1. A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditors fieldwork. The auditor should:

1. Advise management to adjust the balance sheet to reflect the acquisition.
2. Issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-end.
3. Disclose the acquisition in the opinion paragraph of the auditors report.
4. Advise management to disclose the acquisition in the notes to the financial statements.

2. Which of the following statements is correct regarding an accountants working papers?

1. The client owns the working papers but, in the absence of the accountants consent, may not disclose them without a court order.
2. The accountant owns the working papers but generally may not disclose them without the clients consent or a court order.
3. The client owns the working papers but the accountant has custody of them until the accountants bill is paid in full.
4. The accountant owns the working papers and general may disclose them as the accountant sees fit.

3. For which of the following judgments may an independent auditor share responsibility with an entitys internal auditor who is assessed to be both competent and objective?

Assessment of Inherent Risk Assessment of Control Risk

.

a. Yes Yes

b. Yes No

c. No Yes

d. No No

4. Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

1. Review the cash receipts journal for the month prior to the year-end.
2. Intensify the study of internal control concerning the revenue cycle.
3. Increase the assessed level of detection risk for the existence assertion.
4. Inspect the shipping records documenting the merchandise sold to the debtors.

5. Beta Company uses its sales invoices for posting perpetual inventory records. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an:

1. Understatement of revenues, receivables, and inventory.
2. Overstatement of revenues and receivables, and an understatement of inventory.
3. Understatement of revenues and receivables, and an overstatement of inventory.
4. Overstatement of revenues, receivables, and inventory.