Reference no: EM131195
1) Auditors are responsible for creating financial statements free of material misstatements.
Answer (True or false)
2) In the ARM, AR = IR * CR * DR. Which type of risk is considered to be more in the auditor's control, as compared to the others?
Answer (Select any that are true)
- Detection risk
- Inherent risk
- Control risk
- Audit risk
3) Which of the following are required to become a CPA in Texas.
Answer (Multiple Choice)
- Passing the Texas CPA exam
- Meeting certain educational requirements
- Obtaining professional experience under the supervision of a CPA.
4) Select the best answer.
Answer
- Auditing financial statements = subset of attestation engagements = subset of assurance engagements
- Assurance is a subset of auditing. All assurance engagements are audits, but not all audits are assurance engagements.
- Attestation is a subset of auditing. All attestation engagements are audits, but not all audits are attestation engagements.
5) Which of the following is/are not among the management assertions corroborated by audit evidence?
Answer (Multiple Choice)
- Presentation& disclosure
- Valuation & allocation
- Rights & obligations
- The butler did it in the dining room with the gun
- Completeness/cutoff
- Existence/occurrence
6) (SOX) Sarbanes-Oxley prohibits public accounting firms from:
Answer (Multiple Choice)
- Checking the audit firm's own work on an audit client
- Lending money to an audit client without getting approval from the board of directors
- Acting as manager or decision-maker for the client without management approval
- Providing tax consulting to an audit client without the audit committee's approval
7) Investors face the risk that a company's financial statements are materially misleading or false. This risk is called
Answer (Select one)
- Auditor continuation risk
- information risk
- moral hazard
- self-selection
- detection risk
8) The key questions in testing management's assertion of rights and obligations are: does the company really own the assets? Do the assets have all legal responsibilities identified?
Answer (True or false)
9) which of the following best describes the relationship between auditing and attest engagements?
Answer (Multiple Choice)
- Auditing is a subset of attest
- Attest is a subset of auditing
10) External auditors should never use the work of internal auditors as part of their (external auditors') audit evidence.
Answer (True or false)
11) Cash is very susceptible to theft in large part because
Answer (Select the best answer)
- It is kept in imprest accounts and lockboxes, often without keys, code pads, or human supervision.
- It is made of paper more than coins, so even if you take a bunch of it, it probably won't be noisy enough to draw significant attention.
- Cash is liquid
- Corrupt governments like to invest in it
- It's so hard to know where the cash goes every month
12) Identify any of the following choices which is/are primarily a responsibility of management (rather than auditors)?
Answer (Multiple Choice)
- Establish a control environment
- Assess risks it wishes to control
- As part of evidence-gathering, asses whether internal controls are working.
- Providing a statement in the company's annual report identifying the framework used to evaluate the entity's internal controls.
- Evaluate internal controls to assess the risk of material misstatement in order to provide a basis for determining the nature, timing, and extent of audit procedures for the substantive audit plan.
13) When contemplating employee fraud and the audit of cash, detection is considered most likely occur during which of the three component parts of employee fraud.
conversion of assets
Answer (Select the best answer)
- Cover-up
- Fraud act itself
14) All analytical procedures should be designed during the planning phase of an audit.
Answer (True or False)
15) A "performance review," in the context of internal controls, management supervises operations, studies budget variances, and follows up to investigate variances.
Answer (True or False)
16) Auditors must issue management letters with commentary and suggestions on issues identified, including those related to financial reporting reliability, operational efficiency, and profit-making possibilities.
Answer (True or False)
17) To be recognized, revenues must be realized or realizable and
Answer (Select the best answer)
- Shipped
- Collected
- Earned
- Foreseeable
18) Revenue and cash transactions, as summarized in management reports, are susceptible to fraud and manipulation. Therefore, auditors of public companies should never use such reports as part of their audit evidence.
Answer (True or false)
19) Auditors can decide not to test internal controls.
Answer (True or false)
20) Analytical procedures are required:
Answer (Select any that are true)
- At the end of an audit when the partners in charge review the overall quality of the work and look for apparent problems
- Daily during the audit
- At the beginning of an audit
- Any time someone takes a smoke break
21) The more effective an entity's internal controls, the fewer substantive procedures auditors need to perform, even though audit efficiency often comes at the cost of a loss of audit effectiveness (i.e., failure to find errors or frauds in the financial statements).
Answer (True or false)
22) If the auditors aren't independent of the firm they are auditing, all they have to do is explain a scope limitation.
Answer (True or false)
23) An SEC registrant has to present 4 years worth of balance sheets for auditing purposes and 5 years worth of income statements, statements of cash flows, and statements of shareholders equity.
Answer (True or false)
24) When auditors issue a disclaimer due to lack of independence, they should include an explanation of their reasons for not being independent.
Answer (True or false)
25) Management is responsible for the integrity of the financial statements.
Answer (True or false)
26) The SEC requires all of the following for revenue to be recognized except.
Answer (Select any that are true)
- Cash is collected
- Persuasive evidence of an arrangement exists
- Delivery has occurred or services have been rendered
- The seller's price to the buyer is fixed or determinable
27) Tired Tires Company hires Ali and Allision, CPAs, to audit the financial statements of Air Valve Valvers Corporation. The report is delivered to Bank of America. Who is the client?
Answer (Select any that are true)
- Bank of America
- Tired Tires
- Ali, but not Allison
- Bank of America
- Megabank
28) If the reporting issue involves a material, pervasive scope limitation for the auditors, the report paragraphs most likely to be altered are:
Answer (Multiple Choice)
- Introductory
- Scope
- Date of report
- Opinion
- Explanatory
29) Because manipulating the cost of goods sold and the related inventory account can have a "double effect" (i.e., have a pervasive effect) on the financial statements, auditors have to mention in their report that there's been no material effect from manipulation of cost of goods sold.
Answer (True or false)
30) Taking a tour of the company's physical facilities and keeping eyes open for activities and things that should be reflected in the accounting records is (Points : 10)
Answer (Select any that are true)
- a way to find out if you should buy stock in the company.
- the best way to get funny pictures for your facebook page while at work.
- the observation method for understanding a client's business and industry.
- a way to see if the client is running a sweat shop.
31) If auditors do not complete an engagement, the report should at least mention the auditing procedures that were applied. (Points : 10)
Answer (True or false)
32) which of the following choices are typical reasons estimates are included in the basic financial statements. (Points : 10)
Answer (Multiple Choice)
Relevant data can be accumulated on a timely, cost-effective basis
- Valuation is certain
- Financing and investing cycle transactions are very cyclical
- There are special journals designed for finance and investing transactions
- There might be imputed interest rates on receivables and payables that are challenging to value precisely.
33) According to Rule 203 of the Code of Professional Conduct, adherence to GAAP never creates misleading financial statements. That is, management must adhere to GAAP. (Points : 10)
Answer (True or false)
34) Auditors reporting on condensed financial statements can issue a standard unqualified opinion as long as the report on the overall financials was standard and unqualified. (Points : 10)
Answer (True or false)
35) Under GAAS, auditors reporting on public companies cannot accept changes in accounting principles by management. It is not appropriate for auditors to modify their report. (Points : 10)
Answer (True or false)