Midterm - Module 1

Question 1

<p>Questions</p>

Answer 1

<p>Answer</p>

Question 2

<p>Which of the following is a conceptual difference between the attestation standards and genrally accepted auditing standards?</p>

Answer 2

<p>The attenstation standards do not apply t audits of historical financial statemtns, while the genrally accepted autiing standards do.</p>

Question 3

<p>Which of the following is not an attestation standard?</p>

Answer 3

<p>A sufficient understanding of internal control shall be aobtained to plan the engagement.</p>

Question 4

<p class=”large” style=”text-align:center”;>Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions?</p>

Answer 4

<p class=”large” style=”text-align:center”;>Independence</p>

Question 5

<p>The PCAOB third genral standard states that due care is to be excercised in the performance of an audit. This standard is ordinarily interpreted to requireÉ</p>

Answer 5

<p>Critical review of the judgment exevised at every level of supervision.</p>

Question 6

<p>After fieldwork audit proceures are completed, a partner of the CPA firm who has not been involved in the aduit performs a second or wrap-up working paper review. This second review usually focuses on </p>

Answer 6

<p>The fair presentation of the financial statemtns in conformity with GAAP</p>

Question 7

<p>Financial statement assertions are established for account balances,</p>

Answer 7

<p>Yes, Yes.</p>

Question 8

<p class=”large” style=”text-align:center”;>Which of the following is NOT a financial statement assertion relating to account balances?</p>

Answer 8

<p class=”large” style=”text-align:center”;>Valuation and competence.</p>

Question 9

<p>As the acceptable level of detection risk decreases, an auditor mayÉ</p>

Answer 9

<p>Postpone the planned timing of substantive tests form interim dates to the year-end.</p>

Question 10

<p>The risk that an auditor will conclude, based on substantive tests, that a material misstatement does NOT exist in an account balance when, in fact, such misstatement does exist referred to asÉ</p>

Answer 10

<p>Detection risk.</p>

Question 11

<p>As the acceptable level of detection risk decreases, the assurance directly provided fromÉ</p>

Answer 11

<p>Substantive tests should increase.</p>

Question 12

<p class=”large” style=”text-align:center”;>Which of the following audit risk comoponents may be assessed in nonquantitative terms?</p>

Answer 12

<p class=”large” style=”text-align:center”;>Yes, Yes, Yes.</p>

Question 13

<p>Inherent risk and control risk differ from retection risk in that theyÉ</p>

Answer 13

<p>Exist independentaly of the financial statemnt audit.</p>

Question 14

<p>On the basis of the audit evidence gathered and aevaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would...</p>

Answer 14

<p>Decrease detection risk.</p>

Question 15

<p>Relationship between control risk and detection risk is ordinarilyÉ</p>

Answer 15

<p>Inverse</p>

Question 16

<p class=”large” style=”text-align:center”;>Which of the following would an auditor most likely use in terminign the adutor’s preliminary judgment about materiality?</p>

Answer 16

<p class=”large” style=”text-align:center”;>The entit’s annualized interim financial statements.</p>

Question 17

<p>Which of the following statements in NOT correct about materiality?</p>

Answer 17

<p>As auditor considers materiality for planning purposes in terms of the largest aggregate level of misttatements that could be material to any one of the financnial statements.</p>

Question 18

<p class=”large” style=”text-align:center”;>Which of the following is a function of the rsiks of material misstatement and detection risk?</p>

Answer 18

<p class=”large” style=”text-align:center”;>Audit risk.</p>

Question 19

<p>In considering materiality for planning purposes, an auditor believes that misstatements aaggregating $10,000 would have a material effect on an entity's income statement, ut that misttatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures taht would be xpencted to detect misstatements that aggregate</p>

Answer 19

<p>$10,000.00</p>

Question 20

<p class=”large” style=”text-align:center”;>Which of the following would an auditor most likely use in determining the audtor’s preliminary judgmnet about materiality?</p>

Answer 20

<p class=”large” style=”text-align:center”;>The entity’s financial statemtns of the prior year.</p>

Question 21

<p>Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions that an auditor could telrate most likely would cause the auditor toÉ</p>

Answer 21

<p>Perform the planned auditing procedures closer to the balance sheet date.</p>

Question 22

<p class=”large” style=”text-align:center”;>When issuing an unmodified opinion, the adutor who evaluates the audit findings should be satisified that theÉ</p>

Answer 22

<p class=”large” style=”text-align:center”;>Estimate of the total likely misstatement I less than a material amount.</p>

Question 23

<p>An attitude that includes a questioning mind and a crtical assessment of audit evidence os referred to asÉ</p>

