Exam 3 Flashcards
(75 cards)
1
Q
- An Auditor concluded that the omission of a substantive procedure considered necessary at the time of the audit may impair the auditor’s current ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if
A
Answer: B. The results of other procedures that were applied tend to compensate for the procedure omitted. (4.5.1)
2
Q
- On March 15, Year 2, Kent, CPA, expressed an unmodified opinion on a client’s audited financial statement for the year ended December 31, Year 1. On May 4, Year 2, Kent’s internal inspection program disclosed that engagement personnel failed to observe the client’s physical inventory. Omission of this procedure impairs Kent’s present ability to support the unmodified opinion. If the shareholders are currently relying on the opinion, Kent should first:
A
Answer: B. Undertake to apply alternative procedures that would provide a satisfactory basis for the unmodified opinion. (4.5.2)
3
Q
- The primary audit objective regarding the purchasing of materials by the client is to:
A
Answer: D. Determine the reliability of financial reporting by the purchasing function. (7.1.1)
4
Q
- Which of the following best describes the role of analytical procedure near the end of the audit engagement.
A
Answer: D. To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.
5
Q
***5. In assessing risks of material misstatement 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?
A
***Answer: B. Occurrence. (7.1.10)
6
Q
- During the audit of a construction contract, it was discovered that the contractor was being paid for each ton of dirt removed. The contract called for payment based on cubic yards removed. Which internal control might have prevented this error?
A
Answer: A. Comparison of invoices with purchase orders or contracts. (7.1.17)
7
Q
- Fraudulent use of corporate credit cards will be minimized by which of the following controls?
A
Answer: D. Subject credit card charges to the same expense controls as those used on regular company expense forms. (7.1.23)
8
Q
***8. Which of the following is a standard control over cash disbursement?
A
***Answer: B. Checks should be sequentially numbered, and the numerical sequence should be accounted for by the person preparing bank reconciliations. (7.1.24)
9
Q
***9. Which of the following are essential elements of the audit trail in an electronic data interchange (EDI) system?
A
***Answer: A. Network and sender-recipient acknowledgments. (7.3.3)
10
Q
- EDI offers significant benefits to organizations, but it is not without certain major obstacles. Successful EDI implication begins with which of the following?
A
Answer: A. Mapping the work processes and flows that support the organization’s goals (7.3.11)
11
Q
***11. Which of the following situations represents an internal control weakness in the payroll department?
A
***Answer: B. Paychecks are distributed by the employees’ immediate supervisors. (7.4.8)
12
Q
- Matthews Corp. has changed from a system of recording time worked on time clock cards to a computerized payroll system in which employees record time in an out with magnetic cards. The computer system automatically updates all payroll records. Because of this change.
A
Answer: B. Part of the audit trail is altered. (7.5.2)
13
Q
***13. Which of the following matters is an auditor required to communicate to those in the entity charged with governance?
I. Disagreements with management about matters significant…
II. Initial selection of significant accounting policies in emerging areas that lack…
A
***Answer: C. Both I and II. (9.2.1)
14
Q
***14. An auditor should communicate misstatements to those charged with governance.
A
***Answer: B. If they are uncorrected. (9.2.6)
15
Q
- When auditing inventory, an auditor would least likely verify that:
A
Answer: A. All inventory owned by the client is on hand at the time of the count. (12.2.1)
16
Q
- Periodic or cycle counts of selected inventory items are made at various times during the year rather than a single inventory count at year end. Which of the following is necessary if the auditor plans to observe inventories at interim dates?
A
Answer: B. Perpetual inventory records are maintained. (12.2.8)
17
Q
- When outside firms of non-accountants specializing in the taking of physical inventory used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the auditor will ordinarily.
A
Answer: B. Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions. (12.2.9)
18
Q
***18.After accounting for sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:
A
***Answer: B. Represented by inventory tags are included in the listing. (12.2.10)
19
Q
- Which of the following restaurants was not presented in one of the projects? (NOT ON GLEIM)
A
Answer: D. Mulan
20
Q
- During an investigation of unexplained inventory shrinkage, an internal auditor is testing inventory additions as recorded in the perp inventory records. Because of internal control weakness, the info recorded on receiving reports may not be reliable. Under these circumstances, which of the following documents provide the best evidence of additions to inventory?
A
Answer: C. Vendors’ invoices (12.2.21)
21
Q
- Which of the following procedures will best detect the theft of valuable items from an inventory that consist of hundreds of different items selling from $1 to $10 and a few items selling for hundreds of dollars?
