Highlight the answers with colors ?????????

Question 7 of 45

An example of a walk-through would be when _______________________.

The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.

All of these are examples of walk-throughs.

The controller takes a sample of recorded write-offs to ensure they have been properly approved.

The auditor walks the production line to find inefficiencies in the inventory process and reports them to management.

The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.

Question 8 of 45

_______________________ are most often involved in perpetrating fraudulent financial reporting.

The auditors and the attorneys.

The controller and accounting manager.

The shareholders and the chief operating officer.

The treasurer and the board of directors.

The chief executive and chief financial officers.

Question 9 of 45

Which of the following statements are true? (There are multiple correct answers and you should choose all that are correct)

It is true that the discovery of an intentional misstatement, even if immaterial, could impact the auditor's opinion on the effectiveness of the client's external controls.

One of the problems auditors will have in regards to complex judgments is related to evaluating a client's internal control.

Pension obligations is a long-term liability account with a high risk of material misstatement.

The Iron Curtain method focuses on the materiality of current year misstatements and the reversing effect of prior-year misstatements on the income statement.

Complex auditing judgments often involve evaluating the client's estimates for allowance for doubtful accounts.

Question 10 of 45

According to the SEC, all of the following are criteria for determining revenue recognition, except:

The seller's price to the buyer should be fixed or determinable

All of these criteria should be present

Collectibility should be reasonably assured

Persuasive evidence of an arrangement should exist

Delivery should have occurred, or services should have been rendered

Question 11 of 45

__________________ are most often involved in perpetuating fraudulent financial reporting.

The shareholders and the chief operating officer.

The corporate secretary and accounting manager.

The treasurer and the board of directors.

The auditors and the attorneys.

The chief executive and chief financial officers.

Question 12 of 45

Select all of the following statements that are false. (There are multiple correct answers and you must select all that are false)

When auditing pension obligations, the auditor will likely use a specialist to assist the audit team.

It is true that when evaluating identified misstatements, the auditor only needs to consider misstatements in the current year, and not misstatements from the prior year.

It is true that a misstatement that is intentional is not assessed any differently by the auditor than a misstatement that is unintentional.

If a client has a history of negative cash flow trends and continuing losses, the audit would most likely issue an unqualified opinion with an explanatory paragraph.

The auditor would add a paragraph after the opinion paragraph when there is a serious doubt that the client can continue as a going concern.

Question 13 of 45

Which of the following statements is false?

It is true that independence is often referred to as the cornerstone of the auditing profession.

It is true that successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.

It is true that auditing is the process of attesting to assertions about economic actions and events.

It is true that according to the Sarbanes-Oxley Act, the audit committee must have at least 3 independent members.

It is true that the landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related, unconsolidated entities.

Question 14 of 45

COSO's framework for internal control includes all of the following, except:

Segregation of Duties

Monitoring

Control Activities

Risk Assessment

Control Environment

Question 15 of 45

Select all of the following statements that are true. (There are multiple answers)

It is true that audit evidence consists of both information that corroborates management's assertions and information that contradicts such assertions.

It is true that complex audit judgments and decisions often involve accounts that require subjective estimates by management.

It is true that the audit report is modified to five paragraphs as a result of another audit firm performing part of the financial statement audit.

It is true that auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.

It is true that walkthroughs and inquiries are often used to obtain an understanding of internal controls.

Question 16 of 45

If an audit team discovers that fraud risk factors are present on an audit engagement, it should _______________________.

Turn the audit over to forensic accountants.

Report it findings to the Securities and Exchange Commission.

Reduce the amount of evidence required and resort to management inquiry.

Retract from the client and inform regulatory bodies.

Modify procedures to actively search for the existence of fraud.

Question 17 of 45

Which of the following statements is false?

The reliability of audit evidence is a measure of the quality of the underlying evidence and is influenced by risk, potential management bias associated with the evidence, and the quality of the internal control system underlying the preparation of the evidence.

Audit documentation should include the initials or electronic signature in order to identify the audit personnel responsible for the work and the managers and partners reviewing the work.

Analytical procedures are a type of substantive evidence.

The relevance of audit evidence depends on the audit assertion being tested.

The client's verbal evidence is more reliable than evidence from independent outside sources.

Question 18 of 45

Which of the following statements are true? (There are multiple correct answers)

It it true that for external auditing, the primary scope of services performed includes audits of financial statements.

