Final Review

Question 1

In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on methods and significant assumptions that are: Deviations from…

Answer 1

Historical patterns

Question 2

A period during which GDP is rising and unemployment is falling is called a(n):
A. Recession.
B. Peak.
C. Expansion.
D. Trough.

Answer 2

Expansion

Economic phases are Trough, Expansion, Peak, and Recession

Question 3

An auditor would be least likely to consider with respect to fair values: The effect on fair value measurement and disclosure of information available…

Answer 3

Subsequent to the audit

Question 4

When an employee is a cashier but also has custody over cash and is also performing the reconciliation, this is called a Control Deficiency in…

Answer 4

Design

Question 5

What is not a primary factor affecting the efficiency and effectiveness of substantive analytical procedures in detecting misstatements? Applying analytical procedures to assertions where misstatements are…

Answer 5

Apparent

Analytical procedures work best when misstatements aren’t obvious from detailed reviews.

Question 6

Which of the following is true about using analytical procedures as a substantive test? Analytical procedures are ________ required as a substantive test and are more effective for predictable accounts.

Answer 6

Not

Analytical procedures work best when accounts follow consistent patterns, making deviations easier to spot.

Question 7

In directional testing an auditor in order to ensure that an asset has not been overstated, an auditor may want to look at the…

Answer 7

Source Documentation

Question 8

After confirming a related party transaction, what should an auditor do? ____________ the business purpose of the transaction

Answer 8

Understand

Question 9

Which audit procedure is not used to test valuation, allocation, and accuracy? ___________ transactions to supporting documentation

Answer 9

Vouching

This is because auditors recalculate, reconcile, or foot account balances to test valuation. (RRF)

Question 10

What must a report say when financial statements of a nonissuer are reviewed? That they are less in _______ than an audit.

Answer 10

Scope

Question 11

What is a key control for ensuring sales are properly authorized? Sales orders are ______________by the ________department before processing.

Answer 11

Approved, Credit

This ensures customers have the ability to pay, reducing financial risk before fulfilling the order.

Question 12

After obtaining an understanding of the entity and its environment, including its system of internal control, an auditor decided to perform tests of controls. This is likely because: The auditor’s ____________ is based on the effective ______________________.

Answer 12

Risk assessment, operation of controls

Question 13

An auditor most likely would issue a disclaimer of opinion due to: _____________ refusal to furnish a client representation letter.

Answer 13

Management’s

Question 14

Which of the following factors is most relevant when an auditor considers the client’s organizational structure in the context of control risk? The suitability of the client’s _________________.

Answer 14

Lines of reporting.

Question 15

An auditor is planning to use substantive analytical procedures in the current audit. Which of the following is not a primary factor affecting their efficiency and effectiveness in detecting misstatements? Misstatements that are _____________ from detailed evidence

Answer 15

Obvious

Question 16

An accountant’s working papers for an engagement to review the financial statements of a nonpublic entity would be least likely to include which of the following forms of documentation?

Answer 16

Study and evaluation of internal control.

Question 17

Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer’s review engagement?

Answer 17

Making inquiries of management regarding maturities, interest rate, and collateral.

Question 17

An accountant’s working papers for an engagement to review the financial statements of a nonpublic entity would be least likely to include which of the following forms of documentation?

Answer 17

Study and evaluation of internal control

Because the accountant is not required to obtain an understanding of internal control or to assess control risk.

Question 18

In an engagement to review the financial statements of a nonissuer, the accountant most likely would perform which of the following procedures?

Answer 18

Analysis of inventory turnover.

Question 19

Evidence came to Baker’s attention that indicated substantial doubt as to Hall’s ability to continue as a going concern. Based on the review evidence obtained, Baker concludes that management’s plans alleviate the substantial doubt. Which of the following statements best describes Baker’s reporting responsibility concerning this matter?

Answer 19

Baker is not required to modify the accountant’s review report.

Question 20

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Answer 20

Including a list of items or invoices that constitute the account balance.

Question 21

When determining the nature, extent, and timing of supervision for an audit, the audit supervisor may consider all of the following, except for which factor?

Answer 21

The assistant’s familiarity with the client’s industry.

Question 22

Which of the following statements is correct concerning the use of negative confirmation requests?

Answer 22

Unreturned negative confirmation requests rarely provide significant explicit evidence.

Question 23

A weakness in internal control over recording retirements of equipment may cause an auditor to:

Answer 23

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

Question 24

In using the work of a specialist, an auditor referred to the specialist's findings in the auditor's report. This would be an appropriate reporting practice if the:

Answer 24

Auditor, as a result of the specialist's findings, adds an explanatory paragraph in a modified opinion emphasizing a matter regarding the financial statements.

Question 25

The audit plan usually cannot be finalized until the:

Answer 25

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

Question 26

The COSO Cube is used to illustrate the relationship between:

Answer 26

Categories of objectives, internal control components, and entity organizational levels.

Question 27

As part of the current audit, the auditor performs a preliminary review of a large client’s internal controls over accounts receivable. Which of the items below would the auditor flag as an internal control weakness over accounts receivable?

Answer 27

An aging schedule is prepared and all accounts ninety days or more are written off with prior authorization of the controller.

Question 28

In the integrated audit of an issuer, an auditor has identified entity-level controls that are important to the conclusion as to whether the company has effective internal control over financial reporting. Each of the following is an example of an entity-level control, except:

Answer 28

Controls over the completeness of deposited cash.

Question 29

An accountant who is conducting a review of the unaudited financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services would be required to:

Answer 29

Obtain a management representation letter.

Question 30

Under U.S. auditing standards, in which of the following situations would an auditor ordinarily issue an unmodified audit opinion without an emphasis-of-matter paragraph?

Answer 30

The auditor decides to make reference to the audit of a component auditor as a basis, in part, for the auditor's opinion in the audit of a nonissuer.

Question 31

Which of the following is not a control environment factor?

Answer 31

Proper segregation of duties Policies and procedures involving segregation of duties are control activities, not control environment factors.

Question 32

An auditor finds that a client has recorded a lower credit loss allowance than the acceptable range. What adjustment should be proposed?

Answer 32

Since the client's allowance ($800,000) is lower than the auditor's minimum acceptable range ($1.5 million), the difference is $700,000. The auditor will propose: Debit: Credit loss expense $700,000 Credit: Allowance for credit losses $700,000 This adjustment corrects the understatement to align with acceptable accounting standards.

Question 33

A client asks their CPA to change an audit into a compilation. What must the CPA consider before agreeing?

Answer 33

The CPA must consider how much work remains to complete the audit and the reason behind the request. If the audit is nearly finished, they should assess whether the request is reasonable.

Question 34

When assessing an internal auditor's objectivity, an independent auditor should:

Answer 34

Consider the organizational level to which the internal auditor reports.

Question 35

Analytical procedures used in the planning phase of an audit should focus on:

Answer 35

Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit.

Question 36

A CPA is drafting the current year's auditor report for financial statements that include the prior year's statements, but the prior auditor’s report (which had a qualified opinion) is not presented. What must the new auditor include in their report?

Answer 36

Not name the predecessor auditor unless their practice was acquired or merged. Indicate the type of report issued by the predecessor auditor. Explain the substantive reasons for the predecessor auditor’s qualification. This ensures transparency about the prior audit findings while properly addressing comparative statements.