraud is

Answer 38

Victimization of investors through the use of materiality, misleading financial statements

Question 39

What circumstance would most likely cause an audit team to perform extended procedure?

Answer 39

The client made several large adjustments at or near year end

Question 40

The likelihood that material statements may have entered the accounting system, and not been detected and corrected by the clients internal control is referred to as

Answer 40

Risk of material misstatement

Question 42

The risk of material mis statement is composed of which audit risk components

Answer 42

Inherit risk and control risk

Question 43

The risk that auditors own testing procedures will lead to decision that material statement do not exist in the financial statements. When in fact such statements do.

Answer 43

Detection risk

Question 44

If test of controls induce the audit team to change the assessed level. Of control risk for fixed assets from low to high and audit risk and inherit risk remain constant, the acceptable level of detention risk is most likely.

Answer 44

Change from high to moderate

Question 45

Which of the following is specific audit procedure that would be completed in response to a particular fraud risk in the account balance or class of transactions

Answer 45

Performing procedures, such as inventory observation, and cash counts on surprise or unannounced bias

Question 46

Analytical procedure procedures are generally used to produce evidence from

Answer 46

Relationships among current financial balances, and prior balances, forecasts, and non-financial data

Question 47

Analytical procedures can be used on what following ways - As a means of overall review near the end of the audit - As “ attention directing” methods when planning an audit at the beginning - As substantive audit procedures to obtain evidence during an audit

Answer 47

All

Question 48

Analytical procedure is used when applying an audit should concentrate on

Answer 48

Accounts and relationships that can represent specific potential problems and risks and the financial statement

Question 49

When a company that sells its products with a positive gross profit increases it cells by 15% and its cost of good sold by 7%, the cost of good sold ratio well

Answer 49

Decrease

Question 50

Audited and not responsible for accounting estimates with respect to

Answer 50

Making the estimate

Question 51

An audit strategy memorandum contains

Answer 51

Specifications of the procedure they auditors believe appropriate for the financial statements under audit

Question 52

It is acceptable under generally accepted auditing standards for an audit team to

Answer 52

Asset risks of material statement at high and achieve an acceptably low audit risk by performing extensive substantive tests

Question 53

Under the private securities litigation reform act, independent auditors are required to first

Answer 53

Report the SEC to all instances of noncompliance with the act they believe they have a material effect on financial statements if the Board of Directors does not first report on the SEC

Question 54

When evaluating whether the accounting estimates made by management are reasonable, the auditors would be most interested in

Answer 54

Evidence of a conservative, systematic bias

Question 55

An audit committee is

Answer 55

Composed of members of your companies, board of directors who are not involved in the day-to-day operations of the company

Question 56

Auditors perform analytical procedures in the planning stages of an audit for the purpose of

Answer 56

Identify unusual conditions that deserve more auditing effort

Question 57

A primary objective of analytical procedures used in the final review stage of an audit is to

Answer 57

Assist the auditor in evaluating the overall financial statement presentation

Question 58

If an authors and political procedure indicates a lower than expected, return on an equity method investment. The situation most likely could’ve been caused by.

Answer 58

An error and recording amortization of the excess of the investors costs over the investment underlying book value

Question 59

Which of the following risk types increase when an auditor performed substantive and analytical audit procedures for financial statements accounts at an interim date

Answer 59

Detection

Question 60

Which of the following matters relating to an entities operations would an auditor most likely consider an inherent risk factor in planning an audit

Answer 60

The entity enters into significant derivatives transaction as hedges

Question 61

One of the primary objective of the fraud brainstorm session

Answer 61

Access the potential material statement due to fraud

Question 62

Which of the following would be considered assurance engagement? Given an opinion on a prize promoter claims about the amount of sweepstake prizes awarded in the past Giving an opinion on the conformity of the financial statement of a university with generally accepted accounting principle Given an opinion on the fair presentation of a newspaper circulation data Giving assurance about the average drive length achieved by golfers with a clients golf ball what the hell was that?

