CHAPTER 1 1. Which of the following best describes the relationship between assurance services and attest services? *Both attest and assurance services require independence 2. Which of the following has primary responsibility for the fairness of the represenations made in the financial stamtements? *Client?s management 3. The most important benefit of having an annual audit by a public accounting firm is to: *Provide assurance to investors and other outsiders that the financial statements are reliable 4. The SOX Act created the PCAOB. Which of the following is NOT one of the responisibilities of that board? *Review financial reports filed with the SEC 5. Which of these organizations has the responsibility to perform inspections of auditors of public companies? *PCAOB 6. Governmental auditing, in addition to including audits of FS, often includes audits of efficiency, effectiveness, and: *Compliance 7. In general, internal auditors? independence will be the greatest when they report directly to the: *Audit Committee of the Board of Directors 8. Which of the following did NOT precipitate the passage of SOX to regulate public accoutnign firms? *Ethical scandals at the AICPA 9. Which of the following organizations establishes accounting standards for US government agencies? *The Federal Accounting Standards Advisory Board 10. Which of the following is correct about forensic audits? *Forensic audits are usually performed in situations in which fraud has been found or is suspected 11. What best describes the purpose of the auditors? consideration of IC in a financial statement audit for a nonpublic company? *To determine the nature, timing, and extent of audit testing. 12. Which of the following is an example of a compliance audit? *An audit of a company?s policies and procedures for adhering to environmental laws and regulations. CHAPTER 2 1. Which of the following organizations can revoke the right to practice as a CPA? *The applicable state board of accountancy 2. The AICPA over time has played an important role in standards setting. Which of the following standards are currently established by the AICPA? *Auditing standards applicable to audits of nonpublic companies 3. Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available? *FASB Concepts Statement 4. Financial statement audits performed under PCAOB requirements are designed to provide which type of assurance with respect to the detection of material misstatements due to errors or fraud? *Reasonable, YES! Absolute, NO 5. A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through: *A system of quality control 6. Which of the following is NOT explicitly included in a standard report for a nonpublic company? *That internal control of the client was satisfactory 7. The general group of the 10 PCAOB Auditing Standards requires that: *The auditors maintain an independent mental attitude 8. Which AICPA quality control standard would MOST likely be satisfied when a CPA firm maintains records indicating which partners or employees of the firm were previoulst employed by the CPA firm?s clients? *Relevant ethical requirements 9. An audit provides reasonale assurance of detecting material: *Fraudulent Financial Reporting ? YES! Misappropriation of Assets ? YES! 10. Which of the following is NOT included in an integrated audit report on the financial statements of a public company? *The report states that the audit was performed in accordance with AICPA standards 11. Audit firms that are subject to inspections by the PCAOB staff include: *Audit firms that are registered with the PCAOB 12. Which of the following is NOT a difference noted when comparing the AICPA audit report to the international audit report? *The international audit report includes an opinion on IC CHAPTER 3 1. Which of the following is NOT a covered member for an attest engagement under Rule 101 of the AICPA Code of Professional Conduct? *A partner in the national office of the firm that performs marketing services 2. Which of the following is NOT prohibited by the AICPA Code of Professional Conduct? * Advertising in newspapers 3. In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee? *A fee is based on whethter or not the public accounting firm?s audit report leads to the approval of the client?s application for bank financing 4. A public accouting firm would least likely be considered in violation of the AICPA independence rules in which of the following instances? *A partner?s checking account, which is fully insured by the Federal Deposti Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services 5. Which of the following is implied when a CPA signs the preparer?s declation on federal income tax? *The return is not misleading based on all information of which the CPA has knowledge. 6. The AICPA Code of Proffesional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by: * A CPA ? shareholder of the client corporation 7. Which of the following is most likely to be in violation of the AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees? * Jones names his firm Jones and Smith, CPAs 8. Bill Adams, CPA, accepeted the audit engagement of Kelly Company. During the audit, Adams became aware of his lack of competence required for the engagement. What should Adams do? *Suggest that Kelly Company engage another CPA to perform the audit. 