Question 1

If an auditor encounters significant risks at the client the auditor should do all of the following except

Accepted Answer

A)  inform the SEC. 
B)  perform extended procedures. 
C)  include more experienced auditors on the engagement. 
D)  perform tests closer to year end. 
A)  inform the SEC. 
B)  perform extended procedures. 
C)  include more experienced auditors on the engagement. 
D)  perform tests closer to year end.

Question 2

Generally accepted auditing standards states that analytical procedures

Accepted Answer

A)  should be applied in the planning and final review stages of the audit and as a substantive test during the audit. 
B)  should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit. 
C)  should be applied in the planning stage and can be applied as a substantive test and in the final review stage. 
D)  should be applied in the final review stage, and can be applied as a substantive test and in the planning stage. 
A)  should be applied in the planning and final review stages of the audit and as a substantive test during the audit. 
B)  should be applied in the planning and final review stages of the audit and can be used as a substantive test during the audit. 
C)  should be applied in the planning stage and can be applied as a substantive test and in the final review stage. 
D)  should be applied in the final review stage, and can be applied as a substantive test and in the planning stage.

Question 3

If control risk increases,and all other risks in the audit risk model stay constant except the one referred to below,which of the following statements is correct?

Accepted Answer

A)  Detection risk will decrease. 
B)  Inherent risk will increase. 
C)  Audit risk will decrease. 
D)  Detection risk will increase. 
A)  Detection risk will decrease. 
B)  Inherent risk will increase. 
C)  Audit risk will decrease. 
D)  Detection risk will increase.

Question 4

If not already performed during the overall review stage of the audit,the auditor should perform analytical procedures relating to which of the following transaction cycles?

Accepted Answer

A)  Payroll 
B)  Revenue 
C)  Purchasing 
D)  Inventory 
A)  Payroll 
B)  Revenue 
C)  Purchasing 
D)  Inventory

Question 5

Post,CPA,accepted an engagement to audit the financial statements of General Co.,a new client.General is a publicly held retailing entity that recently replaced its operating management.In the course of applying audit procedures,Post discovered that General's financial statements may be materially misstated due to the existence of fraud.
Required:
Describe Post's responsibilities on the circumstances described above.
Describe Post's responsibilities for reporting on General's financial statements and other communications if Post is precluded from applying necessary procedures in searching for frauds.
Describe Post's responsibilities for reporting on General's financial statements and other communications if Post concludes that General's financial statements are materially affected by frauds.(AICPA adapted)

Accepted Answer

(a.)If Post discovers that General's fin

Question 6

What are the independent auditor's responsibilities to detect and report errors and frauds?

Accepted Answer

Independent auditors have the responsibi

Question 7

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of

Accepted Answer

A)  the maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit. 
B)  a maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit. 
C)  a cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit. 
D)  controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit. 
A)  the maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit. 
B)  a maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit. 
C)  a cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit. 
D)  controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit.

Question 8

The existence of audit risk is recognized by the statement in the auditor's standard report that the

Accepted Answer

A)  auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. 
B)  financial statements are presented fairly, in all material respects, in conformity with applicable financial reporting framework. 
C)  audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 
D)  auditor obtains reasonable assurance about whether the financial statements are free of material misstatement. 
A)  auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. 
B)  financial statements are presented fairly, in all material respects, in conformity with applicable financial reporting framework. 
C)  audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 
D)  auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.

Question 9

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates)developed by the auditor.If management is unable to provide an acceptable explanation,the auditor should

Accepted Answer

A)  consider the matter a scope limitation. 
B)  perform additional audit procedures to investigate the matter further. 
C)  intensify the audit with the expectation of detecting management fraud. 
D)  withdraw from the engagement. 
A)  consider the matter a scope limitation. 
B)  perform additional audit procedures to investigate the matter further. 
C)  intensify the audit with the expectation of detecting management fraud. 
D)  withdraw from the engagement.

Question 10

Which of the following statements concerning noncompliance by clients is correct?

Accepted Answer

A)  An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds. 
B)  An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements. 
C)  An auditor considers noncompliance from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. 
D)  An auditor has no responsibility for noncompliance that has an indirect effect on the financial statements. 
A)  An auditor's responsibility to detect noncompliance that has a direct and material effect on the financial statements is the same as that for errors and frauds. 
B)  An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect noncompliance that has an indirect but material effect on the financial statements. 
C)  An auditor considers noncompliance from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. 
D)  An auditor has no responsibility for noncompliance that has an indirect effect on the financial statements.

Question 11

Analytical procedures are most appropriate when testing which of the following types of transactions?

Accepted Answer

A)  Payroll and benefit liabilities 
B)  Acquisitions and disposals of fixed assets 
C)  Operating expense transactions 
D)  Long-term debt transactions 
A)  Payroll and benefit liabilities 
B)  Acquisitions and disposals of fixed assets 
C)  Operating expense transactions 
D)  Long-term debt transactions

Question 12

Auditors use brainstorming

Accepted Answer

A)  to heighten the audit team's awareness of fraud potential. 
B)  to heighten management's awareness of fraud potential. 
C)  to determine detection risk. 
D)  to set materiality. 
A)  to heighten the audit team's awareness of fraud potential. 
B)  to heighten management's awareness of fraud potential. 
C)  to determine detection risk. 
D)  to set materiality.

Question 13

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Accepted Answer

An auditor cannot place comple

Question 14

Which of the following pieces of information discovered by an auditor when performing substantive tests of account balances would most likely raise red flags about the possible existence of material fraudulent financial reporting?