It is true that the auditor uses professional judgement to determine which audit procedures to perform.

It is true that the audit committee must be comprised of outsiders such as the company's attorney and the audit partner of the company's external audit firm.

It is true that auditors are required to seek out and find all fraud, regardless of its magnitude.

According to auditing standards, it is true that accounts receivable confirmations are required to be used on every audit engagement.

Question 19 of 45

Select all of the following statements that are true. (There are multiple answers).

It is true that the auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements.

It is true that internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations and ineffective and inefficient operations.

It is true that an individual does not need to agree to uphold the code of professional conduct in order to become licensed as a CPA.

It is true that the term, financial statement audit, is used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

It is true that the need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information.

Question 20 of 45

Which of the following statements is false?

If confirmations are returned as undeliverable, the auditor should determine the reason.

An alternative procedure for non-responses to positive confirmations is to examine supporting documents.

A side letter is a contract addendum and it does not increase audit risk.

Positive confirmations require a response from the customer whether or not they agree or disagree with the indicated account balance.

Negative confirmations are used when the customer has a large number of relatively small customer balances.

Question 21 of 45

Which of the following employment positions could an auditor's spouse hold in a client without violating the independence requirements?

Internal audit director.

Treasurer.

Order entry staff.

Accounting department staff.

Controller.

Question 22 of 45

According to the Financial Reporting Council (FRC), when is the culture of an audit firm likely to provide a positive contribution to audit quality?

When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise.

When the leadership of the audit firm ensures financial considerations drive actions.

When the audit firm has multinational experience in conducting audits.

When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded.

When the leadership of the audit firm ensures robust systems for client acceptance and continuation based on the likelihood of increased audit fees.

Question 23 of 45

One form of _____________ is when a cross-sectional analysis of revenue recorded across multiple sales locations is performed.

regression analysis

correlation analysis

common size analysis

trend analysis

completeness analysis

Question 24 of 45

Of the following types of audit evidence, _________________ is the most reliable?

Copies of client prepared documents.

Facsimiles of documents.

Evidence from the client's organization.

Directly observable evidence.

Evidence from a poorly controlled system.

Question 25 of 45

Which of the following statements regarding significant provisions of the PCAOB is false?

Foreign accounting firms must comply with the same rules related to the PCAOB as domestic accounting firms.

The lead partner and reviewing partner must rotate off the issuer (audit) engagement at least every five years.

The PCAOB is an agency of the U.S. government.

The SEC has oversight and enforcement authority over the PCAOB.

Accounting firms auditing public companies must register with the PCAOB.

Question 26 of 45

An auditor may use ______________ as a defense under the Securities Act of 1933?

Scienter

Contributory Negligence

Immaterial loss

Independence

Due Care

Question 27 of 45

Select all the statements from the following list which are true. (There are multiple answers and you should choose all that are correct)

If the auditor believes that there is a remote probability that resolution of an uncertainty will have a material effect on the financial statements, he should issue a standard unqualified audit opinion.

It is true that warranty reserves is a long-term liability account with a high risk of material misstatement.

In the FASB hierarchy of inputs to consider for assessing fair value, quoted prices on identical items is associated with Level 3.

In the introductory paragraph of the audit opinion, the auditor will describe the division of responsibility between the reporting company's management and the audit firm.

It is true that marketable securities is a long-term liability account with a high risk of material misstatement.

Question 28 of 45

All of the following statements are false, except:

The Public Company Accounting Oversight Board was established by the AICPA in response to Securities laws.

The SEC has authority to establish GAAP for all business enterprises.

Management of companies should have the ability to hire and fire the external auditor.

Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization.

The audit committee is a subcommittee of the board of directors comprised of independent outside directors.

Question 29 of 45

______________ is not an indicator of a potential going-concern problem?

Negative trends in profitability

An Altman Z-score above 3.0

Significant changes in competition

All of these are indicators of a potential going-concern problem.

External matters increasing regulatory requirements

Question 30 of 45

Performance of audit procedures at an interim date causes the risk of material misstatement occurring between the interim date and the end of the year to _________________.

Become less difficult to ascertain

Become more difficult to ascertain

Decrease

Remain the same

Increase

Question 31 of 45

Appropriateness of evidence is a measure of ______________.

