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Homework answers / question archive / University of the East, Caloocan CBA REVIEW 1)To obtain an understanding of the entity and its environment, including its internal control, the auditor should perform each of the following risk assessment procedures except: Inquiries of management and others within the entity

University of the East, Caloocan CBA REVIEW 1)To obtain an understanding of the entity and its environment, including its internal control, the auditor should perform each of the following risk assessment procedures except: Inquiries of management and others within the entity

Accounting

University of the East, Caloocan

CBA REVIEW

1)To obtain an understanding of the entity and its environment, including its internal control, the auditor should perform each of the following risk assessment procedures except:

  1. Inquiries of management and others within the entity.
  2. Analytical procedures.
  3. Attribute Sampling.
  4. Observation and inspection.

 

2. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

  1. Valuation or allocation.
  2. Rights and Obligations
  3. Existence or occurrence.
  4. Completeness.

 

3.  The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that

  1. Material misstatements may exist in the financial statements.
  2. Entity policies may be overridden by senior management.

 

  1. Specified controls requiring segregation of duties may be circumvented by collusion.
  2. Tests of controls may fail to identify procedures relevant to assertions.

 

4.  An auditor assesses inherent risk in an engagement. An auditor assesses control risk in an engagement. Then, based on those two assessments, the auditor does enough substantive testing to reduce detection risk so that overall audit risk drops to an acceptably low level. That is the structure of an audit. In assessing control risk, the auditor starts by learning the design of the control system and then considers whether to perform tests of individual controls. If the design of the control system is viewed as weak, which of the following is most likely to be true?

  1. The auditor will be likely to test the controls because of the weakness.
  2. The auditor is likely to do additional substantive testing.
  3. The auditor will likely reduce the assessment of inherent risk.
  4. An unqualified opinion cannot be issued.

 

5.) An independent CPA is assessing the level of control risk present at a company that is currently being audited. This company has an internal audit department and the independent CPA is evaluating the objectivity of that department. Which of the following is a sign that the department has proper objectivity?

  1. The size of the department has grown from 7 people to 19 over the last three years.
  2. In order to be promoted within this department, the employee must have become a CPA.
  3. The head of the department meets privately with the chair of the board of directors each quarter.
  4. The head of the department had seven years of experience with an international accounting firm before taking this position with the company.

 

6.) One of the components of internal control that an independent auditor must come to understand about each audit client is “information and communication.” What is meant by this term?

  1. The ability of the management of the company to communicate its priorities to the appropriate staff levels within the organization.
  2. The ability of the accounting system to generate reliable information and convey it in a timely manner to those parties within the organization that needs it.
  3. The ability of employees in a company to warn the independent auditor of fraudulent actions within the organization.
  4. The ability of the internal auditor to communicate information about the various systems to people within the organization at an appropriate level of authority.

 

 

7.) A CPA firm is beginning the audit of Panasian Corporation. One of the staff auditors has been assigned to gain and then document her understanding of the internal controls designed to be in place in the company’s payroll system.                                                                                                At the end of the day, the staff auditor has created a series of flowcharts, questionnaires, and narrative descriptions based on the understanding she has obtained.

Which of the following is correct?

  1. The questionnaire approach is preferred.
  2. The flowchart approach is preferred.
  3. She was correct in using all three of these techniques to fulfill this assignment.
  4. She only needed to use one of these techniques.

 

8.) Jane Simpson works for Shadowline Corporation and is paid

$30 per hour.               She typically works 28 hours per week but always reports that she works 32 hours per week so that she can receive additional wages from the company.    Which of the following internal control activities is most likely to prevent this type of theft?

  1. The company’s payroll program is tested each month with test data to ensure that it operates properly.
  2. A separate paymaster delivers the checks each pay period to Jane Simpson after verifying her identity.
  3. The supervisor for Jane Simpson must review her time sheet each period and indicate approval.

 

  1. Any paychecks that are printed but not picked up must be turned over to an independent group for subsequent handling.

 

9.) Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions?

 

  1. Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.
  2. Inquire about the entity's credit granting policies and the consistent application of credit checks.
  3. Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list.
  4. Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed.

10.) An auditor uses the assessed level of control risk to

  1. Determine the acceptable level of detection risk for financial statement assertions.
  2. Evaluate the effectiveness of the entity's internal control policies and procedures.
  3. Identify transactions and account balances where inherent risk is at the maximum.
  4. Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.

