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Flashcards in Becker 2 Deck (97):
1

Which of the following provides the most authoritative guidance for an auditor in public practice?

a. An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client's industry.

b. A Journal of Accountancy article discussing implementation of a new standard.

c. General guidance provided by a Statement on Auditing Standards.

d. Specific guidance provided by an interpretation of a Statement on Auditing Standards.

c. General guidance provided by a Statement on Auditing Standards.

2

An auditor concludes that there is substancial doubt about an entity's ability to continue as a going concern for a reasonable period of time.  If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory paragraph that specifically uses the phrase(s)

a. "Reasonable period of time, not to exceed on year" and "Going concern"

b. "Reasonable period of time, not to exceed on year"

c. "Going concern"

d. Neither

d. Neither

3

Pell, CPA, decides to serve as principal auditor in the audit of the financial statements of Tech Consolidated, Inc.  Smith, CPA, audits one of Tech's subsidiaries.  In which situation(s) should Pell make reference to Smith's audit?

I. Pell reviews Smith's working papers and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements.

II. Pell is unable to review Smith's working papers; however, Pell's inquiries indicate that Smith has an excelent reputation for professional competence and integrity.

II only

4

Which of the following phrases would an auditor most likely include in the auditor's report when expressing a qualified opinion because of inadequate disclosure?

a. Subject to the departure from GAAP, as described above.

b. With the foregoing explanation of these omitted disclosures.

c. Except for the omission of the information discussed in the preceding paragraph.

d. Does not present fairly in all material respects.

c. Except for the omission of the information discussed in the preceding paragraph.

5

An auditor would express an unqualified opinion with an explanitory paragraph added to the auditor's report for

a. An unjustified accounting change and A material weakness in internal control.

b. An unjustified accounting change.

c.  A material weakness in internal control.

d. Neither.

 

d. Neither.

6

An auditor most likely would express an unqualified opinion and would not add explanatory laguage to the report if the auditor

a. Wishes to emphasize that the entity had significant transactions with related parties.

b. Concurs with the entity's change in tis method of computing depreciation.

c. Discovers that Supplementary information required by FASB has been omitted.

d. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.

d. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.

7

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the

a. Neither.

b. Opening (introductory) paragraph.

c. Opening (introductory) paragraph and Scope paragraph.

d. Scope paragraph.

d. Scope paragraph.

8

Which paragraphs of an auditor's standard report on financial statements should refer to GAAS and GAAP.

a. GAAS - Opening/GAAP - Scope

b. GAAS - Scope/GAAP - Scope

c. GAAS - Scope/GAAP Opinion

d. GAAS - Opening/GAAP - Opinion

c. GAAS - Scope/GAAP Opinion

9

When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate expanatory paragraph and modify the

a. Introductory paragraph and Scope paragraph.

b. Introductory paragraph.

c. Scope paragraph.

d. Neither.

d. Neither.

10

When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a separate paragraph why the audit did not compy with GAAS.  The auditor should also omit the

a. Opinion paragraph.

b. Scope paragraph.

c. Neither.

d. Scope paragraph and Opinion paragraph.

d. Scope paragraph and Opinion paragraph.

11

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

a. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to the balance by other auditing procedures.

b. The financial statements fail to disclose information that is required by GAAP.

c. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.

d. Events disclosed in the financial statements cause the auditor to have substantial doubt about the enity's ability to continue as a going concern.

b. The financial statements fail to disclose information that is required by GAAP.

12

If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statment of cash flows, the auditor ordinarily will express a(an)

a. Disclaimer of opinon.

b. Qualified opinon.

c. Review report.

d. Unqualified opinion with a separate explanatory paragraph.

b. Qualified opinon.

13

In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity?

a. The other auditor was retained by the principal auditor and the work was performed under the principal auditor's guidance and control.

b. The principal auditor finds it impracticable to review the other auditor's work or otherwise be satisfied as to the other auditor's work.

c. The financial statements audited by the other auditor are material to the consolidated finanical statements covered by the principal auditor's opinion.

d. The principal auditor is unable to be satisfied as to the independence and professional reputation of the other auditor.

a. The other auditor was retained by the principal auditor and the work was performed under the principal auditor's guidance and control.

14

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented and the auditor concurs with the change, the auditor should

a. Refer to the change in an expanatory paragraph.

b. Concur explicitly with the change and refer to the change in an explanatory paragraph.

c. Concur explicitly with the change and Issue an "except for" qualified opinion.

d. issue and "except for" qualified opinion.

a. Refer to the change in an expanatory paragraph.

