6) in testing for cutoff the objective is to determine Af whether transactions are recorded in the correct accounting period 5) the proper cutoff between disclosing items in footnotes or in account balances C) whether all of the current period's transactions are recorded. D) the proper cutoff between capitalizing and expensing expenditures 7) 7) The auditor is determining that the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed. She is gathering evidence about which transaction-related audit objective? A) cut-off B) existence e accuracy D) completeness 8 7 8) in certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of A) the Securities Exchange Act of 1934 B) the Sarbanes-Oxley Act. C) GAAS D) GAAP. 9) Management assertions are Art directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS B) provided to the auditor in the assertions letter but are not disclosed on the financial statements C) explicitly expressed representations about the financial statements. D) stated in the footnotes to the financial statements. 10 10) The provisions of many laws and regulations affect the financial statements A) both directly and indirectly B) materially if direct: immaterially if indirect. C) directly D) only indirectly 11) 11) The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to A) both management and the auditor equally B) management C) the auditor D) management for the statements and the auditor for the notes 12) Which balance sheet accounts are included in the payroll and personnel cycle? A) salaries and commissions, cash in bank, accrued payroll taxes B) accrued payroll, notes payable, and deferred tax C) accrued payroll, cash in bank, and accrued payroll taxes D) cash in bank, accrued payroll, trade accounts receivable 15 13) International auditing standards and US GAAP classify assertions into three categories. Which of the following is not a category of assertions that management makes about the accounting Information in financial statements? A) assertions about presentation and disclosure B) assertions about account balances at period end C) assertions about classes of transactions for the period under audit D) assertions about the quality of source documents used to prepare the financial statements 14) The detail tie-in is part of the A) completeness C) valuation and allocation assertion for account balances B) classification D) rights and obligations 15) 15) Which of the following would most likely be deemed a direct effect illegal act? A) violation of federal environmental regulations B) violation of federal income tax laws C) violation of civil rights laws D) violation of federal employment laws 16) 16) What type of supporting schedule is designed to show detailed tests performed, does not tie in to the general ledger, but must state a positive or negative conclusion about the objective of the test? A) examination of supporting documents B) outside documentation C) reconciliation of amounts D) substantive analytical procedures 17) 17) Which of the following is an accurate statement regarding a company's ability to meet its long-term debt obligations? A) if the debt-to-equity ratio is too high, it may mean that available leverage is not being used to the owners' benefit. B) The key ratios that are used to measure a long-term solvency are debt to equity, return on assets, and times interest earned C) if the debt-to-equity ratio is too high, it may indicate that the company has used up its borrowing capacity. D) The times interest earned ratio indicates if a company can make its principal and interest payments 18) 18) You are auditing the company's purchasing process for goods and services. You are primarily concerned with the company not recording all purchase transactions. Which audit procedure below would be the most effective audit procedure in this case? A) reconciling the accounts payable subsidiary ledger to the accounts payable account B) confirmation accounts payable recorded amounts C) tracing vendor invoices to recorded amounts in the accounts payable account D) vouching from the accounts payable account to the vendor invoices 1 19) Which of the following statements relating to the competence of evidential matter is always true? A) Oral representations made by management are not reliable evidence B) Evidence must be both reliable and relevant to be considered appropriate. C) Evidence from outside an enterprise is always reliable. D) Accounting data developed under satisfactory conditions of internal control is not reliable. 20) 20) When auditors use documentation to support recorded transactions and amounts, the process is usually called A) confirmations B) vouching C) reperformance D) tracing 21) 21) Which of the following is accurate regarding the comparison of client data? A) it is extremely difficult to get industry data for comparative purposes B) One approach to overcome the limitations of industry averages is to compare the client to one or more benchmark firms in the industry. C) it is impractical to relate one account balance to another balance sheet or Income statement account. D) Since budgets are only projections, auditors can ignore the differences between budgeted and actual results. 22) 22) The auditor must gather sufficient and appropriate evidence during the course of the audit Sufficient evidence must A) provide evidence that prove or disprove an audit objective/assertion B) be based on sources that are external to company. C) be persuasive enough to enable the auditor to issue an audit report. dit reart D) be well documented and cross-referenced in the audit documents. 23) 23) Which of the following is not a characteristic of the reliability of evidence? A) education of auditor B) independence of information provider C) timeliness D) effectiveness of client internal controls 24) 24) Which of the following is the most objective type of evidence? A) a letter written by the client's attorney discussing the likely outcome of outstanding lawsuits B) the physical count of securities and cash C) observation of cobwebs on some inventory bins D) Inquiries of the credit manager about the collectability of noncurrent accounts receivable 25) Two determinants of the persuasiveness of evidence are A) competence and sufficiency. B) appropriateness and sufficiency. C) relevance and reliability. D) Independence and effectiveness. 