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Final Exam
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Questions in this quiz (49)
1The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?
- AThe auditor selecting inappropriate auditing procedures.
- BThe internal control being more effective than the auditor believes.
- CThe auditor concluding the account balance is not materially misstated, but is, in fact, materially misstated.
- DThe internal control not being as effective as the auditor believes.
2Which of the following audit procedures most likely will involve sampling?
- ARisk assessment procedures performed to obtain an understanding of internal control.
- BTests of automated application controls when effective information technology general controls are present.
- CAnalyses of controls to determine the appropriate segregation of duties.
- DTesting of process for approval of credit to customers for sales on account.
3Which of the following statements is ordinarily correct about the sample size in statistical sampling when testing controls?
- AThe expected population deviation rate has little effect on determining the sample size.
- BAs the population size doubles, the sample size should also double.
- CAs the tolerable deviation rate increases, the sample size should also increase.
- DThe population size has little effect on the sample size.
4How would an increase in tolerable misstatement affect the sample size in a substantive test of details?
- ADecrease sample size
- BIncrease sample size
5How would an increase in assessed level of control risk affect the sample size in a substantive test of details?
- AIncrease sample size
- BDecrease sample size
6Which of the following objectives is achieved when an auditor decides to employ classical variable sampling?
- ATo determine the reliability of voucher processing.
- BTo determine the completeness of billing transactions.
- CTo determine the inventory quantities on hand.
- DTo determine the efficiency of the payroll system.
7What is the definition of precision?
- AA method of choosing sample items in which a series of contiguous items is chosen from the population.
- BThe difference between the upper limit rate of deviation and the sample rate of deviation
- CThe likelihood that the true population value lies within the precision interval.
- DThe range around the sample estimate that has a likelihood equal to reliability of including the true population value.
8What is the definition of reliability?
- AA method of choosing sample items in which a series of contiguous items is chosen from the population.
- BThe difference between the upper limit rate of deviation and the sample rate of deviation
- CThe likelihood that the true population value lies within the precision interval.
- DThe range around the sample estimate that has a likelihood equal to reliability of including the true population value.
9What is the definition of tolerable rate of deviation?
- AThe likelihood that the client's internal control policies and procedures fail to prevent or detect a material misstatement.
- BThe maximum rate of deviation permissable by the audit team without modifying the planned assessed level of control risk.
- CThe extent of variations found in the audit team's sample
- DA measure that adjusts the sample rate of deviation for the audit team's acceptable level of sampling risk
10A client is a defendant in a patent infringement lawsuit against a major competitor. Which of the following items would least likely be included in the attorney's response to the auditor's letter of inquiry?
- AA description of potential litigation in other matters or related to an unfavorable verdict in the patent infringement lawsuit.
- BA discussion of case progress and the strategy currently in place by client management to resolve the lawsuit.
- CAn evaluation of the probability of loss and a statement of the amount or range of loss if an unfavorable outcome is reasonably possible.
- DAn evaluation of the ability of the client to continue as a going concern if the verdict is unfavorable and maximum damages are awarded.
11An auditor requests a client to send letters of audit inquiry to attorneys who have been consulted concerning litigation, claims, and assessments. The primary reason for this request is to obtain:
- AThe attorneys' assurance that litigation, claims, and assessments that are probable of assertion are properly accounted for.
- BCorroboration of the information furnished by management concerning litigation, claims, and assessments.
- CA description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcomes.
- DThe opinion of an expert whether any loss contingencies are possible, probable, or remote.
12To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by
- AThe staff accountant who performed the substantive auditing procedures.
- BThe managing partner who has responsibility for all audit engagements at that practice office.
- CA manager or partner who has a comprehensive knowledge of the client's business and industry.
- DThe CPA firm's quality control manager or partner who has responsibility for the firm's peer review program.
13Analytical procedures used in the overall review stage of an audit generally include:
- AGathering evidence concerning account balances that have not changed from the prior year.
- BResting control activities that appeared to be ineffective during the assessment of control risk.
- CConsidering unusual or unexpected account balances that were not previously identified.
- DPerforming tests of transactions to corroborate management's financial statement assertions.
14The date of the management representation letter should coincide with the date of the:
- ABalance sheet.
- BLatest interim financial information.
- CAuditor's report.
- DLatest related party transaction.
15Which of the following statements would an auditor most likely require management to indicate in a written representation letter obtained for an audit?
- AManagement acknowledges its responsibilities for the design and implementation of programs and controls to detect fraud.
- BManagement plans to extend into international operations during the next few years.
- CManagement believes the financial statements are accurately stated in accordance with generally accepted auditing standards (GAAS).
- DManagement believes the company is the premier company in its industry regarding service to customers.
16Which of the following should be included as a written representation from management?
- AThe belief that misstatements identified by the auditor and not corrected are immaterial.
- BThe belief that misstatements identified by the auditor and corrected are material.
