1.

(TCO F) If the auditor believes that the financial statements are not fairly stated or is unable to reach
an conclusion because of insufficient evidence, the auditor (Points : 5)
should withdraw from the engagement.
should request an increase in audit fees so that more resources can be used to conduct the
audit.
has the responsibility of notifying financial statement users through the auditor's report.
should notify regulators of the circumstances.

Question 2. 2. (TCO F) The auditor's best defense when material misstatements are not uncovered is to
have conducted the audit (Points : 5)
in accordance with auditing standards.
as effectively and as reasonably possible.
in a timely manner.
only after an adequate investigation of the management team.

Question 3. 3. (TCO F) Which statement is true of a public company's financial statements? (Points :
5)
Sarbanes-Oxley requires only the CEO to certify the financial statements.
Sarbanes-Oxley requires only the CFO to certify the financial statements.
Sarbanes-Oxley requires the CEO and CFO to certify the financial statements.
Sarbanes-Oxley requires neither the CEO nor the CFO to certify the financial statements.

Question 4. 4. (TCO F) When the auditor knows that a material illegal act has occurred, he or she must
(Points : 5)
report it to the proper governmental authorities.
issue a qualified audit report.

consider the effects on the financial statements, including the adequacy of disclosure.
issue an adverse opinion.

Question 5. 5. (TCO F) Which form of evidence is most reliable? (Points : 5)

General ledger account balances
Confirmation of accounts receivable balance received from a customer
An internal memo explaining the issuance of a credit memo
Copy of month-end adjusting entries

Question 6. 6. (TCO F) An example of an external document is (Points : 5)

employee time reports.
bank statements.
purchase order for company purchases.
carbon copies of checks.

Question 7. 7. (TCO F) "The accumulation and evaluation of evidence about information to determine
and report on the degree of correspondence between the information and established criteria by a
competent, independent person" is a definition of (Points : 5)
analytical procedures.
tests of transactions.
tests of balances.
auditing.

Question 8. 8. (TCO F) To be considered reliable evidence, confirmations must be controlled by (Points

: 5)

a client employee responsible for accounts receivable.

a financial statement auditor.
a client's internal audit department.
a client's controller or CFO.

Question 9. 9. (TCO F) The primary purpose of performing analytical procedures in the planning phase
of an audit is to (Points : 5)
help the auditor obtain an understanding of the client's industry and business.
assess the going concern assumption.
indicate possible misstatements.
reduce detailed tests.

Question 10. 10. (TCO G) Which statement is not correct with respect to analytical procedures? (Points
: 5)
Auditing standards emphasize the need for auditors to develop and use expectations.
Analytical procedures must be performed throughout the audit.
Analytical procedures may be performed at any time during the audit.
Analytical procedures use comparisons and relationships to assess whether account balances
appear reasonable.

Question 11. 11. (TCO G) Which ratio is best used to assess a company's ability to meet its long-term
debt obligations? (Points : 5)
Quick ratio
Return on common equity
Debt to equity

Current ratio

1. (TCO A) Match the following definitions to the appropriate terms.

(Points : 5)
Potential Matches:
1 : Pronouncements providing specific guidance on auditing matters for all entities except public
companies
2 : Standards used by nonpublic companies and for interim audits for public companies as initially
adopted by the PCAOB
3 : The standards used for public company audits

Answer
: Public Company Accounting Oversight Board auditing standards
3

: Generally accepted auditing standards

2

: Statements on auditing standards

1

Question 2. 2. (TCO B) The following is a portion of a qualified scope and opinion report due to a scope
restriction. (Note: A separate report was issued on the effectiveness of internal control over financial
reporting.)
To the shareholders of Fast Times Corporation,
We have audited the accompanying balance sheet of Fast Times Corporation as of September 30, 2009,
and the related statements of income, retained earnings, and cash flows for the past year. These financial
statements are the responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
We were unable to obtain audited financial statements supporting the company's investment in a foreign
affiliate stated at $1,040,000, or its equity in earnings of that affiliate of $501,000, which is included in net
income, as described in Note 14 to the financial statements. Because of the nature of the company's
records, we were unable to satisfy ourselves as to the carrying value of the investment or the equity in its
earnings by means of other auditing procedures.
Required: Complete the above report by preparing the opinion paragraph. Do not date or sign the report.

(Points : 20)

In
our opinion, except for the effect of such
adjustments, if any, as
might have been determined to be necessary had
w e been able to examine
evidence regarding the foreign affiliate investment

Question 3. 3. (TCO C) The following situation involves a possible violation of the AICPA's code of
professional conduct. For this situation, (1) determine the applicable rule number from the code, (2)
decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or
does not violate) the code. Your answer should be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Kelley Brent, CPA, is a partner in the CPA firm that audits Dane Inc., a closely-held corporation. Kelleys
sister-in-law's brother is the chief financial officer of Dane Inc. (Points : 10)

Rule#
101 - Independence. Violation? No. According to
the Code,
independence w ill be impaired by members or their
immediate relative,
and in-law s siblings is not considered an immediate

Question 4. 4. (TCO C) The following situation involves a possible violation of the AICPA's code of
professional conduct. For this situation, (1) determine the applicable rule number from the code, (2)
decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or
does not violate) the code. Your answer should be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Brad Heist, CPA, was traveling from Dallas to Houston, TX, when he was pulled over by a police officer
on suspicion of driving under the influence. The Breathalyzer and a subsequent blood test revealed that
Brad was definitely impaired. He was convicted in court of driving while under the influence of alcohol
(DUI). This was Brad's fourth conviction of DUI in less than a year, a felony under current Texas law.
Accordingly, Brad was sentenced to 18 months in prison. (Points : 10)

Rule#
501 - Acts Discreditable. Violation? Yes.
According to the Code,
felonies are considered acts discreditable. A crime
punishable by
imprisonment for more than 1 year is a felony. In

Question 5. 5. (TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit
committee of a public company has specific guidelines to which employees must adhere. Discuss some
of the mandated features of the audit committee of a public company under SOX. (Points : 25)

An
Audit Committee is a selected number of members
of a company's board of
directors w hose responsibilities include helping
auditors remain
independent of management. The SOX requires

Question 6. 6. (TCO D) There are four major sources of an auditor's legal liability. One source is liability
to the audit client under common law. Briefly summarize the other three sources. (Points : 25)
The
other three sources are:
1. Liability to third parties under common law . A
CPA firm maybe liable
to third parties if a loss w as incurred by the
claimnant due to

Question 7. 7. (TCO F) Below are 10 documents typically examined during an audit. Classify each
document as either internal or external.
_____ 1: Canceled checks for payments of accounts payable
_____ 2: Payroll time cards
_____ 3: Duplicate sales invoices
_____ 4: Vendors invoices
_____ 5: Bank statements
_____ 6: Minutes of the board of directors meetings
_____ 7: Signed lease agreements
_____ 8: Notes receivable
_____ 9: Subsidiary accounts receivable records
_____ 10: Remittance advices (Points : 25)

5. External
6. Internal
7. External
8. External
9. Internal
10. External

Question 8. 8. (TCO G) Discuss the four primary purposes of analytical procedures performed during
the planning phase of an audit. (Points : 25)
on the clients business,
then the auditor has determined if it is practicable
to reduce the
detection risk and if needed to perform tests
controls to obtain audit
evidence about their operating effectiveness.