Question 1

In certifying their annual financial statements,the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

Accepted Answer

A)  GAAP. 
B)  the Sarbanes-Oxley Act. 
C)  the Securities Exchange Act of 1934. 
D)  GAAS. 
A)  GAAP. 
B)  the Sarbanes-Oxley Act. 
C)  the Securities Exchange Act of 1934. 
D)  GAAS.

Question 2

Briefly explain each management assertion related to account balances at period end.

Accepted Answer

•Existence.Assets,liabilities,and equity

Question 3

The auditor is determining that the the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed.She is gathering evidence about which transaction related audit objective?

Accepted Answer

A)  Existence 
B)  Completeness 
C)  Accuracy 
D)  Cut-off 
A)  Existence 
B)  Completeness 
C)  Accuracy 
D)  Cut-off

Question 4

Why does the auditor divide the financial statements into segments around the financial statement cycles?

Accepted Answer

A)  Most auditors are trained to audit cycles as opposed to entire financial statements. 
B)  The approach aids in the assignment of tasks to different members of the audit team. 
C)  The cycle approach is required by auditing standards. 
D)  The cycle approach allows the auditor to detect illegal acts. 
A)  Most auditors are trained to audit cycles as opposed to entire financial statements. 
B)  The approach aids in the assignment of tasks to different members of the audit team. 
C)  The cycle approach is required by auditing standards. 
D)  The cycle approach allows the auditor to detect illegal acts.

Question 5

Below are five audit procedures,all of which are tests of transactions associated with the audit of the sales and collection cycle.Also below are the six general transaction-related audit objectives and the five management assertions.For each audit procedure,indicate (1)its audit objective,and (2)the management assertion being tested.   1.Vouch recorded sales from the sales journal to the file of bills of lading.
(1)________.
(2)________.
2.Compare dates on the bill of lading,sales invoices,and sales journal to test for delays in recording sales transactions.
(1)________.
(2)________.
3.Account for the sequence of prenumbered bills of lading and sales invoices.
(1)________.
(2)________.
4.Trace from a sample of prelistings of cash receipts to the cash receipts journal,testing for names,amounts,and dates.
(1)________.
(2)________.
5.Examine customer order forms for credit approval by the credit manager.
(1)________.
(2)________.

Accepted Answer

1.(1)A (2)V
2.(1)F (

Question 6

Most illegal acts affect the financial statements:

Accepted Answer

A)  directly. 
B)  only indirectly. 
C)  both directly and indirectly. 
D)  materially if direct; immaterially if indirect. 
A)  directly. 
B)  only indirectly. 
C)  both directly and indirectly. 
D)  materially if direct; immaterially if indirect.

Question 7

When examining the relationships of the five cycles and general cash,the cycles have no beginning or end except at the origin or final disposition of the company.

Accepted Answer

A) True 
 B)False

Question 8

The auditors determine which disclosures must be presented in the financial statements.

Accepted Answer

A) True 
 B)False

Question 9

In the context of the audit of sales,distinguish between the occurrence and completeness transaction-related audit objectives.State the effect on the sales account (overstatement or understatement)of a violation of each objective.

Accepted Answer

When testing the occurrence objective fo

Question 10

Relevant assertions have a meaningful bearing on whether the account is fairly stated and are used to assess the risk of material misstatement and the design and performance of audit procedures.

Accepted Answer

A) True 
 B)False

Question 11

The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements,whether caused by errors or fraud,that are not ________ are detected.

Accepted Answer

A)  important to the financial statements 
B)  statistically significant to the financial statements 
C)  material to the financial statements 
D)  identified by the client 
A)  important to the financial statements 
B)  statistically significant to the financial statements 
C)  material to the financial statements 
D)  identified by the client

Question 12

International auditing standards and U.S.GAAP classify assertions into three categories.Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

Accepted Answer

A)  Assertions about classes of transactions for the period under audit 
B)  Assertions about account balances at period end 
C)  Assertions about the quality of source documents used to prepare the financial statements 
D)  Assertions about presentation and disclosure 
A)  Assertions about classes of transactions for the period under audit 
B)  Assertions about account balances at period end 
C)  Assertions about the quality of source documents used to prepare the financial statements 
D)  Assertions about presentation and disclosure

Question 13

Auditors accumulate evidence to:

Accepted Answer

A)  defend themselves in the event of a lawsuit. 
B)  determine if the financial statements are correct. 
C)  satisfy the requirements of the Securities Acts of 1933 and 1934. 
D)  reach a conclusion about the fairness of the financial statements. 
A)  defend themselves in the event of a lawsuit. 
B)  determine if the financial statements are correct. 
C)  satisfy the requirements of the Securities Acts of 1933 and 1934. 
D)  reach a conclusion about the fairness of the financial statements.