None of these answers are correct.

Quantity of evidence.

Sufficiency of evidence.

Meaning of evidence.

Quality of evidence.

Question 32 of 45

Which of the following statements is false?

During an audit, the auditor compares the total likely misstatements to each significant segment of the financial statements, such as total current assets, total noncurrent assets, total current liabilities, total noncurrent liabilities, owners' equity, and pretax income, to determine if they are, in aggregate, material to the financial statements.

It is true that, regarding loss contingencies, the client's legal counsel should be instructed by the client to respond directly to the auditors.

It is true that if the auditor has no reservations about management's financial statements then the auditor will issue a qualified opinion.

It is true that the total likely misstatements found during the audit are equal to the sum of known and projected misstatements.

it is true that independence is often referred to as the cornerstone of the auditing profession.

Question 33 of 45

The best definition of a scienter is _________________________.

A wrongful state of mind when making a misrepresentation.

Fraudulent conduct in the purchase of a security.

None of these choices is correct.

A causal connection between a misstatement and a material loss.

A material omission of facts.

Question 34 of 45

As the risk of material misstatement increases, detection risk will _____________.

decrease

severely increase

see a medium increase

none of these answers are correct

stay the same

Question 35 of 45

The _______________ is responsible for setting International Standards of Auditing.

FASB

AICPA

IFRS

IASB

IAASB

Question 36 of 45

Which of the following audit firm members are responsible for overseeing the day-to-day activities of a specific audit?

Seniors

Owners

Managers

Technical Specialists

Partners

Question 37 of 45

____________ is an example of alternative procedures for the confirmation of accounts receivable.

Review of subsequent collections on account by the client.

Providing an estimate of the allowance for doubtful accounts to be recorded by the client.

None of these answers are correct.

Inquiry of management.

Tracing source documents to recorded amounts.

Question 38 of 45

A company will implement credit approval policies primarily _______________.

to ensure the realization of receivables.

to minimize sales returns and allowances.

to prevent lapping by the accounts receivable department.

to determine revenue recognition policies.

to ensure customer satisfaction.

Question 39 of 45

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

Confirmations are selected based upon zip codes.

Confirmations should be sent only to business addresses and not residential.

None of these answers are correct.

A P.O. Box is more reliable than a street address.

The address may be routed to the client for retrieval and fraudulent signing.

Question 40 of 45

All of the following are valid purposes for the management representation letter, except:

It confirms oral responses obtained by the auditor earlier in the audit and the continuing appropriateness of those responses.

It implies that the auditor is responsible for the design of the internal controls.

It decreases the possibility of misunderstanding concerning the matters that are the subject of the representations.

It reminds management of its responsibility for the financial statements.

None of these answers are correct.

Question 41 of 45

All of the following statements are false, except:

It is true that the court system acts as a deterrent to quality controls for the auditing profession.

It is true that the auditor should not consider that fraud is present in revenue accounts because revenue is not typically a very complex account.

It is true that rationalization involves the mindset of the fraudster to justify committing the fraud.

It is true that effective audit processes, by themselves, are sufficient to achieve audit quality.

It is true that when the risk of fraud is high in financial statements, the auditor should assign less experienced auditors to the engagement.

Question 42 of 45

Which of the following is not a typical analytical procedure for the completion of the audit?

All of these would typically be used.

Changes from the prior year.

Ratio analysis.

Common-size analysis.

None of these would typically be used.

Question 43 of 45

Which of the following statements are false? (There are multiple answers and you must choose all the ones that are false)

It is true that an auditor can issue a disclaimer of opinion because of an inability to obtain sufficient appropriate evidence.

The repeatability of a process is not a factor to consider when assessing an internal control deficiency.

U.S. GAAP requires a three-step process to determine the impairment of goodwill.

It is true that when circumstances preclude an auditor from performing certain procedures and the auditor can be satisfied using other alternative procedures, a disclaimer of opinion will be rendered.

Materiality applies to both interim financial statements and annual financial statements.

Question 44 of 45

Before releasing the audit report, the auditor would most likely ___________________.

check on a schedule of partner rotation

do all of these activities

issue a management letter

estimate client fee for subsequent services to be performed

perform an analytical review

Question 45 of 45

The _____________ is recognized for providing guidance on a framework for internal control.

IAASB

AICPA

SEC

COSO

PCAOB