Question 1

The auditors will typically not initiate discussion with the audit committee regarding the:

Accepted Answer

A) Extent to which the work of internal auditors will influence the scope of the examination. 
B) Extent to which change in the company's organization will influence the scope of the examination. 
C) Details of potential problems which the auditors believe might cause a qualified opinion. 
D) Details of the procedures which the auditors intend to apply. 
A) Extent to which the work of internal auditors will influence the scope of the examination. 
B) Extent to which change in the company's organization will influence the scope of the examination. 
C) Details of potential problems which the auditors believe might cause a qualified opinion. 
D) Details of the procedures which the auditors intend to apply.

Question 2

Audits of financial statements are designed to obtain reasonable assurance of detecting material misstatements due to: $\begin{array}{lll}&\text { Errors } & \text { Misappropriation of Asset: } \
\text { A. } & \text { Yes } & \text { Yes } \
\text { B. } & \text { Yes } & \text { No } \
\text { C. } & \text { No } & \text { Yes } \
\text { D. } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 3

Which of the following statements is always true when an auditor is planning a year-end audit?

Accepted Answer

A) An engagement should not be accepted after the fiscal year-end. 
B) An inventory count must be observed at the balance sheet date. 
C) The client's audit committee should not be told of any specific audit procedures which will be performed. 
D) An audit plan should be developed that includes a time budget. 
A) An engagement should not be accepted after the fiscal year-end. 
B) An inventory count must be observed at the balance sheet date. 
C) The client's audit committee should not be told of any specific audit procedures which will be performed. 
D) An audit plan should be developed that includes a time budget.

Question 4

An auditor who selects a sample from the shipping documents file to determine whether invoices were prepared is satisfying the audit objective of:

Accepted Answer

A) Accuracy. 
B) Completeness. 
C) Control. 
D) Existence. 
A) Accuracy. 
B) Completeness. 
C) Control. 
D) Existence.

Question 5

Which of the following is least likely to be considered a financial statement audit risk factor?

Accepted Answer

A) Management operating and financing decisions are dominated by top management. 
B) A new client with no prior audit history. 
C) Rate of change in the entity's industry is rapid. 
D) Profitability of the entity relative to its industry is inconsistent. 
A) Management operating and financing decisions are dominated by top management. 
B) A new client with no prior audit history. 
C) Rate of change in the entity's industry is rapid. 
D) Profitability of the entity relative to its industry is inconsistent.

Question 6

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

Accepted Answer

A) Existence. 
B) Rights. 
C) Valuation. 
D) Presentation and disclosure. 
A) Existence. 
B) Rights. 
C) Valuation. 
D) Presentation and disclosure.

Question 7

The process of working from financial statement figures back to detailed documents most directly addresses the financial statement assertion of

Accepted Answer

A) Completeness. 
B) Existence. 
C) Disclosure. 
D) Correctness. 
A) Completeness. 
B) Existence. 
C) Disclosure. 
D) Correctness.

Question 8

The auditors' tests of controls are designed to substantiate the fairness of specific financial statement accounts.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following situations would an auditor consider a potential risk factor for misstatements from fraudulent financial reporting?

Accepted Answer

A) Several members of management have recently purchased additional shares of the entity's stock. 
B) Several members of the board of directors have recently sold shares of the entity's stock. 
C) The entity distributes financial forecasts to financial analysts that predict conservative operating results. 
D) Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices. 
A) Several members of management have recently purchased additional shares of the entity's stock. 
B) Several members of the board of directors have recently sold shares of the entity's stock. 
C) The entity distributes financial forecasts to financial analysts that predict conservative operating results. 
D) Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Question 10

Which of the following situations would raise an auditor's concern about the risk of fraudulent financial reporting?

Accepted Answer

A) Inability to generate positive cash flows from operations,while reporting large increases in earnings. 
B) Management's lack of interest in increasing the dividend paid on common stock. 
C) Large amounts of liquid assets that are easily convertible into cash. 
D) Inability to borrow necessary capital without obtaining waivers on debt covenants. 
A) Inability to generate positive cash flows from operations,while reporting large increases in earnings. 
B) Management's lack of interest in increasing the dividend paid on common stock. 
C) Large amounts of liquid assets that are easily convertible into cash. 
D) Inability to borrow necessary capital without obtaining waivers on debt covenants.

Question 11

The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry.

Accepted Answer

A) True 
 B)False

Question 12

The auditors are planning an audit engagement for a new client.The business of the client is unfamiliar to the auditors.Which of the following would be the most useful source of information for the auditors when they are trying to obtain a general understanding of audit problems that could be encountered?

Accepted Answer

A) Client manuals of accounts and charts of accounts. 
B) AICPA Industry Audit Guides. 
C) Prior-year working papers of the predecessor auditors. 
D) Latest annual and interim financial statements issued by the client. 
A) Client manuals of accounts and charts of accounts. 
B) AICPA Industry Audit Guides. 
C) Prior-year working papers of the predecessor auditors. 
D) Latest annual and interim financial statements issued by the client.

Question 13

The risk of a material misstatement occurring in an account,assuming an absence of internal control,is referred to as:

Accepted Answer

A) Account risk. 
B) Control risk. 
C) Detection risk. 
D) Inherent risk. 
A) Account risk. 
B) Control risk. 
C) Detection risk. 
D) Inherent risk.

Question 14

The auditors' consideration of internal control is required to be performed at the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 15

While assessing the risks of material misstatement,auditors identify risks,relate risk to what could go wrong,consider the magnitude of risks,and:

Accepted Answer

A) Assess the risk of misstatements due to illegal acts. 
B) Consider the complexity of the transactions involved. 
C) Consider the likelihood that the risks could result in material misstatements. 
D) Determine materiality levels. 
A) Assess the risk of misstatements due to illegal acts. 
B) Consider the complexity of the transactions involved. 
C) Consider the likelihood that the risks could result in material misstatements. 
D) Determine materiality levels.

Question 16

When an auditor is planning an audit,the auditor should:

Accepted Answer

A) Consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire. 
B) Make preliminary judgments about materiality levels for audit purposes. 
C) Conclude whether changes in compliance with prescribed control procedures justifies reliance on them. 
D) Prepare a preliminary draft of the management representation letter. 
A) Consider whether the extent of substantive procedures may be reduced based on the results of the internal control questionnaire. 
B) Make preliminary judgments about materiality levels for audit purposes. 
C) Conclude whether changes in compliance with prescribed control procedures justifies reliance on them. 
D) Prepare a preliminary draft of the management representation letter.

Question 17

When a company has changed auditors,according to the Professional Standards:

Accepted Answer

A) The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted;the predecessor has no responsibility to initiate this contact,even when aware of matters bearing on the integrity of management. 
B) The predecessor must always respond fully to all inquiries made by the successor auditor. 
C) The successor must discuss with the predecessor matters bearing on the engagement prior to accepting the engagement. 
D) The successor may choose not to attempt any communication with the predecessor auditor. 
A) The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted;the predecessor has no responsibility to initiate this contact,even when aware of matters bearing on the integrity of management. 
B) The predecessor must always respond fully to all inquiries made by the successor auditor. 
C) The successor must discuss with the predecessor matters bearing on the engagement prior to accepting the engagement. 
D) The successor may choose not to attempt any communication with the predecessor auditor.

Question 18

Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?

Accepted Answer

A) Low turnover of senior management. 
B) Extreme degree of competition within the industry. 
C) Capital structure including various operating subsidiaries. 
D) Sales goals in excess of any of the preceding three years. 
A) Low turnover of senior management. 
B) Extreme degree of competition within the industry. 
C) Capital structure including various operating subsidiaries. 
D) Sales goals in excess of any of the preceding three years.

