1.Which one is not correct about generally accepted auditing standards?

Interpretive Publications, which are officially considered less authoritative and less binding than auditing standards, are included as part of GAAS.

separate auditing standards have been developed for the audits of U.S. governmental entities and foreign entities.

Interim Auditing Standards,issued by the AICPA, may serve as an appropriate source of GAAS for the audits of public entities.

departures from auditing standards that impose presumptively mandatory requirements on auditors are not permitted under any circumstances.

2. Who conducts PCAOB inspections?

current employees of another public accounting firm selected by the PCAOB.

individuals selected by the PCAOB who are not current employees of public accounting firms.

another public accounting firm selected by the firm being inspected.

the AICPA's Public Oversight Board. 3.What would an auditor be most concerned about when he/she has substantial doubt about the entity's ability to continue as a going concern because of negative cash flows?

possible effects on the entity's financial statements.

correlation of detection risk and inherent risk.

effectiveness of the entity's internal control activities.

control environment factors that affect the organizational structure. 4.Which paragraph of the standard auditor report indicates the auditors' responsibility to express an opinion on the financial statements?

explicitly represented in the scope paragraph of the auditors' standard report.

implicitly represented in the auditors' standard report.

explicitly represented in the introductory paragraph of the auditors' standard report.

explicitly represented in the opinion paragraph of the auditors' standard report.

5.An auditor, Mark CPA, wants to test that a company's shipping documents match sales invoices before they are recorded in the financial statements as revenue. What management assertion does Mark place the greatest emphasis on?

valuation or allocation.

rights and obligations.

existence or occurrence.

presentation and disclosure. 6. To figure out whether there are related parties, what should an auditor, Mark CPA, perform first?

Review the company's business structure.

Request a list of related parties from management.

Review proxy and other materials filed with the SEC.

Examine invoices, contracts, and purchasing orders.

7.Mark & Adam were engaged to audit GM Corp's comparative financial statements for the years ended December 31, Year 1 and Year 2. The Year 1 financial statements were presented in accordance with generally accepted accounting principles, but the Year 2 financial statements were determined to be materially misstated. As a result, Mark & Adam should

issue an unmodified opinion on the Year 1 financial statements and a qualified opinion on the Year 2 financial statements.

reissue the previous opinion on the Year 1 financial statements and withdraw from the engagement.

issue an unmodified opinion on the Year 1 financial statements and disclaim an opinion on the Year 2 financial statements.

issue a qualified opinion on the comparative financial statements as a whole.

8. What should an audit team do if they lack expertise in the industry in which the client operates?

design special substantive tests to compensate for the lack of industry expertise.

obtain knowledge of matters that relate to the nature of the entity's business.

reduce audit risk by lowering the preliminary levels of materiality.

9. Mark assisted GM Corporation in preparing its financial statements and gave GM permission to use Mark's name in communications containing these financial statements. If Mark did not audit the financial statements, what type of opinion should be expressed?

Unmodified opinion with an other-matter paragraph limiting the level of assurance provided by Mark

Qualified opinion with an additional paragraph indicating a circumstance-imposed scope limitation

Mark is not required to issue a report or opinion in this situation

Disclaimer of opinion because Mark did not audit the financial statements

10.Which one would cause an auditor to issue a disclaimer of opinion?

The auditor is discovered to own a financial interest in the entity.

The audit is performed, with limited exception, in accordance with generally accepted auditing standards.

The entity's financial statements are not presented in conformity with the applicable financial reporting framework.

The audit reveals weaknesses in the client's internal control over financial reporting.

11. Which one indicates theleastassurance of reliability when performing an audit?

Receivable confirmations from the client's customers

Prior months' bank statements obtained from the client

Municipal property tax bills prepared in the client's name

Prenumbered receiving reports completed by the client's employees 12. Which one is correct about the auditors' report on summary financial statements?

The report will indicate whether the summary financial statements are fairly stated in relation to the full financial statements.

The report will express an opinion on whether the summary financial statements present the financial condition, results of operations, and cash flows in accordance with generally accepted accounting principles.

The report will express negative assurance on whether the summary financial statements are prepared in accordance with AICPA presentation guidelines.

Auditors can only issue a report on summary financial statements if they have expressed an unmodified opinion on the full financial statements. 13.What is the best way to develop expectations when auditors apply analytical procedures?

