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Audit 1 > Final Review > Flashcards

Final Review Flashcards

1
Q

A member in public practice shall neither receive​ from, nor pay​ to, a client a commission when the member or​ member’s firm also performs certain services for that client. Commissions are allowed if the CPA performs

A

NOT A compilation that will be used by a third party OR an audit of prospective financial information

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2
Q

Which of the following does not contain provisions that may serve as a basis for legal actions against​ auditors?

A

Dodd Frank

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3
Q

​________ is the tendency to use an initial piece of evidence which subsequent information is then inadequately assessed against.

A

Anchoring

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4
Q

The underlying reason for a code of professional conduct for any profession is

A

The need for public confidence in the quality of service of the profession.

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5
Q

The auditor is determining that the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed. She or he is gathering evidence about which transaction-related audit​ objective

A

Accuracy

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6
Q

The objective of an audit of the financial statements is an expression of an opinion on

A

the fairness of the financial statements in all material respects

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7
Q

A questioning mindset

A

means the auditor should approach the audit with a​ “trust but​ verify” mental outlook

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8
Q

An auditor has a duty to

A

provide reasonable assurance that material misstatements will be detected.

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9
Q

If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the​ AICPA’s rules, the CPA firm must follow

A

Whichever rules are more restrictive

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10
Q

The Securities and Exchange Commission can impose all but which of the following​ sanctions?

A

Revoke a CPA license

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11
Q

Which of the following is an accurate statement:
A. SEC rules prohibit ownership in audit clients by those persons who can influence the audit.
B. Auditing standards detail the requirements that a CPA firm must follow when it is requested to provide an opinion on the application of accounting principles for a client of another CPA firm.
C. PCAOB rules require a CPA​ firm, before its selection as the​ company’s auditor, to document all relationships between the firm and the company.
D.All of the above are accurate statements.

A

D. All of the Above

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12
Q

Under common​ law, an individual or company that​ (1) does not have a contract with an​ auditor, (2) is known by the auditor in advance of the​ audit, and​ (3) will use the​ auditor’s report to make decisions about the client company has

A

The same rights against an auditor as a client.

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13
Q

​________ means that a person acts according to​ conscience, regardless of the situation.

A

Integrity

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14
Q

Which of the following fee arrangements is not a violation of the​ AICPA’s Code of Professional Conduct​?

A

basing fees as an expert witness on the amount awarded to the​ plaintiff, even though the CPA performs a compilation for client use

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15
Q

A CPA is subject to criminal liability to defraud another person if the CPA

A

is knowingly involved with false financial statements

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16
Q

The principal issue in cases involving alleged negligence is usually

A

the level of care required

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17
Q

​A(n) ________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards.

A

Audit

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18
Q

Misappropriation of assets

A

Causes harm to the stockholders. THINK ABOUT THE STOCKHOLDERS

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19
Q

The term audit objective refers to all of the following except for

A

cycle-related audit objectives.

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20
Q

Under the laws of​ agency, partners of a CPA firm may be liable for the work of others on whom they rely. This would not include

A

employees of the audit client

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21
Q

For publicly listed​ companies, the auditor also issues which of the following reports in addition to a report containing the​ auditor’s opinion?

A

a report on system of internal control over financial reporting

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22
Q

Determining that the footnote disclosures related to long-term debt are accurate is an example of the __________ audit objective

A

Presentation and disclosures

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23
Q

Laws that have been passed by the U.S. Congress and other governmental units are

A

statutory laws

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24
Q

The most important general ledger account included in and affecting several cycles is the

A

cash account

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25
Q

Why does the auditor divide the financial statements into smaller​ segments?

A

Using the cycle approach makes the audit more manageable.

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26
Q

The laws that have been developed through court decisions are called

A

common laws

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27
Q

When a member observes the​ profession’s technical and ethical standards and strives to continually improve her competence and quality of​ services, she is exercising

A

Due care

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28
Q

A CPA firm should decline an offer to perform consulting services engagement if

A

acceptance would require the CPA firm to make management decisions for an audit client.

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29
Q

Which of the following is an accurate statement regarding audit​ evidence?

A

The auditor uses evidence to determine whether the financial statements are fairly presented.

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30
Q

Which of the following is an accurate statement regarding audit​ evidence?

A

The auditor uses evidence to determine whether the financial statements are fairly presented.

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31
Q

Appropriateness of evidence is a measure of the

A

quality of evidence

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32
Q

Which of the following statements is not a correct statement regarding audit​ evidence?

A

Documentary evidence is more reliable when it is received by the auditor indirectly rather than directly.

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33
Q

When comparing client data with similar prior-period data

A

if there have been no significant changes in the​ client’s operations in the current​ year, much of the detail making up the totals in the financial statements should remain unchanged.

