FINAL EXAM (46 QUESTIONS)
?For audit evidence to be compelling to the auditor it must be sufficient and appropriate. Which statement below is not correct regarding the appropriateness of audit evidence?
?The more effective the internal control system, the more assurance it provides the auditor about the reliability of financial reporting by the client.
?An auditor’s opinion, to be economically useful and profitable to the auditing firm needs to be formed within a reasonable time and based on evidence obtained that assures profits for the auditing firm.
?The independent auditor’s direct personal knowledge, obtained through inquiry, observation and inspection, is generally more persuasive than information obtained indirectly.
? Evidence obtained from independent sources outside the entity is generally more reliable than evidence secured solely within the entity.
?The final step in the evaluation of the audit results is the decision to:
?project the point estimate.
?determine sampling error and calculate the estimated total population error.
?determine the error in each sample.
?accept the population as fairly stated or to require further action.
?The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:
?The introductory paragraph of the standard audit report for a non-public company performs which functions?
I. It states the CPA has performed an audit.
II. It lists the financial statements being audited.
III. It states the financial statements are the responsibility of the auditor.
?I and III
?I, II and III
?I and II
?II and III
?Master files, spreadsheets, and reports that accumulate material, labor, and overhead as the costs are incurred are:
?finished goods inventory records.
?cost accounting records.
?Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?
?Presentation and disclosure
?In aIDition to confirming bank balances of your audit client, a bank confirmation would normally contain:
?the client’s credit history as regards to paying back loans.
?the client’s managements bank account information.
?the client’s bank loans with due date, interest rate, and collateral requested.
?the client’s business prospects.
?A commitment is best described as:
?an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions.
?an agreement to commit the firm to a set of fixed conditions in the future.
?an agreement to commit the firm to a set of fixed conditions in the future that depends on company profitability.
?a potential future obligation to an outside party for an as yet to be determined amount.
?The management’s responsibility section of the standard audit report for a non-public company states that the financial statements are:
?the responsibility of management.
?the joint responsibility of management and the auditor.
?none of the above.
?the responsibility of the auditor.
?Which of the following audit procedures would be the most correct in determining the audit objective of existence for the equipment account in the fixed asset master file?
?Review transactions near the balance sheet date.
?Examine vendor invoices and receiving reports.
?Examine vendor invoices for correct accounting treatment.
?Recalculate vendor invoices.
?Which of the following is not explicitly stated in the standard unqualified audit report?
?The audit was conducted in accordance with generally accepted accounting principles.
?The auditors believe that the audit evidence provides a reasonable basis for their opinion.
?The financial statements are the responsibility of management.
?An audit includes assessing the accounting estimates used.
?The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.
?bill of lading
?The appropriate and sufficient evidence to be obtained from tests of details must be decided on an:
?none of the above.
?audit objectives basis.
?Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?
?Management and the auditors
?Which of the following business functions is not considered to be part of the acquisitions class of transactions?
?Processing purchase orders
?Receiving goods and services
?Processing cash disbursements
?When auditing the capital acquisition and repayment cycle, it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.
?The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:
?Accounts payable master file.
?Purchase approval file.
?Acquisitions transaction file.
?Cash disbursements file.
?________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
?Process cost systems
?Job order cost systems
?Just-in-time production systems
?Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?
?Property tax expense
?Estimated liability for warranties
?Which of the following accounts is not associated with the acquisition and payment cycle?
?Accrued property taxes
?Income tax expense
?Property, plant and equipment
?Some companies have customers send payments directly to an aIDress maintained by a bank. This is called a(n) ________ system.
?In most manufacturing companies, the inventory and warehousing cycle begins with the:
?completion of production of a customer’s order.
?receipt of a customer’s order.
?acquisition of raw materials for production of an order.
?initiation of production of a customer’s order.
You are auditing Rodgers and Company. You are aware of a potential loss due to non-compliance with environmental regulations. Management has assessed that there is a 40% chance that a $10M payment could result from the non-compliance. The appropriate financial statement treatment is to:?