15

In which of the following situations would an auditor orinarily issue an unqualified audit opinion without an explanatory paragraph?

a. The auditor wishes to emphasize that the entity had significant related party transactions.

b. The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion.

c. The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows.

d. The auditor has a substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.

b. The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion.

16

If management (of a governmental body) declines to present supplementary information required by the GASB, the auditor should issue a(an)

a. Adverse opinion.

b. Qualified opinion with an explanatory paragraph.

c. Unqualified opinion.

d. Unqualified opinion with an additional explanatory paragraph.

d. Unqualified opinion with an additional explanatory paragraph.

17

When a qualified opinion results from a limitation on the scope of the audit, the situation should be described in an explantory paragrpah

a. Preceding the opinion paragraph and referred to only in the scope paragraph of the auditor's report.

b. Following the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.

c. Following the opinion paragraph and referred to only in the scope paragraph of the auditor's reoprt.

d. Preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.

d. Preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.

18

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time.  If the entity's disclosures concerning this matter are adequate, the audit report may include a(an)

a. Disclaimer of opinion or "Except for" qualified opinion.

b. Neither.

c. "Except for" qualified opinion.

d. Disclaimer of opinion.

d. Disclaimer of opinion.

19

Wilson, CPA, completed the fieldwork of the audit of Abco's December 31, 1991, financial statements on March 6, 1992.  A subsequent event requiring adjustment to the 1991 financial statements occurred on April 10, 1992, and came to Wilson's attention on April 24, 1992.  If the adjustment is made without disclosre of the event, Wilson's report ordinarily should be dated

a. March 6, 1992.

b. April 10, 1992.

c. April 24, 1992.

d. Using dual dating.

a. March 6, 1992.

20

If information accompanying the basic financial statements in an auditor-submitted document has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in 

a. Accordance with GAAS.

b. Conformith with GAAP.

c. All material repsects in relation to the basic financial statements taken as a whole.

d. Accordance with attestation standards expressing a conclusion about management's assertions.

c. All material repsects in relation to the basic financial statements taken as a whole.

21

In the standard report on condensed financial statements that are derviced from a public entity's audited financial statements, a CPA should indicate that the

a. Condensed financial statements are prepared in conformity with another comprehensive basis of accounting.

b. CPA has audited and expressed an opinion on the complete financial statements.

c. Condensed financial statements are not fairly presented in all material respects.

d. CPA expresses limited assurance that the financial statements conform with GAAP.

b. CPA has audited and expressed an opinion on the complete financial statements.

 

22

In connection with a proposal to obtain a new audit client, a CPA in public practice is asked to prepare a report on the application of accounting principles to a specific transation.  The CPA's report should include a statement that

a. The engagement was performed in accordance with SSARS.

b. Responsibility for the proper accounting treatment rests with the preparers of the financial statements.

c. The evaluation of the application of accounting principles is hypothetical and may not be used for opinion-shopping.

d. The guidance is provided for management's use only and may not be communicated to the prior or continuing auditor.

b. Responsibility for the proper accounting treatment rests with the preparers of the financial statements.

23

Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission.  If Wall, CPA, Delta's auditor, discovers that the staements are not suitably title, Wall should

a. Disclose the reservations in an explanatory paragraph and qualify the opinion.

b. Apply to the state insurance commission for an advisory opinion.

c. Issue a special statutory basis report that clearly disclaims any opinion.

d. Explain in the notes to the financial statements the terminology used.

a. Disclose the reservations in an explanatory paragraph and qualify the opinion.

24

Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency.  Green audited the financial statements in accordance with GAAS and concluded that the financial statements were fairly presented on the prescribed basis.  Green should issue a 

a. Qualified opinion.

b. Standard three paragraph report with reference to footnote disclosure.

c. Disclaimer of opinion.

d. Special report.

d. Special report.