Answer 23

<p>Professional skepticism</p>

Question 24

<p class=”large” style=”text-align:center”;>Professional skepticism requires that an auditor assume that mangement isÉ</p>

Answer 24

<p class=”large” style=”text-align:center”;>Neitehr honest nor dishonest.</p>

Question 25

<p>Which of the following is an example of fraudulent financial reporting?</p>

Answer 25

<p>Company management changes inventory count tags and overstates ending inventory, while understanting cost of goods sold.</p>

Question 26

<p class=”large” style=”text-align:center”;>Which of the following best describes what is meant by the term “fraud risk factor?”</p>

Answer 26

<p class=”large” style=”text-align:center”;>Factors whose presence oftern have been observed in circumstances where faruds have occurred.</p>

Question 27

<p>Which of the following is correct concerning requirements about auditor comunications about fraud?</p>

Answer 27

<p>Fraud that involves senior management should be reported directly to the audit committee REGARDLESS of the amount invlved.</p>

Question 28

<p class=”large” style=”text-align:center”;>When performing a financial satement audit, auditors are required to explicitly assess the risk of material misstatement due to</p>

Answer 28

<p class=”large” style=”text-align:center”;>Fraud.</p>

Question 29

<p>Audits of financial statements are designed to botain assurance of detecting misstatement due toÉ</p>

Answer 29

<p>Yes, Yes, Yes.</p>

Question 30

<p class=”large” style=”text-align:center”;>An auditor is unable to obtain absolute assurance that misstatements due to fraud will be detected for all of the following EXCEPT</p>

Answer 30

<p class=”large” style=”text-align:center”;>Professional skepticism</p>

Question 31

<p>The most difficult type of misstatement to detect is fraud based on</p>

Answer 31

<p>The nonrecording of transactions</p>

Question 32

<p class=”large” style=”text-align:center”;>When considering fraud risk factors relating to management’s characteristics, which of the following is LEAST LIKELEY to indicate a risk of possible misstatement due to fraud?</p>

Answer 32

<p class=”large” style=”text-align:center”;>Use of unusually conservative accounting practices</p>

Question 33

<p>Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor's assessment of the risk of misstatement due to fraud?</p>

Answer 33

<p>Missing documents</p>

Question 34

<p>Which of the following is most likely to be a response to the auditor's assessment that the risk of material misstatement due to fraud for the existence of inventory is high?</p>

Answer 34

<p>Observe test counts of inventory at certain locations on an unnanouced basis</p>

Question 35

<p class=”large” style=”text-align:center”;>Which of the following is most likely to be an example of fraud?</p>

Answer 35

<p class=”large” style=”text-align:center”;>Defalcations occuring due to invalid electronic approvals</p>

Question 36

<p>Which of the following characteristics most likely would heighten an auditor's concern about the risk of international manipulation of financial statements?</p>

Answer 36

<p>Managements places substantial emphasis on meeting earnings projections</p>

Question 37

<p class=”large” style=”text-align:center”;>Which of the following statements reflects an auditor’s responsibility for detecting misstatements due to errors and fraud?</p>

Answer 37

<p class=”large” style=”text-align:center”;>An auditor should design the audit to provide reasonable assurance of detecting misstatements due to errors and fraud that are material to the financial statements</p>

Question 38

<p>Disclosure of fraud to parties other than a client's senior management and its audit committee or board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to diclosure fraud exist?</p>

Answer 38

<p>Yes Yes Yes</p>

Question 39

<p class=”large” style=”text-align:center”;>Under Statements on Auditing Standards, which of the following would be classified as an error?</p>

Answer 39

<p class=”large” style=”text-align:center”;>Misinterpretation by management of facts that existed when the financial statements were prepared</p>

Question 40

<p>What assurance does the auditor provide that misstatements due to errors, fraud, and direct effect illegal acts that are material to the financial statements will be detected?</p>

Answer 40

<p>Reasonable Reasonable Reasonable</p>

Question 41

<p class=”large” style=”text-align:center”;>Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an atitude of </p>

Answer 41

<p class=”large” style=”text-align:center”;>Professional skepticism</p>

Question 42

<p>Which of the following most accurately summmarizes what is meant by the term "material misstatement"</p>

Answer 42

<p>Material error, material fraud, and certain illegal acts</p>

Question 43

<p>Which of the following statements dbest describes the adutiro's responsibility to detect conditions relating to financial stress of employees or adverse relationships between a company and its employees?</p>

Answer 43

<p>The auditor is not required to plan the audit to discover these conditions, but should ocnsider them if he or she becomes aware of themd uring the audit</p>