Accepted Answer

A)  Paper copies of paid invoices and cancelled checks are microfiched and then destroyed. 
B)  The controller requires that you schedule any audit inquiries for after lunch each day, not in the morning. 
C)  The petty cash fund custodian never takes a vacation. 
D)  The client's estimate of the allowance for doubtful accounts is lower than the auditor's independent evaluation of the allowance. 
A)  Paper copies of paid invoices and cancelled checks are microfiched and then destroyed. 
B)  The controller requires that you schedule any audit inquiries for after lunch each day, not in the morning. 
C)  The petty cash fund custodian never takes a vacation. 
D)  The client's estimate of the allowance for doubtful accounts is lower than the auditor's independent evaluation of the allowance.

Question 15

If fictitious credit sales were recorded,and the fictitious accounts receivable were later directly written off as bad debt expense,

Accepted Answer

A)  income would be overstated. 
B)  income would be understated. 
C)  income would not be misstated. 
D)  accounts receivable would be understated. 
A)  income would be overstated. 
B)  income would be understated. 
C)  income would not be misstated. 
D)  accounts receivable would be understated.

Question 16

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.
Required:
a.Describe the broad purposes of analytical procedures.
b.Identify the sources of information from which an auditor develops expectations.

Accepted Answer

a.Analytical procedures are used for the

Question 17

Which of the following would not likely be found in the minutes of the board of directors?

Accepted Answer

A)  Amount of dividends declared 
B)  Approval to pledge assets as security for debts 
C)  Authorization of officers' salaries 
D)  Approval of a new desktop computer for the controller 
A)  Amount of dividends declared 
B)  Approval to pledge assets as security for debts 
C)  Authorization of officers' salaries 
D)  Approval of a new desktop computer for the controller

Question 18

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

Accepted Answer

A)  elements of audit risk whereas detection risk is not. 
B)  changed at the auditor's discretion whereas detection risk is not. 
C)  considered at the individual account-balance level whereas detection risk is not. 
D)  functions of the client and its environment whereas detection risk is not. 
A)  elements of audit risk whereas detection risk is not. 
B)  changed at the auditor's discretion whereas detection risk is not. 
C)  considered at the individual account-balance level whereas detection risk is not. 
D)  functions of the client and its environment whereas detection risk is not.

Question 19

Analytical procedures are evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data.Understanding and evaluating such relationships are essential to the audit process.
The following financial statements were prepared by ABC Manufacturing Co.for the year ended December 31,2013.Also presented are various financial statement ratios for Holiday as calculated from the prior year's financial statements.Sales represent net credit sales.The total assets and the receivables and inventory balances at December 31,2013,were the same as at December 31,2012.
   Required:   Items 1 through 9 below represent financial ratios that the auditor calculated during the prior year's audit.For each ratio,calculate the current year's ratio from the financial statements presented above.

Accepted Answer

The answer of Analytical procedures are evaluations of financial information...

Question 20

External auditors are responsible

Accepted Answer

A)  for authenticating documents. 
B)  for reporting immaterial frauds to a level of management at least one level above the people involved. 
C)  for finding all intentional misstatements concealed by collusion. 
D)  for reporting all frauds to outside agencies or parties. 
A)  for authenticating documents. 
B)  for reporting immaterial frauds to a level of management at least one level above the people involved. 
C)  for finding all intentional misstatements concealed by collusion. 
D)  for reporting all frauds to outside agencies or parties.

If an auditor encounters significant risks at the client the auditor should do all of the following except

Generally accepted auditing standards states that analytical procedures

If control risk increases,and all other risks in the audit risk model stay constant except the one referred to below,which of the following statements is correct?

If not already performed during the overall review stage of the audit,the auditor should perform analytical procedures relating to which of the following transaction cycles?

What are the independent auditor's responsibilities to detect and report errors and frauds?

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of

The existence of audit risk is recognized by the statement in the auditor's standard report that the

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates)developed by the auditor.If management is unable to provide an acceptable explanation,the auditor should

Which of the following statements concerning noncompliance by clients is correct?

Analytical procedures are most appropriate when testing which of the following types of transactions?

Auditors use brainstorming

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Which of the following pieces of information discovered by an auditor when performing substantive tests of account balances would most likely raise red flags about the possible existence of material fraudulent financial reporting?

If fictitious credit sales were recorded,and the fictitious accounts receivable were later directly written off as bad debt expense,

Which of the following would not likely be found in the minutes of the board of directors?

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

External auditors are responsible

Auditing and Assurance Services

Professional Standards

Engagement Planning

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 4: Management Fraud and Audit Risk

If an auditor encounters significant risks at the client the auditor should do all of the following except

Generally accepted auditing standards states that analytical procedures

If control risk increases,and all other risks in the audit risk model stay constant except the one referred to below,which of the following statements is correct?

If not already performed during the overall review stage of the audit,the auditor should perform analytical procedures relating to which of the following transaction cycles?

What are the independent auditor's responsibilities to detect and report errors and frauds?

Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of

The existence of audit risk is recognized by the statement in the auditor's standard report that the

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates)developed by the auditor.If management is unable to provide an acceptable explanation,the auditor should

Which of the following statements concerning noncompliance by clients is correct?

Analytical procedures are most appropriate when testing which of the following types of transactions?

Auditors use brainstorming

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.

Which of the following pieces of information discovered by an auditor when performing substantive tests of account balances would most likely raise red flags about the possible existence of material fraudulent financial reporting?

If fictitious credit sales were recorded,and the fictitious accounts receivable were later directly written off as bad debt expense,

Which of the following would not likely be found in the minutes of the board of directors?

Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

External auditors are responsible

Auditing and Assurance Services

Professional Standards

Engagement Planning

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters