Professional Documents
Culture Documents
1.
Which of the following eliminates voluminous details from the auditor's working trial
balance by classifying and summarizing similar or related items?
a.
Account analyses.
b.
Lead schedules.
c.
Control accounts.
d.
Supporting schedules.
2.
An auditor who accepts an audit engagement and does not possess the industry expertise
of the business entity should
a.
engage financial experts familiar with the nature of the business entity.
b.
obtain a knowledge of matters that relate to the nature of the entity's business.
c.
refer a substantial portion of the audit to another CPA who will act as the principal
auditor.
d.
first inform management that an unqualified opinion cannot be issued.
3.
a.
b.
c.
d.
4.
The first standard of fieldwork requires, in part, that audit work be properly planned.
Proper planning as intended by the first standard of fieldwork would occur when the auditor
a.
physically observes the movement of securities already counted to guard against the
substitution of such securities for others that are not actually on hand.
b.
uses negative accounts receivable confirmations instead of positive confirmations
because the latter require mailing of second requests and review of subsequent cash
collections.
c.
compares all cash as of a particular date to avoid performing time-consuming cash
cutoff procedures.
d.
eliminates the possibility of counting inventory items more than once by arranging to
make extensive test counts.
5.
6.
Before applying principal substantive tests to the details of asset and liability accounts at
an interim date, the auditor should
a.
assess the difficulty in controlling incremental audit risk.
b.
investigate significant fluctuations that have occurred in the asset and liability accounts
since the previous balance-sheet date.
c.
select only those accounts which can effectively be sampled during year-end audit work.
d.
consider the tests of controls that must be applied at the balance-sheet date to extend
the audit conclusions reached at the interim date.
7.
Which of the following is not one of the three main reasons why the auditor should
properly plan engagements?
a.
To enable proper on-the-job training of employees.
b.
To enable the auditor to obtain sufficient competent evidence.
c.
To avoid misunderstandings with the client.
d.
To help keep audit costs reasonable.
8.
Which of the following would not be a consideration of a CPA firm in deciding whether to
accept a new client?
a.
Client's standing in the business community.
b.
Client's financial stability.
c.
Client's relation with its previous CPA firm.
d.
Client's probability of achieving an unqualified opinion.
9.
10.
11.
a.
b.
c.
d.
Which of the following would ordinarily not be found in the permanent file?
The history of the company.
The name of the predecessor auditor.
A record of the most important accounting policies.
A list of the major lines of business.
12.
Transactions with related parties are important to the auditors because they will be
disclosed in the financial statements if material. Generally accepted accounting principles
would not require disclosure of
a.
the nature of the related-party relationship.
b.
a description of transactions, including dollar amounts.
c.
the amounts due from and to related parties.
d.
Loans to officers during the year which had been repaid before the balance sheet date.
13.
Audit programs generally include procedures to test actual transactions and resulting
balances. These procedures are primarily designed to
a.
gather corroborative evidence.
b.
test the adequacy of internal control.
c.
detect irregularities that result in misstated financial statements.
d.
obtain information of informative disclosures.
14.
Which of the following items would not normally be included, in whole or in part, in the
auditor's permanent file on a client?
a.
The articles of incorporation and bylaws.
b.
Analyses of accounts such as long-term debt and stockholders' equity.
c.
Organization charts and internal control questionnaires.
d.
The audit program.
15.
When a company changes auditors, SAS No. 7 requires communication between the
predecessor and successor auditors. The burden of initiating the communication rests with
the
a.
predecessor.
b.
client.
c.
successor.
d.
SEC.
16.
A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified opinion has been issued
is the
a.
inherent risk.
b.
acceptable audit risk.
c.
statistical risk.
d.
financial risk.
17.
A measure of the auditor's assessment of the likelihood that there are material
misstatements in an account before considering the effectiveness of the client's internal
control is
a.
control risk.
b.
acceptable audit risk.
c.
statistical risk.
d.
inherent risk.
18.