Question 44

<p>When the auditor believes a misstatement is or may be the result of fraud but that the effect of the misstatement is not material to the financial statements, which of the follwing steps is required?</p>

Answer 44

<p>Consider the implications for other aspects of the audit</p>

Question 45

<p class=”large” style=”text-align:center”;>Which of the following statements is correct relating to the auditor’s consideration of fraud?</p>

Answer 45

<p class=”large” style=”text-align:center”;>The auditor’s interest in fraud consideration relates to fraudulent acts that cause a material misstatement of financial statements</p>

Question 46

<p>Which of the following factors or conditions is an auditor least likely to plan an audit to discover?</p>

Answer 46

<p>Financial pressures affecting employees</p>

Question 47

<p>At which stages of the audit may fraud risk factors be identified?</p>

Answer 47

<p>Yes Yes Yes</p>

Question 48

<p class=”large” style=”text-align:center”;>Management’s attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity’s control environment when</p>

Answer 48

<p class=”large” style=”text-align:center”;>Management is dominated by one individual who is also a shareholder</p>

Question 49

<p>Which of the following is LEAST likely to be required on an audit?</p>

Answer 49

<p>Make a legal determination of whether fraud has occurred</p>

Question 50

<p class=”large” style=”text-align:center”;>Which of the following is most likely to be an overall response to fraud risks identified in the audit?</p>

Answer 50

<p class=”large” style=”text-align:center”;>Use less predictable audit procedures</p>

Question 51

<p>Which of the following is LEAST likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?</p>

Answer 51

<p>Are financial reporting operations controlled by and limited to one location?</p>

Question 52

<p class=”large” style=”text-align:center”;>Individuals who commit fraud are ordinarily able to reationalize the act and also have an</p>

Answer 52

<p class=”large” style=”text-align:center”;>Yes Yes</p>

Question 53

<p>What is an auditor's responsibility who discovers management involved in what is financial immaterial fraud?</p>

Answer 53

<p>Report the fraud to the audit committee</p>

Question 54

<p>Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting</p>

Answer 54

<p>Negative cash flows from operations</p>

Question 55

<p class=”large” style=”text-align:center”;>Which of the following is most likely to be presumed to represent fraud risk on an audit?</p>

Answer 55

<p class=”large” style=”text-align:center”;>Improper revenue recognition</p>

Question 56

<p>An auditor who discovers that a clien'ts employees paid small bribes to municipal officials most likely would withdraw from the engagement if</p>

Answer 56

<p>Management fails to take the appropriate remedial action</p>

Question 57

<p>Which of the following factors most likely would cause a CPA to NOT accept a new audit engagment?</p>

Answer 57

<p>The prosepctive client is unwilling to make all financial records avaialable to the CPA</p>

Question 58

<p>Which of the following facotrs would most likely heighten an auditor's concern about the risk of fraudulent financial reporting?</p>

Answer 58

<p>An overly complex organizational structure invovling unusual ines of authority.</p>

Question 59

<p class=”large” style=”text-align:center”;>An auditor who discovers that a client’s employees have paid small bribes to public officials most likely would wihtrdraw from the engagement if the</p>

Answer 59

<p class=”large” style=”text-align:center”;>Employee’s actions affect the adutor’s ability to rely on management’s represetnations.</p>

Question 60

<p>Which of the following illegal acts should an audit be designed to btain resonable assurance of detecting?</p>

Answer 60

<p>Accrual and billing of an improper amount of revenue under government contracts.</p>

Question 61

<p>Which of the following relatively small misstatements most likely could have a material effect on an entity's financial statements?</p>

Answer 61

<p>An illegal payment to a foreign official that was NOT recorded.</p>

Question 62

<p>During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts involved were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the...</p>

Answer 62

<p>Management representation letter.</p>

Question 63

<p>The most likely explanation why the auditor's examination CANNOT reasonably be expected to bring noncompliance with a ll laws by the client to the auditor's attention is thatÉ</p>

Answer 63

<p>Illegal acts by clients often relate to operating aspects rather than accounting aspects.</p>

Question 64

<p>If specific information comes to an audtor's attention that implies noncompliance with laws that could result in a material, but indirect effect on the financial statements, the audotr should nextÉ</p>

Answer 64

<p>Apply audit precudures specifically directed to ascertaining wether noncompliance has occurred.</p>

Question 65

<p>An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement ifÉ</p>

Answer 65

<p>The client does not take the remedial action that the audotr considers necessary.</p>

