Reference no: EM131178755

Question 1 : If __________, this would indicate that fraud is pervasive throughout the company under audit.
•The company's management takes an overly aggressive approach to revenue recognition.
•The company's management drives luxury vehicles and takes vacations to exotic places.
•The company's management negotiates deals with vendors in such a manner as to pay lower prices.
•The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

All of these would indicate that fraud is pervasive.

Question 2: Which of the following statements is false?
•it is true that independence is often referred to as the cornerstone of the auditing profession.
•During an audit, the auditor compares the total likely misstatements to each significant segment of the financial statements, such as total current assets, total noncurrent assets, total current liabilities, total noncurrent liabilities, owners' equity, and pretax income, to determine if they are, in aggregate, material to the financial statements.
•It is true that the total likely misstatements found during the audit are equal to the sum of known and projected misstatements.
•It is true that, regarding loss contingencies, the client's legal counsel should be instructed by the client to respond directly to the auditors.
•It is true that if the auditor has no reservations about management's financial statements then the auditor will issue a qualified opinion.

Question 3 :
Which of the following statements is correct concerning the risk of material misstatement?
•None of these statements are correct.
•Risk of material misstatement can be controlled and changed by the auditor.
•Risk of material misstatement must be assessed in non-quantitative terms.
•Risk of material misstatement arises because audit procedures have been misapplied.
•Risk of material misstatement is controllable by the client.

Question 4 :
Which of the following audit firm members are responsible for overseeing the day-to-day activities of a specific audit?
•Technical Specialists
•Managers
•Seniors
•Owners
•Partners

Question 5 :
Which of the following statements are true? (There are multiple answers)
•It is true that the audit report can be a verbal presentation to the audit committee about the client.
•It is true that the revenue cycle considered by auditors includes the sales process but not collections.
•is true that an integrated audit report provides opinions on both financial statements and internal controls.
•It is true that performing a walkthrough provides an understanding of the nature of processing in important accounting applications.
•It is true that when there is an uncertainty surrounding the financial statements, the auditor may still be able to give an unqualified opinion.

Question 6 :
All of the following are steps in the process for performing analytical procedures, except:
•Define when the difference between the auditor's expectation and the client's balance would be considered significant.
•Develop an expectation.
•None of these answers are correct
•Compute the difference between the auditor's expectation and the client's balance.
•Perform appropriate followup on all material and immaterial differences.

Question 7 :
________ are most often involved in perpetuating fraudulent financial reporting.
•The treasurer and the board of directors.
•The shareholders and the chief operating officer.
•The corporate secretary and accounting manager.
•The chief executive and chief financial officers.
•The auditors and the attorneys.

Question 8 :
Select all of the following statements that are true. (There are multiple answers)
•It is true that auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.
•It is true that complex audit judgments and decisions often involve accounts that require subjective estimates by management.
•It is true that the audit report is modified to five paragraphs as a result of another audit firm performing part of the financial statement audit.
•It is true that audit evidence consists of both information that corroborates management's assertions and information that contradicts such assertions.
•It is true that walkthroughs and inquiries are often used to obtain an understanding of internal controls.

Question 9 :
Which of the following statements is true?
•Audits of publicly traded companies must be performed by multinational accounting firms.
•Management of companies should have the ability to hire and fire the external auditor.
•The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement.
•Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.
•Auditors generally need quantitative and mathematical skillsets more than they need communication and leadership skills.

Question 10 :
Internal control is a process designed to achieve objectives in __________________.
•None of these categories.
•Operational Effectiveness.
•Reliability of financial reporting.
•Compliance with applicable laws.
•All of these categories.

Question 11 :
Select all of the following statements that are true. (There are multiple correct answers and you must select all that are true)
•The volume of transactions affected is not one of the critical criteria in assessing identified internal control deficiencies.
•Qualified opinions can only be issued by auditors when there are violations of GAAP or scope limitations.
•When assessing fair value of Level 1 assets, auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.
•Violations of GAAP resulting in a qualified opinion affect the standard audit report through adding an explanatory paragraph before the opinion paragraph, and modifying the opinion paragraph to read "except for."
•Audits of Level 3 assets are the most straightforward as they involve an observable, active market.

Question 12 :
Under the Sarbanes-Oxley Act, __________________ performed by registered accounting firms for their audit clients would not impair their independence.
•bookkeeping services
•systems design services
•tax services
•internal audit services
•appraisal services

Question 13 :
All of the following statements are false, except:
•Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.
•The auditor's determination that day's sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.
•A detection risk of 90% would suggest that an auditor must perform extensive substantive audit testing.
•An attitude of professional skepticism by the auditor is not needed when internal controls over revenue have been tested and found to be effective.
•Audit procedures have to be announced or be completed at predictable times.

Question 14 :
The _______________ is responsible for setting International Standards of Auditing.
•IAASB
•FASB
•IFRS
•AICPA
•IASB

Question 15 :
_________________ is an example of inspection of documentation?
•Estimate the expected amount of interest income.
•Recalculate the total amount include on a sales invoice.
•None of these answers are correct.
•Review shipping documents.
•Observe controls.