Comparing client data with client-determined expected results to reduce detailed tests of account balances

Considering unaudited account balances and ratios to calculate what adjusted balances should be

Considering the pattern of several unusual changes without trying to explain what caused them

Identifying reasonable explanations for unexpected differences before talking to client management 14. Everything stated below is correct about the responsibility for establishing GAAS except for

The PCAOB issues auditing standards for the audit of public entities, subject to SEC approval.

If not superseded by the PCAOB, Statements on Auditing Standards issued prior to 2003 are applicable to the audit of public entities.

Prior to the Sarbanes-Oxley Act, the Auditing Standards Board issued auditing standards for the audits of both public and private entities.

Standards issued by the Auditing Standards Board after 2003 apply to the audits of both public and private entities.

15.Mark is auditing the financial statements of TriMas Corp., an energy company. The FASB requires that these financial statements must be accompanied by supplementary mineral reserve information. If this required information is materially misstated, what type of report should Mark issue?

Unmodified opinion on the financial statements with an other-matter paragraph expressing an adverse opinion on the mineral reserve information

Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral reserve information

Qualified opinion on the financial statements and mineral reserve information due to the misstatement

Adverse opinion on the financial statements and mineral reserve information due to the misstatement 16. What risk is related to the probability that the information may be misleading? audit risk. information risk. assurance risk. business risk.17.Where should auditors explain the reasons for an adverse opinion on the entity's financial statements in an additional paragraph?

within the footnotes to the financial statements.

preceding the opinion paragraph.

preceding the Auditor's Responsibility section.

following the opinion paragraph.

18. Auditors may issue the standard report on the entity's financial statements in which of the following situations?

The auditors reference component auditors who examined a subsidiary of group financial statements.

The entity changed accounting principles having an immaterial effect on the entity's financial position, results of operations, and cash flows.

The auditors wish to emphasize a matter regarding the financial statements.

The auditors have not been able to audit a substantial portion of the balance sheet because of a circumstance-imposed scope limitation. 19.In what situation should auditors modify their prior expressed opinion on the previous-years' financial statements when reporting on comparative financial statements?

prior-years' opinions were unmodified and the opinion on the current-year's financial statements is modified due to a lack of consistency.

prior-years' financial statements are restated following an acquisition in the current year.

prior-years' financial statements are restated to conform with generally accepted accounting principles.

auditors were predecessor auditors who have been requested by a former client to reissue the previous report. 20. In what situation is consistency required to be referenced in the audit report?

the format of the Statement of Cash Flows.

the classification of financial statement amounts.

accounting principles.

accounting estimates.

21. An auditor, David CPA, looked at a bank statement received and held by the client. What audit procedure is this?

Examination of documents Recalculation Physical observation Confirmation

22. When a prior opinion is changed from qualified to unmodified, the auditors' report on comparative financial statements should not modify the previously expressed opinion or refer to factors affecting the opinion on the prior-years' financial statements.

update the previously expressed opinion and explain the reasons for the change, including a reference to the footnote describing the change.

update the opinion expressed on the prior-years' financial statements but provide no explanation for the updated opinion.

not modify the previously expressed opinion but include a reference to the footnote describing the factors affecting the opinion on the prior-years' financial statements.

23.If an auditor, Mark CPA, try to use cutoff tests to determine purchases made before the year end (2015) that have been recorded in the subsequent year(2016). What is the management's assertion?

completeness.presentation and disclosure.rights and obligations.existence.

24. Which one has the highest possibility to be included in the report when auditors conclude that a material and pervasive departure from GAAP exists?

"Except for the effects of the departure from generally accepted accounting principles, as discussed in the preceding paragraph."

"We were engaged to audit the accompanying financial statements."

"Do not present fairly in all material respects."

"As a result of the departures discussed in the following paragraph."

25.U.S. Government AccountabilityOfficeauditors must be ... in order to be considered as external auditors with respect to government agencies.

empowered as the accounting and auditing agency by the U.S. Congress.

guided by standards similar to GAAS.

funded by the federal government.

organizationally independent. 26.An auditor, David, isnotrequired to ask the predecessor auditor, Mark, about

the fees charged for the previous audit.

facts that might bear on the integrity of management.

disagreements the predecessor may have had with management about accounting principles and audit procedures.

the predecessor's understanding about the reasons for the change of auditors. 27.What are external auditors expected to do when they conduct an audit of the financial statements of Microsoft?

make a complete examination of Microsoft's records and verify all of Microsoft's transactions.

certify the correctness of Microsoft's financial statements.

give an opinion on the attractiveness of Microsoft for investment purposes and critique the wisdom and legality of its business decisions.

give an opinion on the fair presentation of Microsoft's financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS).