25

In reviewing the financial statements of a nonpublic entity, an accountant is required to modify the standard review report for which of the following matters?

a. Inability to assess the risk of material misstatement due to fraud and Discover of significant deficiencies in the design of the entity's internal control.

b. Inability to assess the risk of material misstatement due to fraud.

c. Discover of significant deficiencies in the design of the entity's internal control.

d. Neither

d. Neither

26

Kell engaged March, CPA, to submit to Kell a written personal financial plan containing unaudited personal financial statements.  March anticipates omitting certain discloaures required by GAAP because the engagement's sole purpose is to assist Kell in developing a personal financial plan.  For March to be exempt from complying with the requirements of SSARS 1, Compilation and Review of Financial Statements, Kell is required to agree that the

a. Financial statements will not be presented in comparative form with those of the prior period.

b. Omited disclosures required by GAAP are not material.

c. Financial statements will not be disclosed to a non-CPA financial planner.

d. Financial statements will not be used to obtain credit.

d. Financial statements will not be used to obtain credit.

27

Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?

a. Proposing adjustments to the books of account for a partnership.

b. Reviewing interim financial data required to be filed with the SEC.

Preparing standard monthly journal entries.

d. Compiling and individual's personal financial statement to be used to obtain a mortgage.

d. Compiling and individual's personal financial statement to be used to obtain a mortgage.

28

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be

a. Marked as "unaudited".

b. Marked as "unaudited" and Referred to in the auditors report.

c. Witheld until audited and Referred to in the auditors report.

d. Witheld until audited

a. Marked as "unaudited".

29

Green, CPA, is aware that Green's name is to be included in the annual report of National Company, a publicly-held entity.  National's quarterly financial statements are also contained in the annual report.  Green has not audited but has reviewed these interim financial statements.  Green should request that

I. Green's name not be included in the annual report.

II. The interim financial statements be marked as unaidted.

II only

30

Which of the following matters is covered in a typical comfort letter?

a. Negative assurance concerning whether the entity's internal controls operated as designed during the period being audited.

b. An opinion regarding whether the entity complied with laws and regulations under Government Auditing Standards and the Single Audit Act of 1984.

c. Positive assurance concerning whether unaudited condensed financial information complied with GAAP.

d. An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC.

d. An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC.

31

A CPA in public practice is required to comply with the provisions of the SSAE when

a. Testifying as an expert witness in accounting and auditing matters given stipulated facts and Compiling a client's financial projection that presents a hypothetical course of action.

b. Testifying as an expert witness in accounting and auditing matters given stipulated facts.

c. Compiling a client's financial projection that presents a hypothetical course of action.

d. Neither

c. Compiling a client's financial projection that presents a hypothetical course of action.

32

In an attest engagement, use of the accountant's report should be restricted to specified parties in all of the following situations except:

a. When the criteria used to evaluate the subject matter are appropriate for only a limited number of parties.

b. When reporting on an assertion about the subject matter instead of reporting directly on the subject matter.

c When reporting directly on the subject matter and written assertion has not been provided.

d. When reporting on an agreed-upon procedures engagement.

b. When reporting on an assertion about the subject matter instead of reporting directly on the subject matter.

33

An accountant's report on a review of pro forma financial information should include a

a. Statement that the entity's internal control was not relied on in the review.

b. Disclaimer of opion on the financial statements from which the pro forma financial information is derived.

c. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur.

d. Reference to the financial statements from which the historical financial information is derived.

d. Reference to the financial statements from which the historical financial information is derived.

34

An accountant's standard report on a compilation of a projection should not include a 

a. Statement that the accountant expresses only limited assurance that the results may be achieved.

b. Separate paragraph that describes the limitations on the presentation's usefulness.

c. Statement that a compilation of a projection is limited in scope.

d. Disclaimer of responsibility to update the report for events occurring after the report's date.

a. Statement that the accountant expresses only limited assurance that the results may be achieved.

35

When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forescate, the accountant should describe the assumptions in the accountant's report and issue a(an)

a. "Except for" qualified opinion.

b. "Subject to" qualified opinion.

c. Unqualified opinion with a separte explanatory paragraph.

d. Adverse opinion.

d. Adverse opinion.

36

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

a. The fair presentation of the financial statements in conformity with GAAP.

b. Fraud involving the client's management and its employees.

c. The materiality of the adjusting entries proposed by the audit staff.

d. The communication of internal control weaknesses to the client's audit committee.

a. The fair presentation of the financial statements in conformity with GAAP.

37

Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle.  Which of the following should the auditor consider the most authoritative?

a. FASB Technical Bulletins.

b. AICPA Accounting Interpretations.

c. FASB Statements of Financial Accounting Concepts.

d. AICPA Technical Practice Aids.

a. FASB Technical Bulletins.

