Testbank review

Question 1

When AICPA professional standards relating to a review of a nonissuer’s (nonpublic entity’s) financial statements uses the term “should” to indicate the accountant’s responsibility to perform a procedure, performance of that procedure is considered:

Answer 1

Presumptively mandatory—The accountant is required to comply with it except in rare circumstances.

Question 2

Compilations, reviews and audits require accountant (auditor) reports, while ____________ does not require such a report.

Answer 2

financial statement preparation

Question 3

SSARS do not apply when only _______ financial statement notes.

Answer 3

drafting

Question 4

When, after discussions with management, the accountant prepares financial statements that contain a known departure or departures from the applicable financial reporting framework (including inadequate disclosure), the accountant should ________

Answer 4

disclose the material misstatement or misstatements in the financial statements—either on the Face of the statements or in the Notes.

Question 5

To perform a review, an accountant should

Answer 5

a. Possess an understanding of the accounting principles and practices in the client’s industry and an understanding of the entity’s business that will provide him/her, through the performance of inquiry and analytical procedures, a reasonable basis for expressing limited assurance that no material modifications need to be made to the financial statements.
b. Possess a general understanding of the client’s

(1) Organization
(2) Operating characteristics
(3) Assets, liabilities, revenues and expenses

Question 6

a review involves a three-party relationship among:

Answer 6

(1) responsible party (management), (2) intended users, and (3) an accountant.

Question 7

a __________ form of association allows companies to omit disclosures when such omission is not meant to make the financial statement misleading and such omission is properly disclosed.

Answer 7

compilation

Question 8

Changing from Audit to Review – the CPA should consider the _________ of the request before allowing the change, particularly when a scope limitation is involved. If the CPA does not believe it is reasonable, the change should not occur. If the CPA considers it reasonable, a______ report may be issued.

Answer 8

reasonableness, standard review

Question 9

Nature of Preparation of Financial Statements

Answer 9

1. The accountant prepares financial state using the records, documents, explanations, and other information provided by management.
2. The accountant should ensure that a statement is included on each page of the financial statements indicating “no assurance is provided.” If the accountant is unable to include such a statement on each page the accountant should issue either a
   a. Disclaimer that makes clear that no assurance is provided on the financial statements or
   b. Compilation report in accordance with AR-C section 80.
3. The accountant need not even consider whether s/he is independent when preparing financial statements.

Question 10

Compiled financial statements may omit note disclosures; the following is added to the compilation report:

Answer 10

Management has elected to omit substantially all of the disclosures (and the statement of cash flows) required by generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the company’s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.

Question 11

A CPA should_________on compiled comparative financial statements in which one year, but not all years, omit note disclosures.

Answer 11

not report

Question 12

Comparative report, last year Audit, this year Review

Answer 12

the report should indicate (1) that the financial statements of the prior period were audited, (2) the date of the previous report, (3) the type of opinion expressed, (4) if the opinion was other than unmodified , the substantive reasons therefor and (5) that no auditing procedures were performed after the date of the previous report.

Question 13

As is the case for compilation reports, review reports are __________ in situations involving a lack of consistent application of generally accepted accounting principles or the existence of major uncertainties (including going-concern uncertainties) that have been properly reported in the financial statements. However, when that information is not properly presented or disclosed in the financial statements, the financial statements contain a departure from generally accepted accounting principles, and the review report should be appropriately __________.

Answer 13

not required to be altered, modified

Question 14

In what situation does preparation requirements apply?

Answer 14

1. Prepare financial statements for use by another CPA who will review or audit those financial statements.
2. Prepare financial statements to be presented with the entity’s tax return for purposes other than
   submission with the tax return to a tax authority.
3. Prepare personal financial statements for presentation alongside a financial plan.
4. Prepare financial statements using the client’s general ledger outside of an accounting software
   system.
5. Prepare single financial statements or financial statements with substantially all disclosures (e.g., notes) omitted.

Question 15

professional standards consider review to be both ______and ______engagements.

Answer 15

assurance and attest

Question 16

Close
When current year financial statements have been reviewed and prior year financial statements were audited, an accountant may either reissue the audit report and issue a review report, or may refer to the audit in the review report. In referring to the audit in the review report, an accountant should indicate that _________, _________, _________, and ________. (When the current year financial statements have been compiled, the same procedures are followed.)

Answer 16

the statements were audited,
the date of the previous opinion,
reasons for any departures from an unqualified form,
and that no auditing procedures were performed after the date of the previous report

Question 17

A compilation report should include statements that the financial statements have been _______ (in accordance with SSARS) and that the accountant ____________ the financial statements.