Question 19

Which of the following is correct concerning requirements about auditor communications about fraud?

Accepted Answer

A) Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. 
B) All fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. 
C) Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. 
D) The auditor has no responsibility to disclose fraud outside the entity under any circumstances. 
A) Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. 
B) All fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. 
C) Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. 
D) The auditor has no responsibility to disclose fraud outside the entity under any circumstances.

Question 20

Which measure(s)of materiality considers quantitative considerations?  
$\begin{array}{lll}&\text { Planning } & \text { Evaluation } \
\text { A. } & \text { Yes } & \text { Yes } \
\text { B. } & \text { Yes } & \text { No } \
\text { C. } & \text { No } & \text { Yes } \
\text { D. } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

The auditors will typically not initiate discussion with the audit committee regarding the:

Audits of financial statements are designed to obtain reasonable assurance of detecting material misstatements due to: Errors Misappropriation of Asset: A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following statements is always true when an auditor is planning a year-end audit?

An auditor who selects a sample from the shipping documents file to determine whether invoices were prepared is satisfying the audit objective of:

Which of the following is least likely to be considered a financial statement audit risk factor?

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

The process of working from financial statement figures back to detailed documents most directly addresses the financial statement assertion of

The auditors' tests of controls are designed to substantiate the fairness of specific financial statement accounts.

Which of the following situations would an auditor consider a potential risk factor for misstatements from fraudulent financial reporting?

Which of the following situations would raise an auditor's concern about the risk of fraudulent financial reporting?

The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry.

The risk of a material misstatement occurring in an account,assuming an absence of internal control,is referred to as:

The auditors' consideration of internal control is required to be performed at the balance sheet date.

While assessing the risks of material misstatement,auditors identify risks,relate risk to what could go wrong,consider the magnitude of risks,and:

When an auditor is planning an audit,the auditor should:

When a company has changed auditors,according to the Professional Standards:

Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?

Which of the following is correct concerning requirements about auditor communications about fraud?

Which measure(s)of materiality considers quantitative considerations? Planning Evaluation A. Yes Yes B. Yes No C. No Yes D. No No

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters

Exam 6: Audit Planning, understanding the Client, assessing Risks, and Responding

The auditors will typically not initiate discussion with the audit committee regarding the:

Audits of financial statements are designed to obtain reasonable assurance of detecting material misstatements due to: Errors Misappropriation of Asset: A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following statements is always true when an auditor is planning a year-end audit?

An auditor who selects a sample from the shipping documents file to determine whether invoices were prepared is satisfying the audit objective of:

Which of the following is least likely to be considered a financial statement audit risk factor?

Determining that receivables are presented at net realizable value is most directly related to which management assertion?

The process of working from financial statement figures back to detailed documents most directly addresses the financial statement assertion of

The auditors' tests of controls are designed to substantiate the fairness of specific financial statement accounts.

Which of the following situations would an auditor consider a potential risk factor for misstatements from fraudulent financial reporting?

Which of the following situations would raise an auditor's concern about the risk of fraudulent financial reporting?

The completeness of recording of assets is generally verified by tracing from the source documents to the recorded entry.

The risk of a material misstatement occurring in an account,assuming an absence of internal control,is referred to as:

The auditors' consideration of internal control is required to be performed at the balance sheet date.

While assessing the risks of material misstatement,auditors identify risks,relate risk to what could go wrong,consider the magnitude of risks,and:

When an auditor is planning an audit,the auditor should:

When a company has changed auditors,according to the Professional Standards:

Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?

Which of the following is correct concerning requirements about auditor communications about fraud?

Which measure(s)of materiality considers quantitative considerations? Planning Evaluation A. Yes Yes B. Yes No C. No Yes D. No No

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Audit Evidence and Documentation

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property,plant,and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Reports

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, operational, and Compliance Auditing

Filters