- CThe belief that the auditor is responsible for the fair presentation of the financial statements in conformity with general accepted accounting principles.
- DThe belief that the financial statements are completely accurate in all respects.
17In auditing contingent liabilities, which of the following procedures would an auditor most likely perform?
- AConfirm the details of outstanding purchase orders.
- BApply analytical procedures to accounts payable.
- CRead the minutes of the board of directors' meetings.
- DPerform tests of controls on the cash disbursement activities.
18An auditor is reporting on comparative financial statements for three years. Which of the following statements is correct regarding written representations from management?
- AThe representation letter needs to address the prior-year's financial statements not covered in the report.
- BThe representation letter needs to address only the most current year covered in the report.
- CThe representation letter needs to address only the two most recent years covered in the report.
- DThe representation letter needs to address all of the years being covered in the report.
19"We disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements." The foregoing passage is most likely from a:
- AReport on internal control.
- BSpecial report.
- CManagement representation letter.
- DLetter for underwriters.
20What is the difference between the rollover and iron curtain methods of evaluating materiality of uncorrected misstatements?
- AThe rollover method considers only current period income effects while the iron curtain method considers the aggregate effect of the misstatements.
- BThe rollover method considers the aggregate effect of the misstatements while the iron curtain method considers only current period income effects.
- CBoth methods consider only current period income effects.
- DBoth methods consider the aggregate effect of the misstatements.
21What is the definition of subsequent events?
- AEvents occurring between the date of the financial statements and the date of the auditor's report.
- BInformation that becomes known to auditors after the date of their report that, had it been known at that time, may have caused the auditors to revise their report.
- CThe use of two dates in the auditor's report to limit the responsibility beyond the date of the auditor's report to a specific subsequent event identified in the report.
22What is the definition of subsequently discovered facts?
- AEvents occurring between the date of the financial statements and the date of the auditor's report.
- BInformation that becomes known to auditors after the date of their report that, had it been known at that time, may have caused the auditors to revise their report.
- CThe use of two dates in the auditor's report to limit the responsibility beyond the date of the auditor's report to a specific subsequent event identified in the report.
23The auditor's report should be dated with which date?
- AThe date when the auditors obtained sufficient appropriate evidence to support their opinion
- BThe audit report release date
- CThe date of the financial statements
24Which auditors' opinion concludes that the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP?
- AUnmodified opinion
- BQualified opinion
- CAdverse opinion
- DDisclaimer of opinion
25Which auditors' opinion concludes that, with the exception of one or more issues, the financial statements present the financial position, results of operations, and cash flows in accordance with GAAP?
- AUnmodified opinion
- BQualified opinion
- CAdverse opinion
- DDisclaimer of opinion
26Which auditors' opinion concludes that the financial statements do not present the financial condition, results of operations, and cash flows in accordance with GAAP?
- AUnmodified opinion
- BQualified opinion
- CAdverse opinion
- DDisclaimer of opinion
27Which auditors' opinion is given when auditors do not express an opinion on the fairness of the entity's financial statements?
- AUnmodified opinion
- BQualified opinion
- CAdverse opinion
- DDisclaimer of opinion
28Which of the following philosophical theories places emphasis on following rules, rather than on the consequences of the decision?
- AGeneralization principle.
- BVirtue ethics.
- CUtilitarianism.
- DImperative principle.
29Wendy, CPA, audits Colossal Bank, a local financial institution. Which of the following would most likely impair Wendy's independence with regard to Colossal Bank?
- AA Visa credit card issued by Colossal Bank with a balance of $2,500.
- BA home loan with the value of the house exceeding the mortgage balance.
- CA personal loan collateralized by cash deposits at Colossal Bank.
- DA car loan collateralized by the car.
30The firm of Canary, Creighton, and Corsage, CPAs, requires that audit documentation contain the initials of the preparer and the reviewer in the top right-hand corner. This procedure provides evidence of professional concern regarding which generally accepted auditing standard?
- AAdequate technical competence and capabilities.
- BGathering sufficient competent evidence.
- CIndependence.
- DAdequate planning and supervision.
31Which of the following is not a category of audit documentation?
- AAudit administrative files.
- BTemporary files.
- CCurrent documentation files.
- DPermanent files.
32Looking at vendors' invoices for particular information is an example of:
- Aconfirmation.
- Bscanning.
- Cinspection of documents.
- Dphysical observation.
33In testing the existence assertion for an asset, an auditor ordinarily works from the:
- Afinancial statements to the potentially unrecorded items.
- Baccounting records to the supporting evidence.
- Cpotentially unrecorded items to the financial statement.
- Dsupporting evidence to the accounting records.
34Foreseeable third parties are best described as
- Amanagement of the entity.
- Bthose third parties whose decisions normally rely on audited financial statements and opinions on those financial statements.
- Cthose third parties who will rely on the audit and are specifically known by auditors.