Answer 17

compiled, did not audit or review

Question 18

Independence is not required when ___________. The accountant need not consider whether s/he is independent and need not disclose independence.

Answer 18

preparing a client’s financial statements

Question 19

__________ is a variation of parallel simulation, processes actual client data through a copy of the client’s application program.

Answer 19

Controlled reprocessing

Question 20

________ processes actual client data through an auditor’s generalized audit software program and frequently, although not necessarily, the auditor’s computer.

Answer 20

Parallel simulation

Question 21

_________ introduces dummy transactions into a system in the midst of live transactions and is usually built into the system during the original design.

Answer 21

Integrated test facility (ITF)

Question 22

__________ is a set of dummy transactions that is developed by the auditor and processed by the client’s computer programs to determine whether the controls which the auditor intends to test (not necessarily all controls) to restrict control risk are operating effectively.

Answer 22

Test data

Question 23

_________ are programmed routines incorporated into an application program that are designed to perform an audit function such as a calculation, or a logging activity.

Answer 23

Embedded audit modules

Question 24

if controls appear adequate, the auditor should not skip testing them unless:

Answer 24

(1) the costs of testing are expected to exceed the savings in substantive tests or (2) the controls are redundant to other internal control activities. Therefore, this is not a valid reason for omitting tests of controls.

Question 25

_______ involves the actual analysis of the logic of a computer program’s processing routines.

Answer 25

code review

Question 26

A ________ , while normally at the end of an account number, may be placed consistently in any position in the account when adequate computer programming exists

Answer 26

check digit

Question 27

________ is the individual responsible for maintaining the database and restricting access to the database to authorized personnel.

Answer 27

Database administrator

Question 28

________ is responsible for custody of the removable media (i.e., magnetic tapes or disks) and for the maintenance of program and system documentation.

Answer 28

Data librarian

Question 29

The ________ is in constant contact with user departments and programming staff to ensure the users’ actual and ongoing needs are being met.

Answer 29

systems analyst

Question 30

A ________ is a log, usually created by an embedded audit module, used to collect information for subsequent review and analysis.

Answer 30

Systems control audit review files (SCARF)

Question 31

_________—This technique attaches additional audit data which would not otherwise be saved to regular historic records and thereby helps to provide a more complete audit trail.

Answer 31

Extended records

Question 32

__________ is a technique in which an identifier providing a transaction with a special designation is added to the transaction record. The tag is often used to allow logging of transactions or snapshot activities.

Answer 32

Transaction tagging

Question 33

the auditor is concerned with the existence of an error or the nonexistence of an error; therefore, ______ sampling is appropriate.

Answer 33

attribute

Question 34

A ________ is a departure from the prescribed internal control policy or procedure.

Answer 34

deviation

Question 35

________ sampling may be applied when testing controls which leave an audit trail in the form of documentary evidence. Documentary evidence in the form of audit stamps, initials, calculations, etc., lends itself to tests of controls where the auditor’s objective is to determine the rate of _________with the prescribed control.

Answer 35

statistical, compliance

Question 36

_______ sampling (used in tests of controls) reaches a conclusion in terms of a rate of occurrence

Answer 36

Attributes

Question 37

_______ sampling (used in substantive testing) reaches a conclusion in dollar amounts (or possibly in units).

Answer 37

Variables

Question 38

When a dual-purpose test is used, auditors select the sample size as _______________.

Answer 38

the higher of that required for the two purposes. For example, if the test of control test required 35 items, and the substantive test required 40, both tests would be performed using the 40 items.

Question 39

__________stratifies the population and then applies random sampling techniques to each strata.

Answer 39

Stratified random sampling

Question 40

_________ is the risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk. Examples of _________ include use of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize misstatement or deviation.

Answer 40

Non-sampling risk, nonsampling risk

Question 41

auditor concluding that the account balance is not materially misstated when it is materially misstated is an example of _______ associated with ________.

Answer 41

sampling risk, variables sampling

Question 42

internal control not being as effective as the auditor believes is an example of _______associated with _______.

Answer 42

sampling risk, attributes sampling

Question 43

In statistical sampling the ______ variation in a population, the _____ the required sample to provide an estimate of the population.

Answer 43

less, smaller

Question 44

difference and ratio estimation methods measure the _________between audit and book values or the _____ of audit to book values.

Answer 44

difference, ratio

Question 45

the objective of the allowance for sampling risk is to estimate the __________ (range of procedural deviations) of the _________.

Answer 45

confidence interval, population

Question 46

_______ sampling risk allows a larger margin of error and suggests a smaller sample size.

Answer 46

increased,

Question 47

The existence of a deviation from a control activity may or may not indicate that ______ exists in the accounting records.