19.
a.
b.
c.
d.
a.
b.
c.
d.
The current file of the auditor's working papers generally should include
a flowchart of the internal controls.
organization charts.
a copy of the financial statements.
copies of bond and note indentures.
a.
b.
c.
d.
a.
b.
c.
d.
20.
21.
22.
23.
During the course of an audit engagement an auditor prepares and accumulates audit
working papers. The primary purpose of the audit working papers is to
a.
aid the auditor in adequately planning the work.
b.
provide a point of reference for future audit engagements.
c.
support the underlying concepts included in the preparation of the basic financial
statements.
d.
support the auditor's opinion.
24.
Ordinarily, the working papers can be provided to someone else only with the express
permission of the client. This is the case even if
a.
the papers are subpoenaed by a court.
b.
the papers are used as a part of an AICPA quality review program.
c.
the papers are requested as evidence in an AICPA Trial Board hearing.
d.
the papers are transferred as a result of a CPA selling his/her practice to another CPA
firm.
25.
26.
a.
b.
c.
d.
27.
Which of the following is not an inherent risk that is common to all clients in certain
industries?
a.
Potential inventory obsolescence in the fashion clothes industry.
b.
Reserve for loss in the casualty insurance industry.
c.
Accounts receivable collection in the consumer loan industry.
d.
Brand loyalty in the cosmetics industry.
28.
all
a.
b.
c.
d.
29.
The auditor is likely to accumulate more evidence when the audit is for a company
whose stock is publicly held.
which has extensive indebtedness.
which is to be sold in the near future.
All three of the above.
One means of informing the client that the auditor is not responsible for the discovery of
acts of fraud is the
engagement letter.
representation letter.
responsibility letter.
client letter.
Which of the following is the most likely first step an auditor would perform at the
beginning of an initial audit engagement?
a.
Prepare a rough draft of the financial statements and of the auditor's report.
b.
Study and evaluate the system of internal administrative control.
c.
Tour the client's facilities and review the general records.
d.
Consult with and review the work of the predecessor auditor prior to discussing the
engagement with the client management.
30.
a.
b.
c.
d.
The permanent section of the auditor's working papers generally should include
time and expense reports.
a copy of the engagement letter.
a copy of key customer confirmations.
names and addresses of all audit staff personnel on the engagement.
a.
b.
c.
d.
31.
32.
Which of the following would not usually be included in the minutes of the board of
directors and/or stockholders?
a.
The duties and powers of the corporate officers.
b.
Declaration of dividends.
c.
Authorization of long-term loans.
d.
Authorization of individuals to sign checks.
33.
The purpose of the requirement in SAS No. 7 of having communication between the
predecessor and successor auditor is
a.
to allow predecessor to disclose information which would otherwise be confidential.
b.
to help the successor auditor to evaluate whether to accept the engagement.
c.
to help the client by facilitating the change of auditors.
d.
to ensure that information which is provided to the SEC on Form 8-K will be accurate.
34.
a.
b.
c.
d.
35.
An extensive understanding of the client's business and industry and knowledge about
the company's operations are essential for doing an adequate audit. For a new client, most
of this information is obtained
a.
from the predecessor auditor.
b.
from the Securities and Exchange Commission.
c.
from the permanent file.
d.
at the client's premises.
36.
Most auditors assess inherent risk as high for related parties and related-party
transactions because
a.
of the accounting disclosure requirement.
b.
of the lack of independence between the parties.
c.
both a and b.
d.
it is required by generally accepted accounting principles.
37.
Which of the following would not fit the description of a related-party transaction?
a.
An unusually large sale of merchandise to the company's best and largest customer.
b.
Sales of merchandise between a parent company and its subsidiary.
c.
Exchanges of equipment between two companies owned by the same person.
d.
Loans to corporate officers at market rates of interest with a regular repayment
schedule.
38.
a.
b.
c.
One of the first things that the auditor will do after accepting a new client is
communicate with the client's predecessor auditor.
contact the client's attorney to discover legal obligations.
study the client's internal controls.
d.