Question 66

<p>Under the Private Securities Litigation eform Act of 1995, Baker, CPA, reported certain uncorrected illegal acts to Supermart's board of directors. Baker believed that failure to take remedial action would warrant a qualified audit opinion because the illegal acts had a material effect on Supermart's financial statements. Supermat failed to take appropriate remedial action adn the board of directors refused to inform the SEC that it had received such notification from Baker. Under these circumstances, Baker is required to...</p>

Answer 66

<p>Deliver a report concerning the illegal acts to the SEC within one business day.</p>

Question 67

<p class=”large” style=”text-align:center”;>Which of the following would be LEAST likely to be considered an audit planning procedure?</p>

Answer 67

<p class=”large” style=”text-align:center”;>Peform risk assessment</p>

Question 68

<p>Which of the following factors would most likely cuase a CPA to decide not to accept a new audit engagement?</p>

Answer 68

<p>Managemetn's disregard of its reponsibility to maintain an adequate internal control environment.</p>

Question 69

<p>Before accepting an engagement to audit a new client, a CPA is required to obtainÉ</p>

Answer 69

<p>The prospective client's consent to make inquiries of the predecssor auditor, if any.</p>

Question 70

<p>Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regardingÉ</p>

Answer 70

<p>Deisagreements the predecessor had with the client concerning auditing procedures and accounting principles.</p>

Question 71

<p class=”large” style=”text-align:center”;>Before accepting an audit engagmeent, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s </p>

Answer 71

<p class=”large” style=”text-align:center”;>Understanding as to the reasons for the change of auditors</p>

Question 72

<p>An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding genrally includesÉ</p>

Answer 72

<p>The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies in internal control that come to the auditor's attention.</p>

Question 73

<p>Which of the following matters is generally included in an auditor's engagement letter?</p>

Answer 73

<p>Management's responsibility for the entity's compliance with laws and regulations</p>

Question 74

<p>During the initial planning phase of an audit, a CPA most likely wouldÉ</p>

Answer 74

<p>Discuss the timing of the audit proecudres with the client's management.</p>

Question 75

<p class=”large” style=”text-align:center”;>Which of the following statements would LEAST likely appear in an auditor’s enagement letter?</p>

Answer 75

<p class=”large” style=”text-align:center”;>After performing our preliminary analytical precudures we will discuss with you the other procedures we consider necessary to complete the engagement.</p>

Question 76

<p>Which of the followign documentation is NOT required for an audit in accordance with generally accpeted auditing standards?</p>

Answer 76

<p>A client engagment letter that summariezes the timing and details of the adutor's planned field-work</p>

Question 77

<p>An engagement letter should ordinarily include information on the objectives of the engagement andÉ</p>

Answer 77

<p>Yes, Yes, Yes.</p>

Question 78

<p class=”large” style=”text-align:center”;>Arrangements concerning which of the following are LEAST likely to be included in engagemnet letter?</p>

Answer 78

<p class=”large” style=”text-align:center”;>CPA investment in client securities.</p>

Question 79

<p>The auditor should document the understanding established with a client through a</p>

Answer 79

<p>Written communication with the client.</p>

Question 80

<p>Which of the following facotrs most likely would influence an auditor's determination of the auditability of an entity's financial statements?</p>

Answer 80

<p>The adequacy of the accounting records.</p>

Question 81

<p>Which of the following is most likely to require special planning considerations related to asset valuation?</p>

Answer 81

<p>Inventory is comprised of diamond rings.</p>

Question 82

<p>A CPA wishes to determine how various publicly held companies have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA omst likely consult for information?</p>

Answer 82

<p>AICPA Accounting Trends and Techniques.</p>

Question 83

<p>The auditor should design the written audit program so that</p>

Answer 83

<p>The audit procedures selected will achieve specific audit objectives</p>

Question 84

<p>The audit program usally CANNOT be finalized until the</p>

Answer 84

<p>Consideration of the entityt's internal control has been completed</p>

Question 85

<p>Audit programs should be designed so that</p>

Answer 85

<p>The audit evidence gathered supports the auditor's conclusions</p>

Question 86

<p>In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the</p>

Answer 86

<p>Financial statement assertions</p>

Question 87

<p class=”large” style=”text-align:center”;>With respect to planning an audit, which of the following statements is always true?</p>

Answer 87

<p class=”large” style=”text-align:center”;>It is acceptable to perform a portion of the audit of a continuing audit client at interim dates</p>

Question 88

<p>The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of</p>

Answer 88

<p>Timing of inventory observation procedures to be performed</p>

Question 89

<p>To obtain an understanding of a continuing client's business, an auditor most likely would</p>