Answer 47

an error

For example, an invoice which has not been footed to test mathematical accuracy may still be correctly totaled and properly recorded in the accounting records.

Question 48

________ might test controls for voucher processing, billing systems, payroll systems, inventory pricing, fixed-asset additions, and depreciation computations.

Answer 48

attributes sampling

Question 49

Desired sampling risk increases= Acceptable sampling Risk______ = _______Sample Size

Answer 49

Increase, smaller

Question 50

discovery sampling is a special case of sampling for ______. In discovery sampling there should be no opportunity to __________, because it is designed to sample for serious or critical errors. Once a critical or serious error is discovered, the sampling plan will probably be ________and a more comprehensive examination _________.

Answer 50

attributes, observe more than one occurrence, abandoned, undertaken

Question 51

When a __________ is used,
Systematic sampling method provides every sampling unit in the population an equal chance of being selected. If the population is arranged ________, systematic selection is essentially the same as random number selection.

Answer 51

random starting point, randomly

Question 52

One problem with _________ sampling is that the population may be systematically ordered; for example, the identification number of all large items ends with a 9. A _______sample may result since 9s may be selected either too frequently or never. This limitation may be overcome by using ________ or by using an interval that __________ with the pattern in the population.

Answer 52

systematic, biased, multiple random starts, does not coincide

Question 53

the __________ is an input into determination of sample size (the others include expected deviation rate, the risk of assessing control risk too low, and population size [which has only a very limited effect on sample size]).

Answer 53

tolerable rate of deviation

Question 54

_______ breaks down the population into subpopulations and applies different selection methods to each subpopulation. This selection method is used when the population consists of different types of items (e.g., large balances and small balances).

Answer 54

Stratified sampling,

Question 55

preliminary judgments of materiality levels are used in ________sampling, not ________sampling.

Answer 55

variables, attributes

Question 56

auditors use attributes sampling for tests of controls, and to use attributes sampling, auditors need the ___________, the __________, and the __________.

Answer 56

allowable risk of assessing control risk too low, expected population deviation rate, tolerable rate

Question 57

auditors obtain a written representation letter when ________of an audit

Answer 57

near the conclusion

Question 58

the term “________” means that the auditor must comply with the requirements unless he or she can demonstrate that alternative actions were sufficient to achieve the objectives of the standards.

Answer 58

should

Question 59

When establishing an understanding with an audit client, that understanding should be documented through

Answer 59

an engagement letter (or other suitable form of written agreement) with the client.

Question 60

While fraud risk factors have been present in the past when fraud has occurred, they___________indicate fraud in any particular situation.

Answer 60

may or may not

Question 61

the specialist is only referred to when that audit report directly relates to a matter resulting in ________ of the report—here an important subsequent event. It might also involve a case in which a specialist’s valuation _______ from management’s valuation.

Answer 61

modification, differs

Question 62

When an outside specialist has assumed full responsibility for taking the client’s physical inventory, reliance on the specialist’s report is acceptable if the auditor

Answer 62

conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory.

Question 63

the three conditions generally present when fraud occurs are that individuals have an

Answer 63

(1) incentive or pressure, (2) opportunity, and (3) ability to rationalize.

Question 64

_________ and _________ procedures are further audit procedures

Answer 64

tests of controls, substantive

Question 65

Audit Risk =

Answer 65

Audit Risk = Inherent Risk×Control Risk×Detection Risk

Question 66

_______risk is the likelihood that an auditor’s procedures lead to an improper conclusion that no material misstatement exists in an assertion when in fact such a misstatement does exits.

Answer 66

Detection

Question 67

________, not _______, departures require disclosure in the audit report.

Answer 67

material, immaterial

Question 68

Communicate with the audit committee concerning the prior year’s audit adjustments will have occurred around the __________.

Answer 68

prior year’s end

Question 69

making inquiries of the client’s attorney will occur _____ the planning stage.

Answer 69

after

Question 70

The ______ uses a calculation based on the investor’s proportionate share of the results of operations and financing by the _______, not market value.

Answer 70

equity method, investee

Question 71

________ maintain records of dividend income and auditors use such records to compare with a client’s recorded dividend income.

Answer 71

Investment services

Question 72

the successor will normally review working papers of ___________. Prior income statement accounts are less likely to have _________ than are balance sheet accounts and contingencies.

Answer 72

continuing accounting significance, continuing significance

Question 73

Define “Subsequent Events - Type II” (requiring disclosure, but not adjustment).

