ACC 599 FINAL EXAM

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Question 1

The first general standard of the PCAOB requires that an audit be performed by which type of person?

Answer

		An auditor with seasoned judgment in varying degrees of supervision and review.
		An auditor with appropriate technical training and proficiency.
		An auditor with adequate knowledge of the standards of field work and reporting.
		An auditor satisfying the independence standards

Question 2

Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included?

Answer

		Existence.
		Valuation.
		Completeness.
		Rights and Obligations

Question 3

Which one of the following attributes is not required of an auditor?

Answer

		Independence.
		Bias.
		Integrity.
		Technical competence

Question 4

Which one of the following is a reporting standard requirement?

Answer

		The auditor will state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.
		The auditor will identify in the auditor’s report, those circumstances in which auditing principles have not been consistently observed in the current period in comparison to the preceding period.
		The auditor will review adjusting journal entries for accuracy, and if the auditor concludes those entries are not reasonable accurate, the auditor must so state in the auditor’s report.
		The auditor will express an unqualified opinion on the financial statements, or will conduct additional audit procedures until such an opinion can be expressed

Question 5

When obtaining an understanding of internal controls, what is the independent external auditor primary concerned with?

Answer

		Detecting all errors.
		Determining the effectiveness of operations.
		Determining whether the internal controls can be relied upon.
		Determining whether the controls promote efficiency

Question 6

Which of the following is an inherent limitation of internal controls?

Answer

		Lack of auditor independence.
		Collusion.
		Separation of duties.
		Employee peer review.

Question 7

Which of the following is clearly a test of controls?

Answer

		Walk-through of the expense cycle from performance of the service to the reporting in the balance sheet.
		Examination of a sample of purchase order records for electronic, authenticated, authorization.
		Observing the controller's use of company owned equipment.
		Sending a letter to the client's attorney to determine litigation that is pending between plaintiff and the defendant

Question 8

Which of the following is an example of a detective control in an information system?

Answer

		Automated reports to management that specifically identify delinquent receivable.
		A requirement that salaried employees submit written requests to work overtime.
		Assurance from top management that computer centers are kept locked.
		The employment of trustworthy people to enter data into the information system

Question 9

Which of following is not part of the ethical framework derived from utilitarianism and rights theories?

Answer

		Identification of the legal issues.
		Determination of affected parties and their rights.
		Determination of the most important rights.
		Development of alternative courses of action.

Question 10

In determining the types of activities, engagements and interactions an auditor should have with a client, what must the CPA and the audit firm do?

Answer

		Follow the rules exactly as they are written.
		Assess all of their relationships with every client to ensure that independence is intact.
		Focus on client satisfaction above all other considerations.
		Realize that ethics are only guidelines and a matter of personal judgment

Question 11

Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?

Answer

		A member must not take on an engagement that is beyond the member's professional competence.
		A member must exercise duties prudently and professionally.
		A member must adequately plan and supervise the performance of professional services.
		A member firm must not advertise services to competing clients

Question 12

Which of the following represents a situation in which auditors may disclose client information to outside parties?

Answer

		Bringing working papers to a professional CPA workshop as an example of quality work.
		Complying with a validly issued and enforceable subpoena or summons.
		Showing the client’s bank statement to a neighbor who is a shareholder to emphasize its cash position.
		Explaining to the local television news station why the client is likely to miss payroll in the forthcoming periods.

Question 13

The significance of the bill of lading is to provide which of the following?

Answer

		The warehouse personnel with the product that must be shipped to customers.
		Invoices to customers for proper collection.
		A credit application for customer approval.
		Evidence of title transfer of goods to customers

Question 14

A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?

Answer

		Use of prenumbered shipping, invoice and sales documents.
		Use of prenumbered statements, inventory lists and credit memos.
		Reconciliation of invoices with customer statements.
		Use of pre-authorized price lists

Question 15

The relationship between the sales cycle and an inventory system can best be noted in which of the following examples?

Answer

		Credit is established prior to completion of a sales order.
		Invoices are sent to customers only after shipment is evidenced.
		Availability of products ordered are verified prior to processing a sale.
		Billing information is added to the database for new customers.

Question 16

The aged accounts receivable report is utilized by the auditor to accomplish which of the following?

Answer

		Encourage the client to collect on receivables that are long past due.
		Select the type of confirmations that will be sent to banks.
		Assess the adequacy of the allowance for doubtful accounts.
		Identify debits in the receivables balance that should be reclassified to payables.

Question 17

All of the following are recommended features of a fire protection system for a computer center except

Answer

		clearly marked exits
		an elaborate water sprinkler system
		manual fire extinguishers in strategic locations
		automatic and manual alarms in strategic locations

Question 18

Inherent risk

Answer

		exists because all control structures are flawed in some ways.
		is the likelihood that material misstatements exist in the financial statements of the firm.
		is associated with the unique characteristics of the business or industry of the client.
		is the likelihood that the auditor will not find material misstatements

Question 19

The following are examples of commodity assets except

Answer

		network management
		systems operations
		systems development
		server maintenance

Question 20

Tests of controls include

Answer

		confirming accounts receivable
		counting inventory
		completing questionnaires
		counting cash

Question 21

Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?

Answer

		Stock splits
		Arbitrage
		Dividends
		Stock options

Question 22

Which legislation led to the establishment of the Public Company Accounting Oversight Board?

