WEEK 1 QUESTIONS
1) In an attestation engagement, a CPA practitioner is engaged to
-Prepare a written report containing a conclusion about the reliability of a
management assertion.
2) Bankers who are processing loan applications from companies
seeking large loans will probably ask for financial statements
audited by an independent CPA because:
-They generally see a potential conflict of interest between company managers
who want to get loans and the bank's needs for reliable financial statements.
3) The objective in an auditor’s review of credit ratings of a client’s
customers is to obtain evidence related to management’s assertion
about:
-Valuation and allocation.
4) Jones, CPA, is planning the audit of Rhonda’s Company. Rhonda
verbally asserts to Jones that all expenses for the year have been
recorded in the accounts. Rhonda’s representation in this regard:
-Is not considered a sufficient basis for Jones to conclude that all expenses have
been recorded.
The Sarbanes–Oxley Act of 2002 generally prohibits public
accounting firms from:
-Acting in a managerial decision-making role for an audit client.
-Auditing the firm’s own work on an audit client.
-Providing tax consulting to an audit client without audit committee approval.
Substantial equivalency refers to:
-Permitting a CPA to practice in another state without having to obtain a license in
that state.
When auditing an investment in a publicly-traded company, an
auditor most likely would seek to conduct which audit procedure to
help satisfy the valuation assertion?
-Obtain market quotations from The Wall Street Journal or another independent
source.
Complete the following chart indicating the corresponding Auditing
Standards Board assertions and whether the assertion relates to
transactions, balances, or disclosures ((((SEE QUESTION 8, WEEK 1
QUESTIONS))))
Audits may be characterized as (a) financial statement audits, (b)
compliance audits, (c) economy and efficiency audits, and (d)
program results audits. The work can be done by independent
(external) auditors, internal auditors, or governmental auditors
(including IRS auditors and federal bank examiners). Following is a
list of the purposes or products of various audit engagements:
(((SEE QUESTION 9, WEEK 1 QUESTIONS)))
Which of the following is related to ethical requirements of not
auditors?
-Professional judgment.
Ordinarily, what source of evidence should least affect audit
conclusions?
-Inquiry of management.
Breaux & Co. CPAs require that all audit documentation indicates the
identity of the preparer and the reviewer. This procedure provides
evidence relating to which of the following?
-Adequate planning and supervision
Which of the following elements of a system of quality control is
related to firms receiving independence confirmations from its
professionals with respect to clients?
-Relevant ethical requirements.
Which of the following topics is not addressed in the auditors’ report
for an issuer?
-Absolute assurance regarding the fairness of the entity’s financial statements in
accordance with GAAP.
Which of the following combinations of standards and types of
audits are most closely related to the activities of the Public
Company Accounting Oversight Board?
-Develop for the audits of issuers.Auditing Standards
Identify which of the major fundamental principles (responsibilities,
performance, or reporting) is most closely related to each of the
following: (((SEE QUESTION 16, WEEK 1 QUESTIONS)))
Each of the following quality control policies and procedures is
typical of ones that can be found in public accounting firms’ systems
of quality control. Identify each of them with one of the six elements
of quality control identified by . (((SEE QUESTION 17, WEEK 1SQCS 8
QUESTIONS)))
WEEK 2 QUESTIONS
Which of the following is an advantage of computer-assisted audit
techniques (CAATs)?
-The software can be used for audits of clients that use differing computer
equipment and file formats.
Which of the following communications is most likely to be written
before the balance-sheet date?
-An engagement letter.
Which of the following procedures would most likely be performed
during planning?
-Identifying related parties.
An audit plan contains:
-Specifications of procedures the auditors believe appropriate for the financial
statements under audit.
When evaluating whether accounting estimates made by
management are reasonable, the audit team would be most
concerned about which of the following?
-Evidence of a conservative systematic bias.
Which of the following statements is correct concerning analytical
procedures used in planning an audit engagement?
-They typically use financial and nonfinancial data aggregated at a high level.
The company being audited has an internal auditor who is both
competent and objective. The independent auditor wants to assign
tasks for the internal auditor to perform. Under these circumstances,
the independent auditor may:
-Allow the internal auditor to perform certain tests of internal controls.
Auditors use different types of audit procedures to gather the
evidence necessary to conclude that the risk of material
misstatement for each relevant assertion has been reduced to an
acceptably low level. (((SEE QUESTION 8, WEEK 2 QUESTIONS)))
When accountants are independent, which of the following not
reports can they issue:
-compilation report on historical financial statements.