Answer 73

Material events or circumstances arising after the balance sheet date.

Question 74

An auditor’s decision concerning whether or not to “dual date” the audit report is based upon the auditor’s willingness to __________.

Answer 74

Extend auditing procedures

Question 75

Relationships involving balance sheet accounts are _____ predictable than income statement accounts.

Answer 75

less (because balance sheet accounts represent balances at one arbitrary point in time).

Question 76

A lawyer’s response to an auditor’s request for information concerning litigation, claims, and assessments: The lawyer will appropriately limit the response to matters which __________, and to matters __________ to the financial statements.

Answer 76

he has given substantive attention to, that are considered material

Question 77

subsequent events are those events or transactions which occur subsequent __________, but prior _______ and _______, that have a material effect on the financial statements and, therefore, require ______or ________ in the statements.

Answer 77

to the balance-sheet date, to the issuance of the financial statements, the auditor’s report, adjustment, disclosure

Question 78

The representation letter should be dated as of the date of ________.

Answer 78

the auditor’s report

Question 79

_________ attempt to improve operations and reduce waste through the introduction of controls.

Answer 79

Operational audits

Question 80

auditors must obtain a representation that those signing the letter have no knowledge of fraud or suspected fraud committed by (1) ______ (2) ________ or (3) ________.

Answer 80

1. management,
2. employees who have significant roles in internal control,
3. others where the fraud could have a material effect on the financial statements

Question 81

the primary responsibility of the stock registrar is to prevent any ________, and thereby verify that the stock ________.

Answer 81

overissuance of stock, is issued properly

Question 82

The ________ will maintain records of total shares outstanding as well as detailed stockholder records, and carry out transfers of stock ownership.

Answer 82

transfer agent

Question 83

Concerning current audit use of audit evidence about the operating effectiveness of controls obtained in prior year audits, the auditor generally may_______

Answer 83

use of such evidence if the related controls are tested at least every third year.

Question 84

the department responsible for bad debt write-offs should be independent of the ________ and ________ functions. eg. ________

Answer 84

sales authorization, recordkeeping, treasurer

Question 85

a _______system will show when and where materials are being used.

Answer 85

perpetual inventory

Question 86

The auditor issues an _______opinion if the client’s internal control has one or more material weaknesses.

Answer 86

adverse

Question 87

the professional standards indicate that a material weakness has more than a __________ of resulting in a material misstatement.

Answer 87

reasonable possibility

Question 88

the independent auditors ______ detection risk (they perform substantive tests to restrict it).

Answer 88

do not assess

Question 89

auditors ______control risk, they do not ______control risk–control risk is a ______of the client’s internal control structure.

Answer 89

assess, reduce, function

Question 90

Foreign Corrupt Practices Act’s provisions prohibit _________ payments and require publicly held companies to ______ and ______ adequate internal control.

Answer 90

illegal foreign, devise, maintain

Question 91

control activities include _____, ______, _____, and_____.

Answer 91

performance reviews, information processing, physical controls, and segregation of duties.

Question 92

________Standards apply to letters for underwriters

Answer 92

Statements on Auditing

Question 93

the attestation standards on MD&A (management’s discussion and analysis) do not include an assertion for _________. Those standards indicate that the four standards are______ , _______with the financial statements, _______, and ______and _______.

Answer 93

rights and obligations,

completeness, consistency, occurrence, presentation and disclosure

Question 94

GAAP require inclusion of a statement of cash flows, and omission of such results in a ______.

Answer 94

qualified opinion

Question 95

the preferable titles when reporting on cash basis financial statements are _________ arising from cash transactions, and ________.

Answer 95

assets and liabilities, revenue collected and expenses paid

Question 96

Changes in reporting entities, changes in accounting principles, correction of errors, and changes in principles inseparable from changes in estimates all affect _______ and should be referred to in the auditor’s opinion.

Answer 96

consistency

Question 97

Ordinarily in an attest examination report a CPA may generally report upon either the _______ or on the _______ to which the written assertion relates.

Answer 97

written assertion, subject matter

Question 98

the professional standards require that the report on compliance with laws and regulations include all ________ of noncompliance, and all __________ which could result in criminal prosecution.

Answer 98

material instances, instances or indications of illegal acts

Question 99

Whenever reports filed on a printed form designed by authorities, call upon the independent auditor to make an assertion that the auditor believes is not justified, the auditor should ______ or ________.

Answer 99

reworded or attached to a separate report

Question 100

financial forecasts are prospective financial statements based on the responsible party’s assumptions reflecting conditions it expects to _____ and the course of action it expects to _____.