Question 16 :
The most common criteria against which the auditor measures the fairness of financial statement presentation for a U.S.-based company is:
•Generally accepted accounting standards
•Sarbanes-Oxley compliance
•Auditing standards
•Government accounting principles
•Generally accepted accounting principles

Question 17 :
Directional testing involves testing transactions or balances primarily for which type of error?
•Either overstatement or understatement.
•Understatement.
•Overstatement.
•None of these are correct.
•Either overstatement nor understatement.

Question 18 :
All of the following statements are false except:
•Auditors should mail third party confirmations through the client's mailroom.
•Tracing is a process that helps establish that recorded transactions are valid.
•Inspection of tangible assets generally provides reliable evidence with the respect to the completeness of the assets, but not necessarily about the existence of the assets.
•Inspection of an asset generally provides reliable evidence about the rights and obligations assertion related to that asset.
•While inspecting documents, auditors should use original documents rather than copies, because copies are easy for management to falsify.

Question 19 :
One example of a(an) ______________ is an edit test.
•processing control
•output control
•custody control
•supporting control
•input control

Question 20 :
Which of the following statements are false? (There are multiple answers)
•Step 2 of the goodwill impairment test compares the fair value of goodwill with the carrying value of goodwill.
•The Percentage Approach method focuses on the materiality of current year misstatements and the reversing effect of prior-year misstatements on the income statement.
•It is true that an example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.
•A method used by companies to fraudulently inflate revenues includes the use of "side letters" giving the customer an irrevocable right to return the product.
•The FASB requires that Goodwill should be tested for impairment at least on a quarterly basis.

Question 21 :
Which of the following statements is false?
•If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.
•The class action lawsuit is one of the reasons for increased litigation related to audits?
•Loans between the auditor and the client are permitted in some circumstances.
•The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client.
•Contingent-fee-based compensation for law firms is one of the reasons for increased litigation related to audits?

Question 22 :
If an auditor were to divulge confidential information obtained from a client in order to __________________. It would be considered a violation of the standard of confidentiality.
•To ensure adequate disclosure in accordance with GAAP.
•To initiate a complaint with the AICPA's ethics division.
•To respond to a quality review request of the state board of accountancy.
•All of these would be violations of the standard of confidentiality.
•To respond to the information request of a shareholder.

Question 23 :
________ are most often involved in perpetrating fraudulent financial reporting.
•chief executive and chief financial officers.
•The auditors and the attorneys.
•The controller and accounting manager.
•The treasurer and the board of directors.
•The shareholders and the chief operating officer.

Question 24 :
Which of the following statements are true? (There are multiple answers and you should choose all that are true).
•It is true that auditors are constantly challenged to evaluate the quality of a client's estimates, including areas such as obsolescence of inventory, allowance for doubtful accounts, and tax provisions among others.
•It is true that the audit report can be a verbal presentation to the audit committee about the client.
•It is true that there are no differences in audit report requirements across the standards of the AICPA, PCAOB, and IAASB.
•It is true that materiality judgments are made in light of the surrounding circumstances, but need not necessarily involve both quantitative and qualitative considerations.
•It is true that an auditor's consideration of materiality is a matter of professional judgment and is influenced by the auditor's perception of the needs of users of financial statements.

Question 25 :
The typical range for the assessment of the risk of material misstatement is ____________.
•0% - 100%
•30% - 100%
•None of these answers are correct.
•1% - 100%
•0% - 5%

Question 26 :
All of the following statements are false except:
•In an audit, management is considered the "client".
•Various types of ways that fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing.
•A free market can only exist if there is sharing of perfectly reliable information.
•Transparency is a desirable, but not critical, element of effective corporate governance.
•The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.

Question 27 :
Which of the following statements are false? (There are multiple answers and you must choose all the ones that are false)
•It is true that an auditor can issue a disclaimer of opinion because of an inability to obtain sufficient appropriate evidence.
•The repeatability of a process is not a factor to consider when assessing an internal control deficiency.
•U.S. GAAP requires a three-step process to determine the impairment of goodwill.
•It is true that when circumstances preclude an auditor from performing certain procedures and the auditor can be satisfied using other alternative procedures, a disclaimer of opinion will be rendered.
•Materiality applies to both interim financial statements and annual financial statements.

Question 28 :
An example of a walk-through would be when _______________________.
•The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.
•The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.
•All of these are examples of walk-throughs.
•The auditor walks the production line to find inefficiencies in the inventory process and reports them to management.
•The controller takes a sample of recorded write-offs to ensure they have been properly approved.

Question 29 :
Which of the following statements are false? (There are multiple answers)
•It is true that the amount of evidence gathered is not important to an auditor since the quality of the evidence is of primary importance.
•It is true that the auditing standards issued by the PCAOB are identical to the auditing standards issued by the AICPA.
•It is true that liability concepts developed through court decisions are referred to as statutory law.
•It is true that materiality relates to the significance or importance of an item.
•It is true that the auditor uses professional judgment to determine which audit procedures to perform.

Question 30 :
Select all of the following statements that are true. (There are multiple answers).
•It is true that internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations and ineffective and inefficient operations.
•It is true that an individual does not need to agree to uphold the code of professional conduct in order to become licensed as a CPA.
•It is true that the term, financial statement audit, is used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.
•It is true that the need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information.
•It is true that the auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements.