Question 1

Considering Qualitative Factors What are the considerations that may cause a quantitatively small misstatement to be considered material?

Accepted Answer

Some of the considerations that may caus

Question 2

While performing goodwill impairment testing,if the original reporting unit no longer exists because operations have been fully integrated into operations of the parent company,the approach would be to determine whether all other assets have been adjusted to fair value,where applicable.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following would not be a reason to lower the threshold for materiality?

Accepted Answer

A) The auditor is concerned with potential violations of debt covenants. 
B) There were proposed adjusting entries to a particular account in prior years. 
C) The consequences of a potential misstatement in an account balance are very high. 
D) The audit team wants to limit the amount of time spent at the client's facilities. 
A) The auditor is concerned with potential violations of debt covenants. 
B) There were proposed adjusting entries to a particular account in prior years. 
C) The consequences of a potential misstatement in an account balance are very high. 
D) The audit team wants to limit the amount of time spent at the client's facilities.

Question 4

If the market value of the reporting unit is below book value and a significant amount of goodwill exists,the presumption is that there has been an impairment of goodwill.

Accepted Answer

A) True 
 B)False

Question 5

Misstatements detected during the audit that were initially deemed to be immaterial must be summarized to determine which of the following?

Accepted Answer

A) Materiality. 
B) Quantitative effect. 
C) Aggregate effects. 
D) Nature of misstatement. 
A) Materiality. 
B) Quantitative effect. 
C) Aggregate effects. 
D) Nature of misstatement.

Question 6

The FASB has set a hierarchy of inputs to consider in assessing fair value.Which of the following relates to Level 3?

Accepted Answer

A) Quoted prices for identical items in active,liquid,and visible markets. 
B) Unobservable inputs to be used in illiquid situations. 
C) Observable information for similar items in active or inactive markets. 
D) Unobservable inputs to be used in situations where markets do not exist. 
A) Quoted prices for identical items in active,liquid,and visible markets. 
B) Unobservable inputs to be used in illiquid situations. 
C) Observable information for similar items in active or inactive markets. 
D) Unobservable inputs to be used in situations where markets do not exist.

Question 7

If restructuring charges are not calculated correctly,the charges can be used to fraudulently manipulate income.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is not true regarding the use of a judgmental approach by auditors in determining whether a misstatement is clearly trivial?

Accepted Answer

A) The determination is based on past auditor experience. 
B) The determination is usually not very defensible to third-party users. 
C) The determination is usually not very defensible to regulators. 
D) The determination uses percentages for the likelihood of misstatement. 
A) The determination is based on past auditor experience. 
B) The determination is usually not very defensible to third-party users. 
C) The determination is usually not very defensible to regulators. 
D) The determination uses percentages for the likelihood of misstatement.

Question 9

In performing substantive analytical procedures,the threshold for determining whether differences between the client's recorded balance and the auditor's expectation should be based on planning materiality.

Accepted Answer

A) True 
 B)False

Question 10

Assume that the external auditor decides that because of work performed by internal auditors,the audit risk has been reduced to an acceptable level.As a result of this assessment,the auditor can do which of the following?

Accepted Answer

A) The auditor must test the assertions directly and document a separate conclusion. 
B) The auditor can decide that direct testing is not necessary. 
C) The auditor must delegate the responsibility of expressing an opinion to the internal auditors. 
D) The auditor can assume that inherent risk is zero. 
A) The auditor must test the assertions directly and document a separate conclusion. 
B) The auditor can decide that direct testing is not necessary. 
C) The auditor must delegate the responsibility of expressing an opinion to the internal auditors. 
D) The auditor can assume that inherent risk is zero.

Question 11

Assessing Whether Misstatements Are Material What additional information might the auditor choose to analyze to determine whether or not the financial statements are misstated by a material amount?

Accepted Answer

During the course of the audit,most of t

Question 12

A compensating control would not be considered as a factor that could mitigate a potential material weakness.