38

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility.  This evidence of the firm's adherence to which of the following prescribed standards

a. Professional ethics.

b. Supervision and review.

c. Accounting and review services.

d. Quality control.

d. Quality control.

39

Which of the following is not true regarding audit documentation for a specific audit?

a. Audit documentation should be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures performed.

b. Audit documentation should indicate which memeber(s) of the audit team performed and reviewed the audit work.

c. Audit documentation should demonstrate compliance with quality control standards.

d. Audit documentation should demonstrate compliance with the standards of fieldwork.

c. Audit documentation should demonstrate compliance with quality control standards.

40

Of the following nonfinancial information, what would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?

a. Turnover of personnel in the accounting department.

b. Objectivity of audit committee members.

c. Square footage of selling space.

d. Management's plans to repufchase stock.

c. Square footage of selling space.

41

In assessing the ocmpetence and objectivity of an entity's internal auditor, and independent auditor least likely would consider information obtained from

a. Discussions with management personnel.

b. External quality reviews of the internal auditor's activities.

c. Previous experience with the internal auditor.

d. The results of analytical procedures.

d. The results of analytical procedures.

42

Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

a. Coordinating the assistance of entity personnel in data preparation.

b. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.

c. Selecting a sample of vendors' invoices for comparison to receiving reports.

d. Reading the current year's interim financial statements.

c. Selecting a sample of vendors' invoices for comparison to receiving reports.

43

Several sources of accounting principles for federal governmental entities are in conflict as to the application of an accounting principle.  Which of the following should the auditor consider the most authoritative?

a. Technical Releases of the Accounting and Auditing Policy Committee of the Federal Accounting Standards Advisory Board.

b. Federal Accounting Standards Advisory Board Interpretations.

c. Implementation guides published by the Federal Accounting Standards Advisory Board staff.

d. AICPA Industry Audit and Accounting Guides specifically made applicable to federal governmental agencies by the AICPA and cleared by te Federal Accounting Standards Advisory Board.

c. Implementation guides published by the Federal Accounting Standards Advisory Board staff.

44

Gearty & Duffy, certified public accountants have been engaged by the Hoot 'n' Holler School District to perform a program audit of the school district's school lunch program, a federal financial assistance program provided through the US Department of Education.  In performing these audits, Gearty & Duffy would expect:

a. To report on both the financial statements of the school district as well as the financial performance and compliance related to the school district's grants.

b. To audit the fair presentation of federal financial assistance programs in relation to the finanical statements of the school district.

c. To conduct an audit of the federal financial assistance program in accordance with specific guides.

d. To only audit the accomplishment of program objectives in the context of a single audit.

c. To conduct an audit of the federal financial assistance program in accordance with specific guides.

45

Gearty & Duffy, certified public accountants, has been engaged to perform a single audit of Sleepy Knoll Township, a local government receiving substantial federal financial assitance for community development and housing assistance.  A single audit represents:

a. An audit of annual activity of only federal financial assistance programs over the course of the town's fiscal year.

b. An inception to date audit of only federal financial assistance programs over the course of the grant year specified by the grant award.

c. An audit of the township's financial statements and of compliance with federal regulations relating to federal financial assistance as prescribed by the Single Audit Act and OMB Circular A-133

d. An audit of the township's financial statements and the fair presentation of the revenues derived from federal financial assistance.

c. An audit of the township's financial statements and of compliance with federal regulations relating to federal financial assistance as prescribed by the Single Audit Act and OMB Circular A-133

46

Governement Auditing Standards published by the Government Accounting Office:

a. Only apply to audits of governments.

b. Only apply to audits of governments receiving federal financial assistance.

c. Primarily apply to audits of federal financial assistance.

d. Only apply to audits of federal financial assistance programs operated by state and local governments.

c. Primarily apply to audits of federal financial assistance.

47

Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common?

a. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations.

b. The materiality levels are lower and are determined by the government entities that provided the federal financial assistance to the recipient.

c. The auditor should obtain written management representations that the recipient's internal auditors will report their finding objectively without fear of political repercussion.

d. The auditor is required to express both positive and negative assurance that illegal acts that could have a material effect on the recipient's financial statments have been disclosed to the inspector general.

a. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations.

48

An auditor was engaged to conduct a performance audit of a governmental entity in accordance with Government Auditing Standards.  These standards do not require, as part of this auditor's report

a. A statement of the audit objectives and a description of the audit scope.

b. Indications or instances of illegal acts that could result in criminal prosecution discovered during the audit.

c. The pertinent views of the entity's responsible officials concerning the auditor's finding.

d. A concurrent opinion on the financial statements taken as a whole.

d. A concurrent opinion on the financial statements taken as a whole.