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34
Q

Which of the following ratios is not a measure of a​ company’s short-term debt paying ability

A

accounts receivable turnover

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35
Q

Audit documentation

A

should identify the items tested when the audit procedures involve sampling of transactions or balances.

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36
Q

Supporting schedules

A

make up the largest portion of audit documentation.

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37
Q

The first phase in planning an audit and designing an audit approach is to

A

accept the client and perform initial audit planning.

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38
Q

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

A

engagement letter

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39
Q

When developing the overall strategy for the​ audit, the auditor will

A

determine if any audit specialists will be required.

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40
Q

Which of the following best describes the corporate minutes of an​ entity?

A

official record of the meetings of the board of directors and the stockholders

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41
Q

Which of the following would not be classified as an analytical​ procedure?

A

reconciling fixed asset dispositions with the fixed asset ledger

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42
Q

When dealing with​ materiality,

A

the auditor must bring any material misstatements to the​ client’s attention.

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43
Q

When evaluating the audit​ findings, the auditor should be satisfied that the

A

estimate of the total known and likely misstatements is less than a material amount.

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44
Q

Which of the following would not increase the risks of material misstatement at the overall financial statement​ level?

A

effective oversight by the board of directors

45
Q

Risk assessment procedures include inquiries of management and others by the auditor. As part of these​ procedures, the auditor should talk to

A

Board, Internal auditors, individuals involved w reg compliance

46
Q

When considering the risk of misstatement due to​ fraud,

A

auditing standards outline procedures the auditor should perform to obtain information from management about their consideration of fraud.

47
Q

A​ ________ risk represents an identified and assessed risk of material misstatement​ that, in the​ auditor’s professional​ judgment, requires special audit consideration.

A

significant

48
Q

Inherent risk is​ ________ related to planned detection risk and​ ________ related to the amount of audit evidence.

A

inversely; directly

49
Q

If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the​ auditor, acceptable audit risk would likely

A

be reduced.

50
Q

Which of the following is not a primary consideration when assessing inherent​ risk?

A

effectiveness of system of internal controls

51
Q

Which of the following is true regarding audit risk for​ segments?

A

In some​ cases, a lower acceptable audit risk may be more appropriate for one account than for others.

52
Q

Which of the following is a correct​ statement?

A

The combination of performance materiality and the audit risk model factors determines planned audit evidence.

53
Q

The audit procedure referred to as proof of cash receipts is particularly useful to test

A

whether all recorded cash receipts have been deposited in the bank.

54
Q

The two primary classes of transactions in the sales and collection cycle are

A

sales and cash receipts

55
Q

An auditor is performing a credit analysis of customers with balances over 60 days due.​ She/he is most likely obtaining evidence for which audit-related objective

A

realizable value

56
Q

If the​ client’s system of internal control for recording sales returns and allowances is evaluated as​ ineffective,

A

a larger sample may be needed to verify cutoff.

57
Q

Except for two key​ differences, the transaction-related audit objectives are essentially the same for the processing of credit memos as they are for sales. Which of the following are the two key​ differences?

A

materiality and emphasis on the occurrence objective

58
Q

Which of the following is​ true?

A

Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.

59
Q

Analytical procedures

A

provide substantive evidence.

60
Q

The​ auditor’s primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is

A

examining the uncollectible account authorization form.

61
Q

If the auditor decides not to confirm accounts receivable that are​ material, the auditor should

A

document the reasons for such a decision in the audit files.

62
Q

here is a direct relationship between the​ ________ transaction - related audit objective and the _________ balance - related audit objective

A

Occurrence, existence, timing, cutoff, posting and summarization, detail tie-in

63
Q

The total of the individual account balances in the accounts receivable master file should equal the

A

balance of the accounts receivable account in the general ledger.

64
Q

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales​ transaction?

A

selling of goods for cash

65
Q

When assessing control​ risk, the auditor must do all of the following except

A

perform the detailed test of balances.

66
Q

For clients with highly sophisticated computerized accounting​ systems, auditors perform tests throughout the year to identify significant or unusual transactions. This approach is called​ ________ and is frequently used in integrated audits of financial statements and system of internal control for public companies.

A

continuous auditing

67
Q

The primary emphasis in most tests of details of balances is on the

A

balance sheet accounts

68
Q

The most effective audit evidence gathered for accounts receivable is the

A

confirmation of accounts receivable.

69
Q

An auditor comparing the write - off of uncollectible accounts as a percentage of total accounts receivable with previous years. A possible misstatement this procedure could uncover is

A

overstatement or understatement of bad debt expense.

70
Q

If no material differences are found using analytical​ procedures, and the auditor concludes that misstatements are not likely to have​ occurred,

A

other substantive tests may be reduced.

71
Q

A​ ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance.

A

credit memo

72
Q

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on

A

the confirmation of accounts receivable.