Answer 62

All of the above

Question 63

It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that A potential conflict of interest always exists between the auditor and the management of the enterprise under audit An audit of financial statements, the auditor acts exclusively in the capacity of an auditor The professional status of the independent auditor imposes the commencement , professional obligation My financial statements and financial data are verifiable

Answer 63

A

Question 64

NN at station engagement, a CPA practitioner is engaged to Compile companies’s financial forecast based on management assumptions without expressing any form of assurance Prepare written report containing a conclusion about the reliability of the management assertion Prepare a tax return using information to CPA has not audited or reviewed Give expert testimony core on particular facts of a corporate income tax controversy

Answer 64

B

Question 65

A determination of cost savings obtained by outsourcing cafeteria service is not likely to be an objective of

Answer 65

Operational auditing

Question 66

The primary difference between operational auditing and financial auditing is the operational auditing

Answer 66

Operational auditor is seeking to help management use resources in the most effective possible manner

Question 67

According to the AICPA, the purpose of an audit of financial statement is to

Answer 67

Enhance the degree of confidence that intend users can place on the financial statements

Question 68

Bankers who are processing loan application applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because

Answer 68

They genuinely see a potential conflict of interest between company managers who want to get loans and the banks needs for reliable financial statements

Question 69

The Sarbanes-Oxley active 2002 prohibits public county firms from providing, which of the following services to an audit client Bookkeeping , internal auditing services, evaluation services

Answer 69

All

Question 70

Independent auditors of financial statements perform audits that reduce

Answer 70

Information risk faced by investors

Question 71

The primary objective of compliance auditing is to

Answer 71

Determine whether a client personnel or are following laws, rules, regulations, and policies

Question 72

The organization primary responsibility for ensuring that public officials are using public funds, efficiently, economically, and efficiently is

Answer 72

GAO, government accountability office

Question 73

Performance audits usually include

Answer 73

Economy and efficiency audit, program audit

Question 74

The objective in an auditor review of credit ratings of a client customers is to obtain evidence related to management assertion about Completeness Existence Rights and obligations Valuation or allocation

Answer 74

Evaluation or allocation

Question 75

Jones, CPA, is planning an audit of Rhonda’s company. Rhonda verbally asserts to Jones at all expenses for the year have been recorded in the account. Rhonda’s representation in this regard.

Answer 75

Is not considered sufficient bias for Jones to conclude that all expenses has been recorded

Question 76

When auditing merchandise inventory at year end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical in inventory cap. The audit procedure provides assurance about which management assertion. Cutoff, existence, valuation or allocation, rights, and obligations

Answer 76

Cut off

Question 77

When auditing merchandise in inventory urine, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the clients ending inventory balance. The audit procedure provide provides assurance about which management assertion. Completeness, existence, evaluation or allocation, rights and obligations

Answer 77

Rights and obligations

Question 78

When an auditor reviews additions to the equipment (fixed assets) account to make sure that fixed assets are not over overstated, she wants to obtain evidence as to management assertion regarding Completeness, existence, writings, and obligations, evaluation or allocation

Answer 78

Existence

Question 79

The sarbanes oxley act 2002 genuinely prohibits public accounting firms from Auditing the firms own work on an audit client Acting in a managerial decision-making role for an audit client Providing tax consulting to an audit client without audit committee approval

Answer 79

All

Question 80

Substantial equivalency refers to

Answer 80

Permitting a CPA to practice in another state with having to obtain a license in that state

Question 81

What describes the relationship between auditing and attestation and engagement

Answer 81

Auditing is a subset of adaptation engagement that focuses on certification of financial statements

Question 82

During an audit of a company, cash balance on a company was operations, and only one country, the auditors most concerned with which management assertion Existence, occurrence, rights, and obligations, evaluation or allocation

Answer 82

Existence

Question 83

When auditing an investment in a publicly traded company, auditor, most likely would seek to conduct which audit procedure to help satisfy the evaluation assertion Inspect the stock certificate evidence, the investment Examine the auditor financial statement of the investee company Review the brokers advise or cancel check for the investment acquisition Obtain market quotations from the Wall Street Journal or another independent source

Answer 83

D

Question 84

Cut off test designed to detect valid sales that occurred before the end of the year, but have been reported in the subsequent year would provide assurance about the management assertion of Presentation and disclosure Complete Rights an obligation Existence

Answer 84

Complete

Question 85

Which of the following audit procedures probably would provide the most reliable evidence related to the entities assertion of rights and obligations for the inventory account Trace test counts noted during physical count to summarization of quantities Inspect agreement for evidence of inventory held on consignment Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales Inspect the open purchase of auto file for significant commitment to consider for disclosure