9. Which of the following nonattest services MAY be performed by the auditors of a public company? * Preparation of the company?s tax return 10. In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions? *Training client employees 11. Rule 202- Compliance with Standards, requires CPAs to adhere to all of the following applicable standards, except: *Statements of Responsibilities in Tax Practice 12. Which of the following provisions is NOT included in the Institute of Internal Auditors Code of Ethics? *Use of appropriate sampling methods to select areas for Audit CHAPTER 4 1. If a CPA performs an audit recklessly, the CPA will be liable to third parties who where unknown and not foreseeable to the CPA for: *Gross Negligence 2. Which of the following approaches to auditor?s liability is LEAST DESIRABLE from the CPA?s perspective? *The Rosemblum Approach 3. In case of breach of contract, plaintiffs generally have to prove all of the following, except: *The CPAs made a false statement 4. If the CPAs provided negligent tax advice to a public company, the client would bring suit under: *Common Law 5. Which of the following cases reaffirmed the principles of the Ultramares case? *Credit Alliance Corp vs. Arthur Andersen & Co. 6. Under common law, the CPAs who were negligent may mitigate some damages to a client proving: *Contributory Negligence 7. Under the Securities and Exchange Act of 1934, auditors and other defendants are faced with: *Proportionate Liability 8. A CPA issued a qualified opinion on the FS of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the FS, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represent a viable defense? *The false statement is immaterial in the overall context of the FS 9. Which of the following elements is most frequently necessary to hold a CPA liable to a client? *Failed to exercise due care 10. Which statement best expresses the factors that purchasers of securities registered under the Securities Act of 1933 need to prove to recover losses from the auditors? *The purchasers of securities must prove that the FS were misleading; the burden of proof is shifted to the auditors to show that the audit was performed with ?due diligence? 11. The most significant result of the Continental Vending case was that it: *Created a more general awareness of the possibility of auditor criminal prosecution 12. The 1136 Tenants? case was important because of its emphasis upon the legal liability of the CPA when associated with: *Unaudited financial statements CHAPTER 5 1. Which of the following is NOT a FS assertion made by management? *Effectiveness of IC 2. Which of the following business characteristics is NOT indicative of high inherent risk? * A large amount of assets 3. As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such letter? * To increase the efficiency of the audit by eliminating the need for other audit procedures 4. Which of the following statemetns best describes why auditors investigate related party transactions? *The substance of related party transactions may differ from their form 5. Of the following, which is the LEAST reliable type of audit evidence? *Copies of sales invoices inspected by the auditors 6. Analytical procedures are most likely to detect: *Unusual transactions 7. Which of the following is NOT a primary approach to auditing an accounting estimate? *Confirm the amounts 8. A primary purpose of the audit working papers is to: *Support the auditor?s opinion 9. In what section of the audit working papers would a LT lease agreement be filed? *Permanent working paper file 10. Which of the following is NOT a function of audit working papers? *Assist mgmt. in illustrating that the FS are in accordance with GAAP 11. In using the work of a specialist, the auditors referred to the specialist?s findings in their report. This would be an appropriate reporting practice if the: *Auditors, as a result of the specialist?s findings, give a qualified opinion on the FS 12. A difference of opinion concerning accounting and auditing matter relative to a particular phase of the audit arise between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably: *Document the assistant auditor?s positions and how the difference of opinion was resolved CHAPTER 6 1. In planning and performing an audit, auditors are concerened about risk factors for two distinct types of fraud: fraudulent financial reporting and misappropriation of assets. Which of the following is a risk factor of misappropriation of assets? *An unreliable accounting system 2. The audit committee of a company must be made up of: *Members of the board of directors who are not officers of employees 3. Which of the following SHOULD NOT normally be included in the engagement letter for an audit? *A listing of the client?s branch officers selected for testing 4. Which portion of an audit is least is LEAST LIKELY to be completed before the balance sheet date? *Substantive Procedures 5. Which of the following should the auditors obtain from the predecessor auditors BEFORE accepting an audit engagement? *Facts that might bear on the integrity of management 6. As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether: *Recorded sales have been properly posted to customer accounts 7. The primary objective of tests of details of transactions performed as substantive procedures is to: *Detect material misstatements in the financial statements 8. The risk that auditors will conclude, based on substantive prcedures, that a material misstatement does not exist in an account balance, when, in fact, such misstatement DOES exist is referred to as: *Detection Risk 9. Which of the following elements underlies the application of GAAS, particularly the standards of fieldwork and reporting? *Materiality and Audit Risk 10. Which of the following best describes what is meant by term ?fraud risk factor?? *Factors often observed in circumstances where frauds have occurred 11. Three conditions are generally present when fraud occurs. Select the one below that is NOT one of those 3 conditions: *Supervisory Position 12. Which of the following is most likely to be an overall response t fraud risks identified in an audit? *Use less predictable procedures CHAPTER 7 1. Which of the following would be LEAST LIKELY to be considered an objective of internal control? *Detecting management fraud 2. An entity?s ongoing monitoring activities often include: *Management review of weekly performance reviews 3. A primary objective of procedures performed to obtain an understanding of IC is to provide the auditors with: *Knowledge necessary to determine the nature, timing, and extent of further audit procedures. 