49

For an entity that does not receive governmental financial assistance, an auditor's standard report on financial statements generally would not refer to

a. Significant estimates made by management.

b. An assessment of the entity's accounting principles.

c. Management's responsibility for the financial statements.

d. The entity's internal control.

d. The entity's internal control.

50

Reporting on internal control under Government Auditing Standards differs from reporting under GAAS in that GAS requires a

a. Written report describing the entity's internal controls specifically designed to prevent fraud, abuse, and illegal acts.

b. Written report describing each reportable condition observed including identification of those considered material weaknesses.

c. Statment of negative assurance that internal controls not tested have an immaterial effect on the entity's financial statements.

d. Statment of positive assurance that internal controls designed to detect material errors and fraud were tested.

b. Written report describing each reportable condition observed including identification of those considered material weaknesses.

51

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements?

a. Reperforming the activities for a sample of transactions.

b. Performing analytical procedures using data aggregated at a high level.

c. Vouching a sample of transactions directly related to the activities.

d. Observing the entity's personnel applying the activities.

d. Observing the entity's personnel applying the activities.

52

When an auditor assesses control risk at the maximum level, the auditor is required to document the auditor's

a. Neither.

b. Basis for concluding that control risk is at the maximum level.

c. Understanding of the entity's information system.

d.  Understanding of the entity's information system and Basis for concluding that control risk is at the maximum level.

c. Understanding of the entity's information system.

53

The audit program usually cannot be finalized until the

a. Consideration of the entity's internal control has been completed.

b. Engagement letter has been signed by the auditor and the client.

c. Reportable conditions have been communicated to the audit committee of the board of directors.

d. Search for unrecorded liabilities has been performed and documented.

a. Consideration of the entity's internal control has been completed.

54

A report on an entity's internal control should include a statement limiting the use of the report when

a. Management's assertion is presented in a separate report that will accompany the CPA's report.

b. Management's assertion is presented as a representation letter to the CPA.

c. Management's assertion is presented based upon criteria that are available to specific parties.

d. Management's assertion is not presented.

c. Management's assertion is presented based upon criteria that are available to specific parties.

55

An auditor's letter issued on reportable conditions relating to an entity's internal control observed during a financial statement audit should.

a. Include a brief description of the tests of controls performed in searching for reportable conditions and material weaknesses.

b. Indicate that the reportable conditions should be disclosed in the annual report to the entity's shareholders.

c. Include a paragraph describing management's assertion concerning the effectiveness of internal control.

d. Indicate that the audit's purpose was to report on the financial statements and not to provide assurance on internal control.

d. Indicate that the audit's purpose was to report on the financial statements and not to provide assurance on internal control.

56

In reporting on an entity's internal control over financial reporting, a practitioner should include a paragraph that describes the

a. Documentary evidence regarding the control environment factors.

b. Changes in internal control since the prior report.

c. Potential benefits from the practitioner's suggested improvements.

d. Inherent limitations of any internal control.

d. Inherent limitations of any internal control.

57

When communicating internal control related matters noted in an audit, an auditor's report issued on reportable conditions should indicate that

a. Errors or fraud may occur and not be detected because there are inherent limitations in any internal control.

b. The issuance of an unqualified opinion on the financial statements may be dependent on corrective follow-up action.

c. The deficiencies noted were not detected within a timely period by employees in the normal course of performing their assigned functions.

d. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.

d. The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.

58

For effective internal cotnrol, the accounts payable department generally should

a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.

b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.

c. Obliterate the quantity ordered on the receiving department copy of the purchase order.

d. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

d. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

59

An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail.  In attempting to uncover this embezzlement scheme, the auditor most likely would compare the

a. Dates checks were deposited per bank statements with the dates remittance credits were recorded.

b. Daily cash summaries with the sums of the cash receipts journal entries.

c. Individual bank deposit slips with the details of the monthly bank statements.

d. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.

a. Dates checks were deposited per bank statements with the dates remittance credits were recorde

60

Under properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also

a. Post the detailed accounts payable recrods.

b. Reocmpute the calculations on vendors' invoices.

c. Reconcile the acounts payable ledger.

d. Cancel vendors; invoices after payment.

b. Reocmpute the calculations on vendors' invoices.

61

Which of teh following audit procedures would and auditor most likely perform to test controls relating to managment's assertion concerning the completeness of sales transactions?

a. Verify that extentions and footings on the entity's sales invoices nad monthly customer statements have been recomputed.

Inspect the entity's reports of prenumbered shipping doucments that have not been recorded in the sales journal.

c. Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list.

d. Inquire about the entity's credit granting policies and the consistent application of credit checks.

a. Verify that extentions and footings on the entity's sales invoices nad monthly customer statements have been recomputed.

62

An auditor traced a sample of purchase orders and related receiving reports to the purchases journal and the cash disbursements journal. The purpose of the substantive audit procedure most likely was to

a. Identify unusually large purchases that should be investigated further.

b. Verify that cash disbursements were for goods actually received.

c. Determine that purchases were properly recorded.

d. Test whether payments were for goods actually order.

c. Determine that purchases were properly recorded.

63

Which of the following procedures would an entity most likely include in its disaster recovery plan?

a. Convert all data from EDI format to an internal company format.

b. Maintain a trojan horse program to prevent illicit activity.

c. Develop an auxiliary power supply to provide uninterrupted electricity.

d. Store duplicate copies of files in a location away from the computer center.

d. Store duplicate copies of files in a location away from the computer center.

64

Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor's control to test controls in the computer system?

a. Test data

b. Review of program logic.

c. Integrated test facility.

d. Parallel simulation

d. Parallel simulation

65

Payroll Data Co. (PDC) processes payroll transactions for a retailer.  Cook, CPA, is engaged to express an opinion on a description of PDC's internal controls placed in operation as of a specific date.  These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit.  Cook's report should

a. Contain a disclaimer of opinion on the operationg effectiveness of PDC's controls.

b. State whether PDC's controls were suitably designed to achieve the retailer's objectives.

c. Identify PDC's controls relevant to specific financial statement assertions.

d. Disclose Cook's assessed level of control risk for PDC.

a. Contain a disclaimer of opinion on the operationg effectiveness of PDC's controls.

66

Which of the following are essential elements of the audit trail in an electronic data interchange system?

a. Netowork and sender/recipient acknowledgments.

b. Message directories and header segments.

c. Contingency and disaster recovery plans.

d. Trading partner security and mailbox codes.

a. Netowrk and sender/recipient acknowledgments.

67

Which of the following of the following is an essential element of the audit trail in an electronic data interchange system?

a. Disaster recovery plans that ensure proper backup of files.

b. Encrypeted hash totals that authenticate messages.

c. Activity logs that indicate failed tranactions.

d. Hardware security modules that store sensitive data.

c. Activity logs that indicate failed tranactions

68

When evaluating internal control of an entity that processes sales transactions on the Internet, an auditor would be most concerned about the

a. Lack of sales invoice documents as an audit trail.

b. Potential for computer disruptions in recording sales.

c. Inability to establish an integrated test facility.

d. Frequency of archiving and data retention.

b. Potential for computer disruptions in recording sales.

69

Which of the following would an auditor ordinarily consider the greatest risk regarding an entity's use of EDI?

a. Authorization of EDI transactions.

b. Duplication EDI transmissiona.

c. Improper distribution of EDI transactions.

d. Elimination of paper documents.

c. Improper distribution of EDI transactions.

70

Which of the following is considered a component of a local area network?

a. Program flowchart.

b. Loop verification.

c. Transmission media

d. Input routine.

c. Transmission media

71

Which of the following controls most likely could prevent EDP personnel from modifying programs to bypass programmed controls?

a. Periodic management review of computer utilization reports and systems documentation.

b. Segregation of duties within EDP for computer programming and computer operations.

c. Participation of user department personnel in designing and approving new systems.

d. Physical security of EDP facilities in limiting access to EDP equipment.

b. Segregation of duties within EDP for computer programming and computer operations.

72

Which of the following is an example of a validity check?

a. The computer ensures that a numerical amount in a record does not exceed some predetermined amount.

b. As the computer corrects errors and data are successfully resubmitted to the system, the causes of the error are printed out.

c. The computer flags any transmission for which the control field value did not match that of an existing file record.

d. After data for a transaction are entered, the computer sends certain data back to the terminal for comparison with data originally sent.

c. The computer flags any transmission for which the control field value did not match that of an existing file record.

73

Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process?

a. Integrated test facility.

b. Input  controls matrix.

c. Parallel simulation.

d. Data entry monitor.

a. Integrated test facility.

