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1) Determining whether amounts are in conformity with generally
accepted accounting principles addresses the proper measurement of
assets, liabilities, revenues, and expenses, which includes all of
the following EXCEPT the
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A.
consistency in applying
accounting principles.
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B.
reasonableness of
management’s accounting estimates.
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C.
proper application of
valuation principles, such as cost, net reliable value, market
value, and present value.
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D.
reasonableness of
management’s accounting policies.
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2) The completeness assertion would be violated if
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A.
unbilled shipments
occurred during the period.
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B.
fictitious sales
transactions were included in accounts receivable.
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C.
the allowance for
doubtful accounts was understated.
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D.
disclosure in the
statements of pledged receivables was inadequate.
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3) The concept of materiality is defined by the Financial
Accounting Standards Board (FASB) in terms of the judgment of
the
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A.
FASB members.
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B.
auditor.
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C.
preparer.
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D.
users.
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4) Section 11 of the Securities Act of 1933 uses the term
material fact to limit the amount of information required. Under
the Act, the standard used to determine an item’s materiality
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A.
may be found in FASB
pronouncements.
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B.
is the auditor’s
professional judgment.
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C.
has been established by
the SEC as a percent of net income or of total assets.
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D.
is the average prudent
investor.
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5) Anyone identified to the auditor by name prior to the audit
who is the principal recipient of the auditor’s report is a
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A.
primary
beneficiary.
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B.
third party.
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C.
foreseen
beneficiary.
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D.
foreseeable party.
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6) Individuals or entities the auditor knew or should have known
and would rely on the audit report in making business and
investment decisions are
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A.
primary
beneficiaries.
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B.
foreseeable
parties.
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C.
foreseen
beneficiaries.
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D.
third parties.
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7) Statements on auditing standards (SAS) are interpretations of
what?
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A.
Generally accepted
accounting policies
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B.
Generally accepted
auditing services
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C.
Generally accepted
accounting principles
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D.
Generally accepted
auditing standards
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8) What level of assurance does the reader of a private company
financial statement receive on the company’s system of internal
controls?
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A.
Negative
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B.
None
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C.
Reasonable
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D.
Positive
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9) Which of the following best describes the relationship that
should exist between the external auditor and the management of the
client company?
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A.
Advocacy of
management’s position
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B.
Mutual caution and
suspicion
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C.
Mutual trust and
respect
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D.
Adversarial
relationship
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10) Statement on Quality Control Standards No. 2 identifies
certain quality control elements that should be considered when
performing which types of services?
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A.
Accounting, tax, and
review services
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B.
Auditing, accounting,
and tax services
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C.
Auditing, tax, and
review services
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D.
Auditing, accounting,
and review services
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11) Internal auditors are primarily involved with
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A.
compliance audits and
operational audits.
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B.
financial statement
audits.
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C.
operational audits.
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D.
compliance audits.
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12) When providing audit services, the certified public
accountant (CPA) is expected to be
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A.
an advocate for the
general public.
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B.
indifferent to the
effect of the financial statements and the audit report.
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C.
an advocate for the
client.
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D.
independent of the
client.
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13) With respect to audit objectives, the term validity relates
to which of the assertions below?
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A.
Valuation or
allocation
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B.
Presentation and
disclosure
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C.
Completeness
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D.
Existence and
occurrence
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14) The five management assertions outlined in generally
accepted auditing standards include all of the following EXCEPT
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A.
existence and
occurrence.
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B.
presentation and
disclosure.
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C.
materiality.
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D.
rights and
obligations.
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15) Specific audit objectives are normally
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A.
derived from the
categories of management’s financial statement assertions.
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B.
developed for each item
in the financial statements.
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C.
developed for each item
in the financial statements and derived from the categories of
management’s financial statement assertions.
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D.
the same as the
categories of management’s financial statement assertions.
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16) The assessment of inherent risk requires considering matters
that have a pervasive effect on assertions for all or many accounts
and matters that may pertain only to assertions for specific
accounts. Which of the following is an example of a specific
account matter?
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A.
Sensitivity of
operating results to economic factors
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B.
Complexity of
calculations
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C.
Profitability of the
entity relative to the industry
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D.
Going concern problems,
such as a lack of sufficient working capital
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17) The risk that the auditor will NOT detect a material
misstatement that exists in an assertion is
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A.
inherent risk.
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B.
audit risk.
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C.
detection risk.
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D.
control risk.
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18) The susceptibility of an assertion to a material
misstatement, assuming there are no controls, is
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A.
analytical procedures
risk.
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B.
control risk.
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C. inherent risk.
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D.
audit risk.
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19) Auditor changes result from a variety of factors EXCEPT
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A.
satisfaction with a
firm.
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B.
mergers between
corporations with different independent auditors.
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C.
a desire to reduce the
audit fee.
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D.
mergers between CPA
firms.
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20) The third phase of the audit involves performing audit
tests. The primary purpose of this step is to obtain evidence about
the
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A.
effectiveness of the
internal control structure.
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B.
effectiveness of
management.
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C.
effectiveness of the
internal control structure and fairness of the financial
statements.
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D.
integrity of
management.
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21) Before accepting an engagement, the auditor should evaluate
whether other conditions exist that raise questions as to the
prospective client’s auditability. Which of the following factors
would be least likely to cause concern about an entity’s
auditability?
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A.
Disregard of
responsibility to maintain adequate internal controls
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B.
Lack of audit trail
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C.
Important evidence
available only in electronic form
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D.