4. An auditor may compensate for a weakness in IC by increasing the extent of: *Substantive Test of Details 5. Controls over financial reporting are often classified as preventative, detective, or corrective. Which of the following is an example of a detective control? *Preparing bank reconciliations 6. Which of the following indicates that a file has been consulted? 7. When a CPA decides that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPAs procedures, the CPA should consider the competence and objectivity of the internal auditors. Relative to objectivity, the CPA should: *Consider the organizational level to which the internal auditor report the results of their work 8. Effective internal control is small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by: *Direct participation by the owner in key record keeping and control activities of the business 9. Which of the following an advantage of establishing an enterprise risk management system within an organization? *Eliminates all risks 10. Management of Warren Company has decided to respond to a particular risk by hedging the risk of future contracts. This is an example of: *Avoidance 11. To have an adequate basis to issue a management report on IC under Section 404(a) of the SOX Act, management must do all of the following EXCEPT: *Establish IC with NO material weakness 12. When the auditors are performing a first-time IC audit in accordance with the SOX Act and PCAOB standards they must: *Test controls for all significant accounts CHAPTER 10 1. Which of the following controls would most likely reduce the risk of diversion of customer receipt by employees? *A bank lockbox system 2. To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: *Stamped ?PAID? by the check signer 3. In testing controls over cash disbursements, the auditors most likely would determine that the person who signs the check also: *Is responsible for mailing the checks 4. To gather evidence regarding the balance per bank in a bank reconciliation the auditor would examine the following EXCEPT: *General Ledger 5. You have been assigned to the year-end audit of a financial institution and are planning timing of audit procedures relating to cash. You decide that it would be preferable to: *Coordinate the count of cash with the count of marketable securities and other negotiable assets 6. Which of the following procedures would the auditors most likely perform to test controls relating to management?s assertion about the completeness of cash receipts for cash sales at a retail outlet? *Observe the consistency of the employee?s use of cash registers and tapes 7. Reconciliation of the bank account should not be performed by an individual who also: *Processes cash disbursements 8. The auditors suspect that a client?s cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the: *Details of bank deposit slips with details of credits to customer accounts 9. In order to guard against misappropriation of company-owned marketable securities, which of the following is the BEST course of action that can be taken by a company with a large portfolio of marketable securities? *Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent 10. Hall company had a large amount of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic review of the investment would be: *An investment committee of the Board of Directors 11. The auditors who physically examine securities should insist that a client representative be present in order to: *Acknowledge the receipt of securities returned 12. The best way to verify the amount of dividend revenue received during the year is: *Verification by reference to dividend record books CHAPTER 11 1. Which of the following is least likely to be considered an inherent risk relating to receivables ad revenues? *Over-recorded sales due to a lack of control over the sales entry function 2. Which of the following would provide the MOST ASSURANCE concerning the valuation of A/R? *Assess the allowance for uncollectible accounts for reasonableness 3. Which of the following is most likely to be an example of fraudulent financial reporting relating to sales? *Recording sales when the customer is likely to perform the goods 4. Which of the following is an example of misappropriation of assets relating to sales? *Theft of cash register sales 5. There is a presumption that auditors will confirm accounts receivable UNLESS the auditor?s assessment of the risk of material misstatement is low: *And A/R are immaterial, or the use of confirmations would be ineffective 6. Which of the following is NOT among the criteria that ordinarily exist for revenue to be recognized? *Delivery has occurred or is scheduled to occur in the near future 7. To determine that all sales have been recorded, the auditors would select a sample of transactions from the: *Shipping documents file 8. Which of the following would most likely be detected by an auditor?s review of the client?s sales cutoff? *Inflated sales for the year 9. To test the existence assertion for recorded recievables, the auditors would select a sample from the: *A/R subsidiary ledger 10. Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices? *Completeness 11. Cooper, CPA, is auditing FS of a small rural municipality. The receivable balances represent residents? delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the A/R balances at the BS date, Cooper would most likely: *Send positive confirmation requests 12. Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable: *Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence CHAPTER 12 1. Which of the following is LEAST likely to be among the auditor?s objectives in the audit of inventories and CGS? *Establish that the client includes only inventory on hand at year-end in inventory totals 2. The receiving department is LEAST likely to be responsible for: *Preparation of a shipping document 3. The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the: *Bill of Lading 4. Which of the following should be included as a part of the inventory costs of a manufacturing company? *Direct Labor, YES! Raw Materials, YES! Factory Overhead, YES! 5. The organization established by Congress to narrow the options in cost accounting that are available under GAAP is the: *Cost Accounting Standards Board 6. When a primary risk related to an audit is possible overstated inventory, the assertion most directly related is: *Existence 7. Instead of taking a physical inventory count on the BS date, the client may take physical counts prior to year-end if IC is adequate and:*Well kept records of perpetual inventory are maintained 8. The auditor?s analytical procedures will be facilitated if the client: *Uses a standard cost system that produces variance reports 9. When perpetual inventory records are maintained in quantities and in dollars, and IC inventory is WEAK the auditor would probably: *Want the client to schedule the physical inventory count at the end of the year. 10. Which of the following is the best audit procedure for the discovery of damaged merchandise in a client?s ending inventory? *Observe merchandise and raw materials during the client?s physical inventory taking 11. McPherson Corp. does not make an annual physical counts of year-end inventories, but instead makes weekly test counts on the basis of a statistical plan. During the year, Sara Mullins, CPA, observes such counts as she deems necessary and is able to satisfy herself as to the reliability of the client?s procedures. In reporting on the results of her examination, Mullins: *Can issue an unqualified opinion without disclosing that she did not observe year-end inventories 12. The primary objective of a CPA?s observations of a client?s physical inventory count is to: *Obtain direct knowledge that the inventory exists and has been properly counted CHAPTER 13 1. To assure accountability for fixed asset retirements, management should implement an internal control that includes: *Utilization of serially numbered retirement work orders 2. The auditors may conclude that depreciation charges are insufficient by noting: *Excessive recurring losses on assets retired 3. Which of the following is an internal control weakness related to factory equipment? * All purchases of factory equipment are required to be made by the department in need of equipment 4. Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to PP&E are not understated? *Repairs 5. The auditors are most likely to seek information from the plant manager with respect to the: *Existence of Obsolete Machinery 6. To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic: *Inspection of equipment and reconciliation with accounting records 7. Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts? *A property, plant, and equipment cutoff near year-end has a more significant effect on net income 8. For the audit of a continuing nonpublic client, the emphasis of the testing for property account is on: *Transaction that occurred during the year 9. Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment? *Accumulated Depreciation 10. An effective procedure for identifying unrecorded retirement of equipemtn is to: *Select items of equipment in the accounting records and then locate them in the plant. 11. Which of the following is not an overall test of the annual provision for depreciation expense? *Test deductions from A/D for assets purchased during the year 12. The audit of intangible assets typically involves: * Vouching the Cost of Assets and Testing Allocation Methods CHAPTER 14 1. Which of the following procedures is least likely to be completed before the balance sheet date? *Search for unrecorded liability 2. An audit of the balance in the accounts payable account is ordinarily not designed to: *Detect accounts payable that are substantially past due 3. Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? *Examine selected cash disbursements in the period subsequent to year-end 4. Auditor confirmation of accounts payable balances at the balance sheet date my be unnecessary because: *There is likely to be other reliable external evidence available to support the balances. 5. A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner? *Reconciling vendors? monthly statements with subsidiary payable ledger accounts 6. For effective internal control, the accounts payable department should compare the information on each vendor?s invoice with the: *Receiving report and purchase order 7. When confirming A/P, the approach is most likely to be one of: *Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. 