ACCT 555 Midterm Exam Part 2 (Answers)

Question Type:

# Of Questions:

Multiple Choice

-

Matching

1

Short

7

Question 1.

Question :

(TCO A) Match the following definitions to the appropriate terms.

Question 2.

Question :

(TCO B) The following is a portion of a qualified audit report issued for a private company.

To the shareholders of Tamarak Corporation,
 
We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009, and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000 and $0.62, respectively, for the past year.
 
Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date or sign the report.

Question 3.

Question :

(TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
 
Rule # _____ Violation? Yes or No.
 
Provide a one- or two-line explanation.
 
Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his favorite client, Super Pup Dog Food, because the client would allow him to take home to his dog a variety of dog food samples that amounted to a year's worth of dog food.

Question 4.

Question :

(TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
 
Rule # _____ Violation? Yes or No.
 
Provide a one- or two-line explanation.
 
Howard Cunningham & Co., CPAs, designates its firm as Members of the American Institute of Certified Public Accountants. All of the partners of the firm are CPAs. However, one of the partners has recently chosen to allow her membership to lapse because of personal reasons.

Question 5.

Question :

(TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of a public company has specific guidelines to which employees must adhere. Discuss some of the mandated features of the audit committee of a public company under SOX.

Question 6.

Question :

(TCO D) Discuss some of the steps the AICPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits. You answer should provide at least five steps.

Student Answer:

Steps the profession is taking to reduce practitioners' exposure to lawsuits include the following: · Research in auditing · Standard and rule setting and revisions to meet the changing needs of the profession · Setting requirements to protect auditors · Establishing peer review requirements · Opposing lawsuits · Educating investors and other users of financial statements as to the meaning of the auditor's report and the nature of the auditor's work · Sanctioning members for improper conduct · Lobbying for changes in laws

Question 7.

Question :

(TCO F) Match nine of the terms (A–K) with the definitions provided below (1–9).
A - Foot
B - Compute
C - Scan
D - Inquire
E - Count
F - Trace
G - Recompute
H - Read
I - Examine
J - Observe
K - Compare
 
_____ 1: A calculation done by the auditor independent of the client
_____ 2: Addition of a column of numbers to determine if the total is the same as the client's
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities
_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the audit

Question 8.

Question :

(TCO G) Discuss the essential activities involved in the initial planning of an audit.