MULTIPLE-CHOICE QUESTIONS
1. Complex judgments are found in what types of accounts?
a. Asset accounts.
b. Liability accounts.
c. Income statement accounts.
d. All of the above.

2. Which of the following statements is true about accounts requiring management estimates?
a. Because these accounts are estimates, the auditor likely just accepts whatever management determines to be appropriate.
b. Only a limited number of accounts on the balance sheet require management estimates.
c. Net accounts receivable is an account that does not require a management estimate.
d. None of the above is true.

3. Which of the following items would an auditor most likely use in making preliminary judgments about materiality?
a. The anticipated sample size of the planned substantive tests.
b. The organization's unaudited annual financial statements.
c. The results of the internal control questionnaire.
d. The contents of the management representation letter.

4. Which of the following statements is correct concerning materiality in a financial statement audit?
a. Analytical procedures performed during an audit's final review usually increase performance materiality levels.
b. The auditor's materiality judgments generally involve qualitative, but not quantitative, factors.
c. The auditor's materiality judgments generally involve quantitative, but not qualitative, considerations.
d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatement that could be considered material to any one of the financial statements.

5. Which of the following will the auditor do when evaluating identified misstatements?
a. The auditor will consider misstatements in both the current and prior periods.
b. The auditor will use either the rollover method or the iron curtain method, but not both.
c. The auditor will evaluate each misstatement individually, rather than consider the aggregate effect of all misstatements.
d. The auditor will do all of the above.

6. Which of the following is true regarding the auditor's evaluation of misstatements?
a. The auditor should consider the client's selective correction of misstatements to be a form of management bias.
b. The auditor does not need to consider whether the statement of cash flows is materially correct.
c. If the client resists correcting a misstatement the auditor should consider that misstatement to be material.
d. Both a. and c. are true.

7. Which of the following would the auditor not try to determine about a client's warranty estimate?
a. Whether the estimate is reasonable in the circumstance.
b. Whether the estimate was based on verifiable, objective assumptions.
c. How management developed the estimate.
d. Whether the factors and assumptions used by management deviate from historical patterns.

8. Which of the following procedures would an auditor most likely perform as part of auditing management estimates of longterm liabilities?
a. Inquire of management about related party transactions.
b. Confirm inventories held at outside warehouses.
c. Review past experience of the client related to warranty claims.
d. Send confirmations to client vendors.

9. Which of the following valuation issues are associated with merger and acquisition activity?
a. Valuing assets of the acquired organization at their FMV at the time of acquisition.
b. Measuring restructuring charges associated with the acquisition.
c. Valuing liabilities of the acquired organization at their FMV at the time of acquisition.
d. All of the above.