28. Tom & Mark, LLP, were engaged to audit the financial statements of GM Corporation for the year ended December 31. During the engagement, GM filed a lawsuit against Tom & Mark, LLP. What effect, if any, will this lawsuit have on the auditors' report?

The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty.

A disclaimer of opinion should be issued because the auditors' independence is impaired.

A qualified or adverse opinion should be issued depending on the severity of the lawsuit.

The report should be modified to include an emphasis-of-matter paragraph describing the pending litigation. 29.Which one example would be most likely against the responsibilities principle?

Auditors are directly involved with a client manager in a strategic decision-making capacity. Auditors perform the engagement with the performance level expected of prudent auditors, but not expert auditors. Auditors fail to document their assessment of control risk following their study of internal control. Auditors obtain expertise in their client's industry as they are conducting the audit examination. 30. What is included in the standard report issued in the audit of a nonpublic entity?

introductory paragraph identifying the responsibility of management and auditors in the financial reporting process.

internal control paragraph indicating the effectiveness of the entity's internal control over financial reporting.

opinion paragraph providing the auditors' conclusion as to the fair presentation of the financial statements.

management's responsibility section providing a general description of an audit conducted in accordance with the applicable auditing standards. 31. If an auditor, Mark CPA, tries to figure out if accounting transactions have been properly recorded, where should he begin his testing? general ledger balances. original source documents. adjusted trial balance. general journal entries.

32.Which of the following is excluded from the responsibilities principle? Planning and supervision Due care Independent attitude Competence and capabilities

33.Which of the following situation would most likely cause auditors to issue a disclaimer of opinion on the financial statements? inadequate disclosure of material information. a material departure from generally accepted accounting principles. the omission of the Statement of Cash Flows. management's refusal to furnish written representations. 34. Mark is auditing the year 2 financial statements of GM Co. Previously, Mark audited GM's year 1 financial statements and expressed a qualified opinion due to a scope limitation. Mark decides to include an other-matter paragraph in the year 2 report because comparative financial statements are being presented for year 2 and year 1. This paragraph should indicate the consistency of application of accounting principles between year 2 and year 1. restriction on the distribution of the report. substantive reasons for the prior-year's qualification. reason that Hart continued to provide audit services, despite the previous scope limitation. 35. Amanagement assertion regarding account balances at the period end is related to... The entity holds or controls the rights to assets, and liabilities are obligations of the entity. Transactions and events that have been recorded have occurred and pertain to the entity. Transactions and events have been recorded in the proper accounts. Amounts and other data related to the transactions and events have been recorded appropriately.

36. What is an auditor required to do before accepting a new client? prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. discuss the management representation letter with the prospective client's audit committee. make inquiries of the predecessor auditor after obtaining the consent of the prospective client. obtain the prospective client's signature to the engagement letter.

37. In which of the following conditions would it notbe appropriate for an auditor, Mark CPA, to issue a qualified opinion? An accounting principle at variance with generally accepted accounting principles is used. The entity has failed to properly disclose going-concern uncertainties. The auditors lack independence with respect to the audited entity. A scope limitation prevents the auditors from completing an important auditing procedure. 38. The main reasons that increase demand by investors for reliable information include all of the following, except users are separated from accounting records by distance and time. transactions are numerous and complex. decisions are time-sensitive. financial decisions are important to investors and users. users lack professional skepticism. 39. Which one is excluded from the fundamental principles underlying GAAS? performance principle. responsibilities principle. reporting principle. general principle.

40. When financial statements are in comparative format, the auditors' responsibility can be best described as...

The auditors' report must only refer to the prior years' financial statements if they were audited by the current auditor.

The auditors' report must refer to all financial statements presented in comparative form, regardless of whether they have been audited by the current auditors or predecessor auditors. The auditors' report must only refer to the prior years' financial statements if they were audited by either the current auditors or predecessor auditors.

The auditors' report must only refer to the current year's financial statements.