73
Q

Which of the following tests commonly occur​ together?

A

substantive tests of transactions and obtaining an understanding of system of internal controls

74
Q

The​ auditor’s objectives for the sales and cash collections activities when the client is primarily an e - commerce businesses as compared to a “brick and mortar” business are

A

unchanged

75
Q

For most​ audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash

A

affects items on the balance sheet but does not affect net income.

76
Q

Which audit procedure would the auditor use to test for the cutoff balance - related audit objective

A

Select the last 20 sales transaction from the current​ year’s sales journal and the first 20 from the subsequent​ year’s and trace each to the related shipping documents.

77
Q

What type of test is used to obtain the most types of​ evidence?

A

tests of details of balances

78
Q

When designing the audit program and the particular audit​ tests, the auditor should keep in mind that

A

analytical procedures performed during substantive testing are generally more focused and more extensive than those done as part of planning.

79
Q

Which of the following would most likely not be included in the evidence mix for an integrated audit of a public​ company’s financial statements and system of internal control over financial​ reporting?

A

extensive tests of details of balances

80
Q

​If, when obtaining an understanding of control activities of a relatively small​ client, the auditor identified no control​ activities, the auditor would probably set a high assessment of control risk.

A

True

81
Q

Research indicates that the most effective way to prevent and deter fraud is to

A

implement programs and controls that are based on core values embraced by the company.

82
Q

Auditing standards require that auditors document

A

results of the procedures performed to address the risk of management override of controls.

83
Q

Which of the following is not a likely source of information to assess fraud​ risks?

A

consideration of fraud risks discovered during recent audits of other clients

84
Q

The primary emphasis by auditors is on controls over

A

classes of transactions.

85
Q

Fictitious revenues

A

lower accounts receivable turnover.

86
Q

Which of the following is a correct​ statement?

A

The auditor uses the control risk assessment and results of tests of controls to determine planned detection risk.

87
Q

Auditing standards specifically require auditors to identify​ ________ as a fraud risk in most audits.

A

revenue recognition

88
Q

When assessing control​ risk,

A

many auditors use a control risk matrix to assist in the control risk assessment process.

89
Q

It is generally possible for small companies to have all of the following except for

A

internal auditors

90
Q

How must significant deficiencies and material weaknesses be communicated to those charged with​ governance?

A

written communication is required

91
Q

Auditing by testing automated system of internal controls and account balances electronically is known as

A

auditing through the computer.

92
Q

When dealing with the administration of the IT function and the segregation of IT duties

A

in complex​ environments, management may establish IT steering committees.

93
Q

The employee in charge of authorizing credit to the​ company’s customers does not fully understand the concept of credit risk. This lack of knowledge would

A

constitute a deficiency in operation of system of internal controls.

94
Q

Which of the following statements related to application controls is​ correct?

A

Application controls relate to the processing of transactions.

95
Q

​________ inquiry is used to obtain information about facts and details that the auditor does not​ have, usually about past or current events or processes.

A

informational

96
Q

An auditor traces the sales prices to the authorized price list in effect at the date of the transaction. Which of the following procedures has the auditor​ performed?

A

reperformance

97
Q

Which of the following components of the control environment define the existing lines of responsibility and​ authority?

A

organizational structure

98
Q

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of fraudulent financial reporting at an audit​ client?

A

Significant accounting estimates are not difficult for the auditor to verify and justify.

99
Q

If a control total were to be computed on each of the following data​ items, which would best be identified as a hash total for a payroll IT​ application?

A

employee numbers

100
Q

When the auditor identifies risk at the assertion​ level,

A

the auditor may need to obtain audit evidence that is more reliable and relevant.

101
Q

Which of the following is an accurate statement regarding the misappropriation of​ assets?

A

Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm.

102
Q

For financial statement​ audits, auditors need to understand controls that are relevant to the audit in order to

A

identify and assess the risks of material misstatements.

103
Q

What type of report is issued when one or more material system of internal control weaknesses​ exist?

A

adverse opinion

104
Q

Sarbanes - Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two​ requirements?

A

a statement that management is responsible for establishing and maintaining an adequate system of internal control structure and procedures for financial reporting

105
Q

With which of​ management’s assertions with respect to implementing system of internal controls is the auditor primarily​ concerned?

A

reliability of financial reporting

106
Q

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial​ reporting?

A

excessive pressure for management to meet debt repayment requirements

107
Q

​A(n) ________ is a computer resource deployment and procurement model that enables an organization to obtain IT resources and applications from any location via an Internet connection.

A

cloud computing environment

108
Q

The​ ________ is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.

A

chart of accounts

109
Q

If auditors determine that there is not a significant risk of material improper revenue​ recognition, no documentation of this decision is required.

A

false

Audit 1 (1 decks)

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