1. An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors of fraud and therefore should

Select one:

a.not rely on internal controls that are designed to prevent or detect errors or fraud.

b.extend the work to audit the majority of the recorded transactions and records of an entity.

c.plan and perform the engagement with an attitude of professional skepticism.

d.design audit tests to detect unrecorded transactions.

2. In testing for cutoff, the objective is to determine

Select one:

a.the proper cutoff between capitalizing and expensing expenditures.

b.whether all of the current period's transactions are recorded.

c.whether transactions are recorded in the correct accounting period.

d.the proper cutoff between disclosing items in footnotes or in account balances.

3. The objective of an audit of the financial statements is an expression of an opinion on

Select one:

a.the fairness of the financial statements in all material respects.

b.the accuracy of the balance sheet and income statement.

c.the accuracy of the financial statements.

d.the accuracy of the annual report.

4. Which of the following is not a step in the professional judgment process?

Select one:

a.perform the analysis

b.make the decision

c.review and document the rationale for the conclusion

d.determine the type of audit opinion

5. Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

Select one:

a.The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud.

b.The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued.

c.The auditor is responsible for detecting material financial statement fraud, but not a material misappropriation of assets.

d.The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter.

6. Which of the following is the auditor least likely to do when aware of an illegal act?

Select one:

a.consider the impact of the illegal act on the relationship with the company's management

b.obtain evidence about the potential effect of the illegal act on the financial statements

c.contact the local law enforcement officials regarding potential criminal wrongdoing

d.discuss the matter with the client's legal counsel

7. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements that are not ________ are detected.

Select one:

a.statistically significant to the financial statements

b.material to the financial statements

c.identified by the client

d.important to the financial statements

8. Which of the following management assertions is not associated with classes of transactions and events?

Select one:

a.occurrence

b.rights and obligations

c.classification

d.accuracy

9. When the auditor considers whether he understands the form and substance of the transaction or event, and whether the relevant authoritative literature has been applied consistently by the client, he is performing which step in the professional judgment process?

Select one:

a.performing the analysis and identifying potential alternatives

b.gathering the facts

c.making the decision

d.identifying and defining the issue

10. The most important general ledger account included in and affecting several cycles is the

Select one:

a.income tax expense and liability accounts.

b.cash account.

c.retained earnings account.

d.inventory account.

11. An auditor has a duty to

Select one:

a.be a guarantor of the fairness in the statements.

b.be equally responsible with management for the preparation of the financial statements.

c.provide reasonable assurance that material misstatements will be detected.

d.be an insurer of the fairness in the statements.

12. The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

Select one:

a.management.

b.both management and the auditor equally.

c.management for the statements and the auditor for the notes.

d.the auditor.

13. Auditors have found that generally the most efficient and effective way to conduct audits is to

Select one:

a.verify each entry that was made into an account.

b.obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts.

c.obtain assurance about the ending balance of the account only.

d.obtain complete assurance about the correctness of each class of transactions affecting the account.

14. When an auditor believes that an illegal act may have occurred, the auditor should first

Select one:

a.consult with legal counsel or others knowledgeable about the illegal act.

b.withdraw from the engagement.

c.obtain an understanding of the nature and circumstances of the act.

d.discuss the matter with the audit committee.

15. If management insists on financial statement disclosures that the auditor finds unacceptable, the auditor can withdraw from the engagement or

Select one:

a.

Issue an adverse opinion	Issue a qualified opinion
No	No

b.

Issue an adverse opinion	Issue a qualified opinion
Yes	Yes

c.

Issue an adverse opinion	Issue a qualified opinion
Yes	No

d.

Issue an adverse opinion	Issue a qualified opinion
No	Yes

16. An auditor discovers that the company's bookkeeper unintentionally made an mistake in calculating the amount of the quarterly sales. This is an example of

Select one:

a.a defalcation.

b.an error.

c.employee fraud.

d.misappropriation of assets.

17. Management assertions are

Select one:

a.explicitly expressed representations about the financial statements.

b.provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

c.stated in the footnotes to the financial statements.

d.directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS.

18. After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on

Select one:

a.the auditor's professional judgment.

b.the AICPA's Code of Professional Conduct.

c.generally accepted accounting principles.

d.generally accepted auditing standards.

19. Another term for misappropriation of assets is

Select one:

a.management fraud.

b.employee fraud.

c.collusion.

d.illegal acts.

20. The auditor's best defense when material misstatements are not uncovered is to have conducted the audit

Select one:

a.in a timely manner.

b.as effectively as reasonably possible.

c.only after an adequate investigation of the management team.

d.in accordance with generally accepted auditing standards.