41.What is the main reason that an auditor studies a nonpublic entity's internal control ? to report on internal control as required byAuditing Standard No. 5. to determine the nature, timing, and extent of further audit procedures. to identify and detect fraud and irregularities perpetrated by client personnel. to provide constructive suggestions to the client for improving its internal control. 42.Which one of the assertions indicates that all balances include all things that should be recorded in that account? Existence Valuation Rights and obligations Completeness 43.Where do the standard auditors' report refers to the Public Company Accounting Oversight Board and Generally Accepted Accounting Principles? Standards of the PCAOB: Introductory only; GAAP: Scope and opinion Standards of the PCAOB: Introductory only; GAAP: All paragraphs Standards of the PCAOB: Scope only; GAAP: Opinion only Standards of the PCAOB: Introductory and scope; GAAP: Opinion only 44.The performance principle does not include the auditors' determination of materiality levels. the auditors' evaluation of independence with respect to their clients. the auditors' evaluation of the risk of material misstatement. the auditors' determination of the nature, timing, and extent of further audit procedures. 45.What is required for an independent auditor? A pre-existing and well-informed point of view with respect to the audit A background in many different disciplines Technical training that is adequate to meet the requirements of a professional Experience in taxation that is sufficient to comply with generally accepted auditing standards 46.When auditing accrued liabilities, which management assertion would an auditor, Mark CPA, place the greatest emphasis on? presentation and disclosure. valuation or allocation. completeness. existence or occurrence. 47.When an auditor works on an attestation engagement, the auditor normally provides management consulting advice. assesses control risk at a low level. expresses a conclusion on an assertion about some type of subject matter. supplies litigation support services. 48. Auditors are most likely to express an adverse opinion in which situation? Tests of controls show that the entity's internal control is so ineffective that it cannot be relied upon. Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as a going concern. The financial statements are not in accordance with generally accepted accounting principles regarding the capitalization of leases. The chief executive officer refuses to provide the auditors access to minutes of board of directors' meetings. 49.What is an auditor, Mark, required to obtain before he can accept a new client? an understanding of the prospective client's industry and business. an assessment of fraud risk factors likely to cause material misstatements. the prospective client's consent to make inquiries of the predecessor, if any. the prospective client's signature to a written engagement letter. 50.Which of thePublic Company Accounting OversightBoard assertion/assertionsis/are related to the objective that the transactions and accountsincludedin the financial statements represent real assets, liabilities, revenues, and expenses?

Existence or occurrenceCompletenessPresentation and disclosureRights and obligations

51.David, LLP, audited GM Corporation's financial statements for the year ended December 31, Year 1. On February 15, Year 3, David gave GM permission to reissue the report previously issued on and dated March 1, Year 2. When is the cutoff date for David's responsibility on the reissued report? December 31, Year 1 March 1, Year 2 December 31, Year 2 February 15, Year 3

52.What are the generally accepted auditing standards? legal requirements auditors must observe during the audits of public entities. standards that guide the conduct of an audit examination. standards used by entities in deciding whether to engage or retain the services of auditors. specific actions performed by auditors during an examination.

53. When completing an audit procedure related to the internal control system, all ofthe following questions would be appropriate for an auditor to ask a client except for... Which of your employees is a fraudster? What else is important to know about this process? What happens when a key employee goes on vacation? What can go wrong in this process?

54. Which matter would not be appropriate for the auditors to report using an other-matter paragraph? An updated opinion on comparative financial statements that differs from the opinion originally issued by the auditors Procedures performed related to supplementary mineral reserve information required by the Financial Accounting Standards Board The consistency of summary financial statements with the audited financial statements from which they were derived A material inconsistency between other information and the financial statements

55.This year, GM Corporation engaged a new auditor who must review the predecessor's audit documentation if the audit is to be in accordance with GAAS. attempt to communicate with the predecessor auditor before accepting the engagement. seek the SEC's permission to accept the engagement if Blakeney is publicly owned. reject the engagement if the change in auditors resulted from a dispute with the predecessor.

56.All of the following are considered as audit evidence except for Physical observation Auditors' calculations The entity's trial balance Verbal statements made by client personnel 57. Which one procedure provides the most assurance about the valuation assertion of accounts receivable? Tracing amounts in the subsidiary ledger to details on shipping documents Inquiring about receivables pledged under loan agreements Comparing receivable turnover rates to industry statistics for reasonableness Assessing the allowance for uncollectible accounts for reasonableness