Accepted Answer

A) True 
 B)False

Question 13

Auditors can choose to test the client's warranty reserves using primarily tests of controls and substantive analytical procedures.

Accepted Answer

A) True 
 B)False

Question 14

The discovery of an intentional misstatement,even if immaterial,could impact the auditor's opinion on the effectiveness of which of the following?

Accepted Answer

A) The client's external controls. 
B) The client's interim financial statements. 
C) The client's internal controls over financial reporting. 
D) The client's segment reports. 
A) The client's external controls. 
B) The client's interim financial statements. 
C) The client's internal controls over financial reporting. 
D) The client's segment reports.

Question 15

Which of the following statements is not true about materiality judgments?

Accepted Answer

A) The auditor's consideration of materiality is influenced by the auditor's perception of the needs of users of financial statements. 
B) The auditor considers materiality only in relation to classes of transactions,account balances,and disclosures. 
C) Materiality judgments are used to help the auditor gather sufficient appropriate evidence about whether the financial statements are free of material misstatement. 
D) Materiality decisions differ from one audit client to another. 
A) The auditor's consideration of materiality is influenced by the auditor's perception of the needs of users of financial statements. 
B) The auditor considers materiality only in relation to classes of transactions,account balances,and disclosures. 
C) Materiality judgments are used to help the auditor gather sufficient appropriate evidence about whether the financial statements are free of material misstatement. 
D) Materiality decisions differ from one audit client to another.

Question 16

Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?

Accepted Answer

A) Contingent liability related to pending litigation. 
B) Assumptions made in preparation of the estimate of income tax expense for the year. 
C) The value of inventory. 
D) Cash on hand at the end of the year. 
A) Contingent liability related to pending litigation. 
B) Assumptions made in preparation of the estimate of income tax expense for the year. 
C) The value of inventory. 
D) Cash on hand at the end of the year.

Question 17

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

Accepted Answer

A) Observable information on similar items. 
B) Nonexistence of active markets. 
C) Quoted prices on identical items. 
D) Relevant economic and industry factors. 
A) Observable information on similar items. 
B) Nonexistence of active markets. 
C) Quoted prices on identical items. 
D) Relevant economic and industry factors.

Question 18

Which of the following is not a key type of evidence that the auditor needs to examine with respect to pensions and postemployment benefits?

Accepted Answer

A) Whether the actuarial firm hired by management is independent,capable,and objective. 
B) The appropriateness of the actuarial firm's work. 
C) The reasonableness of significant interest rate assumptions. 
D) The length of illnesses that pension recipients contract. 
A) Whether the actuarial firm hired by management is independent,capable,and objective. 
B) The appropriateness of the actuarial firm's work. 
C) The reasonableness of significant interest rate assumptions. 
D) The length of illnesses that pension recipients contract.

Question 19

Critical Criteria in Assessing Identified Internal Control Deficiencies What general factors should be considered by an auditor in evaluating whether or not a control deficiency is a material weakness,or a significant deficiency,or a control issue of lesser severity?

Accepted Answer

The following general factors should be

Question 20

Which of the following statements is true of external auditing?

Accepted Answer

A) Major focus areas are processes,including risks,controls,and effectiveness and efficiency of processes. 
B) External auditors perform both assurance and consulting services for public companies. 
C) Primary scope of services performed includes audits of financial statements. 
D) The primary client for a public company is upper management. 
A) Major focus areas are processes,including risks,controls,and effectiveness and efficiency of processes. 
B) External auditors perform both assurance and consulting services for public companies. 
C) Primary scope of services performed includes audits of financial statements. 
D) The primary client for a public company is upper management.

Considering Qualitative Factors What are the considerations that may cause a quantitatively small misstatement to be considered material?

While performing goodwill impairment testing,if the original reporting unit no longer exists because operations have been fully integrated into operations of the parent company,the approach would be to determine whether all other assets have been adjusted to fair value,where applicable.