 

11.) Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of

 

  1. Presentation and disclosure.

 

  1. Existence or occurrence.

 

  1. Completeness.

 

  1. Valuation or allocation.

 

12.) Internal control procedures are strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

 

  1. Purchasing agent.

 

  1. Accounts payable department.

 

  1. Receiving department.

 

  1. Department that initiated the requisition.

 

 

13.) While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record

 

  1. Sales returns.

 

  1. Sales.

 

  1. Purchase returns.

 

  1. Purchase discounts.

 

14.) To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the

 

  1. Terms of the open purchase orders.

 

  1. Purchase cut-off procedures.

 

  1. Purchase invoices received on or around year end.

 

  1. Contractual commitments made by the purchasing department.

 

 

15.) Which of the following would most likely be an internal control procedure designed to detect errors and irregularities concerning the custody of inventory?

 

  1. Periodic reconciliation of work in process with job cost sheets.

 

  1. Independent comparisons of finished goods records with counts of goods on hand.

 

  1. Approval of inventory journal entries by the storekeeper.

 

  1. Segregation of the functions between general accounting and cost accounting.

 

16.) An increased extent of the tests of controls is most likely to occur when:

 

  1. It is a first-time audit.

 

  1. Controls are ineffective and the preliminary control risk assessment is high.

 

  1. Controls are effective and the preliminary control risk assessment is low.

 

  1. The auditor is performing a fraud audit.

 

 

17.) Which of the following is a control procedure that most likely could help prevent employee payroll fraud?

 

  1. The personnel department promptly sends employee termination notices to the payroll supervisor.

 

  1. Total hours used for determination of gross pay are calculated by the payroll supervisor.

 

  1. Salary rates resulting from new hires are approved by the payroll supervisor

 

  1. Employees who distribute payroll checks forward unclaimed payroll checks to the absent employees' supervisors.

 

 

18.) Transaction authorization within an organization may be either specific or general. An example of a specific transaction authorization is the

 

  1. Setting of automatic reorder points for material or merchandise.

 

  1. Approval of a detailed construction budget for a warehouse.

 

  1. Establishment of requirements to be met in determining a customer's credit limits.

 

  1. Establishment of sales prices for products to be sold to any customer.

 

19.) Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

 

  1. Use of time tickets to record actual labor worked on production orders.

 

  1. Periodic independent counts of work in process for comparison to recorded amounts.

 

  1. Comparison of daily journal entries with approved production orders.

 

  1. Reconciliation of work-in-process inventory with periodic cost budgets

 

 

20.) Which of the following is ordinarily considered a test of controls?

 

  1. Send confirmation letters to banks.

 

  1. Count and list cash on hand.

 

  1. Examine signatures on checks.

 

  1. Obtain or prepare reconciliations of bank accounts as of the balance sheet date.

 

 

21.) An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that

 

  1. Internal controls relating to unclaimed payroll checks are operating effectively.

 

  1. Segregation of duties exist between the preparation and distribution of the payroll.

 

  1. Payments to employees are computed at authorized rates.

 

  1. Employees work the number of hours for which they are paid.

 

22.) An auditor would consider internal control over a client's payroll procedures to be ineffective if the payroll department supervisor is responsible for

 

  1. Updating employee earnings records.

 

  1. Hiring subordinate payroll department employees.

 

  1. Applying pay rates to time tickets.

 

  1. Having custody over unclaimed paychecks.

 

 

23.) Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?

 

  1. Canceling supporting documentation after payment.

 

  1. Signing the voucher for payment by an authorized person.

 

  1. Verifying the mathematical accuracy of the vendor's invoice.

 

  1. Comparing the vendor's invoice with the receiving report.

 

 

24.) Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

 

  1. Compare the accounts receivable ledger to daily sales summaries.

 

  1. Examine shipping documents for matching sales invoices.

 

  1. Inspect unused sales invoices for consecutive prenumbering.

 

  1. Scan the sales journal for sequential and unusual entries.

 

25.) Which of the following internal control procedures is not usually performed in the vouchers payable department?

