Auditing 25MCQ DUE IN 12 HOURS

Summer 2015 ACCT 422 7381 Quiz 3

Instructions:

Quiz 3 covers topics discussed during Weeks 6 and 7 and Chapter 15 of Montgomery’s Auditing (Use of Audit Sampling).

Quiz 3 has a total of 25 questions (multiple choice and True or False questions combined) at 4 points each for a total of 100 points. Quiz 3 carries 10% of the Course Grade.

Your response to the quiz should be in a separate word document titled ‘Quiz 3_your Last Name’ posted in the assignments folder (similar to homework). For each question, enter the question number and the letter of your choice option. Be sure to include your name in the word document.

Best of Luck!

Sathya Vardhana

Quiz 3 Questions

Choose the best response

1. The Audit Report is dated

A. on the date the auditor completes the field work

B. on the date the financial statements are issued by the firm

C. the date of the financial statements

D. on the date the report is issued

2. If the auditor fails to detect a material misstatement in the financial statements because he's failed to properly design a sampling plan, he has succumbed to

A. Design risk

B. Sampling risk

C. Nonsampling risk

D. Systematic risk

3. During the audit of financial statements of a company, the auditor observed that the entity changed the method of depreciation for all newly acquired assets from the straight-line method to the declining balance method. This change does not have a material impact on the current year’s financial statements but is reasonably certain to have a substantial effect in later years. The change is disclosed in the notes to financial statements. The auditor should issue a report with a(n)

A. Qualified opinion

B. Unqualified opinion

C. Unqualified opinion with explanatory paragraph

D. Qualified opinion with explanatory paragraph describing the consistency

4. Comparing inventory turnover with that of previous years is useful to the auditor because it may detect

A. Methods of cyclical holding costs

B. Results in a reasonable possibility that the internal control will not prevent or detect material financial misstatements

C. Existence of obsolete inventory

D. Inadequacies in sale pricing of merchandise

5. If a client prevents the physical observation of inventories, the auditor should issue

A. A disclaimer of opinion

B. An adverse opinion

C. An unqualified opinion

D. An unqualified opinion with an explanatory paragraph

6. An auditor observes that the recorded interest expense seems to be excessive in relation to the balance in the bonds payable account. This may indicate

A. Discount on bonds payable is understated

B. Premium on bonds payable is overstated

C. Bonds payable are overstated

D. Bonds payable are understated

7. The procedures that are applied and the conclusions reached in an audit engagement are documented in which of the following?

A. Engagement letter

B. Audit guide prepared by the CPA firm to help the auditors on the engagement

C. Audit work papers

D. Audit Report

8. Which of the following is not a "cash equivalent"?

A. Certificates of Deposit

B. Money market funds

C. Time deposits

D. Marketable securities

9. If a potential loss on a contingent liability is remote, the liability usually is:

A. Disclosed in footnotes, but not accrued

B. Neither accrued nor disclosed in footnotes

C. Accrued and indicated in the body of the financial statements.

D. Disclosed in the auditor's report but not disclosed on the financial statements

10. An auditor reviews credit ratings of customers with accounts receivable that are past due. The auditor is most likely reviewing this evidence to verify

A. Valuation/Allocation

B. Rights and obligations

C. Presentation and disclosure

D. Existence or Occurrence

11. The auditor has a responsibility under auditing standards to evaluate whether the company is likely to continue its operations and meet its obligations (i.e. continue as a going concern) for a reasonable period. For this purpose, ‘a reasonable period’ is considered not to exceed what period of time from the date of the financial statements being audited?

A. 5 years

B. 3 years

C. 2 years

D. 1 year

12. The audit step most likely to reveal the existence of contingent liabilities on account of pending litigation is:

A. Accounts payable confirmations

B. An inquiry directed to the client’s attorneys

C. Review of vouchers paid for 6 months following the balance sheet date

D. Mortgage-note confirmation

13. Which of the following subsequent events is most likely to result in an adjustment to a company's financial statements?

A. Merger or acquisition activities

B. Issuance of common stock

C. An uninsured loss of inventories due to a fire

D. Bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance that is material

14. Who among the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?

A. Auditors

B. Management

C. Legal counsel

D. Management and the auditors

15. When the financial statements contain an immaterial inconsistency as to the application of accounting principles, the auditor will issue a(n)

A. qualified opinion

B. disclaimer of opinion

C. adverse opinion

D. standard unqualified opinion

16. To establish the existence and ownership of an investment held by a corporation in the form of publicly traded stock, which of the following would be most suitable?

A. Management’s written representations confirming such existence and ownership

B. Determination that the investments are carried at lower cost or market

C. Confirmation of the number of shares owned by the corporation from the independent custodian who holds them

D. Inspect the audited financial statements of the investee company

17. Which of the following is not a contingent liability?

A. Product warranties

B. Accrued salaries and wages

C. Repurchase agreements

D. Income tax disputes

18. The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet:

A. Forever.

B. For the current period.

C. For the depreciable life of the asset.

D. Until the firm disposes of the asset

19. When the auditor discovers a highly material GAAP violation in the financial statements and the client is unwilling to correct it, the auditor should issue a disclaimer of opinion.

A. True

B. False

20. It is equally acceptable under professional auditing standards for auditors to use either statistical or nonstatistical sampling methods

A. True

B. False

21. Kiting is a way of camouflaging missing inventories

A. True

B. False

22. Sample size does not have any impact on sampling risk.

A. True

B. False

23. When part of an audit engagement is carried out by another auditor and the auditor who serves as the principal auditor decides not to refer to that circumstance in the report, the principal auditor assumes responsibility for the work of the other auditor.

A. True

B. False

24. The work of a specialist engaged by management can never be used by the auditor as evidential matter in performing substantive tests to evaluate material financial statement assertions as the specialist is not as independent as the auditor.

A. True

B. False

25. The auditor is responsible for reviewing for subsequent events occurring between the Client’s Balance sheet date and the date client issues financial statements

A. True

B. False

End of Quiz

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