SIMs Wrong Answers

Question 0

When the current period financial statements of a nonissuer have been compiled or reviewed and those of prior period have been audited, the accountant should…2

Answer 0

1 issue appropriate compilation or review report on current period FS

2 include as separate paragraph an appropriate description of responsibility assumed for FS of prior period

Question 1

Financial statements were audited in 20X2 and reviewed in 20X3:

If the prior audit report is not reissued, there should be…

Answer 1

No reference to the prior year’s audited financial statements in
The introductory paragraph

Question 2

In a review report where should the reference to the American
Institute of Certified Public Accountants be mentioned?

Answer 2

Auditor’s responsibility (3rd paragraph)

Question 3

Financial statements were audited in 20X2 and reviewed in 20X3:

Where should e comparison of the scope of a review be to an audit?

Answer 3

Introductory (first paragraph)

Question 4

Negative assurance, quote in report 2

Answer 4

“Nothing came to the accountant’s attention”

“We are not aware”

Question 5

Financial statements were audited in 20X2 and reviewed in 20X3:

Where should the type of opinion expressed on the prior year’s audited financial statements be located?

Answer 5

In the fifth separate paragraph

Question 6

Financial statements were audited in 20X2 and reviewed in 20X3:

Should there be a reference to updating the prior year’s auditor’s report for events and circumstances occurring after that date, in the fifth paragraph?

Answer 6

No

Question 7

Inspection consists of…

Answer 7

Examining documents or records

Question 8

Examined sales invoices to see if they were initialed by the credit manager indicating credit approval.

Answer 8

Inspection to test controls

Question 9

To test controls look for a…

Answer 9

Yes or no answer to not a dollar value

Question 10

Examined invoices to support additions to the fixed asset account during the year. The auditor is gathering audit evidence regarding…

Answer 10

Existence and completeness of fixed assets on the balance sheet

Question 11

Agreed sales invoices to credit files to determine whether the customer had a credit file and had been approved for credit. What is the auditor doing?

Answer 11

Reperformance, to test controls over credit approval

Question 12

Reperfromance

Answer 12

Auditor’s independent execution of procedures or controls that
Were originally performed as part of entity’s internal control

Question 13

When asking the accounting manager how often cash is deposited and by whom, the auditor is determining if…

Answer 13

Control procedures over cash are implemented and operating effectively

Question 14

Would a standard report state in the scope paragraph that an audit includes assessing internal control?

Answer 14

No

Question 15

In a standard report an auditor’s concurrence with the accounting change…

2) unless…

Answer 15

Need not be explicitly stated, it is implicit

2) implicit unless auditor takes exception to the change

Question 16

Determine if following is significant or not and explain why:

Warranty expense may not be valued correctly

Answer 16

Accounting estimates/areas where there is measurement uncertainty
Represent significant risk

Question 17

The risk of material misstatement of the financial statements is generally greater when account balances and transactions are…(compared to what)

Answer 17

Subject to estimation rather than precise measurement

Question 18

The risk of material misstatement of the financial statements is generally greater when account balances and transactions are subject to estimation rather than precise measurement because of…

Answer 18

Inherent subjectivity in estimating future events

Question 19

Determine if following is significant or not and explain why:

Trade accounts payable may not be valued correctly.

Answer 19

Not significant risk

Trade accounts payable is subject to systematic processing and
Recording of these transactions is routine

Question 20

With trade accounts payable, dealing with the same provider repeatedly helps…

Answer 20

Uncover errors

Question 21

Although the assertion of trade accounts payable not being valued correctly should be tested it is…

Answer 21

Not likely to be a significant risk

Question 22

Determine if following is significant or not and explain why:

The company sold bonds for the first time this past year to fund expansion.

Answer 22

Significant risk

The accounting involved is unusual, infrequent or sizable

Question 23

The type of change in record keeping and reporting a new bond issuance requires individuals responsible for financial reporting to…

2) what would this do?

Answer 23

Learn and understand bond valuation

2) significantly increase the risk that FS may be misstated

Question 24

Determine if following is significant or not and explain why: Travel and estimation expense increased 10% since last year, but no new employees were hired.

Answer 24

Not significant Travel and entertainment is not unusual, infrequent or outside The normal course of business for company

Question 25

When Travel and entertainment expenses increase 10% since the last year, it is probably...2

Answer 25

Not material and can be explained through inquiry of management

Question 26

Determine if following is significant or not and explain why: Interest income has decreased significantly over the past year.