 

  1. Approving vouchers for payment by having an authorized employee sign the vouchers.

 

  1. Indicating the asset and expense accounts to be debited.

 

  1. Matching the vendor's invoice with the related receiving report.

 

  1. Accounting for unused prenumbered purchase orders and receiving reports.

 

 

26.) Internal control over cash receipts is weakened when an employee who receives customer mail receipts also

 

  1. Prepares bank deposit slips for all mail receipts.

 

  1. Maintains a petty cash fund.

 

  1. Prepares initial cash receipts records.

 

  1. Records credits to individual accounts receivable.

 

 

27.) Which of the following internal control activities most likely would justify a reduced assessed level of control risk concerning plant and equipment acquisitions?

 

  1. Periodic physical inspection of plant and equipment by the internal audit staff.

 

  1. Comparison of current-year plant and equipment account balances with prior-year actual balances.

 

  1. The review of prenumbered purchase orders to detect unrecorded trade-ins.

 

  1. Approval of periodic depreciation entries by a supervisor independent of the accounting department.

 

 

28.) A customer buys some furniture from a company and must be billed for the Php879 sales price. The company’s billings department prepares a sales invoice which is properly approved. Which of the following does not receive a copy of this sales invoice?

 

  1. The billings department retains a copy for its records.

 

  1. The inventory management department gets a copy to update the perpetual records.

 

  1. The customer receives a copy.

 

  1. The accounts receivable department is sent a copy.

 

 

29.) The Waynesboro Corporation has recently installed a new computer payroll processing program.  Before the program is used to compute actual payroll checks for the employees, test data is going to be run through the computer to see how it would be processed.

Which of the following is least likely to be tested in this manner?

 

  1. Two checks requested for the same employee

 

  1. A check requested for an employee who quit two months earlier.

 

  1. A check requested for an employee working more than 60 hours per week.

 

  1. A check requested for an employee paid an hourly rate of $12 per hour.

 

30.) Risk assessment involves considering threats to the organization’s objectives in the areas of:

 

  1. Operations, financial reporting, and compliance with laws and regulations.

 

  1. Marketing, financial reporting, and compliance.

 

  1. Financial reporting, performance, and marketing.

 

  1. Compliance with laws and regulations, operations, and performance

 

31.) To obtain an understanding of the entity and its environment, including its internal control, the auditor should perform each of the following risk assessment procedures except:

 

  1. Inquiries of management and others within the entity.

 

  1. Sampling for variables.

 

  1. Observation and inspection.

 

  1. Analytical procedures.

 

32.) In accordance with the standards, the second standard of audit fieldwork is expanded from "internal control" to:

 

  1. The entity and management assertions, including internal control

 

  1. The entity and its environment, including its internal control

 

  1. The entity and its business model, including internal control.

 

  1. The entity, including internal control.

 

33.) Which of the following is the basic fundamental concept that underlies the audit process?

 

a.) Skepticism .b.) Materiality. c.) Risk. d.) All of the above.

 

34.) Management must disclose material weaknesses in internal control:

 

  1. Only if the auditor disclose the weakness as significant.

 

  1. Whenever the weakness is significant to the overall financial reporting objectives.

 

  1. Whenever the weakness is deemed significant to a single class of transactions.

 

  1. If the weakness exist at the end of the year.

 

 

35.) A weakness in internal control over recording retirements of equipment may cause an auditor to

 

    1. Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.

 

    1. Select certain items of equipment from the accounting records and locate them in the plant.

 

    1. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.

 

    1. Inspect certain items of equipment in the plant and trace those items to the accounting records.

 

 

36.) An effective system of control procedures over the payroll function would include

 

  1. Preparation of payroll transaction journal entries by an employee who reports to the supervisor of the personnel department.

 

  1. Verification of agreement of job time tickets with employee clock card hours by a payroll department employee.

 

  1. Custody of rate authorization records by the supervisor of the payroll department.

 

  1. Reconciliation of totals on job time tickets with job reports by employees responsible for those specific jobs.

 

37.) For an appropriate segregation of duties, journalizing and posting summary payroll transactions should be assigned to

 

  1. The treasurer's department.

 

  1. General accounting.

 

  1. Payroll accounting.

 

  1. The internal accounting department.

 

38.) In a well-designed internal control system, the same employee may be permitted to

 

  1. Mail signed checks, and also cancel supporting documents.

 

  1. Prepare receiving reports, and also approve purchase orders.

 

  1. Approve vouchers for payment, and also have access to unused purchase orders.

 

  1. Mail signed checks, and also prepare bank reconciliations.

 

 

39.) When considering internal control, an auditor must be aware of the concept of reasonable assurance which recognizes that

 

  1. The employment of competent personnel provides assurance that the objectives of internal control will be achieved.

 

  1. The establishment and maintenance of internal control is an important responsibility of the management and not of the auditor.

