12. 12. Corresponds to CLO 3(d) When using analytical procedures in the cash and investment process, the auditor might consider (Points : 6) the type of investment securities purchased and sold in the current year and the prior year the number of investment securities purchased and sold in the current year and the prior year the average interest rate earned on the held-to-maturity securities the average interest rate earned on the available-for-sale securities the average interest rate earned on the trading securities both B and C both C and D both D and E Question 13. 13. Corresponds to CLO 4 (a) The tests used by an auditor to gather evidence relating to long-term debt and owner's equity balance sheet transactions are called (Points : 6) tests of controls substantive tests of transactions substantive test of balances analytical procedures Question 14. 14. Corresponds to CLO 4 (b) Which of the following are management assertions about the accounts in long-term debt and owner's equity process? (Points : 6) existence or occurrence - for account balances completeness - for both classes of transactions and account balances valuation and allocation - for both classes of transactions and account balances rights and obligations - for account balances accuracy - for account balances both A and C both B and D both D and E Question 15. 15. Corresponds to CLO 4 (c) When using analytical procedures in the long-term debt and owner's equity process, the auditor might consider (Points : 6) the type of long-term debt purchased and sold in the current year and the prior year the average interest rate on long-term debt in the current year and the prior year the average interest rate earned on the owner's equity the current interest rate on long-term debt Question 16. 16. Corresponds to CLO 4 (d) Which of the following is a key substantive test of transactions for the long-term debt and owner's equity process? (Points : 6) obtain an analysis of notes payable, long-term debt, and lines of credit that are included in the financial statements obtain an analysis of notes payable, long-term debt, and lines of credit that originated during the year under audit obtain an analysis of the activity in the capital stock accounts, including opening balances, closing balances, and all transactions recorded in the capital stock accounts during the year obtain an analysis of accounts payable, notes payable, long-term debt, and lines of credit that originated during the year under audit both A and B both B and C both D and E Question 17. 17. Corresponds to CLO 5 (a) If the auditor does not assess a risk of material misstatement related to a potential contingent liability, (Points : 6) he is required to contact the external counsel for the audit client and request additional information he is required to contact the internal counsel for the audit client he is not required to contact the external counsel for the audit client he is not required to contact the internal counsel for the audit client and request additional information Question 18. 18. Corresponds to CLO 5 (b) When a contingent liability exists, the likelihood for loss can be evaluated as probable, reasonably possible, or remote. A remote loss is (Points : 6) a loss where the chance of occurrence is slight a loss that is likely to occur a loss where the chance of occurrence is moderate falls between the chance of occurrence is slight and a loss is likely to occur Question 19. 19. Corresponds to CLO 5 (c) Normally, the auditor's work does not extend into the following year. However, the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events require (Points : 6) disclosure in the financial records for the year under audit adjustment to the financial statements under audit disclosure in the prior financial statements adjustment to the financial records for the year under audit disclosure in the financial statements under audit both A and B both B and E both C and D Question 20. 20. Corresponds to CLO 5 (d) The auditor's responsibility related to related party relationships and transactions is (Points : 6) to obtain an understanding of related party relationships and transactions sufficient to determine if fraud is present to obtain an understanding of related party relationships and transactions sufficient to determine if misstatements are present to obtain an understanding of related party relationships and transactions sufficient to determine if fraud risk factors are present to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been properly classified in the financial statements to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for, and disclosed in the financial statements both A and B both C and E both D and E Question 21. 21. Corresponds to CLO 6 (a) The purpose of the management representation letter is to (Points : 6) clarify all the information provided to the auditor during the audit reducing the possibility of misunderstanding between management and the auditor obtain additional information to support audit conclusions clarify assumptions provided to the auditor during the audit obtain audit evidence that was not available during the normal course of fieldwork Question 22. 22. Corresponds to CLO 6 (b) When work papers are evaluated by audit management, they will be judged against the standard of (Points : 6) professional judgment due care legal liability due diligence Question 23. 23. Corresponds to CLO 6(c) Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time? (Points : 6) net asset positions positive operating cash flows ability to pay creditors on due dates change from credit to cash-on-delivery transactions with suppliers loss of key management without replacement both A and B both C and E both D and E Question 24. 24. Corresponds to CLO 6 (d) The auditing standards have listed several circumstances that might cause quantitatively immaterial misstatements to be judged material. These include (Points : 6) misstatements that change a loss into income the effect of the misstatement on compliance with loan covenants, contractual agreements and regulatory provisions the existence of statutory or regulatory reporting requirements that might have an impact on quantitative levels misstatements that have the effect of increasing employees' compensation the effect of misclassifying income between operating and nonrecurring both A and B both C and E both D and E Question 25. 25. Corresponds to CLO 7 (a) Modifying the audit report is necessary when the auditor (Points : 6) concludes that the financial statements are not free from material misstatement suspects that the financial statements are not free from material misstatement is unable to obtain sufficient appropriate evidence to conclude that the financial statements are materially misstated is unable to obtain sufficient appropriate evidence to conclude that the financial statements are free from material misstatement obtains sufficient appropriate evidence to conclude that the financial statements are free from material misstatement both A and B both A and D both C and E Question 26. 