ned to estimate a numerical measurement of a population, such as a dollar value? (Points : 2) Sampling for attributes. Discovery sampling. Numerical sampling. Sampling for variables. Question 2. 2. An auditor would most likely verify the interest earned on bond investments by: (Points : 2) Recomputing the interest earned on the basis of bond face amount, interest rate, and period held. Testing the internal controls over cash receipts. Vouching the receipt and deposit of interest checks. Confirming the bond interest rate with the issuer of the bonds. Question 3. 3. Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on an entity's internal control structure over financial reporting? (Points : 2) The practitioner is a continuing auditor who has previously audited the entity's financial statements. Management agrees not to present the practitioner's report in a general-use document to stockholders. The practitioner anticipates relying on the entity's internal control structure in a financial statement audit. Management presents its written assertion about the effectiveness of the internal control structure. Question 4. 4. In determining whether certain transactions have been recorded, the direction of the audit testing should be from the: (Points : 2) Original source documents. General journal entries. Adjusted trial balance. General ledger balances. Question 5. 5. The mailing of disbursement checks and remittance advices should be controlled by the employee who (Points : 2) Signed the checks. Approved the vouchers for payment. Verified the mathematical accuracy of the vouchers and remittance advices. Matched the receiving reports, purchase orders, and vendors' invoices. Question 6. 6. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: (Points : 2) Reduce the level of audit risk and materiality to a relatively low amount. Eliminate the risk of nonsampling errors. Minimize the failure to detect errors and irregularities. Measure the sufficiency of the evidential matter obtained. Question 7. 7. The most likely result of ineffective internal control policies and procedures in the revenue cycle is that: (Points : 2) Omission of shipping documents could go undetected, which could create an understatement of inventory. Final authorization of credit memos by sales department personnel could permit an employee defalcation scheme. Fictitious transactions could be recorded, causing an understatement of revenues and overstatement of receivables. Fraud in recording transactions in the subsidiary accounts could result in delay of goods being shipped. Question 8. 8. Which of the following types of audit evidence is the most persuasive? (Points : 2) Prenumbered client purchase order forms. Bank statements obtained from the client. Client representation letter. Client work sheets supporting cost allocations. Question 9. 9. According to the Code of Professional Conduct, which of the following circumstances will prevent a CPA performing audit engagements from being independent? (Points : 2) Employment of the CPAs spouse as a clients internal auditor. Acting as an honorary trustee for a not-for-profit organization client. Litigation with a client relating to billing for consulting services for which the amount is immaterial. Obtaining a collateralized automobile loan from a financial institution client. Question 10. 10. Significant deficiencies are matters that come to an auditor's attention which should be communicated to an entity's audit committee because they represent (Points : 2) Deficiencies in the design or operation of the internal control structure. Material irregularities or fraud perpetrated by high-level management. Intentional attempts by client personnel to limit the scope of the auditor's field work. Flagrant violations of the entity's documented conflict-of-interest policies. Question 11. 11. In using the work of a specialist, an auditor may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor: (Points : 2) Discovers significant deficiencies in the design of the entity's internal control structure that management has not corrected. Is able to corroborate another specialist's earlier findings that were consistent with management's representations. Desires to disclose the specialist's findings, which imply that a more thorough audit was performed. Becomes aware of conditions causing substantial doubt about the entity's ability to continue as a going-concern. Question 12. 12. A weakness in internal control over recording retirements of equipment may cause an auditor to: (Points : 2) Trace additions to the other assets account to search for equipment that is still on hand but is no longer being used. Select certain items of equipment from the accounting records and verify their existence in the plant. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. Inspect certain items of equipment in the plant and vouch those items back to the accounting records. Question 13. 13. An auditor of an issue is most likely to refer to one or more of the three General Standards in determining: (Points : 2) The scope of the CPA's auditing procedures. Whether the CPA should undertake a certain audit engagement. The nature of the CPA's report qualification. Requirements for the review of internal control. Question 14. 14. The Hodges Company has requested that the Drexel CPA firm perform an audit only on its balance sheet. What should be the firms response? (Points : 2) As long as the scope of the auditors work is not limited, the auditor may accept this engagement and provide an audit report based on the findings. The auditor can accept this type of engagement, but must, at a minimum, add an extra paragraph at the end of the report to draw attention to the exclusion of the other statements. The auditor cannot take this type of engagement. The auditor can accept this type of engagement, but must issue a qualified opinion. Question 15. 15. An auditor assesses control risk because it: (Points : 2) Determines whether sampling risk is sufficiently low. Affects the level of detection risk the auditor may accept. Indicates where inherent risk may be the greatest. Includes the aspects of nonsampling risk that are controllable. Question 16. 16. Which of the following audit procedures would be least likely to lead the auditor to find unrecorded fixed asset disposals? (Points : 2) Identification of physical assets on hand at year-end. Review of repairs and maintenance expense. Examination of insurance policies. Review of property tax reports. Question 17. 17. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality? (Points : 2) The contents of the management representation letter. The results of the internal control questionnaire. The anticipated sample size of the planned substantive tests. The entity's annualized interim income statement. Question 18. 18. A CPA who is associated with the financial statements of a publicly held entity, but has not audited or reviewed such statements, should: (Points : 2) Insist that they be audited or reviewed before publication. Issue a compilation report. State these facts in the accompanying footnotes to the financial statements. Read them to determine whether there are obvious material misstatements. Question 19. 19. In the second (scope) paragraph of the standard audit report for audits of issuers, the following statement is made: an audit includes examining, on a test basis, evidence . . .? Which of the following should not be assumed based on that statement? (Points : 2) Items with more risk have a greater chance of being tested. There is an auditing standard for the number of items that should be and have been examined. Sampling has been carried out throughout the audit. The amount of evidence gathered depends on the amount of testing by the independent auditor. Question 20. 20. An auditor obtains knowledge about a new client's business and its industry to (Points : 2) Make constructive suggestions concerning improvements to the client's internal control structure. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. Understand the events and transactions that may have an effect on the client's financial statements. Develop an attitude of professional skepticism concerning management's financial statement assertions