 

  1. The cost of internal control should not exceed the benefits expected to be derived from internal control.

 

  1. The segregation of incompatible functions is necessary to obtain assurance that the internal control is effective.

 

40.) Which of the following internal controls most likely would reduce the risk of diversion of customers’ receipts by an entity's employees?

 

  1. A bank lockbox system.

 

  1. Prenumbered remittance advices.

 

  1. Monthly bank reconciliations.

 

  1. Daily deposit of cash receipts.

 

 

41.) Reportable conditions are matters that come to an auditor's attention, which should be communicated to an entity's audit committee because they represent

 

  1. Off-balance sheet transactions that are not fully disclosed in the financial statements.

 

  1. Conditions which may result in a disclaimer of an opinion on the financial statements.

 

  1. Significant deficiencies in the design or operation of the internal control structure

 

  1. Material irregularities or illegal acts perpetrated by high- level management.

 

42.) Which of the following statements is correct concerning reportable conditions in an audit?

 

  1. Reportable conditions generally lead to an adverse audit opinion.

 

  1. An auditor is required to search for reportable conditions during an audit.

 

  1. All reportable conditions are also considered to be material weaknesses.

 

  1. An auditor may communicate reportable conditions during an audit or after the audit's completion.

 

43.) Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on an entity's internal control structure over financial reporting?

 

  1. Management presents its written assertion about the effectiveness of the internal control structure.

 

  1. The practitioner is a continuing auditor who previously has audited the entity's financial statements.

 

  1. The practitioner anticipates relying on the entity's internal control structure in a financial statement audit.

 

  1. The practitioner is hired by the audit committee to specifically audit internal control in accordance with generally accepted auditing standards.

 

 

 

44.) Which of the following is an inherent limitation in internal control?

 

  1. Incompatible duties.

 

  1. Lack of segregation of duties.

 

  1. Faulty human judgment.

 

  1. Lack of an audit committee.

 

45.) Significant deficiencies are matters that come to an auditor's attention and should be communicated to an entity's audit committee because they represent:

 

  1. Intentional attempts by the client personnel to limit the scope of the auditor's fieldwork.

 

  1. Flagrant violations of the entity's documented conflict-of- interest policies.

 

  1. Material fraud perpetrated by high-level management.

 

  1. Internal control deficiencies that could adversely affect a company's ability to initiate, record, process, or report external financial statements reliably.

 

46.) How must significant deficiencies and material weaknesses be communicated to those charged with governance?

 

    1. Oral communication is required.

 

    1. Written communication is required.

 

    1. Either oral or written communication is acceptable.

 

    1. None of the above is correct.

 

47.) In determining whether transactions have been recorded, the direction of the auditing testing should be from the

 

  1. General ledger balances.

 

  1. Adjusted trial balances.

 

  1. Original source document.

 

  1. General journal entries.

 

48.) Which of the following is the best example of a substantive test?

 

  1. Flowcharting of the client's cash disbursement system.

 

  1. Confirmation of balances of accounts receivable.

 

  1. Examining a sample of cash disbursements to test whether expenses have been properly approved.

 

  1. Comparison of signatures on checks to an authorized list of signers.

 

 

49.) The objective of tests of details of transactions performed as substantive tests is to

 

  1. Evaluate whether management's policies and procedures operated effectively.

 

  1. Attain assurance about the reliability of the accounting system.

 

  1. Detect material misstatements in the financial statements.

 

  1. Evaluate whether management internal control operates effectively.

 

50.) To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all

 

  1. Receiving reports.

 

  1. Vendor's invoices.

 

  1. Purchase orders.

 

  1. Canceled checks.

 

51.) Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable?

 

  1. Investigating the open purchase file to ascertain that prenumbered purchase orders are used and accounted for. changes in long-term debt occurring after year end.

 

  1. Receiving the client's mail, unopened, for a reasonable period of time after the year end to search for unrecorded vendor's invoices.

 

  1. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

 

  1. Confirming accounts payable balances with known suppliers who have zero balances.

 

52.) Independent auditors have carried out analytical procedures on an audit client and determined that the reported liabilities at the end of Year One are significantly lower than expected. Which of the following is most likely to have created this situation?

 

  1. Purchases received during the last few days of Year One were recorded in Year Two.

 

  1. Sales made during the first few days of Year Two were recorded in Year One.

 

  1. Cash payments made during the last few days of Year One were recorded in Year Two.

 

  1. Cash collections made during the first few days of Year Two were recorded in Year One.

 

 

53.) The CPA firm of Terry & Francona is auditing the financial statements of Fenway International Corporation. Fenway owns a number of unique investments where the market value is difficult to determine. The CPA firm hires a specialist in investment analysis to help determine the market value of these assets. Which of the following statements is true?

 

  1. This investment analyst must be independent of the client company.

 

  1. The hiring of this analyst means that the firm must provide a qualified audit opinion.

 

  1. The hiring of this analyst means that the firm must add an extra paragraph to the end of the audit report to alert readers to the work of the specialist.

 

  1. The firm must assess the qualifications of the specialist as part of the audit process.

 

 

 

 

 

 

  1. Auditing standards differ from auditing procedures in that procedures relate to
  1. Measure of performance.
  2. Audit principles.
  3. Acts to be performed.
  4. Audit judgments.

 

  1. The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the
  1. Validity of the income statement.
  2. Determination of fair presentation of financial statements.
  3. Improvement of accounting systems.
  4. Detection of irregularities.

 

  1. The first general standard of generally accepted auditing standards which states, in part, that the examination is to be performed by a person or persons having adequate technical training, requires that an auditor have
  1. Education and experience in the field of auditing.
  2. Ability in the planning and supervision of the audit work.
  3. Proficiency in business and financial matters.
  4. Knowledge in the areas of financial accounting.

 

  1. The first standard of field work, which states that the work is to be adequately planned, and assistants, if any, are to be properly supervised, recognizes that
  1. Early appointment of the auditor is advantageous to the auditor and the client.
  2. Acceptance of an audit engagement after the close of the

 

client's fiscal year is generally not permissible.

  1. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion.
  2. Performance of substantial parts of the examination is necessary at interim dates.

 

  1. An independent audit aids in the communication of economic data because the audit
  1. Assures the reader of financial statements that any fraudulent activity has been corrected.
  2. Confirms the accuracy of management's financial representations.
  3. Lends credibility to the financial statements.
  4. Guarantees that financial data are fairly presented.

 

  1. A CPA is most likely to refer to one or more of the three general auditing standards in determining
  1. Whether the CPA should undertake an audit engagement.
  2. The nature of the CPA's report qualification.
  3. The scope of the CPA's auditing procedures.
  4. Requirements for the review of internal control.

 

  1. The first standard of field work recognizes that early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?

 

  1. The auditor will be able to complete the audit work in less time.
  2. The auditor will be able to perform the examination more efficiently.
  3. The auditor will be able to better plan for the observation of the physical inventories.
  4. The auditor will be able to plan the audit work so that it may be done expeditiously.

 

  1. Which of the following best describes the reason why an independent auditor reports on financial statements?
  1. A management fraud may exist and is more likely to be detected by independent auditors.

 

  1. Different interests may exist between the company preparing the statements and the persons using the statements.
  2. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
  3. Poorly designed internal control may exist.

 

  1. What is the general character of the three generally accepted auditing standard classified as general standards?
  1. Criteria for content of the F/S and the auditor's report.
  2. Criteria of audit planning and supervision and evidence gathering.
  3. The need to maintain an independence in mental attitude in all matters relating to the assignments.
  4. Criteria for competence, independence and professional care of individuals performing the audit.

 

  1. A CPA, while performing an audit, strives to achieve independence in appearance in order to
  1. Reduce risk and liability.
  2. Comply with the generally accepted standards of field work.
  3. Become independent in fact.
  4. Maintain public confidence in the profession.

 

  1. The "generally accepted auditing standards" are standards which
  1. Are sufficiently established so that independent auditors generally agree on their existence.
  2. Are generally accepted based upon a pronouncement of the Financial Accounting Standards Board.
  3. Are generally accepted in response to the changing needs of the business community.
  4. Are generally accepted as a consequence of approval of the AICPA membership.

 

  1. The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on
  1. The competence of management in accounting matters which is implied by whether the opinion is qualified or not.
  2. The conformity of the statements with the book of account.
  3. The conformity of the financial statements with generally

 

accepted auditing standards applied on a basis consistent with that of the prior year.

  1. The fairness with which the financial statements present cash flows and results of operations.

 

  1. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the
  1. Partner assigned to the engagement.
  2. Auditor in charge of field work.
  3. Management of the company.
  4. Securities & Exchange Commission.

 

  1. A CPA should comply with applicable GAAS on every engagement
  1. Without exception.
  2. Except in examinations that result in a qualified report.
  3. Except in engagements where the CPA is associated with unaudited F/S.
  4. Except in examinations of interim financial statements.

 

  1. Which of the following best describes what is meant by GAAS?
  1. Audit objectives generally determined on audit engagements.
  2. Acts to be performed by the auditor.
  3. Measures of the quality of the auditor's performance.
  4. Procedures to be used to gather evidence to support financial statements.

 

  1. The first general standard recognizes that regardless of how capable an individual may be in other fields, the individual can not meet the requirements of the auditing standards without the proper
  1. Business and finance course.
  2. Quality control and peer review.
  3. Education & experience in auditing.
  4. Supervision and review skills.

 

  1. The first general standard requires that the examination of F/S is to be performed by a person having adequate technical training and
  1. Independence with respect to the F/S and supplementary

 

disclosures.

  1. Exercising professional care as judged by peer reviewers.
  2. Proficiency as an auditor which likely has been acquired from previous experience.
  3. Objectivity as an auditor as verified by proper supervision.

 

  1. Due professional care requires
  1. A critical review of the work done at every level of supervision.
  2. The examination of all corroborating evidence available.
  3. The exercise of error free judgment.
  4. A study and review of the I/C's that include tests of controls

 

  1. The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a CPA who undertakes an engagement assumes a duty to perform each audit
  1. As a professional possessing the degree of skill commonly possessed by others in the field.
  2. In conformity with generally accepted accounting principles.
  3. With reasonable diligence and without fault or error.
  4. To the satisfaction of governmental agencies and investors who rely upon the audit.

 

  1. According to court decision, GAAS established by the AICPA applies
  1. Only to AICPA members.
  2. To all CPA's.
  3. Only to those who choose to follow them.
  4. Only when conducting audits subject to the AICPA jurisdiction.

 

  1. Which of the following best describes the reason why an independent auditor reports on financial statements?
  1. A management fraud may exist and is more likely to be detected by independent auditors.
  2. Different interests may exist between the company preparing the statements and the persons using the statements.
  3. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.

 

  1. Poorly designed internal control may exist. (Yes, this is the same as #8, ask me why!!!)

 

  1. The independent audit is important to readers of F/S because it
  1. Determines the future stewardship of the management of the company whose financial statements are audited.
  2. Measures and communicates financial and business data in the F/S.
  3. Involves the objective examination of, and reporting on, management-prepared statements.
  4. Reports on the accuracy of all information in the F/S.

 

  1. Independent auditing can best be described as
  1. A branch of accounting.
  2. A discipline that attests to the results of accounting and other functional operations and data.
  3. A professional activity that measures and communicates financial and business data.
  4. A regulatory function that prevents the issuance of improper financial information.

 

  1. What is the meaning of the GAAS that requires the auditor to be independent?
  1. The auditor must be without bias with respect to the client under audit.
  2. The auditor must adopt a critical attitude during the audit.
  3. The auditor's sole obligation is to third parties.
  4. The auditor may have a direct ownership interest in the client's business if it is not material.

 

  1. The primary purpose of a management advisory services engagement is to help the client
  1. Become more profitable by relying upon the CPA's existing personal knowledge about the client's business.
  2. Improve the use of its capabilities and resources to achieve its objectives.
  3. Document and quantify its future plans without impairing the CPA's objectivity or allowing the CPA to assume the role of management.

 

  1. Obtain benefits that are guaranteed implicitly by the CPA.

 

  1. Operational auditing is primarily oriented toward
  1. Future improvements to accomplish the goals of management.
  2. The accuracy of data reflected in management's financial records.
  3. The verification that a company's financial statements are fairly presented.
  4. Past protection provided by existing internal control.

 

  1. Because an examination i/a/w GAAS is influenced by the possibility of material errors, the auditor should conduct the examination with an attitude of
  1. Professional responsiveness.
  2. Conservative advocacy.
  3. Objective judgment.
  4. Professional skepticism.

 

  1. The exercise of due professional care requires that an auditor
  1. Use error-free judgment.
  2. Consider the internal control structure, including tests of controls.
  3. Critically review the work done at every level of supervision.
  4. Examine all corroborating evidence available.

 

  1. CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that
  1. Employees promoted possess the appropriate characteristics to perform competently.
  2. Personnel will have the knowledge required to fulfill responsibilities assigned.
  3. The extent of supervision and review in a given instance will be appropriate.
  4. All of the above are reasons.

 

  1. The least important evidence of a CPA firm's evaluation of its system of QC would concern the CPA firm's policies and

 

procedures for

  1. Employment (hiring).
  2. Confidentiality of audit engagements.
  3. Assigning personnel to audit engagements.
  4. Determination of audit fees.

 

  1. A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies is to
  1. Enable the auditor to attest to the integrity or reliability of a client.
  2. Comply with the quality control standards established by regulatory bodies.
  3. Minimize the likelihood of association with clients whose management lacks integrity.
  4. To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.

 

  1. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to
  1. Make inquiries of the proposed client's legal counsel.
  2. Review financial statements of the proposed client.
  3. Make inquiries of previous auditors.
  4. Review the personnel practices of the proposed client.

 

  1. Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
  1. Technical training that assures proficiency as an auditor.
  2. Professional education that is required in order to perform with due professional care.
  3. Knowledge required to fulfill assigned responsibilities and to progress within the firm.
  4. Knowledge required in order to perform a peer review.

 

  1. In pursuing a CPA firms' quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy?

 

  1. Acceptance of client.
  2. Supervision.
  3. Independence.
  4. Monitoring.

 

  1. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as
  1. Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.
  2. Prohibiting employees from owning stock of public companies.
  3. Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms.
  4. Assigning employees who may lack independence to research positions that do not require participation in field audit work.

 

  1. Which of the following is an element of quality control?
  1. Supervision
  2. Inspection
  3. Personnel management
  4. Consultation

 

  1. In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of
  1. A file of minutes of staff meetings.
  2. Updated personnel files.
  3. Documentation to demonstrate compliance with its policies and procedures.
  4. Documentation to demonstrate compliance with peer review directives.

 

  1. One element of the personnel management quality control standard is professional development. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to
  1. Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms.
  2. Establish, in fact as well as in appearance, that staff accountants are increasing their knowledge of accounting and

 

auditing matters.

  1. Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures.
  2. Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.

 

  1. Which of the following is a quality control standard?
  1. Peer review.
  2. Administrative control.
  3. Engagement performance.
  4. Time studies.

 

  1. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client?
  1. The SA has no responsibility to contact the PA.
  2. The SA should obtain permission from the prospective client to contact the PA.
  3. The SA should contact the PA regardless of whether the prospective client authorizes contact.
  4. The SA need not contact the PA if the successor is aware of all available relevant facts.

 

  1. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of
  1. Quality control.
  2. Due professional care.
  3. Supervision and review.
  4. Field work.

 

  1. Quality control for a CPA firm as referred to in Statements on Quality Control Standards, applies to
  1. Auditing services only.
  2. Auditing and management advisory services.
  3. Auditing and tax services.
  4. Auditing and accounting and review services.

 

 

  1. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to
  1. Determine appropriate pricing of the audit.
  2. Determine the integrity of management.
  3. Determine the beginning balances of the current year's financial statements.
  4. Establish consistency in application of GAAP between years.

 

97 . Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the CPA should

  1. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential.
  2. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination.
  3. Not communicate with the predecessor auditor because this would, in effect, be asking the auditor to violate the confidential relationship between auditor and client.
  4. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.

 

  1. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's
  1. Awareness of the consistency in the application of GAAP between periods.
  2. Evaluation of all matters of continuing accounting significance.
  3. Opinion of any subsequent events occurring since the predecessor's audit report was issued.
  4. Understanding as to the reasons for the change of auditors.

 

  1. The single feature that most clearly distinguishes auditing, attestation, and assurance is
  1. Type of service.
  2. Training required performing the service.

 

  1. Scope of services.
  2. CPA’s approach to the service.

 

  1. The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and changes in financial position is applied within the framework of
  1. Generally accepted accounting principles.
  2. Generally accepted auditing standards.
  3. Internal control.
  4. Information systems control.

 

 

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