?accrue a $4 million liability.
?disclose a liability and provide a range of outcomes.
?since there is less than a 50% chance of occurrence, ignore.
?since there is greater that a remote chance of occurrence, accrue the $10 million.
?The audit procedure that requires an auditor to “foot the acquisition schedule” relates to which balance-related audit objective?
?The standard unqualified audit report for a non-public entity must:
?include an explanatory paragraph.
?be aIDressed to the company’s stockholders and creditors.
?have a report title that includes the word “CPA.”
?When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:
?Which of the following does not have to be considered in determining the initial sample size of a test of details?
?Estimate of misstatements in the population
?Acceptable risk of incorrect rejection
?Acceptable audit risk
?Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client’s business and industry.
?Which of the following statements is not correct?
?The sample size for any given procedure is likely to vary from audit to audit.
?It is possible to vary the sample size from one unit to 100% of the items in the population.
?The decision of how many items to test must be made by the auditor for each audit procedure.
?The decision of how many items to test should not be influenced by the increased costs of performing the aIDitional tests.
? A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the:
?One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances, but each transaction is often highly material in amount.
Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of:
?vendors’ monthly statements.
?individual vendors’ invoices.
?the accounts payable account in the general ledger
?Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?
?Compare depreciation expense divided by gross equipment cost with previous years.
?Compare accumulated depreciation divided by gross equipment cost with previous years.
?Compare annual repairs and maintenance accounts with previous years.
?Compare gross manufacturing cost divided by some measure of production with previous years.
?A sample in which the characteristics of the sample are the same as those of the population is a(n):
?Which of the following tests are typically not necessary when auditing a client’s schedule of recorded disposals?
?Footing the schedule
?All of the above are necessary.
?Tracing cost and accumulated depreciation of the disposals to the property master file
?Tracing schedule totals to the general ledger
?To determine if a sample is truly representative of the population, an auditor would be required to:
?use systematic sample selection.
?never use sampling because of the expense involved.
?conduct multiple samples of the same population.
?audit the entire population
?Which of the following is a business function related to sales returns and allowances?
?Processing customer orders
?Writing off uncollectible accounts
?Processing and recording credit memos
?You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts. Which of the following audit procedures is most likely to achieve your objective?
?Physically examine assets.
?Examine vendor invoices of closely related accounts such as repairs and maintenance.
?Trace individual acquisitions to the fixed asset master file.
?Examine vendor invoices and receiving reports.
?Which of the following is not one of the business functions for the payroll and personnel cycle?
?Timekeeping and payroll preparation
?Reconciliation of payroll account
?Payment of payroll
?Human resources and employment
? Which of the following is a correct statement regarding audit evidence?
?Evidence is usually more reliable for balance sheet accounts when it is obtained within six months of the balance sheet date.
?A large sample of evidence provided by an independent party is always considered persuasive evidence.
?The auditor must obtain a sufficient amount of relevant and reliable evidence to form an opinion on the fairness of the financial statements.
?A small sample of only one or two pieces of highly appropriate evidence is always considered persuasive evidence
?Accrued payroll taxes are normally considered to be associated with the acquisition and payment cycle.
?Because cash is the most desirable asset for people to steal, it has a higher:
?The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the: 44
?44.The total of the individual employee earnings in the payroll master file should equal the total:
?gross payroll plus the total contributed by the employer for payroll taxes.
?balance of gross payroll in general ledger accounts.
?of the checks drawn to employees for payroll.
?gross pay for the current week’s payroll.
?payroll transaction file.
?payroll tax returns.
?payroll master file.
?payroll bank account reconciliation.
?Auditors are especially concerned with three aspects of internal control for the sales and collection cycle. Which of the following is not one of their major concerns?
?Controls over sales discounts
?Controls over cutoff
?Controls that prevent or detect embezzlements
?Controls related to the allowance for uncollectible accounts
?The two primary classes of transactions in the sales and collection cycle are:
?sales and cash receipts.
?sales and sales returns.
?sales and accounts receivable.
?sales and sales discounts