Which of the following would not be a reason to lower the threshold for materiality?

If the market value of the reporting unit is below book value and a significant amount of goodwill exists,the presumption is that there has been an impairment of goodwill.

Misstatements detected during the audit that were initially deemed to be immaterial must be summarized to determine which of the following?

The FASB has set a hierarchy of inputs to consider in assessing fair value.Which of the following relates to Level 3?

If restructuring charges are not calculated correctly,the charges can be used to fraudulently manipulate income.

Which of the following statements is not true regarding the use of a judgmental approach by auditors in determining whether a misstatement is clearly trivial?

In performing substantive analytical procedures,the threshold for determining whether differences between the client's recorded balance and the auditor's expectation should be based on planning materiality.

Assume that the external auditor decides that because of work performed by internal auditors,the audit risk has been reduced to an acceptable level.As a result of this assessment,the auditor can do which of the following?

Assessing Whether Misstatements Are Material What additional information might the auditor choose to analyze to determine whether or not the financial statements are misstated by a material amount?

A compensating control would not be considered as a factor that could mitigate a potential material weakness.

Auditors can choose to test the client's warranty reserves using primarily tests of controls and substantive analytical procedures.

The discovery of an intentional misstatement,even if immaterial,could impact the auditor's opinion on the effectiveness of which of the following?

Which of the following statements is not true about materiality judgments?

Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

Which of the following is not a key type of evidence that the auditor needs to examine with respect to pensions and postemployment benefits?

Critical Criteria in Assessing Identified Internal Control Deficiencies What general factors should be considered by an auditor in evaluating whether or not a control deficiency is a material weakness,or a significant deficiency,or a control issue of lesser severity?

Which of the following statements is true of external auditing?

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

Considering Qualitative Factors What are the considerations that may cause a quantitatively small misstatement to be considered material?

While performing goodwill impairment testing,if the original reporting unit no longer exists because operations have been fully integrated into operations of the parent company,the approach would be to determine whether all other assets have been adjusted to fair value,where applicable.

Which of the following would not be a reason to lower the threshold for materiality?

If the market value of the reporting unit is below book value and a significant amount of goodwill exists,the presumption is that there has been an impairment of goodwill.

Misstatements detected during the audit that were initially deemed to be immaterial must be summarized to determine which of the following?

The FASB has set a hierarchy of inputs to consider in assessing fair value.Which of the following relates to Level 3?

If restructuring charges are not calculated correctly,the charges can be used to fraudulently manipulate income.

Which of the following statements is not true regarding the use of a judgmental approach by auditors in determining whether a misstatement is clearly trivial?

In performing substantive analytical procedures,the threshold for determining whether differences between the client's recorded balance and the auditor's expectation should be based on planning materiality.

Assume that the external auditor decides that because of work performed by internal auditors,the audit risk has been reduced to an acceptable level.As a result of this assessment,the auditor can do which of the following?

Assessing Whether Misstatements Are Material What additional information might the auditor choose to analyze to determine whether or not the financial statements are misstated by a material amount?

A compensating control would not be considered as a factor that could mitigate a potential material weakness.

Auditors can choose to test the client's warranty reserves using primarily tests of controls and substantive analytical procedures.

The discovery of an intentional misstatement,even if immaterial,could impact the auditor's opinion on the effectiveness of which of the following?

Which of the following statements is not true about materiality judgments?

Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?

In the FASB hierarchy of inputs to consider for assessing fair value,which is associated with Level 1?

Which of the following is not a key type of evidence that the auditor needs to examine with respect to pensions and postemployment benefits?

Critical Criteria in Assessing Identified Internal Control Deficiencies What general factors should be considered by an auditor in evaluating whether or not a control deficiency is a material weakness,or a significant deficiency,or a control issue of lesser severity?

Which of the following statements is true of external auditing?

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