Audit exam 1 - Multiple Choice.docx

Acct 543 Exam 1 2/24/10 Ch 1 Multiple Choice: 13. An independent audit aids in the communication of economic data because the audit lends credibility to the financial statements. 14. Which of the following best describes the reason why an independent auditor is often retained to report on financial statements? Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements. 15. Which of the following best describes relationships among auditing, attest, and assurance services? Auditing is a type of assurance service. 16. Which of the following statements relating to attest and assurance services is not correct? a) Independence is an important attribute of assurance service providers b) Assurance services can be performed to improve the quality or context of information for decision makers c) Financial statement auditing is a form of attest service but it is not an assurance service d) In performing an attest service, the CPA determines the correspondence of the subject matter (or an assertion about the subject matter) against criteria that are suitable and available to users 17. For what primary purpose does the auditor obtain an understanding of the entity and its environment? To plan the audit and determine the scope of audit procedures to be performed. 18. Which of the following statements best describes the role of materiality in a financial statement audit? The lower the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather. 19. Which of the following is the most important reason for an auditor to gain an understanding of an audit client?s system of internal control over financial reporting? Understanding a client?s system of internal control can help the auditor assess risk and identify areas where financial statement misstatements might be more likely. 20. Preplanning the audit includes: -Understanding the client and the client?s industry -Determining audit engagement team requirements -Ensuring the independence of the audit team and audit firm Chapter 2 Multiple Choice: 15. Which of the following best places the events of the last several years in proper sequence? Increased consulting services to audit clients, Enron and other scandals, Sarbanes-Oxley Act, prohibition of most consulting work for audit clients, establishment of PCAOB. 16. Which of the following best describes the relationship between business objectives, strategies, processes, controls, and transactions? To achieve its strategies, a business formulates objectives and implements processes, which are carried out through the entity?s information and internal control systems. Transactions are conducted to ensure that the processes are properly executed, captured, and processed. 17. Which of the following is correct regarding the types of audits over which the AICPA?s Auditing Standards Board and the PCAOB have standard-setting authority? ASB: Nonpublic company audits PCAOB: Public company audits 18. Which of the following best describes the general character of the 3 GAAS classified as standards of field work? Criteria for audit planning and evidence gathering 19. Which of the following statements best describes management?s and the external auditor?s respective levels of responsibility for a public company?s financial statements? Management has the primary responsibility to ensure that the company?s financial statements are prepared in accordance with GAAP and the auditor provides reasonable assurance that the statements are free of material misstatement. 20. The Public Company Accounting Oversight Board: Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies. 21. Which of the following is not a part of the role of internal auditors? Providing reports on the reliability of financial statements to investors and creditors. They do consulting activities, operational audits, and assist the external auditors. 22. Operational auditing is oriented primarily toward: Future improvements to accomplish the goals of management. 23. Which of the following would be considered an assurance service engagement? Expressing an opinion about the reliability of a client?s financial statements. Chapter 3 Multiple Choice: 13. Which of the following concepts are pervasive in the application of GAAS, particularly the standards of fieldwork and reporting? Materiality and audit risk 14. The existence of audit risk is recognized by the statement in the auditor?s standard report that the auditor: Obtains reasonable assurance about whether the financial statements are free of material misstatement. 15. Risk of material misstatement refers to a combination of which 2 ?client? components of the audit risk model? Inherent risk and Control risk 16. Auditing standards require auditors to make certain inquires of management regarding fraud. Which of the following inquires is required? Whether management has any knowledge of fraud that has been perpetrated on or within the entity. 17. Which of the following characteristics most likely would heighten an auditor?s concern about the risk of intentional manipulation of financial statements? Management places substantial emphasis on meeting earnings projections. 18. Which of the following is a misappropriation of assets? An employee of a consumer electronics store steals 12 CD players. 19. Which of the following is an example of fraudulent financial reporting? Company management falsifies inventory count tags, thereby overstating ending inventory and understating cost of sales. 20. When is a duty to disclose fraud to parties other than the client?s senior management and its audit committee most likely to exist? In response to inquires from a successor auditor. 21. Tolerable misstatement is: Materiality allocated to a specific account. 22. As lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual accounts to: Find smaller errors Chapter 4 Multiple Choice: 12. Which of the following procedures would an auditor most likely rely on to verify management?s assertion of completeness? Comparing a sample of shipping documents to related sales invoices. 13. In testing the existence assertion for an asset, an auditor ordinarily works from the: Accounting records to the supporting documents 14. Which of the following statements concerning audit evidence is correct? The measure of the reliability of audit evidence lies in the auditor?s judgment 15. Which of the following procedures would provide the most reliable audit evidence? Inspection of bank statements obtained directly from the client?s financial institution. 16. Which of the following types of audit evidence is the least reliable? Pre-numbered purchase order forms prepared by the client 17. Audit evidence can come in different forms with different degrees of reliability. Which of the following is the most persuasive type of evidence? Computations made by the auditor 18. An auditor would be least likely to use confirmations in connection with the examination of: Refundable income taxes 19. The current file of the auditor?s working papers that is kept for each audit client most likely contains: A copy of he financial statements 20. The permanent file section of the working papers that is kept for each audit client most likely contains: Narrative descriptions of the client?s accounting system and control procedures 21. An audit document that reflects the major components of an amount reported in the financial statements is referred to as a: Lead Schedule Chapter 5 Multiple Choice: 16. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor?s: Understanding as to the reasons for the change of auditors 17. A written understanding between the auditor and the client concerning the auditor?s responsibility for the discovery of illegal acts is usually set forth in a: Engagement letter 18. Miller Retailing, Inc., maintains a staff of 3 full-time internal auditors who report directly to the audit committee. In planning to use the internal auditors to help in performing the audit, the independent auditor most likely will: Place limited reliance on the work performed by the internal auditors 19. During the initial planning phase of an audit, a CPA most likely would: Discuss the timing of the audit procedures with the client?s management 20. When planning an audit, an auditor should: Determine planning materiality for audit purposes 21. As generally conceived, the audit committee of a publicly held company should be made up of: Members of the board of directors who are not officers or employees 22. An auditor who discovers that a client?s employees paid small bribes to municipal officials most likely would withdraw from the engagement if: Management fails to take the appropriate remedial action 23. Which of these statements concerning illegal acts by clients is correct? An auditor?s responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud 24. To help plan the nature, timing, and extent of substantive procedures, preliminary analytical procedures should focus on: Enhancing the auditor?s understanding of the client?s business and of events that have occurred since the last audit date 25. The primary objective of final analytical procedures is to: Assist the auditor in assessing the validity of the conclusions reached. 26. For all audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent: In the planning stage, as a substantive test, and in the review stage. 27. The substantive analytical procedure known as trend analysis is best described by: The examination of changes in an account over time 28. The assurance bucket is filled with all of the following types of evidence: Test of controls, substantive analytical procedures, tests of details; NOT the audit report