74

Which of the following controls is a processing control designed to ensure the reliability and accuracy of data processing?

a. Limit test and Validity check test.

b. Neither.

c. Validity check test.

d. Limit test. 

a. Limit test and Validity check test.

75

An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the

a. Existence of unclaimed payroll checks held by supervisors.

b. Early cashing of payroll checks by employees.

c. Discover of invalid employee ID numbers.

d. Proper approvale of overtime hours by supervisors.

c. Discover of invalid employee ID numbers.

76

Mill Co. uses a batch processing method to process its sales transactions.  Data on Mill's sales transaction tape are electronically sorted by customer number and are subjected to programmed edit checks in preparing its invoices, sales journals, and updated customer account balances.  One of the direct outputs of the creation of this tape most likely would be a

a. Report showing exceptions and control totals.

b. Printout of the updated inventory records.

c. Report showing overdue accounts receivable.

d. Printou of the slaes price master file.

a. Report showing exceptions and control totals.

77

An auditor established a $60,000 tolerable misstatement ofr an asset with an account balance of $1,000,000.  The auditor selected a sample of every twentieth item from the population that represented te asset account balance and discovered overststements of $3,700 and understatement of $200.  Under these circumstances, the auditor most likely would conclude that

a. There is an unacceptably high risk tha actual misstatements in the polulation exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

b. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.

c. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.

d. The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.

a. There is an unacceptably high risk tha actual misstatements in the polulation exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

78

The use of the ratio estimation sampling technique is most effective when

a. The calculated amounts are approximately proportional to the client's book amounts.

b. A relatively small number of differences exist in the population.

c. Estimating populations whose records consist of quantities, but not book values.

d. Large overstatement differences and large understatement differences exist in the population. 

a. The calculated amounts are approximately proportional to the client's book amounts.

79

As a result of tests of controls, an auditor assessed control risk too low and decrease substantive testing.  This assessment occurred because the true deviation rate in the population was

a. Less than the risk of assessing control risk too low, based on the auditor's sample.

b. Less than the deviation rate in the auditor's sample.

c. More than the risk of assessing control risk too low, based on the auditor's sample

d. More than the deviation rate in the auditor's sample.

d. More than the deviation rate in the auditor's sample.

80

Which of the following statements is correct concerning statistical sampling in tests of controls?

a. As the population size increases, the sample size should increase proportionately.

b. Deviations from specific control activities at a given rate ordinarily result in mistatements at a lower rate.

c. There is an inverse relationship between expected population deviation rate and the sample size.

d. In determining tolerable rate, an auditor considers detection risk and the sample size.

b. Deviations from specific control activities at a given rate ordinarily result in mistatements at a lower rate.

81

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate.  The most likely explanation for this situation is that

a. The deviation rates of both the auditor's sample and the population exceed the tolerable rate.

b. The deviation rates of both the auditor's sample and the population is less than the tolerable rate.

c. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.

d. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.

c. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.

82

To be effective, analytical procedures in the overall review state of an audit engagement should be performed by

a. The staff accountant who performed th substantive auditing procedures.

b. The managing partner who has responsibility for all audit engagements at that practice office.

c. A manager or partner who has a comprehensive knowledge of the client's business and industry.

d. The CPA firm's quaility control manager or partner who has responsibility for the firm's peer review program.

 c. A manager or partner who has a comprehensive knowledge of the client's business and industry.

83

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses?

a. The current year's accounts receivable with the prior year's accounts receivable.

b The current year's payroll expense with the prior year's payroll expense.

c. The budgeted current year's sales with the prior year's sales.

d. The budgeted current year's warranty expense with the current year's contingent liabilities.

b The current year's payroll expense with the prior year's payroll expense.

84

The objective of tests of details of transactions performed as substantive tests is to 

a. Compy with generally accepted auditing standars.

b. Attain assurance about the reliability of the information system relevant to financial reporting.

c. Detect material misstatements in the financial statements.

d. Evaluate whether management's controls operated effectively.

c. Detect material misstatements in the financial statements.

85

Which of the following presumptions is correct about the reliability of evidential matter?

a. Information obtained indirectly from outside sources is the most reliable evidential matter.

b. To be reliable, evidential matter should be convincing rather than persuasive.

c. Reliability of evidential matter refers to the amount corroborative evidence obtained.

d. An effective internal control structure provides more assurance about the reliability of evidential matter.

d. An effective internal control structure provides more assurance about the reliability of evidential matter.