Question 14

When an auditor is determining what information to include in the notes to the financial statements relating to bonds payable,he is concerned with the transaction-related audit objectives.

Accepted Answer

A) True 
 B)False

Question 15

Tests of details of balances typically involve the use of comparisons and relationships to assess the overall reasonableness of account balances.

Accepted Answer

A) True 
 B)False

Question 16

When planning the audit,if the auditor has no reason to believe that illegal acts exist,the auditor should:

Accepted Answer

A)  include audit procedures which have a strong probability of detecting illegal acts. 
B)  still include some audit procedures designed specifically to uncover illegalities. 
C)  ignore the issue. 
D)  make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities. 
A)  include audit procedures which have a strong probability of detecting illegal acts. 
B)  still include some audit procedures designed specifically to uncover illegalities. 
C)  ignore the issue. 
D)  make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.

Question 17

In comparing management fraud with employee fraud,the auditor's risk of failing to discover the fraud is:

Accepted Answer

A)  greater for management fraud because managers are inherently more deceptive than employees. 
B)  greater for management fraud because of management's ability to override existing internal controls. 
C)  greater for employee fraud because of the higher crime rate among blue collar workers. 
D)  greater for employee fraud because of the larger number of employees in the organization. 
A)  greater for management fraud because managers are inherently more deceptive than employees. 
B)  greater for management fraud because of management's ability to override existing internal controls. 
C)  greater for employee fraud because of the higher crime rate among blue collar workers. 
D)  greater for employee fraud because of the larger number of employees in the organization.

Question 18

Which of the following is the auditor least likely to do when aware of an illegal act?

Accepted Answer

A)  Discuss the matter with the client's legal counsel. 
B)  Obtain evidence about the potential effect of the illegal act on the financial statements. 
C)  Contact the local law enforcement officials regarding potential criminal wrongdoing. 
D)  Consider the impact of the illegal act on the relationship with the company's management. 
A)  Discuss the matter with the client's legal counsel. 
B)  Obtain evidence about the potential effect of the illegal act on the financial statements. 
C)  Contact the local law enforcement officials regarding potential criminal wrongdoing. 
D)  Consider the impact of the illegal act on the relationship with the company's management.

Question 19

The general balance-related audit objective that deals with determining that details in the account balance agree with related master file amounts,foot to the total in the account balance,and agree with the total in the general ledger is the detail tie-in objective.

Accepted Answer

A) True 
 B)False

Question 20

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

Accepted Answer

A)  board of directors. 
B)  company management. 
C)  financial statement auditor. 
D)  company's internal audit department. 
A)  board of directors. 
B)  company management. 
C)  financial statement auditor. 
D)  company's internal audit department.

Exam 6: Audit Responsibilities and Objectives

In certifying their annual financial statements,the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

Briefly explain each management assertion related to account balances at period end.

The auditor is determining that the the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed.She is gathering evidence about which transaction related audit objective?

Why does the auditor divide the financial statements into segments around the financial statement cycles?

Most illegal acts affect the financial statements:

When examining the relationships of the five cycles and general cash,the cycles have no beginning or end except at the origin or final disposition of the company.

The auditors determine which disclosures must be presented in the financial statements.

In the context of the audit of sales,distinguish between the occurrence and completeness transaction-related audit objectives.State the effect on the sales account (overstatement or understatement)of a violation of each objective.

Relevant assertions have a meaningful bearing on whether the account is fairly stated and are used to assess the risk of material misstatement and the design and performance of audit procedures.

The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements,whether caused by errors or fraud,that are not ________ are detected.

International auditing standards and U.S.GAAP classify assertions into three categories.Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

Auditors accumulate evidence to:

When an auditor is determining what information to include in the notes to the financial statements relating to bonds payable,he is concerned with the transaction-related audit objectives.

Tests of details of balances typically involve the use of comparisons and relationships to assess the overall reasonableness of account balances.

When planning the audit,if the auditor has no reason to believe that illegal acts exist,the auditor should:

In comparing management fraud with employee fraud,the auditor's risk of failing to discover the fraud is:

Which of the following is the auditor least likely to do when aware of an illegal act?

The general balance-related audit objective that deals with determining that details in the account balance agree with related master file amounts,foot to the total in the account balance,and agree with the total in the general ledger is the detail tie-in objective.

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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