For effective internal control, which of the following functions should not be assigned to the companys accounting department: a. Reconciling accounting records with existing assets b. Recording financial transactions c. Signing payroll checks d. Preparing financial reports An auditor of financial statements believes that there is substantial doubt about an entitys ability to continue as a going concern for a reasonable period of time. In evaluating the entitys plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entitys plans to a. Repurchase the entitys stock at a price below its book value b. Issue stock options to key executives c. Lease rather than purchase operation liabilities d. accelerate the due date of an existing mortgage The generally accepted auditing standards adopted by the AICPA include a requirement that the CPAs: a. Assume responsibility for any losses to the client from fraud which existed during the audit but was not detected by the auditors b. follow the accounting principles adopted by the SEC c. Not accept as audit clients companies which compete directly with on another d. Exercise due professional care in the performance of the examination and the preparation of the report. Which of the following is not a responsibility that should be assigned o a companys internal audit department? a. Evaluating internal controls b. disbursements c. Reporting on the effectiveness of operating segments d. Investigating potential merger candidates CPA wishes to use a representation letter as a substitute for performing other audit procedures. Doing so: a. Violates professional standards b. Is acceptable, but should only be done when cost justified c. Is acceptable, but only for non-public clients d. Is acceptable and desirable under all conditions After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely: A. Cease to perform further substantive procedures. B. Reduce substantive procedures in areas where the internal control was found to be effective. C. Increase the extent of anticipated analytical procedures. D. Perform all tests of controls to the extent outlined in the preplanned audit program. A well-designed system of internal control that is functioning effectively is most likely to detect an irregularity arising from: a. the fraudulent action of several employees b. the fraudulent action of an individual employee c. informal deviations from the official organization chart d. management fraud To best test existence, an auditor would sample from the a. General ledger to source documents b. General Ledger to the financial statements c. Source documents to the general ledger d. Source documents to the journals Which of the following statements is correct concerning the understanding of internal control needed by auditors? a. The auditors must understand the information system, not the accounting system/ b. The auditors must understand monitoring and all preliminary accounting controls c. The auditors must have a sufficient understanding to assess the risks of material misstatement d. The auditors must understand the control environment, risk assessments and all control activities. The auditors understanding established with a client should be established through a(an): a. Oral communication b. Written Communication c. Written or oral communication with client d. Completely detailed audit plan Concerning retention of working papers, the Sarbanes-Oxley Act a. Has no provisions b. Requires permanent retention c. Requires retention for at least 7 years d. Requires retention for a period of 4 or less years If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows: a. The auditors may still issue an unqualified opinion. b. The auditors should issue an except for qualification for the departure from GAAP c. The auditors should issue and opinion subject to the information that would have been contained in the statement of cash flows d. The auditors should refuse to issue an opinion on only the two financial statements