Which of the following is a condition that must be met for an not
engagement to evaluate compliance with laws, regulations, or other
matters?
-Management provides a report attesting to satisfactory compliance.
To perform an attestation engagement on prospective financial
information, accountants must do all of the following except
-Understand the internal controls used in the processes that generated the
prospective financial information.
Which of the following is a condition that must be met for an not
engagement to evaluate compliance with laws, regulations, or other
matters?
-Management provides a report attesting to satisfactory compliance.
B. Harper is shopping online and finds a great pair of running shoes
at a really low price. However, he is not familiar with the company
and is concerned with the accuracy of the website in presenting the
quality of the shoes. Harper may be more willing to place an order
with this company if:
-the website displays the WebTrust seal.
To perform an attestation engagement on prospective financial
information, accountants must do all of the following except
-Understand the internal controls used in the processes that generated the
prospective financial information.
Accountants are permitted to express limited assurance in which of
the following reports?
-Review report on unaudited financial statements.
Which of the following would not ordinarily be included in an
accountants' review report on a non-issuer’s financial statements?
-A statement that a review engagement is greater in scope than a compilation.
Indicate (either yes or no) whether each of the following would be
included in an auditors' report on financial statements prepared
using a special purpose framework. ((((SEE QUESTION 17, WEEK 2
QUESTIONS)))
Indicate the type of standards [Statements on Auditing
Standards Statements on Standards for Attestation (SAS),
Engagements (SSAE), PCAOB (PCAOB), Attestation Standards
and Statements on Standards for Accounting and Review
Services (SSARS)] that may apply to engagements associated with
the following: (((SEE QUESTION 18, WEEK 2 QUESTIONS)))
WEEK 3 QUESTIONS
One of the typical characteristics of management fraud is:
-Victimization of investors through the use of materially misleading financial
statements.
The auditors assessed risk of material misstatement at 0.50 and
said they wanted to achieve a 0.05 risk of failing to express a
correct opinion on financial statements that were materially
misstated. What detection risk do the auditors plan to use for
planning the remainder of the audit work?
-.10
Analytical procedures can be used in which of the following ways?
-As a means of overall review near the end of the audit.
-As "attention-directing" methods when planning an audit at the beginning.
-As substantive audit procedures to obtain evidence during an audit.
When a company that sells its products with a positive gross profit
increases its sales by 15 percent and its cost of goods sold by 7
percent, the cost of goods sold ratio will:
-Decrease.
An audit strategy memorandum contains:
-Specifications of procedures the auditors believe appropriate for the financial
statements under audit.
When auditors become aware of noncompliance with a law or
regulation committed by client personnel, the primary reason that
the auditors should obtain a better understanding of the nature of
the act is to:
-Evaluate the effect of the noncompliance on the financial statements.
Suppose management estimated the market valuation of some
obsolete inventory at $99,000; this inventory was recorded at
$120,000, which resulted in recognizing a loss of $21,000. The
auditors obtained the following information: The inventory in
question could be sold for an amount between $78,000 and
$92,000. The costs of advertising and shipping could range from
$5,000 to $7,000. ((((SEE QUESTION 7, WEEK 3 QUESTIONS)))
The following situations represent errors and frauds that could occur
in financial statements. (((SEE QUESTION 8, WEEK 3 QUESTIONS)))
The primary purpose for obtaining an understanding of internal
control during the audit of a nonissuer is to:
-determine the nature, timing, and extent of further audit tests to be performed.
Tests of controls in a GAAS audit are required for
-OBTAINING evidence about the operating effectiveness of client control activities.
A material weakness is a situation in which
-It is reasonably possible that a material misstatement would not be detected on a
timely basis.
When completing the audit of internal controls for an issuer, AS
2201 requires auditors to report on: ((((SEE QUESTION 12, WEEK 3
QUESTIONS)))
Indicate whether each of the following audit procedures is a test of
controls, a substantive test, or dual-purpose test. Next, indicate the
financial statement assertion most closely related to each audit
procedure. (((SEE QUESTION 13, WEEK 3 QUESTIONS)))
The most important fundamental component of an entity’s internal
control is
-The control environment.
When completing the audit of internal controls for an issuer, the
severity of an internal control deficiency depends on:
-Both the magnitude of the potential misstatement resulting from the deficiency
or the deficiencies and whether there is a reasonable possibility that the
company’s controls will fail to prevent or detect a misstatement of an account
balance or disclosure.
