Question 1

Which of the following elements would normally be included in an auditor's engagement letter?

Accepted Answer

A) Potential limitations of the audit engagement. 
B) Responsibility of management for any and all illegal acts perpetrated by its employees. 
C) Initial judgments pertaining to materiality. 
D) Whether or not the auditor will attempt to obtain negative assurance with respect to management's compliance with laws and regulations. 
A) Potential limitations of the audit engagement. 
B) Responsibility of management for any and all illegal acts perpetrated by its employees. 
C) Initial judgments pertaining to materiality. 
D) Whether or not the auditor will attempt to obtain negative assurance with respect to management's compliance with laws and regulations. A

Question 2

If the management of an entity is close to breaching a debt covenant that requires maintaining a certain current ratio, management may have an incentive to ________.

Accepted Answer

A) either overstate current assets or understate current liabilities 
B) understate either current assets or current liabilities 
C) overstate either current assets or current liabilities 
D) either understate current assets or overstate current liabilities 
A) either overstate current assets or understate current liabilities 
B) understate either current assets or current liabilities 
C) overstate either current assets or current liabilities 
D) either understate current assets or overstate current liabilities A

Question 3

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.They range from simple comparisons to the use of complex models involving many relationships and elements of data.They involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by auditors.
Describe the broad purposes of analytical procedures and identify the sources of information from which an auditor develops expectations.

Accepted Answer

Analytical procedures are used for these broad purposes:
1.To assist the auditor in planning the nature timing and extent of other audit procedures.
2.As a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions.
3.As an overall review of the financial information in the final review stage of the audit.
An auditor's expectations are developed from the following sources of information:
1.Financial information for comparable prior periods considering known changes.
2.Anticipated results for example budgets forecasts and extrapolations.
3.Relationships among elements of financial information within the period.
4.Information regarding the industry in which the client operates.
5.Relationships of financial information with relevant nonfinancial information.

Question 4

Net operating cycle measures how many days, on average, it takes a company to ________ (choose three options).

Accepted Answer

A) purchase and sell inventory 
B) collect the receivable 
C) pay back creditors 
D) restock inventory 
A) purchase and sell inventory 
B) collect the receivable 
C) pay back creditors 
D) restock inventory

Question 5

Corporate governance may be best thought of as _________.

Accepted Answer

A) the people, systems, and processes within companies used to ensure that companies are well-managed 
B) the level of control exerted by senior management 
C) a subsidiary entity that is controlled by a parent company 
D) Corporate donations to political parties and non-profit entities 
A) the people, systems, and processes within companies used to ensure that companies are well-managed 
B) the level of control exerted by senior management 
C) a subsidiary entity that is controlled by a parent company 
D) Corporate donations to political parties and non-profit entities

Question 6

For illegal acts that have a material but indirect effect on the financial statements, the auditor's responsibility _______ performing specified audit procedures that may identify noncompliance.

Accepted Answer

A) is limited to 
B) goes beyond 
C) does not include 
D) none of these answer choices are correct 
A) is limited to 
B) goes beyond 
C) does not include 
D) none of these answer choices are correct

Question 7

Clients that prepare financial statements _______ are more likely to have well-established closing procedures than clients that prepare financial statements _______.

Accepted Answer

A) monthly; annually 
B) annually; monthly 
C) half-yearly; monthly 
D) annually; half-yearly 
A) monthly; annually 
B) annually; monthly 
C) half-yearly; monthly 
D) annually; half-yearly

Question 8

Inherent risk related to closing procedures would generally be increased when _______.

Accepted Answer

A) a client is found to have strong closing procedures, and sound internal control practices relating to closing 
B) no errors and omissions are located when auditing the closing process 
C) staff assigned to deal with closing procedures are relatively inexperienced 
D) the closing process is relatively straightforward 
A) a client is found to have strong closing procedures, and sound internal control practices relating to closing 
B) no errors and omissions are located when auditing the closing process 
C) staff assigned to deal with closing procedures are relatively inexperienced 
D) the closing process is relatively straightforward

Question 9

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the audit committee.Describe three of those requirements.

Accepted Answer

SOX Sec.301 requirements and duties for

Question 10

If auditors believe the client is under pressure to report strong results, which of the following risks exist with regard to the current year's income? (choose two options)

Accepted Answer

A) Inclusion of revenues earned after year-end 
B) Exclusion of expenses incurred before year-end 
C) Exclusion of revenues earned after year-end 
D) Inclusion of expenses incurred before year-end 
A) Inclusion of revenues earned after year-end 
B) Exclusion of expenses incurred before year-end 
C) Exclusion of revenues earned after year-end 
D) Inclusion of expenses incurred before year-end

Question 11

If an auditor is attempting to access the long-term viability of the client firm as a going concern, the auditor should attempt to calculate _________.

Accepted Answer

A) solvency ratios 
B) liquidity ratios 
C) price-earnings multiples 
D) weighted average cost of capital 
A) solvency ratios 
B) liquidity ratios 
C) price-earnings multiples 
D) weighted average cost of capital

Question 12

Which of the following reflects the earnings return on each issued share?

Accepted Answer

A) Earnings Per Share 
B) Cash Earnings Per Share 
C) Price-Earnings Ratio 
D) Current Ratio 
A) Earnings Per Share 
B) Cash Earnings Per Share 
C) Price-Earnings Ratio 
D) Current Ratio

Question 13

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should _________.

Accepted Answer

A) not accept the engagement 
B) attempt to learn all matters that would materially pertain to the entity's business 
C) issue a disclaimer of opinion 
D) rely on the opinion of specialists the auditor hires 
A) not accept the engagement 
B) attempt to learn all matters that would materially pertain to the entity's business 
C) issue a disclaimer of opinion 
D) rely on the opinion of specialists the auditor hires

Question 14

Initial agreements and understandings between the client and auditors should be documented and set forth in a(n) ________.