86

To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, and auditor most likely would 

a Request the senders to mail the original forms to the auditor.

b. Examine subsequent cash receipts for the accounts in question.

c. Consider the e-mail responses to the confirmations to be exceptions.

d. Mail second requests to the e-mail respondents.

a Request the senders to mail the original forms to the auditor.

87

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?

a. The estimated reamining useful lives of plant assets were revised upward.

b. Plant assets were retired during the year.

c. The prior year's depreciation expense was erroneously understated.

d. Overhead allocations were revised at year end.

a Request the senders to mail the original forms to the auditor.

88

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

a. The investment committee of the board of directors periodically reviews the investment decisions delegated to the treasurer.

b. Two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box.

c. The internal auditor and the controller independently trace all purchases and sales of marketable securities from the subsidiary ledgers to the general ledger.

d. The chairman of the board verifies the arketable securities, which are kept in a bank safe-deposit box, each year on the balance sheet date.

b. Two company officials have joint control of marketable securities, which are kept in a bank safe-deposit box.

89

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace

a. Inventory tags noted during tha auditor's observation to items listed in the inventory listing schedule.

b. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendor invoices.

c. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.

d. Items listed in receiving reports and vendors' invoices to the inventory listing schedule.

c. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.

90

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would

a. Inspect the allowance account to verify whether the accounts were subsequently written off.

b. Increase the assessd level of detection risk for the valuation and completeness assertions.

c. Ask the client to contact the customers to request that the confirmations be returned.

d. Increase the assessed level of inherent risk for the revenue cycle.

c. Ask the client to contact the customers to request that the confirmations be returned.

91

In auditing long-term bonds payable, and auditor most likely would

a. Perform analytical procedures on bond premium and discount accounts.

b. Examine documentation of assets purchased with bond proceeds for liens.

c. Compare interest expense with the bond payable amount for reasonableness.

d. Confirm the existence of individual bondholders at year end.

c. Compare interest expense with the bond payable amount for reasonableness.

92

In auditing payroll, an auditor most likely would

a. Verify that checks representing unclaimed wages are mailed.

b. Trace individual employee deductions to entity journal entries.

c. Observe entity employees during a payroll distribution.

d. Compare payroll costs with entity standards or budgets.

d. Compare payroll costs with entity standards or budgets.

93

Which of the following auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?

a. Testing the entity's computation of standard overhead rates.

b. Obtaining confirmation of inventories pledged under loan agreements.

c. Reviewing shipping and receiving cutoff procedures for inventories.

d. Tracing test counts to the entity's inventory listing.

a. Testing the entity's computation of standard overhead rates.

94

The follwing data pertain to Cowl, Inc., for the year ended December  31, 1994:

Net Sales                                         $ 600,000

Net Income                                           150,000

Total assets, January 1, 1994           2,000,000

Total assets, December 31, 1994     3,000 000

What was Cowl's rate of return on assets for 1994?

a. 5%

b. 6%

c. 20%

d. 24%

b. 6%

95

To measure how effectively an entity employes it resources, an auditor calculates inventory turnover by dividing average inventory into 

a. Net sales.

b. Cost of goods sold.

c. Operating income

d. Gross sales.

b. Cost of goods sold.

96

Selected data pertaining to Lore Co. for the calendar year 1994 is as follows:

Net cash sales                                                 $   3,000

Cost of goods sold                                              18,000

Inventory at beginning of year                             6,000

Purchases                                                            24,000

Accounts receivable at beginning of year        20,000

Accounts receivable at end of year                   22,000

Lore would use which of the following to determine the average days sales in inventory?

Numerator                         Denominator

a.     365                                    Average inventory

b.     365                                   Inventory turnover

c.     Average inventory           Sales divided by 365

d.     Sales divided by 365      Inventory turnover.

Numerator                         Denominator

b.     365                                   Inventory turnover

97

Selected data pertaining to Lore Co. for the calendar year 1994 is as follows:

Net cash sales                                                 $   3,000

Cost of goods sold                                              18,000

Inventory at beginning of year                             6,000

Purchases                                                            24,000

Accounts receivable at beginning of year        20,000

Accounts receivable at end of year                   22,000

What is the inventory turnover for 1994?

a. 1.2 times

b. 1.5 times

c. 2.0 times

d. 3.0 times 

c. 2.0 times