8. In an audit, the valuation of year-end accounts payable is most likely addressed by: *Confirmation 9. Ordinarily, the most significant assertion relating to accounts payable is: *Completeness 10. The least likely approach in auditing management?s estimate relating to an accrued liability is to: *Send confirmations relating to the estimate 11. To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: *Individual who signs the check 12. In performing test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test most likely test? *Existence CHAPTER 15 1. Which of the following is least likely to be an audit objective for debt? *Determine that the client has rights to receive proceeds relating to the redemption of debt. 2. The auditors would be most likely to find unrecorded long-term liabilities by analyzing: *Interest payments 3. A likely reason that consideration of client compliance with debt provisions is important to an audit is that violations of such debt provisions may affect the total recorded: *Current Liabilities 4. A transfer agent and a registrar are most likely to provide the auditor with evidence on: *Shares issued and outstanding 5. The audit procedure of confirmation is least appropriate with respect to: *Holders of Common Stock 6. An auditor is most likely to trace treasury stock purchase transactions to the: *Numbered stock certificates on hand 7. In the continuing audit of a manufacturing company of medium size; which of the following areas would you expect to require the least amount of audit time? *Owner?s Equity 8. The auditors can best verify a client?s bond sinking fund transactions and year-end balance by: *Confirmation with the bond trustee 9. The auditors? program for the examination of long-term debt should include steps that require the: * Examination of copies of debt agreements 10. All corporate capital stock transactions should ultimately be traced to the: *Minutes of the board of directors 11. Which of the following is most likely to be an audit objective in the audit of owner?s equity? * Determine that the presentation and disclosure of owner?s equity is appropriate 12. In an audit of a sole proprietorship, a common difficulty is lack of: * Segregation of personal net worth and business capital 13. Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable? *Are direct borrowings on N/P authorized by the board of directors? 14. The primary responsibility of a bank acting as registrar of capital stock is to: *Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation 15. Where an independent stock transfer agent is not employed and the corporation issues is own stocks and maintains stock records, canceled stocks should: *Be defaced to prevent reissuance and attached to their corresponding stubs 16. An auditor most likely would inspect loan agreements under which an entity?s inventories are pledged to support management?s financial statement assertion of: *Presentation and disclosure 17. An auditor usually obtains evidence of stockholder?s equity transactions by reviewing the entity?s: *Minutes of board of directors meetings CHAPTER 16 1. Which of the following is least likely to be considered a substantive procedure relating to payroll? *Test whether employee time reports are approved by supervisors 2. Which of the following is the best way for the auditors to determine to determine that every name on a company?s payroll is that of a bona fide employee presently on the job? *Make a surprise observation of the company?s regular distribution of paychecks on a test basis 3. As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditor should: *Consider the possibility of a misstatement in the financial statements 4. When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments? *Capitalization 5. The search of unrecorded liabilities for a public company includes procedures usually performed through the: *Date of the auditor?s report 6. The aggregated misstatements in the financial statements are made up of: *Known Misstatements ?YESProjected Misstatements ? YESOther Misstatements ? YES 7. A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): *Loss Contingency 8. Which of the following is most likely to be considered a Type 1 subsequent events? *Customers checks deposited prior to year-end, but determined to be uncollectible after year-end 9. An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client?s representation letter normally would be dated: *February 10, 20X9 10. Which of the following is most likely to be included in the final review stage of an audit? *Perform analytical procedures 11. Subsequent to the issuance of the auditor?s report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: *Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information 12. Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements? *Settlement litigation CHAPTER 17 1. A material departure from generally accepted accounting principles will result in auditor consideration of: *Whether to issue an adverse opinion rather than a qualified opinion 2. The auditor?s report should be dated as of the date the: *Auditors have accumulated sufficient evidence 3. In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is: *Not to be construed as a qualification , but rather as a division of responsibility between the two CPA firms. 