WEEK 4 QUESTIONS
When auditing with "fraud awareness," auditors should especially notice and
follow up employee activities under which of these conditions?
-The company always estimates the inventory but never takes a complete
physical count.
A code of ethics is an important element of a fraud prevention program.
Which of the following would diminish the effectiveness of a company’s code
of conduct?
-The violation of the code of ethics by senior management.
Which of the following is indicative of fraudulent activity?least
-Bank reconciliation has no outstanding checks or deposits older than 15 days.
Which of the following would the auditor consider to be an incompatible
operation if the cashier receives remittances?
-The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
Embezzlement is a type of fraud that involves
-An employee misappropriating an employer’s money or property entrusted to the employee’s control
in the employee’s normal job.
During an audit of cash, the auditor is most concerned with the management
assertion of
-EXISTENCE
If the auditor believes that a misstatement is or might be intentional and the
effect on the financial statements could be material or cannot be readily
determined, the auditor should do which of the following?
-Perform procedures to obtain additional audit evidence to determine whether fraud has occurred or is
likely to have occurred.
Expenditure analysis is used when fraud has been discovered or strongly suspected
and the information to calculate a suspect’s income and expenditures can be obtained
(e.g., asset and liability records, bank accounts). Expenditure analysis consists of
establishing the suspect’s known expenditures for all purposes for the relevant period,
subtracting all known sources of funds (e.g., wages, gifts, inheritances, bank
balances), and identifying the difference as "expenditures financed by unknown
sources of income." (((SEE WEEK 4 QUESTIONS, QUESTION 8)))
Which of the following agencies issues independence rules for the auditors of
public companies?
-PCAOB
The audit committee’s responsibility for auditor independence concerns
-Ensuring that nonaudit services provided by the auditor do not impair independence.
AICPA members who work in industry and government must always uphold
which of the following AICPA rules of conduct?two
-integrity and objectivity rule AND the confidential client information rule
When a public accounting firm audits FUND-A in a mutual fund complex that
has sister funds FUND-B and FUND-C, independence for the audit of FUND-A
is impaired whennot
-Both of the choices "Managerial-level professionals located in the office where the engagement audit
partner is located but who are not on the engagement team own shares in FUND-B, which is not an
audit client." and "The wife of the FUND-A audit engagement partner owns shares in FUND-C (an
audit client of another of the firm’s offices) and these shares are held through the wife’s employee
benefit plan funded by her employer, the AllSteelFence Company." are correct.
Which of the following is true if an auditor performs nonaudit services for a
government entity?
-The scope of the audit cannot be reduced because the nonaudit work was performed by the public
accounting firm.
The AICPA removed its general prohibition of CPAs taking commissions and
contingent fees because
-Nothing is inherently wrong about the form of fees charged to nonaudit clients.
When a client’s financial statements contain a material departure from a
FASB Statement on Accounting Standards and the public accounting firm
believes the departure is necessary to ensure that the statements are not
misleading.
-The public accounting firm can explain why the departure is necessary and then give an unmodified
opinion paragraph in the auditors’ report.
Which of the following would probably be considered an "act not
discreditable to the profession"?
-Numerous moving traffic violations.
An accountant recommends a local computer company to a client that is
trying to upgrade its computerized sales records. The client purchases
$25,000 worth of equipment and sends a check to the accountant for 5
percent of the total sales. This is an example of a
-commission
Indicate whether independence is impaired for the individual or the public accounting
firm on the following SEC filing audits according to SEC independence rules. (((SEE
QUESTION 18, WEEK 4 QUESTIONS)))
The Independence Rule of the AICPA Code of Conduct cites several “other services”
that do and do not impair audit independence. (((SEE QUESTION 19, WEEK 4
QUESTIONS)))
QUESTION 20 IS THE SAME AS QUESTION 8!!!!!!!!
Net worth analysis is performed when fraud has been discovered or is strongly
suspected and the information to calculate a suspect’s net worth can be obtained (e.g.,
asset and liability records, bank accounts). The procedure used is to calculate the
person’s change in net worth (excluding changes in market values of assets) and to
identify the known sources of funds to finance the changes. Any difference between
the change in net worth and the known sources of funds is called funds from
unknown sources, which might include ill-gotten gains. ((((SEE QUESTION 21,
WEEK 4 QUESTIONS))))