Related party
transactions
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22) When setting the level of materiality on a particular
engagement, the auditor must consider
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A.
neither the unique
circumstances pertaining to the entity nor the users’ information
needs.
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B.
the users’ information
needs.
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C.
both the unique
circumstances pertaining to the entity and the users’ information
needs.
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D.
the unique
circumstances pertaining to the entity.
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23) In making preliminary judgments about materiality, the
auditor initially determines the aggregate level of materiality for
each statement. For planning purposes, the auditor should use
the
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A.
average of these
levels.
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B.
level he or she judges
to be the more reliable.
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C.
smallest aggregate
level.
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D.
levels separately.
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24) In a normal audit, the relationship between the level of
materiality used to plan the engagement and the level of
materiality used to evaluate evidence is that
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A.
the former is higher
than the latter.
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B.
the former may be
higher or lower than the latter.
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C.
the former is lower
than the latter.
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D.
they must be
identical.
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25) Which of the following is NOT one of the fundamental
concepts in the COSO report’s definition of internal control?
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A.
Internal control is a
guarantee.
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B.
Internal control is
affected by people.
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C.
Internal control may be
expected to provide only reasonable assurance, not absolute
assurance, to an entity’s management and board.
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D.
Internal control is a
process.
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26) Which of the following is an INCORRECT quotation from the
second field work standard?
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A.
“to be obtained
to...”
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B.
“of the internal
control structure is...”
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C.
“determine the nature,
timing, and extent of compliance tests...”
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D.
“A sufficient
understanding...”
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27) The Committee of Sponsoring Organizations (COSO) report
identified five interrelated components of internal control. Since
then, a sixth category has been identified, which is
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A.
information and
communication.
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B.
risk assessment.
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C.
antifraud programs and
controls.
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D.
monitoring.
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28) The nature of tests of controls relates to the type of
evidence obtained. Which of the following is NOT an example of a
type of evidence relevant to tests of controls?
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A.
Observation of
application of the control
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B.
Inquiries of entity
personnel
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C.
Reperformance of the
application of the control by entity personnel
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D.
Inspecting
documents
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29) Which of the following tests of controls would be most
effective in testing controls designed to prevent checks from being
issued or recorded for the wrong amount?
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A.
Computer-assisted audit
techniques, such as test data to test computer application
control
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B.
Observing bank
reconciliations
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C.
Observing documents
being marked or cancelled as paid
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D.
Observing segregation
of duties
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30) Which of the following statements is TRUE about an auditor’s
responsibility to communicate with respect to a public company’s
internal controls?
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A.
Auditors are required
to communicate all significant deficiencies in internal control to
the audit committee, but not necessarily to management.
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B.
The auditor will issue
an adverse report on the effectiveness of internal controls if a
material weakness in internal controls over financial reporting
exists.
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C.
The difference between
a material weakness and a significant deficiency is
inconsequential.
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D.
Auditors are required
to communicate all significant deficiencies in internal control to
management, but not necessarily to the audit committee.
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31) Which of the following is NOT a characteristic of
management's philosophy and operating style?
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A.
Conscientiousness and
conservatism in developing accounting estimates
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B.
Approach to taking and
monitoring business risks
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C.
Its attitudes and
actions toward financial reporting
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D.
Monitoring policies for
developing and modifying accounting systems
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32) An effective accounting system should identify and record
only the valid transaction of the entity that occurred in the
current period, which relates to the
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A.
valuation or allocation
assertion.
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B.
rights and obligations
assertion.
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C.
existence or occurrence
assertion.
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D.
presentation and
disclosure assertion.
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33) Management’s risk assessment should include the following
special consideration of risks that may arise from changed
circumstances EXCEPT
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A.
new technology.
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B.
new personnel.
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C.
domestic
operations.
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D.
rapid growth.
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34) In performing tests of details of balances, the auditor
would obtain the bank statement directly from the bank, prepare the
bank reconciliation, and verify all reconciling items and
mathematical accuracy if detection risk was
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A.
moderate.
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B.
very high.
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C.
very low.
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D.
high.
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35) When evaluating the planned level of substantive tests for
each significant financial statement assertion, the auditor will
consider the evidence obtained from all of the following EXCEPT
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A.
assessing detection
risk.
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B.
procedures to
understand the business and industry, and related completed
analytical procedures.
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C.
assessing inherent
risk.
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D.
evidence of
effectiveness of computer control procedures and related
follow-up.
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E.
evidence about the
effectiveness of internal controls gained while obtaining an
understanding of internal controls.
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36) Who is responsible for establishing the process and controls
for preparing accounting estimates?
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A.
Management
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B.
The independent
auditor
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C.
The audit committee
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D.
The internal
auditor
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37) Probability-proportional-to-size (PPS) sampling should NOT
be used when
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A.
book values for
sampling units are not available.
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B.
the number of units in
the population is unknown at the start of sampling.
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C.
transactions and
balances are tested for overstatement.
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D.
the variability of the
population is unknown.
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38) PPS sampling should NOT be used when
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A.
testing investment
securities.
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B.
few or no misstatements
are expected.
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C.
there are some
zero-balance items in the population.
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D.
any misstatements are
expected to be overstatements.
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39) PPS sampling would most likely NOT be cost-effective in
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A.
independently
estimating the value of a certain class of transactions.
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B.
estimating the amount
of dollar error caused by deviations from a particular control.
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C.
testing investment
securities for overstatements.
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D.
confirming accounts
receivable when unapplied credits to customer accounts are
insignificant.
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