4. Assume that the opinion paragraph of an auditors? report begins as follows: ?With the explanation given in Note 6?the financial statements referred to above present fairly?? This is: *An improper type of reporting 5. The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in: *An emphasis of a matter paragraph to the auditors? report 6. What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated? *Qualified-NO -Adverse- YES 7. Which of the following ordinarily involves the addition of an emphasis of matter paragraph to an audit report? * A consistency modification 8. An audit report for a public client indicates that the audit was performed in performance with: *Standards of the PCAOB 9. An audit report for a public client indicates that the financial statements were prepared in conformity with: *Generally Accepted Accounting Principles 10. When then matter is properly disclosed in the financial statements, the likely result of substantial doubt about the ability of the client to continues as a going concern is the issuance of which of the following audit opinions? * Qualified ? NO - Unmodified with Emphasis of Matter ? YES 11. A change in accounting principles that the auditor believe is not justified is likely to result in which of the following types of audit opinions? * Qualified ? YES-Unmodified with Emphasis of Matter ? NO 12. Which of the following is least likely to result in inclusion of an emphasis of matter paragraph in an audit report? *A decision not to confirm accounts receivable CHAPTER 18 1. In an integrated audit, which of the following must the auditors communicate to the audit committee? *The auditor must communicate both KNOWN MATERIAL WEAKESSES and KNOWN SIGNIFICANT DEFICIENCIES 2. In an integrated audit, which of the following leads to an adverse opinion on IC? *A MATERIAL WEAKNESS leads to an adverse opinion, NOT a known significant deficiency 3. In an integrated audit, which of the following must be communicated by management to the audit committee? *Both a KNOWN MATERIAL WEAKNESS and a KNOWN SIGNIFICANT DEFICIENCY should be communicated to the audit committee by management 4. Which of the following is most likely to be considered a material weakness in internal control? *Ineffective oversight of financial reporting by the audit committee 5. Which of the following is defined as a weakness in IC that allows a reasonable possibility of a misstatement that is material? *Materail Weakness 6. The auditors identified a material weakness in IC in August. The client was informed and the client corrected the material weakness prior to year-end (December 31); the auditors concluded that management eliminated the material weakness prior to year-end. The appropriate audit report on IC is: *Unqualified 7. Which of the following need NOT be included in management?s report on IC under section 404(a) of the SOX Act of 2002? *Management?s acknowledgement of its responsibility to establish and maintain IC that detects ALL significant deficiencies 8. Management?s documentation of IC ordinarily should include information on: * Controls Desgined to Prevent Fraud ?YES! Controls Designed to Ensure Employee Personal Integrity - NO 9. A material weakness is a control deficiency (or combination of control deficiencies) that results in a reasonable possibility that a misstatement of at least what amout will not be prevented or detected? *A material amount 10. A procedure that involves tracing a transaction from origination through the company?s information systems until it is reflected in the company?s financial report is referred to as a: *Walk-through 11. Which of the following is NOT a typical question asked during a walk-through? *What is the largest fraudulent transaction you ever processed? 12. An audit of IC over financial reporting ordinarily assessed IC: * As of the LAST day of the FISCAL PERIOD CHAPTER 19 1. Which of the following is NOT typically performed when the auditors are performing a review of client financial statements? *Confirmation of A/R 2. Which of the following must be obtained in a review of a nonpublic company? *Engagement Letter, YES! Representation Letter, YES! 3. A CPA who is NOT independent may perform which of the following services for a non-public company? *Compilation ? YES! Review ? NO! 4. When performing a review of a nonpublic company, which is LEAST likely to be included in auditor inquiries of management members with responsibility for financial and accounting matters? * Communications with related parties 5. The proper report by an auditor relating to summarized financial statements includes: *An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements 6. Concerning interim quarterly financial statements, management of public companies: *Must engage CPAs to review the statements 7. A proper compilation report on financial statements that omit note disclosures: *Indicates that management has omitted such information 8. Which of the following forms of accountant association always leads to a report intended solely for certain specified parties? *Agreed-upon procedures 9. Which assertion is generally most difficult to attest to with respect to personal financial statements? *Completeness 10. Financial statements prepared following which of the following are most likely to be considered a special-purpose financial reporting framework? *The cash basis of accounting 11. In which of the following reports should a CPA NOT express negative (limited) assurance? *A standard compilation report on FS?s of a nonpublic company 12. Comfort letters to underwriters are normally signed by the: *Independent auditor
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