Answer 26

Not significant Interest income is easily audited by comparing the company's valuation with 1099-INT issued by bank

Question 27

Significant decrease in interest income during the year would most likely be due to...2

Answer 27

1 interest rate decreases 2 increased use of cash reserves to purchase fixed assets

Question 28

The interest income account is not subject to...

Answer 28

Estimation or complex calculations

Question 29

Determine if following is significant or not and explain why: Major construction on the company's warehouse building was completed by one of the shareholder's spouse's family members

Answer 29

Significant risk Large capital expense and related party transaction

Question 30

AU identifies significant related party transactions as...

Answer 30

A risk factor related to fraudulent financial reporting

Question 31

If a risk is related to recent economic, accounting or other developments or the risk is related to judgmental matters it is...

Answer 31

Considered a significant risk

Question 32

Indicators of material weaknesses in internal control include: Identification of...

Answer 32

Fraud whether or not material on part of senior management

Question 33

Indicators of material weaknesses in internal control include: Restatement of previously issued...

Answer 33

Financial statements to reflect correction of material misstatement Due to fraud of error

Question 34

Indicators of material weaknesses in internal control include: Identification by auditor of material misstatement of financial statements under audit in circumstances that indicate that...

Answer 34

Misstatement would not have been detected by entity's internal control

Question 35

Indicators of material weaknesses in internal control include: In effective oversight of the entity's...

Answer 35

Financial reporting and internal control by those charged with governance

Question 36

What paragraph is an accountant's lack of independence disclosed in in a compilation report?

Answer 36

Fourth paragraph

Question 37

What paragraph would the statement, "a compilation is substantially less in scope than an audit be" in a compilation report?

Answer 37

It would not be in a compilation report, but in review report

Question 38

Goods ordered by customers are shipped, but are not billed to anyone. What internal control should be implemented?

Answer 38

Compare shipping documents with sales invoices when goods | Are shipped

Question 39

Comparing shipping documents with sales invoices when goods are shipped should...

Answer 39

Prevent customers from receiving goods without being billed

Question 40

If the shipping clerk does not have an invoice for the order about to be shipped, the shipping should be...

Answer 40

Delayed until the billing clerk generates an invoice

Question 41

Goods are removed from inventory for unauthorized orders. What internal control should be implemented?

Answer 41

Require approved sales orders for goods to be removed from | inventory

Question 42

Requiring approved sales orders for goods to be removed from inventory will...

Answer 42

Reduce possibility of inventory taken for unauthorized purposes

Question 43

Inventory can be stolen from a business that does not have...

Answer 43

Strict controls over when goods can be removed from inventory

Question 44

Invoices are sent to allies in a fraudulent scheme and sales are recorded for fictitious transactions. What internal control should be implemented?

Answer 44

Compare sales invoices with shipping documents and approved customer orders before invoices are mailed

Question 45

Comparing sales invoices with shipping documents and approved customer orders before invoices are mailed should...

Answer 45

Prevent recording sales for fictitious transactions

Question 46

Sales transactions should have...3

Answer 46

1 an approved sales order 2 a shipping document and 3 an invoice

Question 47

Customers' checks are misappropriated before being forwarded to the cashier for deposit. What internal control should be implemented?

Answer 47

Mail monthly statements to customers with outstanding balances

Question 48

If checks are misappropriated before they are deposited, the customer's...

Answer 48

Account will not reflect the payment made

Question 49

Different customer accounts are each credited for the same cash receipt. What internal control should be implemented?

Answer 49

Comparing the total amount posted to the accounts receivable ledger with the amount included in the bank deposit slip

Question 50

Comparing the total amount posted to accounts receivable ledger with the amount included in the bank deposit slip will determine if...

Answer 50

The same payment was credited to two different customer accounts

Question 51

Customers' checks are properly credited to customer accounts and are properly deposited, but errors are made in recording in the cash receipts journal. What internal control should be implemented?

Answer 51

Employee other than the bookkeeper should prepare a bank reconciliation

Question 52

An employee other than the bookkeeper should prepare a bank reconciliation and find the discrepancy between...

Answer 52

Book and bank

Question 53

Customers' checks are misappropriated after being forwarded to the cashier for deposit. What internal control should be implemented?

Answer 53

Compare total amount posted to the accounts receivable ledger To the bank deposit slip

Question 54

Comparing the total amount posted to the accounts receivable ledger To the bank deposit slip will highlight...

Answer 54

Any failure to deposit payments

Question 55

If duties are properly segregated, the preparation of the bank deposit is performed by a different person than the one...

Answer 55

Posting payments to the A/R ledger using remittance advices