39.
The first standard of field work recognizes that early appointment of the independent
auditor has many advantages to the auditor and the client. Which of the following
advantages is least likely to occur as a result of early appointment of the auditor?
a.
The auditor will be able to plan the audit work so that it may be done expeditiously.
b.
The auditor will be able to complete the audit work in less time.
c.
The auditor will be able to better plan for the observation of the physical inventories.
d.
The auditor will be able to perform the examination more efficiently and will be finished
at an early date after the year-end.
40.
The predecessor auditor is required to respond to the request of the successor
auditor for information, but the response can be limited to stating that no information will be
provided when
a.
predecessor auditor has poor relations with successor auditor.
b.
client is dissatisfied with predecessor's work.
c.
there are legal problems between client and predecessor.
d.
predecessor believes that client lacks integrity.
41.
a.
b.
c.
d.
42.
43.
44.
b.
can be used to alter the auditor's responsibilities under generally accepted auditing
standards.
c.
can affect legal responsibilities to the client.
d.
is useful only if it is an audit engagement, but has no effect for review or compilation
services.
45.
The first standard of field work, which states that the work is to be adequately planned
and assistants, if any, are to be properly supervised, recognizes that
a.
early appointment of the auditor is advantageous to the auditor and the client.
b.
acceptance of an audit engagement after the close of the client's fiscal year is generally
not permissible.
c.
appointment of the auditor subsequent to the physical count of inventories requires a
disclaimer of opinion.
d.
performance of substantial parts of the examination is necessary at interim dates.
46.
a.
b.
c.
d.
47.
Which of the following is not a document or record that should be examined early in the
engagement?
a.
Management letter.
b.
Corporate charter and bylaws.
c.
Contracts.
d.
Minutes of board of directors' and stockholders' meetings.
48.
Which of the following is not a potential effect of an auditor's decision that a lower
acceptable audit risk is appropriate?
a.
More evidence is required.
b.
Less evidence is required.
c.
Special care is required in assigning experienced staff.
d.
Review of the working papers by personnel who were not assigned to the engagement.
49.
The official record of the meetings of the board of directors and stockholders is contained
in the corporate
a.
bylaws.
b.
charter.
c.
minutes.
d.
license.
50.
Which of the following is a basic tool used by the auditor to control the audit work and
review the audit progress?
a.
Audit program.
b.
Engagement letter.
c.
Time and expense summary.
d.
51.
Progress flowchart.
52.
a.
b.
c.
d.
53.
54.
Since SAS No. 21 requires audit testing of segment information if client has different lines
business, it is important for the auditor to
visit all the different business locations before the audit is completed.
identify the segments early.
develop an audit program for each line of business.
have an office in each city where a business segment is located.
of
a.
b.
c.
d.
55.
56.
a.
b.
c.
d.
Which of the following would not be included in the auditor's working papers?
The accounting manual.
The results of the preceding year's audit.
Descriptive information about the internal control structure.
A time budget for the various audit areas.
57.
58.
59.
It is easier and more common to implement increased evidence accumulation for inherent
risk than for acceptable audit risk because
a.
inherent risk can usually be isolated to one or two accounts.
b.
inherent risk applies to the entire audit.
c.
acceptable audit risk and sample sizes are set statistically.
d.
acceptable audit risk does not impact on the amount of evidence which must be
accumulated.
Discuss the purpose of an audit engagement letter.
Define the term "related party" and discuss why an auditor should identify the client's
related parties early in the audit.
ANSWERS
58.
59.
1 - 10.
11 - 20.
21 - 30.
31 - 40.
41 - 50.
b, b, d, a, a,
b, d, a, d, c,
a, d, d, d, b,
c, a, b, b, d,
d, c, b, c, a,
a, a, d, c, b
b, d, b, c, c
d, d, a, c, b
c, a, d, b, c
c, a, b, c, a
51 - 57.
b, d, b, b, c, a, a