Answer 100

exist, take

Question 101

_________ are designed to demonstrate the effect of a future or hypothetical transaction by showing how it might have affected the historical financial statements if it had been consummated during the period covered by those statements.

Answer 101

pro forma financial presentations

Question 102

Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity’s expected financial position, results of operations, and changes in financial position. Such prospective financial statements are known as______

Answer 102

Financial projections

Question 103

a service auditor’s report on a service organization may include a conclusion on whether controls have been ______ or on whether they have been _______ and ______.

Answer 103

suitably designed,

suitably designed and operate effectively

Question 104

the audit report should not be dated earlier than the date on which the auditors __________ to support their opinion on the financial statements—ordinarily the _____day of fieldwork.

Answer 104

have obtained sufficient appropriate audit evidence,

last

Question 105

Principles included in Trust Services engagements:

Answer 105

Security– The system (infrastructure, software, people, procedures, and data) is protected against unauthorized access (both physical and logical).
Availability–The system is available for operation and use as committed or agreed.
Processing Integrity–System processing is complete, accurate, timely and authorized.
Online Privacy–Private information obtained as a result of electronic commerce is collected, used, disclosed, and retained as committed or agreed.
Confidentiality–Information designated as confidential is protected as committed or agreed.

Question 106

the broad objectives of ________ are to render reasonable assurance that assets are safeguarded from unauthorized use or disposition and that financial records are sufficiently reliable to permit the preparation of financial statements

Answer 106

internal control

Question 107

Section 404a: Requires management to include its _______ in the annual report filed with the SEC.

Section 404b: Requires the CPA firm to ________ and __________.

Answer 107

assessment of internal control over financial reporting,

audit internal control and express an opinion on the effectiveness of internal control

Question 108

Statements on Standards for Attestation Engagements on MD&A as well as for other attestation engagements define control risk as relating to the risk that material misstatements will not be _______ or ________ in a _______.

Answer 108

prevented or detected, timely manner

Question 109

Which of the following is restricted to use and which can be distribute in general?

financial forecast report & financial projection report

Answer 109

financial forecast report may be a general distribution report.

financial projection report –> restricted as to use and distribution.

Question 110

A material change in an accounting estimate may ______ disclosure in a note to the financial statements but ________ a consistency modification in the auditor’s report.

Answer 110

require, does not require

Question 111

continuing auditor should update his report on the financial statements of the one or more prior periods presented regardless of __________.

Answer 111

the opinion previously issued

Question 112

“______________” includes the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time

Answer 112

Generally accepted accounting principles

Question 113

The audit report is only modified when the group auditor does not wish to take responsibility for the component (other) auditor’s work; in that situation the __________ are modified to indicate the existence of the component auditor. If the group auditor wishes to name the component auditor, s/he should obtain the _________ and also present ___________.

Answer 113

introductory, scope, and opinion paragraphs

component auditor’s permission

that auditor’s audit report

Question 114

If after evaluating management’s plans substantial doubt still exists, the auditor should either _______ or ________. In either case the report should explicitly include the phrases “_________” and “________.”

Answer 114

add an emphasis-of-matter paragraph to an unmodified report (following the opinion paragraph) or disclaim an opinion.

substantial doubt and going concern

Question 115

Confirmation of accounts receivable, difference between International Standards on Audit and US Standards?

Answer 115

ISA -> Confirmation of accounts receivable is an optional procedure based on the auditor’s judgment.

US Standards (both AICPA and PCAOB)-> Confirmation is presumptively required unless accounts receivable are immaterial.

Question 116

Governmental auditing is often accomplished under the Single Audit Act. Which of the following may be engaged to do this work?

Answer 116

Audits may be accomplished by government auditors at local, state, or federal level or by CPA firms

Question 117

International Auditing and Assurance Standards Board (IAASB) is a Board within the broader organization, ________

Answer 117

International Federation of Accountants (IFAC)

Question 118

_________ require that the auditor provided the location in which he or she practices.

Answer 118

International Standards of Auditing

Question 119

the PCAOB did not adopt the AICPA’s ________ because they only apply to nonpublic companies (“non-issuers”).

Answer 119

Accounting and Review Services Standards

Question 120

In relation to the AICPA Code of Professional Conduct, the rules of the International Code of Ethics for Professional Accountants have _____ definitive prohibitions.

Answer 120

fewer

Question 121

International standards do________ to another audit firm involved in a portion of the audit while PCAOB standards ______ the principal auditor to so report (i.e., percentages or dollars audited by the other auditor are reported and the opinion is based in part upon the report of the other auditor).

Answer 121

not allow reference, allow

Question 122

the international code allows contingent fees when ______ are established.