A
Answer: A. Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the validity of the perpetual inventory record. (12.2.14)
22
Q
- The primary reason an auditor required letters of inquiry be sent to a client’s legal counsel is to provide the auditor with
A
Answer: D. Corroboration of the information furnished by management about litigation, claims, and assessments. (13.1.1)
23
Q
- The primary source of information to be reported about litigations, claims and assessments is the?
A
Answer: C. Client’s management (13.1.3)
24
Q
- The refusal of a client’s legal counsel to provide representation on the legality of a particular act committed by the client is ordinarily.
A
Answer: B. A scope limitation (13.1.9)
25
25. Which of the following procedure will an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
Answer: D. Inquiring as to whether any unusual adjustments were made after year end (13.2.1)
26
***26. Which of the following statements best expresses the auditor's responsibility with respect to events occurring after the balance-sheet date?
***Answer: D. The auditor is responsible for identifying subsequent events affecting the financial statements. (13.2.2)
27
27. Which of the following procedures can be performed only after the date of the financial statements?
Answer: A. Examination of data to determine that a proper cutoff has been made. (13.2.3)
28
***28. On January 15, Year 2, before the Mapleview Co. released its financial statements for the year ended December 31, Year 1, it settled a long-standing lawsuit. A material loss resulted, and no prior liability had been recorded. How should this loss be disclosed or recognized?
***Answer: D. The financial statements should be adjusted to recognize the loss. (13.2.7)
29
***29. Subsequent events that provide evidence of conditions that arose subsequent to the date of the financial statements:
***Answer: D. May require disclosure in the notes to the financial statements. (13.2.8)
30
***30. Subsequent events are defined as events that occur subsequent to the:
***Answer: C. Balance sheet date but prior to the auditor’s report date. (13.2.9)
31
***31. Creditor Co. had a large account receivable that was considered fully collectible at its year end. However, the debtor’s plant was destroyed during the subsequent events period. Because the debtor was uninsured, it is unlikely that the account will be paid. What is the effect of this even on the year-end statements?
***Answer: C. Disclosure in a note to the financial statements. (13.2.17)
32
32. After issuing an auditor's report, the auditor has no obligation to make continuing inquiries about audited financial statements unless.
Answer: C. Information that existed at the report date and may affect the report comes to the auditor’s attention (13.2.20)
33
***33. The auditor learned of the following situations after issuing the audit report on February 6. Each is important to users of the financial statements. For which one does the auditor have responsibility for disclosure of the newly discovered facts?
***Answer: D. A conflict of interest involving credit officers and a principal company supplier that existed during the audit year was discovered on March 3. (13.2.24)
34
34. For which of the following matters should an auditor obtain written management representation?
Answer: C. Management’s compliance with contractual agreements that may affect the financial statements. (13.3.1)
35
35. The purpose of a management representation letter is to reduce
Answer: C. The possibility of misunderstanding concerning management’s responsibility for the financial statements. (13.3.2)
36
***36. When considering the use of management's written representations as audit evidence about the completeness assertion, the auditor should understand that such representations
***Answer: A. Complement, but do not replace, substantive procedures designed to support the assertion. (13.3.5)
37
***37. To Which of the following matters would an auditor not apply materiality limits when obtaining specific written management representation
***Answer: D. Fraud involving employees with significant roles in internal control. (13.3.6)
38
38. An auditor finds several misstatements in the financial statements that the client prefers not to correct. The auditor determines that the misstatements are not material in the aggregate. Which of the following actions by the auditor is most appropriate?
Answer: A. Document all misstatements accumulated during the audit and the conclusion about whether uncorrected misstatements are material. (13.3.8)
39
39. A written representation from the client's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the?
Answer: A. Chief executive officer and the chief financial officer. (CEO & CFO) (13.3.10)
40
40. If management refuses to provide certain written representation that the auditor believes are essential, which of the following is appropriate?
Answer: C. The client’s refusal may have an effect on the auditor’s ability to rely on other representations of management. (13.3.12)
41
41. Effective internal control activities over the payroll function may include
Answer: B. Verification of agreement of job time tickets with employee time clock card hours by timekeeping department employee. (7.4.12)
42
***42. The proper organizational role of internal auditing is to
***Answer: D. Serve as an independent, objective assurance and consulting activity that adds value to operations.
43
***43. Internal auditing is an assurance and consulting activity. An example of an assurance service is a(n)
***Answer: D. Compliance engagement.
44
44. A major reason for establishing an internal audit activity is to
Answer: D. Evaluate and improve the effectiveness of control process.
45
***45. What is the most accurate term for the procedures used by the board to oversee activities performed to achieve organizational objectives
***Answer: A. Governance
46
46. The work of the internal audit activity includes evaluating and contributing to the improvement of risk management systems, risk is
I. The negative effects of certain events to occur
II. Measured in terms of impact
III. Measured in terms of likelihood
Answer: C. II and III
47
47. The chief audit executive (CAE) is best defined as the
Answer: B. Person responsible for the internal audit.