26) Why do auditors establish a preliminary judgment about materiality A) to help plan the appropriate evidence to accumulate B) so the client can know what records to make available to the auditor C) to determine the appropriate level of staff to assign to the audit D) to finalize the control risk assessment 26) 27) In what order should the following steps occur? A Set preliminary judgment of materiality and performance materiality B Understand the clients business and Industry. C Perform preliminary analytical procedures D. Accept the client and perform initial audit planning A) D.C.BA B) D.B.C.A C) B.D.A.C D) B,A,C,D 28) 28) When analyzing a client's performance measurement system, A) ratio analysis and benchmarking against key competitors are utilized B) only income statement numbers are used. C) the auditor is likely to decrease the extent of testing if the client has set unreasonable obiectives D) inherent risk of financial statement misstatements may be decreased if the performance measurement system encourages aggressive accounting 29) 29) Which of the following is a correct statement regarding analytical procedures? A) In order to look for a misstatement in the allowance for bad debts, the auditor should divide gross sales by sales returns and allowances. B) In identifying areas of specific risk, the auditor is likely to focus on the liquidity activity ratios. C) Common-size financial statements display all items as a percentage change from a base year D) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals. 30) When setting a preliminary judgment about materiality. A) the same amount of evidence is required for either low or high dollar amounts B) more evidence is required for a low dollar amount than for a high dollar amount C) less evidence is required for a low dollar amount than for a high dollar amount D) there is no relationship between materiality and the dollar amount of evidence needed 31) A tour of the client's facilities provides the auditor an opportunity to A) assess physical safeguards over assets. B) meet key personnel C) observe operations. D) all of the above 31) 321 the auditor's best defense when material misstatements are not uncovered is to have conducted the audit A) in a timely manner B) in accordance with generally accepted auditing standards. C) as effectively as reasonably possible. D) only after an adequate Investigation of the management team. 33) Which of the following is not one of the AICPA categories of assertions? A) assertions about account balances at period end B) assertions about classes of transactions and events for the period under audit C) assertions about financial statements and correspondence to GAAP D) assertions about presentation and disclosure 34) 34) Which of the following is the auditor last likely to do when aware of an illegal act? A) discuss the matter with the client's legal counsel B) consider the impact of the illegal act on the relationship with the company's management C) contact the local law enforcement officials regarding potential criminal wrongdoing D) obtain evidence about the potential effect of the illegal act on the financial statements 35) 35) Which of the following statements best describes the auditor's responsibility with respect to illegal acts that do not have a material effect on the client's financial statements? A) Generally, the auditor is under an obligation to inform the PCAOB B) Generally, the auditor is under no obligation to notify parties other than personnel within the client's organization C) Generally, the auditor is expected to compel the client to adhere to requirements of the Foreign Corrupt Practices Act. D) Generally, the auditor is obligated to disclose the relevant facts in the auditor's report. 36) 36) Which ratio do auditors find useful for assessing misstatements in sales, cost of goods sold, accounts receivable, and inventory A) earnings per share B) gross profit percent C) profit margin D) current ratio 37) 37) "Physical examination is the inspection or count by the auditor of items such as A) cash, inventory, securities, notes receivable, and tangible fixed assets. B) cash, inventory, canceled checks, and tangible fixed assets. C) cash, Inventory, and payroll timecards. D) cash, inventory, canceled checks, and sales documents 38) Industry comparisons can be used as A) an indicator of fraud. B) an aid to understanding the client's business. C) an aid to internal controls. D) an indicator of errors. 39) 10) When selecting staff for the audit engagement A) staff assigned to the audit must be knowledgeable about the client's industry. B) continuity of staff members from year to year should not be a factor. C) only staff members who are CPAs should be assigned to the audit. D) only managers and above need to have appropriate competence and capabilities to perform the audit 40) 40) Which of the following statements is true regarding communications between predecessor and successor auditors? A) The burden of initiating the communication rests with the predecessor B) The predecessor auditor of a public company does not need permission from the client before communicating with the successor auditor. C) The predecessor should communicate with the successor only if the client is public. D) The predecessor's response can be limited to stating that no information will be provided 41) 41) When using the cycle approach to seamenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that A) the transactions are related to financing a company rather than to its operations. B) most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively. C) Both A and B are correct. D) Neither A nor B is correct. 42) 42) Which of the following is a correct statement regarding confirmations? A) Confirmations are generally used in the audit of fixed asset additions B) Confirmations can be in oral or written form. C) Auditors consider alternative evidence available when determining if confirmations should be used. D) Electronic confirmations are not acceptable under generally accepted auditing standards. 43) Which is a liquidity activity ratio? A) inventory turnover C) return on assets B) profit margin D) times interest earned 44) The term audit objective refers to all of the following except for A) presentation and disclosure-related audit objectives. B) balance-related audit objectives. C) cycle-related audit objectives. D) transaction-related audit objectives. 45) When can audit procedures be performed? A) Prior to the fiscal year-end of Subsequent to the fiscal year-end the client of the client No No B) Prior to the fiscal year-end of Subsequent to the fiscal year-end the client of the client No Yes C) Prior to the fiscal year-end of Subsequent to the fiscal year-end the client of the client Yes No D) Prior to the fiscal year-end of Subsequent to the fiscal year-end the client of the client Yes Yes TRUE/FALSE. Write 'T' if the statement is true and 'F if the statement is false. 46) Auditors use evidence to help them draw conclusions. 47) All evidence must have the same level of persuasiveness 47) 48) An audit program is the list of audit procedures for an audit area or an entire audit. 49) Auditors use tick marks, which are symbols adjacent to the detail on the body of the schedule. 50) An auditor can use engagement management software to facilitate tracking audit progress