Which of the following auditor concerns most likely would be so serious that the auditor would conclude that a financial statement audit cannot be performed?
a. The CPA lacks experience in the client's operations and industry.
b. There is substantial risk
b. There is substantial risk of management intentionally manipulating accounting records.
What is the primary objective of obtaining an understanding of the company's objectives, strategies, and related business risks in a financial statement audit?
a. Determine whether sufficient objectives have been created.
b. Identify suggestions for addre
c. Identify risks that may result in material misstatement of financial statements.
The auditor's responsibility regarding material misstatements caused by fraud is:
a. Less than the auditor's responsibility regarding material misstatements caused by error.
b. Greater than the auditor's responsibility regarding material misstatements cau
c. The same as the auditor's responsibility regarding material misstatements caused by error.
Which of the following is not true regarding fraud risk factors?
a. Lack of observation of the three fraud risk factors implies that there is no fraud risk.
b. Fraud risk factors are often present in circumstances where fraud has occurred.
c. The existenc
a. Lack of observation of the three fraud risk factors implies that there is no fraud risk.
Which one of the following is a true statement about the required risk assessment discussion?
a. The discussion should include consideration of the risk of management override of controls.
b. The discussion about the susceptibility of the entity's financi
a. The discussion should include consideration of the risk of management override of controls.
A successor auditor's inquiries of the predecessor auditor should include questions regarding:
a. The assessment of the objectivity of the client's internal audit function.
b. Communications to management and those charged with governance regarding signif
b. Communications to management and those charged with governance regarding significant deficiencies in internal control.
Which of the following is true regarding performance of the following audit tasks while obtaining an understanding of internal control?
Audit Tasks:
I. Obtain an understanding of the design of controls.
II.Determine whether internal controls have been imp
d. The auditor must perform I and II, and is allowed, but not required, to perform III.
Jefferson, CPA, has identified five significant deficiencies in internal control during the audit of Portico Industries, a nonissuer. Two of these conditions are considered to be material weaknesses. Which best describes Jefferson's communication requirem
a. Communicate all five significant deficiencies to Portico's management and those charged with governance, distinguishing between significant deficiencies and material weaknesses.
Which of the following factors are included in an entity's control environment?
A. Participation of those charged with governance
B. Integrity and ethical values
C. Organizational structure
D. All of the Above
D. All of the Above
Which of the following is true regarding the audit process?
a. Evaluating management's representations (as included in the representation letter) is an important part of assessing control risk.
b. The auditor must perform some level of substantive tests b
d. The auditor must assess control risk before performing substantive tests.
Which of the following statements is correct concerning corporations subject to the reporting requirements of the Securities Exchange Act of 1934?
a. The quarterly report (form 10-Q) need only be filed with the SEC by those corporations that are also subj
d. A current report (form 8-K) must be filed with the SEC within four days after a major change in the company.
Which of the following is not true about the relationship between quality control standards and professional standards such as GAAS?
a. The adoption of quality control standards increases the likelihood of compliance with professional standards on individ
d. A firm's failure to establish or comply with an appropriate system of quality control implies that the firm has also failed to follow professional standards on individual engagements.
Tracing shipping documents to sales invoices provides evidence that:
a. Shipments to customers were recorded as sales.
b. All goods ordered by customers were shipped.
c. Sales billed to customers were actually shipped.
d. Shipments to customers were prope
d. Shipments to customers were properly invoiced.
An auditor searching for unrecorded payables most likely would:
a. Obtain a sample of vendor invoices and recalculate the invoice amount.
b. Obtain the accounts payable listing and agree to subsequent cash payments.
c. Compare subsequent bank statements w
c. Compare subsequent bank statements with the accounts payable listing.
An auditor wishes to test the completeness assertion for sales. Which of the following audit tests would most likely accomplish this objective?
a. Compare accounts receivable turnover (net credit sales / average gross receivables) in the current year to t
c. Select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal.
Which of the following documentation is not required for an audit in accordance with generally accepted auditing standards?
a. The basis for the auditor's decision to perform tests of controls concurrently with obtaining an understanding of internal contr
a. The basis for the auditor's decision to perform tests of controls concurrently with obtaining an understanding of internal control.
In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?
a. Occurrence.
b. Allocation and valuation.
c. Completene
a. Occurrence.
Which of the following statements is generally correct about audit evidence?
a. The more effective the internal control structure, the more assurance it provides about the reliability of the accounting data and financial statements.
b. Appropriateness of
a. The more effective the internal control structure, the more assurance it provides about the reliability of the accounting data and financial statements.
Which of the following types of audit evidence generally is the most reliable?
a. A bank confirmation.
b. Analytical procedures.
c. A bank statement.
d. Inquiries made of the audit committee.
a. A bank confirmation.
Which of the following procedures is the auditor least likely to perform when an auditor decides to use the work of an auditor's specialist as audit evidence?
a. Inquire of the entity and the auditor's specialist about any known interests that the entity
b. Refer to the auditor's specialist in the audit report to indicate a division of responsibility.
Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?
a. Vouching accounting records for recurring transactions recorded just after the balance sheet date.
b. Inspecting correspondence wi
d. Reviewing confirmations of loans receivable and payable for indications of guarantees.
A condition that may result in a higher risk of material misstatement is:
a. The existence of simple alliances and joint ventures.
b. Application of new accounting pronouncements.
c. Abundant availability of capital and credit.
d. High tenure of employees
b. Application of new accounting pronouncements.
During planning, the auditor learns that competitive bids are not obtained by the purchasing department. This knowledge may result in the auditor:
a. Decreasing the assessment of inherent risk.
b. Increasing the assessment of control risk.
c. Decreasing t
b. Increasing the assessment of control risk.
As the acceptable level of detection risk increases, an auditor may:
a. Increase the risk of material misstatement.
b. Lower the assessed level of inherent risk.
c. Eliminate the assessed level of control risk from consideration as a planning factor.
d. C
d. Change the planned timing of substantive tests from year-end to interim.
An auditor is likely using attribute sampling when he or she selects a sample of:
a. Receivables and sends confirmations to client customers.
b. Purchase orders and examines them for indication of proper approval.
c. Cash receipts and traces them to the a
b. Purchase orders and examines them for indication of proper approval.