Appendix A Wrong Answers Flashcards by leo Gottlieb

Internal control must be tested when…

Substantive procedures alone will not provide sufficient evidence

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What is a limitation of internal control, that may render internal control ineffective?

Employee collusion

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In addition to changes in significant account policies, The audit committee should be informed about…

Changes in significant accounting policies

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The auditor may refer to the specialist in their report…

Only when the specialist’s work affects the auditor’s opinion

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A client’s accounting data cannot…

Be considered sufficient evidence

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Independence is impaired when prior year fees for professional services remain unpaid for…

More than one year prior to the date of the report

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A company has changed its method of inventory valuation from an unacceptable one to one in conformity with GAAP. The auditor’s report on the financial statements of the year of change should…

Include an emphasis of matter paragraph explaining he change

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Covered members include…5

1 members of attest engagement team
2 individual in position of influence of attest engagement
3 partner who provides nonattest services to attest client
4 partner in the office where the lead attest engagement partner
Practices
5 the firm

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A staff person that performs tax services for the attest client is…

Not a covered member

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Assertion about subject matter is not…

Always present in an Attestation engagement

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Which of the following is always present in an Attestation engagement?

Subject matter

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An Attestation engagement always involves…

Comparison of subject matter to a set of criteria

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If there is no need for any assurance of a third party…2

1 Information is for management’s use only

2 no report would be issued for a compilation

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When performing a review of an issuer company a CPA would inquire about…

Subsequent events

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When performing a review of an issuer company what is not a required inquiry?

Inquiries about communications with related parties

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Risk assent procedures are performed to…

Obtain an understanding of an entity and its environment

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Risk assessment procedures are performed to obtain an understanding of the entity and its environment to provide a basis to…

Assess the risk of material misstatement and design further

Audit procedures

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When a balance is audited at an interim date there is…

Incremental audit risk that must be controlled by the auditor

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The auditor normally does not have the requisite skills to…

Determine the value of precious stones

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In auditing long term debt the auditor should examine…

2) why?

Examine the bond trust indenture

2) to assure that covenants in the indenture are adequately
disclosed in the financial statements

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An interpretation of the independence rule prohibits…

Credit card accounts in excess of $10,000

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The auditor would most likely decide not to sample when…

Tolerable misstatement is small and the expected misstatement
Rate is high

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The auditor would most likely decide not to sample when the tolerable misstatement is small and the expected misstatement rate is high. In this case it would be more appropriate to…

All or most of items in the population

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Compilation reports are modified for…

Departures from GAAP

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Compilation reports are not modified for...

Going concern issues

Analyzing repairs and maintenance expense may result in... 2) what effect does this have on the equipment account?

Discovery of property and plant expenditures that were erroneously Expensed, 2) thus understanding equipment

Intentional violations of occupational safety and health laws are the most difficult to detect because...

1 they aren't related to financial statement numbers 2 they aren't within auditor's expertise

Direct personal observations of employees performing activities is...

The best test of segregation of duties

The audit committee would not be expected to... 2) therefore this would not be...

Oversee the details of raw material purchases 2) not an indicator of weakness in internal control considered by PCAOB

What 2 items must be known to evaluate sample results? Explanation for 2nd item

1 sample size 2 occurrence rate (doesn't need to be actual occurrence rate)

Integrated test facility introduces...

Test (dummy) transactions with live transactions to test the effectiveness of IT controls

Processing data through the use of simulated files provides an auditor with information about the reliability of controls. One of the techniques involved in is approach makes use of...

Integrated test facility

After the audit documentation completion date, the auditor may...

Make changes or deletions to audit documentation providing the Fact that the changes were made is documented

An accountant should establish an understanding with management regarding the services to be performed and document in writing for...2

1 compilation 2 review

Direct effect illegal acts affect...

The numbers in the financial statements

What's an example of a direct effect illegal act

Violation of tax law

What internal control can be implemented to correct the problem below? 2) why?: Invoices posted to incorrect customer accounts

Monthly statements are mailed to all customers with outstanding balances 2) Will be detected by analyzing customer responses to monthly Statements that include errors Particularly in errors not in favor of customers

What internal control can be implemented to correct the problem below? 2) why?: Goods ordered by customers are shipped, but are not billed to anyone

Comparison of shipping documents with sales invoices 2) will detect goods that have been shipped but not billed when no sales invoice is located for a particular shipping document

What internal control can be implemented to correct the problem below? 2) why?: Invoices are sent for shipped goods, but are not recorded in the sales journal.

