Question 1

The auditor considers materiality only at the overall financial statement level.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following should the client have as part of its process for estimating fair value?

Accepted Answer

A) A systematic process to identify each asset that is subject to realizable value estimation. 
B) A process to identify relevant historical values. 
C) An analysis of transactions that have taken place within the client's organization. 
D) A realistic process to estimate future cash flows to discount back to a present value. 
A) A systematic process to identify each asset that is subject to realizable value estimation. 
B) A process to identify relevant historical values. 
C) An analysis of transactions that have taken place within the client's organization. 
D) A realistic process to estimate future cash flows to discount back to a present value. D

Question 3

The inventory account does not require any subjective estimates by management.

Accepted Answer

A) True 
 B)False  False

Question 4

Auditors make materiality assessments to help in planning the audit evidence to obtain and in evaluating the audit evidence that was obtained.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best describes the nature of assets of held-for-sale operations?

Accepted Answer

A) Impairment testing based on most likely sale or disposal price. 
B) Impairment testing if plants are closed or equipment is not used. 
C) Lower of cost or market impairments,including an allowance for obsolescence. 
D) Estimates and assumptions made in preparation of the estimate of income tax expense for the year. 
A) Impairment testing based on most likely sale or disposal price. 
B) Impairment testing if plants are closed or equipment is not used. 
C) Lower of cost or market impairments,including an allowance for obsolescence. 
D) Estimates and assumptions made in preparation of the estimate of income tax expense for the year.

Question 6

A misstatement that is intentional is not assessed any differently by the auditor than a misstatement that is unintentional.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Accepted Answer

A) Determining appropriate model and sensitivity of model. 
B) Reviewing contracts to determine if loss is other than temporary. 
C) Performing an analysis of volume of trading activity. 
D) Performing an analysis of trades on similar assets. 
A) Determining appropriate model and sensitivity of model. 
B) Reviewing contracts to determine if loss is other than temporary. 
C) Performing an analysis of volume of trading activity. 
D) Performing an analysis of trades on similar assets.

Question 8

Which of the following is false regarding the valuation of goodwill?

Accepted Answer

A) U.S.accounting standards require that goodwill be specifically identified with an operating segment or a reporting unit. 
B) By definition,acquired parts of the business (or goodwill)must be sufficiently identifiable so that they can be managed as a unit or may be separately identified and sold as a unit. 
C) Goodwill is tested for impairment quarterly. 
D) Goodwill is the excess of the purchase price over the fair market value of the acquired company's tangible assets,identifiable intangible assets,and liabilities. 
A) U.S.accounting standards require that goodwill be specifically identified with an operating segment or a reporting unit. 
B) By definition,acquired parts of the business (or goodwill)must be sufficiently identifiable so that they can be managed as a unit or may be separately identified and sold as a unit. 
C) Goodwill is tested for impairment quarterly. 
D) Goodwill is the excess of the purchase price over the fair market value of the acquired company's tangible assets,identifiable intangible assets,and liabilities.

Question 9

The assessment as to whether a misstatement in a cash-flow classification is material should be primarily based on an income statement perspective.

Accepted Answer

A) True 
 B)False

Question 10

Which method focuses on the materiality of current year misstatements and the reversing effect of prior-year misstatements on the income statement?

Accepted Answer

A) Rollover method. 
B) Iron curtain method. 
C) Percentage approach. 
D) Judgmental method. 
A) Rollover method. 
B) Iron curtain method. 
C) Percentage approach. 
D) Judgmental method.

Question 11

Under which of the following approaches is the client expected to estimate fair value based on a model of the future cash flows associated with the instrument or the asset?

Accepted Answer

A) Mark to market model. 
B) Replacement model. 
C) Mark to model. 
D) Historical cost model. 
A) Mark to market model. 
B) Replacement model. 
C) Mark to model. 
D) Historical cost model.

Question 12

If the auditor believes that misstatements aggregating approximately $50,000 would be material to the income statement,but misstatements aggregating approximately $100,000 would be material to the balance sheet,the auditor typically assesses overall materiality at $100,000 or less.

Accepted Answer

A) True 
 B)False

Question 13

In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas,which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?

Accepted Answer

A) Materiality of the financial statement amounts. 
B) Risk of material misstatement of the assertions related to these financial statement amounts. 
C) Degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions. 
D) All of the above are considered by the auditor. 
A) Materiality of the financial statement amounts. 
B) Risk of material misstatement of the assertions related to these financial statement amounts. 
C) Degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions. 
D) All of the above are considered by the auditor.

Question 14

Evaluating the Quality of Client's Internal Audit Function An external auditor assesses the quality of the internal audit function to determine whether the internal auditors' work is relevant to the external audit and of sufficient quantity and quality.Describe the three factors of the internal audit function that would be considered by the external auditor in this quality assessment.

Accepted Answer

Chapter 16: Advanced

Question 15

An audit of Level 1 assets is likely to be less challenging than an audit of Level 3 assets.