Answer 122

appropriate safeguards

Question 123

Unlike audits performed following PCAOB requirements, audits performed following the ISAs _______ an opinion on internal control.

Answer 123

do not require

Question 124

Impairments of independence are ____, ____ and _____for GAO.

Answer 124

personal, external, and organizational

Question 125

partners or managers must provide _____ or more hours of nonattest services before they are considered to be covered members.

Answer 125

ten

Question 126

Under the ethical standards of the profession, a home mortgage loan is not acceptable (unless _________ in when the current standard was established).

Answer 126

“grandfathered”

Question 127

________ and substantive procedures are further audit procedures.

Answer 127

tests of controls

Question 128

a ______ system will result in collection of receivables by a bank, thereby eliminating employee contact with the cash.

Answer 128

bank lockbox

Question 129

the ______ function, and not the controllership function, will normally be responsible for distributing payroll checks.

Answer 129

treasury

Question 130

hiring personnel represents an _______ function while distributing checks represents a ________function

Answer 130

authorization, custody

Question 131

For the financial statements follow the special-purpose financial reporting framework, the audit was conducted in accordance with _________, not the special-purpose financial reporting framework

Answer 131

generally accepted auditing standards

Question 132

all audit reports include the word “________” in their title.

Answer 132

independent

Question 133

A ______ is a departure from the prescribed internal control policy or procedure.

Answer 133

deviation

Question 134

while _____ and ______standards presumptively require confirmation, _____do not.

Answer 134

PCAOB and ASB , IAS

Question 135

Section 404 of the Sarbanes-Oxley Act requires that the audit report ____to, and ____on, the assessment made by management.

Answer 135

attest , report

Question 136

________ (the ____________) is used to construct an interval around the sample results in which the true population characteristic is expected to lie. Accordingly, possible error in either direction from the sample results is considered.

Answer 136

precision, allowance for sampling risk

Question 137

________ in variables sampling is the risk of incorrect rejection.

Answer 137

reliability

Question 138

the _________ (__________) is the difference between the client’s book value and the auditor’s estimate of the audited value.

Answer 138

projected error, (projected misstatement)

Question 139

The Department of Labor (DOL) most frequently conducts financial and performance audits following

Answer 139

Government Auditing Standards

Question 140

The fundamental difference between the balance sheet and the other statements is timing. _________ provide a “snapshot” of a company’s finances at a single point in time. ___________ provides details about how the total amount of stockholders’ equity changed between the time the last balance sheet was prepared and the current balance sheet date.

Answer 140

Balance sheets, the equity statement

Question 141

“Because of the significance” terminology is used in _______opinions and ______ of opinion.

Answer 141

adverse, disclaimers

Question 142

Procedures performed to evaluate control risk inculde _______; _________; __________ and __________.

Answer 142

Re-performance of the control procedures.
Inquires of personnel;
Inspection of documents and records;
Observation of activities and operations;

Question 143

_______, ________ and _______ which are used for substantive testing.

Answer 143

analysis, confirmation and comparison

Question 144

An auditor must always perform substantive tests for ________and______. Although a lowered control risk assessment allows the auditor to reduce substantive testing, it cannot be used to eliminate substantive testing.

Answer 144

significant account balances and transaction classes

Question 145

If financial statements prepared on a comprehensive basis of accounting other than GAAP (i.e., in accordance with a special purpose framework) are not appropriately titled, the auditor must _________and ________ for the inappropriate title of the statements, which constitutes a departure from the applicable accounting framework (analogous to a GAAP departure).

Answer 145

disclose any reservations in an explanatory paragraph and qualify the opinion

Question 146

A review of the cut-off bank statements for the period after the year end would be performed primarily to verify the items in the ________, not as part of the review of subsequent events.

Answer 146

bank reconciliation

Question 147

In reviewing subsequent events, the auditor would read the latest _______ and__________, inquire with _________concerning litigation, claims, and assessments, and make specific inquiries of _______.

Answer 147

interim financial statements, board of directors’ minutes,

legal counsel, management

Question 148

Analytical procedures involve the _______ of recorded amounts, or _______ developed from recorded amounts, to _______developed by the auditor.

Answer 148

comparison, ratios, expectations

Question 149

The auditor should inquire with management as to whether there was any significant change in ________, _________, or _________ after year end

Answer 149

capital stock, long-term debt, working capital

Question 150

Which firms must have a majority of their financial interests owned by CPAs?
I. Attest firms.
II. Firms that identify themselves as “Members of the AICPA.”

Answer 150

Attest Firms ONLY

Question 151

When the auditor scans the activity in an account looking for unusual items, he/she is performing an ____________.