- Dthose third parties who have a direct relationship with auditors through previous contract related to the audit engagement.
35Failure to provide any level of care in fulfilling a duty owed to another party, including reckless disregard for the truth, is called
- Aconstructive fraud.
- Bordinary negligence.
- Cprivity.
- Dbreach of contract.
36Kelly hires Gunther, a CPA, to provide an audit of her financial statements. The engagement letter includes a statement acknowledging that audited financial statements will be provided to financial institutions for a loan, but does not name any financial institutions. Gunther completes the audit and issues an unqualified opinion. Based on the audited financial statements, Jackson Lake Bank approves the loan to Kelly. Four months later, Kelly files for bankruptcy. Jackson Lake Bank would mist likely sue Gunther claiming:
- Ait was a foreseen party.
- Bit was a primary beneficiary.
- Cit was in privity of the contract.
- Dit was a foreseeable party.
37When bringing suit against auditors under Section 10(b) of the Securities Exchange Act of 1934, plaintiffs must allege and prove:
- Aauditors were aware of material misstatements in the financial statements.
- Bthe financial statements in the offering registration filing contained a material misstatement.
- Cauditors were guilty of ordinary negligence and failed to discover material misstatements in the financial statements.
- Dthe plaintiffs purchased the specific securities through a public offering and thus have a right to sue.
38In designing written audit plans, an auditor should establish specific audit objectives that relate primarily to the:
- Afinancial statement assertions.
- Bselected audit techniques.
- Ctiming of audit procedures.
- Dcost-benefit of gathering techniques.
39Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:
- Adecrease substantive testing.
- Bincrease inherent risk.
- Cincrease materiality levels.
- Ddecrease detection risk.
40When the audit team increases the planned assessed level of control risk because certain control activities were determined to be ineffective, the audit team would most likely increase the:
- Alevel of detection risk.
- Bextent of substantive tests of details.
- Cextent of tests of controls.
- Dlevel of inherent risk.
41The purpose of test data is to determine whether
- Aall possible combinations of valid data are correctly processed.
- Bcontrols operate as described in responses to internal control questionnaire items and program flowcharts.
- Cthe audit team's test data are consistent with the client's normal transactions.
- Devery possible error is prevented or detected by the client's computer controls.
42Which of the following statements best describes auditors' responsibility to detect errors and frauds?
- AAuditors have no responsibility to detect errors and frauds because an auditor is not an insurer and an audit does not constitute a guarantee.
- BAuditors should design an audit to provide reasonable assurance of detecting errors and frauds that are material to the financial statements.
- CAuditors have no responsibility to detect errors and frauds unless analytical procedures or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financial statements were materially misstated.
- DAuditors are responsible to detect material errors, but have no responsibility to detect material frauds that are concealed through employee collusion or management override of the internal control structure.
43An auditor assesses the risk of material misstatement because it:
- Aindicates to the auditor where inherent risk may be the greatest.
- Bis relevant to the auditor's understanding of the control environment.
- Caffects the level of detection risk that the auditor may accept.
- Dprovides assurance that the auditor's overall materiality levels are appropriate.
44The risk of material misstatement differs from detection risk in that it:
- Acan be changed at the auditor's discretion.
- Bexists independently of the financial statement audit.
- Carises from the misapplication of audit procedures.
- Dmay be assessed in either quantitative or non-quantitative terms.
45The major emphasis in GAAS related to consideration of fraud in a financial statement audit (AU 240) is on:
- Amanagement fraud.
- Bemployee misappropriation of assets.
- Cemployee embezzlement.
- Dclient fraud on customers.
46Which of the following is a definition of control risk?
- AThe risk that the auditor will not detect a material misstatement.
- BThe risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls.
- CThe risk that the auditor's assessment of internal controls will be at less than the maximum level.
- DThe susceptibility of material misstatement assuming there are no related internal controls, policies, or procedures.
47If auditors assess control risk at the maximum level, they will tend to:
- Aperform a great deal of substantive testing during the audit.
- Bperform a great deal of additional tests of controls.
- Cperform substantive tests at an interim date.
- Dperform more audit procedures using internal evidence.
48Prior to, or in conjunction with, the information-gathering procedures for an audit, audit team members should discuss the potential for material misstatement due to fraud. Which of the following best characterizes the mind-set that the audit team should maintain during this discussion?
- AQuestioning.
- BJudgmental.
- CCriticizing.
- DPresumptive.
49When audit teams test a computerized processing system, which of the following is true of the test data approach?
- AThe computer program used to process test data is different from the program used throughout the year by the client.
- BTest data must consist of all possible valid and invalid combinations.
- CTest data are processed by the client's computer programs under the audit team's control.
- DSeveral transactions of each type must be tested.
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- Auditing Quiz on Final Exam, created by Emily Szatkowski on 20/04/2018.
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- Emily Szatkowski
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