Compare daily sales summaries with invoices 2) provides assurance that all invoiced goods that have been shipped are recorded as sales

What internal control can be implemented to correct the problem below? 2) why?: Invoices are sent for shipped goods and are recorded in the sales journal, but are not posted to any customer account

Compare amounts posted to accounts receivable ledger with control total for invoices 2) will provide assurance that all invoices have been posted to A customer account

What internal control can be implemented to correct the problem below? 2) why?: Goods are removed from inventory for unauthorized orders.

Require an approved sales order before goods are released From the warehouse 2) will provide assurance that goods are not removed for unauthorized orders

What internal control can be implemented to correct the problem below? 2) why?: Goods shipped to customers do not agree with goods ordered by customers.

A comparison by shipping clerks of goods received from the warehouse with the approved sales orders 2) will provide assurance that goods shipped to customers agree With goods ordered by customers

What internal control can be implemented to correct the problem below? 2) why?: Invoices are sent to allies in a fraudulent scheme and sales are recorded for fictitious transactions

Comparing sales invoices with shipping documents and approved sales orders 2) will detect invoices that do not have proper support (help Prevent fictitious transactions)

To provide assurance that all invoiced goods that have been shipped are recorded as sales, daily sales summaries should be compared with invoices. For example a sale...

A sale that has not been recorded will result in a sales summary that does not include certain sales invoices

Comparing amounts posted to accounts receivable ledger with the validated bank deposit will detect...

Improper postings to accounts receivable since any differences In amounts will be investigated

Comparing customers orders with an approved customer list will provide assurance that...

Credit sales are made only to customers that have been granted Credit

What internal control can be implemented to correct the problem below? Why?: Customers' checks are misappropriated before being forwarded to the cashier for deposit.

Monthly statements are mailed to all customers with outstanding Balances 2) When customers indicate that they have made payments for items shown as payable on their monthly statement misappropriations of customers checks will be detected

What internal control can be implemented to correct the problem below? 2) why?: Customer checks are credited to incorrect customer accounts.

Monthly statements are mailed to all customers with outstanding balances 2) mispostings of payments made will be detected when customers indicate they have made payments for items shown as payable on Their monthly statements

Crediting more than one account for a cash receipt will help detect when...

The total amounts posted to the accounts receivable ledger is compared with the validated bank deposit slip

What internal control can be implemented to correct the problem below? 2) why?: Customers' checks are properly credited to customer accounts and are properly deposited, but errors are made in recording cash receipts journal.

Have employee, other than the bookkeeper, periodically prepare A bank reconciliation 2) reveal improper total recording of receipts in cash receipts journal b/c unlocated differences btw/ bank balances will occur and be investigated

What internal control can be implemented to correct the problem below? 2) why?: Customers' checks are misappropriated after being forwarded to the cashier for deposit.

Compare total at amounts posted to accounts receivable ledger with the validated bank deposit slip 2) will detect difference between total cash receipts and the amount Credited to accounts receivable ledger

Requiring the approval of the supervisor of the sales department for goods received will provide assurance that...

Invalid transactions granting credit for sales returns are not recorded

Reliability

The complement of the risk of incorrect acceptance

The audit procedure must identify situations in which there should be invoices, but there are not.

Investigate unmatched receiving reports dated prior to The following Year

For an audit procedure, One would expect that when a receiving report has been prepared... 2) when one is not present...

An invoice will either be available or soon be available from the supplier 2) when an invoice is not present, it may have been misplaced

Audit procedure, an examination of disbursements after year end will reveal situations in which...

Payables that should have been recorded prior to year end were Not recorded until subsequent year end

Audit procedure: identifying open purchase orders and vendors' invoices will reveal a situation in which...

On would expect a receiving report to have been prepared

A misplace,ent of a receiving report might result in...

No preparation of a sales invoice

For audited financial statements, Valuation of assets at appraised values is...

Not in accordance with GAAP, so adverse or qualified opinion issued

On audited financial statements, when appraised value is used and the difference between appraised value and cost is significant...

An unmodified opinion would not be appropriate

Company has material investments in stocks of subsidiary companies...CPA firm's engagement doesn't extend to subsidiary company. The CPA firm is able to determine that all investments are carried at original cost and the auditor's have no reason to suspect that the amounts are not fairly stated. What is the opinion in the auditor's report?

Scope limitation, either qualified or disclaimer of opinion

When a CPA has acquired sufficient competent evidence to the effect that the client will never ultimately realize a substantial portion of the investments and the client has disclosed this in the notes...

An adverse or qualified opinion is necessary Note disclosure does not compensate for improper balance sheet presentation