Reference no: EM13926550

VERSIONS 1

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

Question 1 Which assertion addresses whether the financial statements items are properly classified in the financial statements?
Answer
Completeness
Existence
Valuation
Presentation and Disclosure

Question 2 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

Question 3 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.

Question 4 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.

Question 5 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

Question 6 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

Question 7 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

Question 8 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

Question 9 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

Question 10 Which of following is not required by Rule 201?
Answer
Professional competency
Integrity and objectivity
Planning and supervision
Gathering sufficient relevant data

Question 11 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

Question 12 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

Question 13 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

Question 14 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

Question 15 The fundamental difference between internal and external auditing is that
Answer
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

Question 16 When planning the audit, information is gathered by all of the following methods except
Answer
completing questionnaires
interviewing management
observing activities
confirming accounts receivable

Question 17 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

Question 18 The least important item to store off-site in case of an emergency is
Answer
backups of systems software
backups of application software
documentation and blank forms
results of the latest test of the disaster recovery program

Question 19 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

Question 20 ______ 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

Question 21 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

Question 22 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