Answer 85

B

Question 86

In auditing accursed liabilities on account on the balance sheet, in auditors procedures, most likely would focus primarily on management assertion of Existence or occurrence, completeness, presentation and disclosure, valuation or allocation

Answer 86

B

Question 87

During an audit of entity, stockholders equity accounts, the auditor determined whether there are restrictions on retained earnings, resulting from lungs, agreements, or state law. The audit procedure most likely is intended to verify management assertion of. Completeness, existence, or occurrence, evaluation or allocation, presentation and disclosure

Answer 87

D

Question 88

When auditing the account receivable account on the balance sheet, and auditors procedure most likely would focus primarily on the management assertion of Existence, completeness, rights, and obligations, presentation and disclosure

Answer 88

A

Question 89

An auditor selected items for test counts from the clients warehouse during the physical inventory observation. The auditor, then trace these test counts into the detailed inventory listing that agreed to the financial statements. The procedure most likely provided evidence concerning management assertion of. Rights and obligations, existence, completeness, evaluation or allocation

Answer 89

Complete

Question 90

Which of the following would best describe an attest engagement Engagement to implement an erp system Engagement to develop a more efficient payroll process And engagement to assess the effectiveness of an internal control system Engagement to assist the client in IRS audit

Answer 90

C

Question 91

An auditor seeks to test the accuracy of the amount recorded as revenue on the contract with a customer under Asc 606. Which PCA will be assertion is most likely being tested. Rights and obligations, presentation and disclosure, completeness, evaluation or allocation

Answer 91

Valuation or allocation

Question 92

In testing the Goodwill, add an audit. Client in the retail industry and auditor may seek to determine whether the account balance has been impaired. Such impairment procedures would be designed to test which financial assertion. Existence, completeness, presentation and disclosure, valuation or allocation

Answer 92

Valuation or allocation

Question 93

In testing inventory at an audit client in the retail industry, you know that some of the inventory is contracted to be held on consignment. As a result, which financial statement assertion is now relevant. Rights and obligation, completeness, existence, or occurrence, evaluation or allocation

Answer 93

Rights and obligations

Question 94

Which of the following categories of principle is most closely related to gathering audit evidence? Performance, reasonable assurance, reporting, responsibilities

Answer 94

Performance

Question 95

What is not related to ethical requirements of an auditor

Answer 95

Professional judgment

Question 96

One of an accounting firms, basic objectives is to provide professional service services that confirm to professional standards. Reasonable assurance of achieving this object can be maintained by following. Standards within the system of quality control Genuinely accepted the accounting principles International auditing standards Generally accepted auditing standards

Answer 96

A

Question 97

Which of the following best demonstrates the concept of professional skepticism relying more extensively on external evidence rather than internal evidence Focusing on items that have more significant quantitative effects on the entities financial statement Critically assessing verbal evidence received from entities management Evaluating potential and financial interest held by auditors in the client

Answer 97

C

Question 98

The primary purpose of obtaining an understanding of the entities environment, including this internal control in a financial audit is To determine the nature, timing, and extent of substantive procedures to be perform To make consulting suggestions to the entities management To obtain sufficient appropriate evidence to afford a reasonable basis for an opinion on the financial statement To determine whether the entity has changed any accounting principles

Answer 98

A

Question 99

Ordinarily, what source of evidence should at least affect conclusion External documentary evidence Inquiry of management Documentation prepared by the audit team Inquiry of entity, legal counsel

Answer 99

B

Question 100

The most reliable evidence regarding the existence of newly acquired computer equipment is

Answer 100

Physical observation

Question 101

Which of the following procedures would provide the most reliable audit evidence? Inquiries of the clients internal audit staff Inspection of prenumbered client purchase orders filed in the vouchers payable department Inspection of vendor sales invoices received from client personnel Inspection of bank statements obtained directly from clients financial institution

Answer 101

D

Question 102

Bear and Company CPA requires that all audit documentation indicates the identity of the preparer and the reviewer. The procedure provides evidence relating to which of the following. Independence Adequate competence and capabilities Adequate planning and supervision Sufficient appropriate evidence gathered

Answer 102

C

Question 103

The evidence considered most appropriate by auditors is best described as

Answer 103

Direct personal knowledge obtained through physical observation and mathematical recalculation

Question 104

Auditors understanding of the internal control in an entity provides information for

Answer 104

Planning the nature, timing, and extent of substantial procedures on an audit