48
48. The actions taken to manage risk and increase the likelihood that established objectives and goals will be achieved are best described as.
Answer: D. Control
49
49. Communication skills are important for internal audit. The internal audit should be able to effectively convey all of the following to the engagement client except?
Answer: D. The risk assessment used in selecting the area for engagement investigation. (Chapter 21.9)
50
50. The internal auditor's ultimate responsibility for informational security includes
Answer: D. Periodically assessing information security practices (21.1.12)
51
51. the scope section of an internal auditor’s final engagement communication should identify
Answer: B. Any limitations imposed. (Chapter 21.9)
52
***52. A charter is being drafted for a newly formed internal audit activity. Which of the following best describes an appropriate organizational position to be incorporated into the charter?
***Answer: A. The chief audit executive reports to the chief executive officer but has access to the board. (Chapter 21.2)
53
53. When faced with an imposed scope limitation, the chief audit executive needs to
Answer: B. Communicate the potential effects of the scope limitation to the board. (Chapter 21.2)
54
54. Use of external service providers with experience in healthcare benefits is appropriate when the internal audit activity is
Answer: D. All of the answers are correct.
55
***55. Internal Audit must possess the knowledge, skills, and other competencies essential to the perf of the individual responsibility Consequently
***Answer: A. Proficiency
56
56. Which of the following statements is true with respect to due professional care
Answer: C. An engagement communication should never be viewed as providing an infallible truth about a subject.
57
57. Which of the following best defines control
Answer: A. Control is the result of proper planning, organizing, and directing by management (21.4.1)
58
58. The procedure required preparing a prelisting of incoming cash receipts, with copies of the prelist going to the cashier and accounting, is an example of which type of control.
Answer: A. Preventive.
59
59. An organization directors, management, external audit, and internal audit all play important roles in creating a proper control environment. Senior management is primarily responsible for
Answer: A. Implementing and monitoring controls designed by the board of directors.
60
***60. In the planning phase, the scope on an internal audit engagement is defined by the
***Answer: A. Engagement objectives. (Chapter 21.5)
61
61. Determining that engagement objective have been met is part of the overall supervision of an engagement and is ultimately the responsibility of the
Answer: D. Chief audit executives. (Chapter 21.5)
62
62. Upon reviewing the final communication of engagement results, senior management decided to assume the risk of NOT implementing correcting actions on certain engagement observations. Evaluate the following and select the best alternative for chief audit executive:
Answer: D. Discuss the matter with senior management and possibly the board if the residual risk accepted is excessive. (Chapter 21.5)
63
63. SAME AS 62. (This question was repeated on the test)
63. SAME AS 62. (This question was repeated on the test)
64
64. Engagement information is usually considered relevant when it is
Answer: D. Consistent with the engagement objectives. (21.6)
65
65. What characteristic of information is satisfied by an original signed document
Answer: B. Reliability (Chapter 21.6)
66
66. The primary purpose of an internal auditor's working papers is to
Answer: A. Provide documentation of the planning and execution of engagement procedures performed. (Chapter 21.6)
67
67. When reviewing engagement working papers, the primary responsibility of an engagement supervisor is to determine that
Answer: D. Working papers adequately support the engagement observations, conclusions, and recommendations. (Chapter 21.6)
68
***68. Which of the following is most essential for guiding the internal audit staff
***Answer: D. Policies and procedures. (Chapter 21.7)
69
69. Ordinarily, those conducting internal quality program assessments report to
Answer: B. The chief audit executive. (Chapter 21.7)
70
70. Internal auditors may include in the audit report that their activities conform with the IIA Standards. They may use this statement only if
Answer: A. It is supported by the results of the quality program. (Chapter 21.7)
71
71. Which of the following is the false statement about the relationship between internal auditors and external auditors?
Answer: A. Oversight of the work of external auditors is the responsibility of the chief audit executive. (Chapter 21.7)
72
***72. A primary purpose of establishing a code of conduct within a professional organization is to
***Answer: C. Promote an ethical culture among professionals who serve others.
73
***73. The IIA Rules of Conduct set forth in the IIA's Code of Ethics
***Answer: A. Describe behavior norms expected of internal auditors.
74
74. Which of the following is permissible under the IIA's Code of Ethics
Answer: A. In response to a subpoena, an auditor appeared in a court of law and disclosed confidential, audit-related information that could potentially damage the auditor’s organization.
75
***75. Which of the following best defines an internal auditor’s overall opinion?
***Answer: B. The internal auditor’s professional judgment based on multiple engagements. (Chapter 21.9)