Accepted Answer

A) legal letter 
B) confirmation letter 
C) engagement letter 
D) informal memorandum 
A) legal letter 
B) confirmation letter 
C) engagement letter 
D) informal memorandum

Question 15

In the context of fraudulent financial reporting, which would most likely represent a risk factor?

Accepted Answer

A) Low employee turnover at senior management levels 
B) High degree of competition in the particular industry 
C) The structure of the company includes subsidiary companies 
D) Revenue expectations from management have increased slightly from the prior year 
A) Low employee turnover at senior management levels 
B) High degree of competition in the particular industry 
C) The structure of the company includes subsidiary companies 
D) Revenue expectations from management have increased slightly from the prior year

Question 16

Generally speaking, client firms engaged in international trade would be considered to have __________.

Accepted Answer

A) lower inherent risk 
B) higher inherent risk 
C) lower control risk 
D) less complicated operations 
A) lower inherent risk 
B) higher inherent risk 
C) lower control risk 
D) less complicated operations

Question 17

Which three of the following are related parties of a company? (choose three options)

Accepted Answer

A) An affiliate 
B) The principal owner 
C) The manager 
D) The government 
A) An affiliate 
B) The principal owner 
C) The manager 
D) The government

Question 18

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the ________.

Accepted Answer

The answer of For public companies, Section 301 of the...

Question 19

Which of the following acts directs that the audit committee members should be independent members of the board of directors, not executive directors or otherwise affiliated with the issuer?

Accepted Answer

A) Sarbanes Oxley Act of 2002 
B) Securities Act of 1933 
C) Securities Exchange Act of 1934 
D) Foreign Corrupt Practices Act of 1977 
A) Sarbanes Oxley Act of 2002 
B) Securities Act of 1933 
C) Securities Exchange Act of 1934 
D) Foreign Corrupt Practices Act of 1977

Question 20

Which of the following is true of the influence of significant accounts and classes of transactions on inherent risk?

Accepted Answer

A) When determination of account balance is objective, the inherent risk is low. 
B) When the transactions are routine and relatively homogenous, the inherent risk is high. 
C) When the account has high volume of transactions, the inherent risk is low. 
D) When the determination of an account balance is subjective, the inherent risk is low. 
A) When determination of account balance is objective, the inherent risk is low. 
B) When the transactions are routine and relatively homogenous, the inherent risk is high. 
C) When the account has high volume of transactions, the inherent risk is low. 
D) When the determination of an account balance is subjective, the inherent risk is low.

Which of the following elements would normally be included in an auditor's engagement letter?

If the management of an entity is close to breaching a debt covenant that requires maintaining a certain current ratio, management may have an incentive to ________.

Net operating cycle measures how many days, on average, it takes a company to ________ (choose three options).

Corporate governance may be best thought of as _________.

For illegal acts that have a material but indirect effect on the financial statements, the auditor's responsibility _______ performing specified audit procedures that may identify noncompliance.

Clients that prepare financial statements _ are more likely to have well-established closing procedures than clients that prepare financial statements _.

Inherent risk related to closing procedures would generally be increased when _______.

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the audit committee.Describe three of those requirements.

If auditors believe the client is under pressure to report strong results, which of the following risks exist with regard to the current year's income? (choose two options)

If an auditor is attempting to access the long-term viability of the client firm as a going concern, the auditor should attempt to calculate _________.

Which of the following reflects the earnings return on each issued share?

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should _________.

Initial agreements and understandings between the client and auditors should be documented and set forth in a(n) ________.

In the context of fraudulent financial reporting, which would most likely represent a risk factor?

Generally speaking, client firms engaged in international trade would be considered to have __________.

Which three of the following are related parties of a company? (choose three options)

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the ________.

Which of the following acts directs that the audit committee members should be independent members of the board of directors, not executive directors or otherwise affiliated with the issuer?

Which of the following is true of the influence of significant accounts and classes of transactions on inherent risk?

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

Exam 4: Risk Assessment Part Iiunderstanding the Client

Which of the following elements would normally be included in an auditor's engagement letter?

If the management of an entity is close to breaching a debt covenant that requires maintaining a certain current ratio, management may have an incentive to ________.

Net operating cycle measures how many days, on average, it takes a company to ________ (choose three options).

Corporate governance may be best thought of as _________.

For illegal acts that have a material but indirect effect on the financial statements, the auditor's responsibility _______ performing specified audit procedures that may identify noncompliance.

Clients that prepare financial statements _______ are more likely to have well-established closing procedures than clients that prepare financial statements _______.

Inherent risk related to closing procedures would generally be increased when _______.

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the audit committee.Describe three of those requirements.

If auditors believe the client is under pressure to report strong results, which of the following risks exist with regard to the current year's income? (choose two options)

If an auditor is attempting to access the long-term viability of the client firm as a going concern, the auditor should attempt to calculate _________.

Which of the following reflects the earnings return on each issued share?

If an auditor is considering accepting a client in an industry that is unfamiliar to the auditor, the auditor should _________.

Initial agreements and understandings between the client and auditors should be documented and set forth in a(n) ________.

In the context of fraudulent financial reporting, which would most likely represent a risk factor?

Generally speaking, client firms engaged in international trade would be considered to have __________.

Which three of the following are related parties of a company? (choose three options)

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the ________.

Which of the following acts directs that the audit committee members should be independent members of the board of directors, not executive directors or otherwise affiliated with the issuer?

Which of the following is true of the influence of significant accounts and classes of transactions on inherent risk?

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

Clients that prepare financial statements _ are more likely to have well-established closing procedures than clients that prepare financial statements _.