Accepted Answer

A) True 
 B)False

Question 16

Auditor needs to assess disclosures about what lines of business the company may discontinue.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a long-term liability account with a high risk of material misstatement?

Accepted Answer

A) Warranty reserves. 
B) Pension obligations. 
C) Other postemployment benefits. 
D) Marketable securities. 
A) Warranty reserves. 
B) Pension obligations. 
C) Other postemployment benefits. 
D) Marketable securities.

Question 18

The significant judgments related to "net finance receivables" include assessing the allowance for noncollectibility.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true of internal auditing?

Accepted Answer

A) The primary client is the investor in the company. 
B) The primary nature of services include assurance and consulting. 
C) The parties receiving assurance are regulatory agencies and stockholders. 
D) Internal auditing must be responsible for gathering evidence in all audits,including external audits. 
A) The primary client is the investor in the company. 
B) The primary nature of services include assurance and consulting. 
C) The parties receiving assurance are regulatory agencies and stockholders. 
D) Internal auditing must be responsible for gathering evidence in all audits,including external audits.

Question 20

In which of the following cases is it not necessary for an auditor to revise the original materiality level and document the new materiality amount,as well as the rationale for changing the amount?

Accepted Answer

A) If there is a change in circumstances that involve laws,regulations,or the accounting framework. 
B) If there is new information resulting from the risk assessment of the client. 
C) If there are changes in the understanding of the client about a new contractual agreement. 
D) If the client plans to change depreciation methods for new plant assets procured in the future. 
A) If there is a change in circumstances that involve laws,regulations,or the accounting framework. 
B) If there is new information resulting from the risk assessment of the client. 
C) If there are changes in the understanding of the client about a new contractual agreement. 
D) If the client plans to change depreciation methods for new plant assets procured in the future.

The auditor considers materiality only at the overall financial statement level.

Which of the following should the client have as part of its process for estimating fair value?

The inventory account does not require any subjective estimates by management.

Auditors make materiality assessments to help in planning the audit evidence to obtain and in evaluating the audit evidence that was obtained.

Which of the following best describes the nature of assets of held-for-sale operations?

A misstatement that is intentional is not assessed any differently by the auditor than a misstatement that is unintentional.

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Which of the following is false regarding the valuation of goodwill?

The assessment as to whether a misstatement in a cash-flow classification is material should be primarily based on an income statement perspective.

Which method focuses on the materiality of current year misstatements and the reversing effect of prior-year misstatements on the income statement?

Under which of the following approaches is the client expected to estimate fair value based on a model of the future cash flows associated with the instrument or the asset?

If the auditor believes that misstatements aggregating approximately $50,000 would be material to the income statement,but misstatements aggregating approximately $100,000 would be material to the balance sheet,the auditor typically assesses overall materiality at $100,000 or less.

In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas,which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?

An audit of Level 1 assets is likely to be less challenging than an audit of Level 3 assets.

Auditor needs to assess disclosures about what lines of business the company may discontinue.

Which of the following is not a long-term liability account with a high risk of material misstatement?

The significant judgments related to "net finance receivables" include assessing the allowance for noncollectibility.

Which of the following statements is true of internal auditing?

In which of the following cases is it not necessary for an auditor to revise the original materiality level and document the new materiality amount,as well as the rationale for changing the amount?

Auditing: Integral to the Economy

The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Other Services Provided by Audit Firms

Filters

Exam 16: Advanced Topics Concerning Complex Auditing Judgments

The auditor considers materiality only at the overall financial statement level.

Which of the following should the client have as part of its process for estimating fair value?

The inventory account does not require any subjective estimates by management.

Auditors make materiality assessments to help in planning the audit evidence to obtain and in evaluating the audit evidence that was obtained.

Which of the following best describes the nature of assets of held-for-sale operations?

A misstatement that is intentional is not assessed any differently by the auditor than a misstatement that is unintentional.

Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?

Which of the following is false regarding the valuation of goodwill?

The assessment as to whether a misstatement in a cash-flow classification is material should be primarily based on an income statement perspective.

Which method focuses on the materiality of current year misstatements and the reversing effect of prior-year misstatements on the income statement?

Under which of the following approaches is the client expected to estimate fair value based on a model of the future cash flows associated with the instrument or the asset?

If the auditor believes that misstatements aggregating approximately $50,000 would be material to the income statement,but misstatements aggregating approximately $100,000 would be material to the balance sheet,the auditor typically assesses overall materiality at $100,000 or less.

In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas,which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?

An audit of Level 1 assets is likely to be less challenging than an audit of Level 3 assets.

Auditor needs to assess disclosures about what lines of business the company may discontinue.

Which of the following is not a long-term liability account with a high risk of material misstatement?

The significant judgments related to "net finance receivables" include assessing the allowance for noncollectibility.

Which of the following statements is true of internal auditing?

In which of the following cases is it not necessary for an auditor to revise the original materiality level and document the new materiality amount,as well as the rationale for changing the amount?

Auditing: Integral to the Economy

The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Other Services Provided by Audit Firms

Filters