Answer 151

Analytical procedure

Question 152

The bank will alert the company about direct deposits by sending ________.

Answer 152

credit memos

Question 153

According to the Sarbanes-Oxley Act of 2002, what is the maximum number of years an audit partner can perform audit services for an issuer before the auditor rotation is required?

Answer 153

5 years.

**Other partners are on a 7-2-7 rotation.

Question 154

Registered public accounting firms having more than 100 issuers as audit clients must be inspected _______; whereas those having fewer than 100 issuers as audit clients must be inspected ________.

Answer 154

annually, every 3 years

Question 155

An engagement letter (or equivalent) is ______, while performing compilation service.

Answer 155

required

Question 156

agreed-upon procedures reports should -______restricted.

Answer 156

be

Question 157

The quality control standards require compliance with relevant ethical requirements, including _______ for all attestation engagements.

Answer 157

independence

Question 158

The independent body that provides oversight of the audit and ethics standard-setting activities of the International Federation of Accountants (IFAC) is the:

Answer 158

Public Interest Oversight Board

Question 159

the quality control element on accepting or continuing a client relationship has the purposes of (1) _______ (2) ________, and (3) _________.

Answer 159

(1) considering the integrity of the client,
(2) determining that the firm is competent to perform the engagement,
and (3) determining that the firm can comply with legal and ethical requirements.

Question 160

AICPA independence requirements suggest that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all the relevant facts, to conclude that:

Answer 160

An unacceptable risk of non-independence exists.

Question 161

The individual_________should stamp, perforate, or otherwise cancel supporting documentation. The vouchers payable department should not be responsible for these tasks.

Answer 161

signing the checks

Question 162

The _________ is involved with the approval of purchase requisitions, not the vouchers payable department.

Answer 162

purchasing department

Question 163

When the financial statements of a nonpublic entity for a prior period have not been audited and are presented, for comparative purposes, with current period statements that have been audited, in such circumstances the auditor _________

Answer 163

may add a separate paragraph to the audit report and identify the financial statements.

Question 164

The professional standards require that the predecessor auditor not be named when that auditor’s report is not presented, but that the following information be indicated in the introductory paragraph of the successor auditor’s report: (1) _________, (2) _________, (3) __________, and (4) __________.

Answer 164

(1) the financial statements of the prior period were examined by other auditors, (2) the date of the other auditor’s report, (3) the type of opinion expressed, and (4) the substantive reasons therefore, if it was other than unmodified.

Question 165

a forecast examination report presents an opinion concluding whether the forecast meets_______guidelines, not on whether the forecast is ________.

Answer 165

AICPA, fairly presented

Question 166

the deviation rate applies to attribute sampling which is appropriate for ________, not ________.

Answer 166

tests of controls, substantive tests

Question 167

________ provide a means of converting machine readable data into auditor readable data with added data manipulation routines including various sort and arithmetic functions.

Answer 167

generalized audit packages

Question 168

Current liabilities that are refinanced before the _________ can be reclassified as noncurrent provided they meet the requirements of FAS BASC.

Answer 168

issuance of the financial statements

Question 169

AICPA Professional Standards specifically identify that the accountant should consider the results of any audit procedures performed with respect to _________ as a procedure that would be applicable to planning a review of interim financial information with respect to _________the auditor’s knowledge of the entity’s business and its internal control.

Answer 169

the current year’s financial statements, updating

Question 170

If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may __________.

Answer 170

revise the auditor’s report to include a separate other-matter paragraph describing the material inconsistency.

Question 171

If financial statements prepared on a comprehensive basis of accounting other than GAAP (i.e., in accordance with a special purpose framework) are not appropriately titled, the auditor must ___________ and ____________.

Answer 171

disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements

Question 172

In order for an auditor to accept an engagement to audit and report on a nonissuer’s internal control over financial reporting, management must provide ____________ accompanies the auditor’s report.

Answer 172

a written assessment about the effectiveness of internal control in a report that

Question 173

A decision table presents in tabular form the conditions and alternative actions related to making a particular decision. It emphasizes _________ (decision rules) among the conditions and actions.

Answer 173

logical relationships

Question 174

Program flowcharts emphasize the___________.

Answer 174

sequence in which operations are performed

Question 175

The professional standards require an emphasis-of-matter paragraph should not ______ the opinion paragraph, it should _______the opinion paragraph.

Answer 175

precede, following

Question 176

A lack of consistency in the application of accounting principles, with which ________, does not result in modification of the audit opinion or overall audit approach.

Answer 176

the auditor concurs

Question 177

PCAOB may establish ______ standards, ______ standards, _______ standards, and _______ standards.

Answer 177

attestation, independence, auditing, quality control

Question 178

The auditor should apply_________ to the supplementary information. Deficiencies in, or the omission of, such information should be reported in a separate ________.

Answer 178

certain limited procedures, emphasis-of-matter paragraph

Question 179

A ______ sample is best at concluding on overstatements as contrasted to understatements; this is due to characteristics of the underlying statistical theory.

Answer 179

probability-proportional-to-size

Question 180

Audit sampling is the application of an audit procedure to less than 100% of the items within an __________ for the purpose of ___________.

Answer 180

account balance or class of transactions,
evaluating some characteristic of the balance or class

Question 181

An outside reviewer who is not already associated with a registered public accounting firm would become associated with the firm issuing the report if he or she … (1) ___________ or (2) ____________.”

Answer 181

receives compensation from the firm issuing the report for performing the review,
performs the review as agent for the firm issuing the report

Question 182

Testing credit approval before shipping to customers tests the ________ assertion (not the rights and obligations assertion). This test addresses the ________ of accounts receivable.

Answer 182

valuation, collectibility

Question 183

Retention of audit client records after client has demanded them is discreditable. Except the following two:

(1) A CPA may keep _______________and need not make them available to the client.
(2) A CPA may keep _____________ (adjusting, closing, consolidating entries, etc.) until payment of fees due is received.

Answer 183

(1) analyses and schedules prepared by the client for the CPA
(2) workpapers with information not reflected in the client’s books

Question 184

Large amounts of cash on hand may lead to the ________.

Answer 184

misappropriation of assets

Question 185

High turnover of legal counsel and Overly complex organizational structure involving numerous legal entities more likely be related to _______________, instead of misappropriation of assets.

Answer 185

fraudulent financial reporting

Question 186

The ( International Auditing and Assurance Standards Board) IAASB’s pronouncements apply to _____, _____, other assurance, and ________ and________ that are conducted in accordance with international standards.

Answer 186

audit, review, quality control, related services engagements

Question 187

The integrated audit of a public company resulted in the CPA’s issuance of an adverse opinion on internal control. When management believes that the material weakness is eliminated and the auditors, after performing appropriate procedures, agree? The Auditor may_________________.

Answer 187

issue another report, this one indicating that the material weakness no longer exists.

Question 188

The professional standards require audit fee payment prior to ________.

Answer 188

issuance of the subsequent year audit report

Question 189

The professional standards state that a predecessor auditor should obtain a _________ from the successor auditor. The predecessor auditor should also read the current financial statements and ___________.

Answer 189

letter of representation,

compare them to the prior period statements

Question 190

In obtaining evidence about the occurrence of subsequent events, auditors should make inquiries of officers and other executives having responsibility for financial and accounting matters, including inquiries on (1) ___________, (2) ___________, (3) __________, and (4) any ___________.

Answer 190

(1) matters including contingent liabilities existing at the date of the balance sheet, (2) whether there was any significant change in capital stock, long-term debt, or working capital, (3) current status of items in the financial statements, and (4) any unusual adjustments.

Question 191

If the auditor believes that financial statements prepared per a basis other than GAAP are not suitably titled, he should______________.

Answer 191

modify his report to disclose any reservations

Question 192

Among situations that ordinarily do not result in an emphasis-of-matter paragraph on consistency are changes in _________ (e.g., changing the life of a fixed asset) and changes in principles with an ____________ (even if expected to be material in the future); absent other circumstances, a standard unmodified opinion may be issued.

Answer 192

accounting estimates,

immaterial effect

Question 193

_________ is an embezzlement scheme in which cash collections from customers are stolen and is detected by the use of confirmations and analytical procedures.

Answer 193

Lapping

Question 194

______ is the overstatement of cash by recording a deposit without a corresponding withdrawal at year-end and is best detected through the use of a bank transfer schedule.

Answer 194

Kiting

Question 195

Independence is ___________if an audit firm is indemnified from the effects of its own carelessness.

Answer 195

impaired

Question 196

A cooling‐off period of how many years is required before a member of an issuer’s audit engagement team may begin working for the registrant in a key position?

Answer 196

1 year

Question 197

Which categories of covered members must be concerned with independence problems that might arise from gifts they receive from attest clients?
I. Team members.
II. Other partners in the office.

Answer 197

I Only. Other partners in the office and 10‐hour people, are not covered by the rule.

Question 198

Members ___________ original or amended tax returns on a contingent fee basis, even for nonattest clients.

Answer 198

may not prepare