26. Corresponds to CLO 7 (b) When the auditor issues a qualified opinion due to a material misstatement, the auditor should state in the opinion paragraph that, (Points : 6) except for the possible effects of the matters described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework except for the probable effects of the matters described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework except for the likely effects of the matters described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework except for the effects of the matter described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework Question 27. 27. Corresponds to CLO 7 (c) The auditor issues a disclaimer of opinion when (Points : 6) the auditor has sufficient appropriate audit evidence and concludes that the misstatements to the financial statements are material, but not pervasive the auditor is unable to obtain sufficient appropriate evidence, but the auditor concludes that the possible effects of the misstatement could be both material and pervasive the auditor is unable to obtain sufficient appropriate evidence, but the auditor concludes that the possible effects of the misstatement could be material, but not pervasive the auditor has reasonable evidence to determine that the financial statements are not free from material misstatement the auditor has sufficient evidence to determine that the financial statements are not free from material misstatement Question 28. 28. Corresponds to CLO 7 (d) When the auditor issues an adverse opinion, the auditor should state in the opinion paragraph, that (Points : 6) in the auditor's opinion, because of the significance of the matter described in the basis for adverse opinion paragraph, the financial statements are not presented fairly in accordance with the applicable reporting framework because of the significance of the matter described in the basis for adverse opinion paragraph, the auditor has not been able to obtain sufficient appropriate evidence to provide a basis for an audit opinion, and accordingly, the auditor does not express an opinion on the financial statements except for the effects of the matter described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework Question 29. 29. Corresponds to CLO 8 (a) The auditor must evaluate whether the financial statements are consistent with the requirements of the applicable financial reporting framework and must also consider (Points : 6) the overall presentation, structure, and content of the financial statements the accounting policies selected are consistent with management's policies the accounting estimates made by management are predictable whether the financial statements, including the footnotes, represent the underlying transactions in a manner that achieves fair presentation the financial forecasts made by management are accurate both A and D both B and C both D and E Question 30. 30. Corresponds to CLO 8 (b) The auditor has specific audit responsibilities when he issues an audit report on financial statements prepared in accordance with a financial reporting framework that is generally accepted in another country. These responsibilities apply only to audit reports issued on statements prepared in accordance with a financial reporting framework that has not been recognized by the council of the AICPA in the U.S. The financial reporting frameworks recognized in the U.S. include (Points : 6) the Cost Accounting Standards Board the Financial Accounting Standards Board the Governmental Accounting Standards Board the American Accounting Standards Advisory Board the International Reporting Standards Board both A and B both B and C both D and E Question 31. 31. Corresponds to CLO 8 (c) The report on the effectiveness of internal control over financial reporting for companies filing reports with the SEC in the U.S. must include which of the following elements? (Points : 6) a statement that management is responsible for maintaining effective internal control over financial reporting and for assessing the effectiveness of the internal control a statement that the auditor is responsible for expressing an opinion on the effectiveness of internal control over financial reporting based on management's representations a statement that the audit was conducted in accordance with the standards of the American Institute of Certified Public Accountants a statement that the standards of the PCAOB require that the auditor plan and perform the audit to obtain reasonable assurance about the effectiveness of internal controls over the financial reporting process a statement that the auditor certifies the audit provides a reasonable basis for his opinion both A and D both B and C both D and E Question 32. 32. Corresponds to CLO 8 (d) The auditor must evaluate whether the financial statements are consistent with the requirements of the applicable financial reporting framework for which of the following items? (Points : 6) the accounting records adequately disclose the significant accounting policies used the accounting policies selected are consistent with the applicable financial reporting framework the accounting estimates made by management are predictable the information presented in the financial statements is relevant, reliable, comparable, and understandable the financial forecasts made by management are accurate both A and C both B and D both D and E Question 33. 33. Corresponds to CLO 9 a) Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.? (Points : 6) reliability the public interest relevance proficiency due care both A and D both B and E both C and E Question 34. 34. Corresponds to CLO 9 (b) According to Interpretation 101-1, independence is impaired if the auditor has any direct or material indirect financial interest in the client. A direct financial interest includes (Points : 6) a material financial interest in a company associated with the client stock ownership in the client stock ownership in the client by a distant cousin a loan to or from the client an investment in a mutual fund that owns shares of stock in the company both A and C both B and D both D and E Question 35. 35. Corresponds to CLO 9 (c) The auditor faces legal liability from which of the following sources? (Points : 6) audit clients second party liability under common law civil liability under the federal banking laws criminal liability civil liability under state securities laws both A and D both B and E both C and D Question 36. 36. Corresponds to CLO 9 (d) Which of the following is a defense that an auditor might use to defend himself against client lawsuits? (Points : 6) lack of duty non-negligent connection lack of damages contributory negligence absence of causal performance both A and D both B and E both C and E