Answer 89

<p>Review prior year working papers and the permanent file for the client</p>

Question 90

<p class=”large” style=”text-align:center”;>On an audit engagement performed by a CPA firm with one office, at the minimum, knowledge of the relevant professional accounting and auditing standards should be held by</p>

Answer 90

<p class=”large” style=”text-align:center”;>The auditor with the final responsibility for the audit</p>

Question 91

<p>An auditor obtains knowledge about a new client's business and its industry to</p>

Answer 91

<p>Understand the events and transactions that may have an effect on the client's financial statements</p>

Question 92

<p>Which of the following procedures would an auditor LEAST likely perform while obtaining an understanding of a client in a financial statement audit?</p>

Answer 92

<p>Selecting a sample of vendors' invoices for comparison to receiving reports</p>

Question 93

<p class=”large” style=”text-align:center”;>Ordinarily the predecessor auditor permits the successor auditor to review the predecessor’s working paper analyes relating to </p>

Answer 93

<p class=”large” style=”text-align:center”;>Yes Yes</p>

Question 94

<p>In auditing the financial statements of Star Corp, Land discovered information leading Land to believe that Star's prior year's financial statements, which were audited by Tell, require substanatial revisions. Under these circumstances, Land should</p>

Answer 94

<p>Request Star to arrange a meeting among the three parties to resolve the matter</p>

Question 95

<p>A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's</p>

Answer 95

<p>No Yes</p>

Question 96

<p>Which of the following procedures would an auditor most likely perform in planning a financial statement audit?</p>

Answer 96

<p>Comparing the financial statements to anticipated results</p>

Question 97

<p class=”large” style=”text-align:center”;>Analytical procedures used during risk assessment in an audit should focus on</p>

Answer 97

<p class=”large” style=”text-align:center”;>Enhancing the auditor’s understanding of the client’s business</p>

Question 98

<p>A primary purpose of performing analytical procedures as risk assessment procuedres is to identify the existence of</p>

Answer 98

<p>Unusual transactions</p>

Question 99

<p>Which of the following nonfinancial information wouldn an auditor most likely consider in performing analytical prcedures during risk assessment</p>

Answer 99

<p>Square footage of selling space</p>

Question 100

<p>The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants</p>

Answer 100

<p>How the results of various auditing procedures performed by the assistants should be evaluated</p>

Question 101

<p>The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the</p>

Answer 101

<p>Results are consistent with the conclusions to be presented in the auditor's report</p>

Question 102

<p>While assessing the risks of material misstatement auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks and</p>

Answer 102

<p>Consider the likelihood that the risks could result in material misstatements</p>

Question 103

<p>Which of the following are considered further audit procedures that may be designed after assessing the risks of material misstatement</p>

Answer 103

<p>Yes No</p>

Question 104

<p>Which of the following is LEAST likely to be considered a risk assessment procuedre</p>

Answer 104

<p>Confirmation of ending accounts receivable</p>

Question 105

<p class=”large” style=”text-align:center”;>In an audit of nonissuer (nonpublic) company, the auditors identify significant risks. These risks often</p>

Answer 105

<p class=”large” style=”text-align:center”;>Involve judgemental matters</p>

Question 106

<p>The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to </p>

Answer 106

<p>Document the details of the disagreement with the conclusion reached</p>

Question 107

<p>An examination of financial forecast is a professional service that involves</p>

Answer 107

<p>Evaluating the preparation of a financial forecast and support underlying managements' assumptions</p>

Question 108

<p>The nature and extent of a CPA firm's quality control policies and procedures depend on</p>

Answer 108

<p>Yes Yes Yes</p>

Question 109

<p>A CPA firm may communicate its quality control policies and procedures to its personnel in which manner?</p>

Answer 109

<p>Yes Yes</p>

Question 110

<p>Which of the following is not an element of quality control?</p>

Answer 110

<p>Internal control</p>

Question 111

<p>Quality control for a CPA firm, as referred to in Statements on Quality Control Standards, applies to</p>

Answer 111

<p>Auditing and accounting and review servies</p>

Question 112

<p>One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through</p>

Answer 112

<p>A system of quality control</p>

Question 113

<p>Which of the following is correct concerning PCAOBguidance that uses the term "should"</p>

Answer 113

<p>The auditor must comply with requirements unless s/he demonstrates that alternative actions were sufficient to achieve the objectvites of the standard</p>

Question 114

<p>Which of the following sets of standards does the Public Company Accounting Oversight Board not have the authority to establish for audits of public companies</p>

Answer 114

<p>Accounting standards</p>