Answer

		Private Securities Litigation Reform Act
		Sarbanes-Oxley Act
		Gramm-Leach-Bliley Act
		Glass-Steagall Act

Question 23

_______ is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction.

Answer

		360 degree survey
		Critical incidents method
		Balance scorecard
		Pareto chart

Question 24

Which of the following applies to a “cookie jar?”

Answer

		Understated accounts payable
		Overstated current assets
		Overstated reserves
		Recording fictitious revenues

Question 25

In asset fraud, assets are most often:

Answer

		understated.
		overstated.
		recorded as liabilities.
		recorded as revenues.

VERSION 2

Which assertion addresses whether the financial statements items are properly classified in the financial statements? Answer

		Completeness.
		Existence.
		Valuation.
		Presentation and Disclosure.

The Standards of the PCAOB can be broken up into three categories, i.e., general, fieldwork, and reporting. Which of the following is considered in the fieldwork standards? Answer

		Independence.
		GAAP.
		Internal control.
		Disclosure.

Which of the following is a reason why an auditor needs an understanding of internal controls? Answer

		To provide individual comments on internal control non-compliance.
		To become comfortable that the client will pay its audit bills.
		To assess materiality.
		To assess the risk of possible misstatements in the financial statements.

The PCAOB’s AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive? Answer

		Requiring two persons to open mail containing payments.
		Reconciling the accounts receivable subsidiary file with the control account.
		Using batch totals.
		Preparing bank reconciliations.

How can an auditor use inquiry to gain a better understanding of internal controls? Answer

By interviewing key employees to gain further insight into the internal control environment.

By observing the safeguarding of assets by checking locked doors and safes.

By tracing a transaction from the boundary of the organization through to the final reporting.

By documenting thoroughly the internal control through the use of narratives

Which one of the following components of the system of internal controls influences the tone for the organization?Answer

Control risk assessment.

Control environment.

Information and communication.

Monitoring.

Which of the following is not part of the control environment?Answer

		Management philosophy and operating style.
		Methods of assigning authority and responsibility.
		Personnel policies and practices.
		Control activities.

A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients? Answer

		To discuss information relating to inadequate disclosure in an audit report.
		To comply with a validly issued and enforceable subpoena or summons.
		To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority.
		To explain to members of the press whether a client is likely to miss payroll in the forthcoming periods.

In determining auditor independence, the SEC considers which of the following as an independence impairment? Answer

		An auditor performs the accounting work and then audits it.
		An auditor has no conflicting interest with the client.
		An auditor does not act as an advocate for the audit client.
		An auditor does not act as an employee of the audit client.

Which of following is not required by Rule 201? Answer

		Professional competency.
		Integrity and objectivity.
		Planning and supervision.
		Gathering sufficient relevant data.

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately? Answer

Sales are recorded at the invoice price expected to be collected from customers.

Sales orders have sequential numbering.

Recorded sales transactions are evidenced by valid invoices and shipping documents.

Credits to customer accounts are classified as liabilities.

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?Answer

		Shipping documents and tracing them to the sales journal.
		Accounts receivable and tracing them to cash receipts.
		Recorded sales transactions and tracing them to the general ledger.
		Inventory records and tracing them to the shipping documents.

What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate? Answer

		Accounts receivable aging schedule.
		Copies of checks received from customers.
		Confirmations returned without exception.
		Stock prices of customer companies.

Which of the following processes are included in the revenue cycle? Answer

Shipping products to customers.

Sending disbursements to suppliers.

Issuance of capital stock.

Preparation of a time card.

The fundamental difference between internal and external auditing is thatAnswer

internal auditors represent the interests of the organization and external auditors represent outsiders

internal auditors perform IT audits and external auditors perform financial statement audits

internal auditors focus on financial statement audits and external auditors focus on operational audits and financial statement audits

external auditors assist internal auditors but internal auditors cannot assist external auditors

When planning the audit, information is gathered by all of the following methods exceptAnswer

completing questionnaires

interviewing management

observing activities

confirming accounts receivable

Which is the most critical segregation of duties in the centralized computer services function?Answer

		systems development from data processing
		data operations from data librarian
		data preparation from data control
		data control from data librarian

The least important item to store off-site in case of an emergency isAnswer

		backups of systems software
		backups of application software
		documentation and blank forms
		results of the latest test of the disaster recovery program

Understanding a company's relationships with financial institutions and bondholders is important because:Answer

		it can indicate the extent to which the company is leveraged.
		it can reveal whether significant short selling of the company’s stock has occurred.
		it can uncover the fraudulent transactions from special purpose entities.
		it may help in raising additional funds from the financial institutions.

______ refers to the ability to anticipate a fraud perpetrator’s likely method of concealing a fraud. Answer

Zero-order reasoning

Deductive reasoning

Strategic reasoning

Low-order reasoning

While generally accepted accounting principles do allow flexibility, standards of _________, ________, and ________ must always prevail in the financial statements.Answer

subjectivity; integrity; validation

objectivity; integrity; judgement

recording; reporting; accounting

quality; excellence; and judgement

Recognizing unearned revenue as earned revenue is an example of which type of fraud?Answer

		Liability understatement
		Revenue understatement
		Cost of goods sold understatement
		Assets overstatement