Question 1

What is the most common professional designation for external auditors?

Accepted Answer

A)  Certified Internal Auditor 
B)  Certified External Auditor 
C)  Certified Professional Accountant 
D)  Certified Public Accountant 
A)  Certified Internal Auditor 
B)  Certified External Auditor 
C)  Certified Professional Accountant 
D)  Certified Public Accountant D

Question 2

If an external auditor suspects wrongdoing in financial statements, the concerns should be addressed to

Accepted Answer

A)  The audit committee 
B)  The management of the company 
C)  The Securities and Exchange Commission 
D)  The board of directors 
A)  The audit committee 
B)  The management of the company 
C)  The Securities and Exchange Commission 
D)  The board of directors A

Question 3

Failure to record the expired amount of prepaid rent expense

Accepted Answer

A)  Overstates expenses 
B)  Understates net income 
C)  Overstates owner's equity 
D)  Overstates liabilities 
A)  Overstates expenses 
B)  Understates net income 
C)  Overstates owner's equity 
D)  Overstates liabilities C

Question 4

Earnings management through strategic matching is best exemplified by

Accepted Answer

A)  Changing the useful life of a depreciable asset. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit. 
A)  Changing the useful life of a depreciable asset. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit.

Question 5

Which of the following are usually members of a company's audit committee?

Accepted Answer

A)  Officers of the company 
B)  External auditors 
C)  Internal auditors 
D)  Members of the board of directors who are not officers of the company 
A)  Officers of the company 
B)  External auditors 
C)  Internal auditors 
D)  Members of the board of directors who are not officers of the company

Question 6

Which statement best describes the role of external auditors when auditing a large public company?

Accepted Answer

A)  Examine the organization's accounting for a sample of business transactions to provide reasonable assurance that the financial statements are presented fairly 
B)  Examine the organization's accounting for a sample of business transactions to guarantee that the financial statements are presented fairly 
C)  Examine the organization's accounting for every business transaction to provide reasonable assurance that the financial statements are presented fairly 
D)  Examine the organization's accounting for every business transaction to guarantee that the financial statements are presented fairly 
A)  Examine the organization's accounting for a sample of business transactions to provide reasonable assurance that the financial statements are presented fairly 
B)  Examine the organization's accounting for a sample of business transactions to guarantee that the financial statements are presented fairly 
C)  Examine the organization's accounting for every business transaction to provide reasonable assurance that the financial statements are presented fairly 
D)  Examine the organization's accounting for every business transaction to guarantee that the financial statements are presented fairly

Question 7

Blake Co. provided $5,000 of consulting services to Simmons Co. for which they have not yet received payment. When Blake billed Simmons for the consulting services, Blake mistakenly journalized and posted the transaction as a $5,000 debit to Accounts Receivable and a $5,000 credit to Unearned Consulting Fees. The entry Blake needs to make to correct this error is

Accepted Answer

A)  Debit Unearned Consulting Fees and credit Consulting Fees Earned for $5,000 
B)  Debit Unearned Consulting Fees and credit Accounts Receivable for $5,000 
C)  Debit Consulting Fees Earned and credit Accounts Receivable for $5,000 
D)  Debit Consulting Fees Earned and credit Unearned Consulting Fees for $5,000 
A)  Debit Unearned Consulting Fees and credit Consulting Fees Earned for $5,000 
B)  Debit Unearned Consulting Fees and credit Accounts Receivable for $5,000 
C)  Debit Consulting Fees Earned and credit Accounts Receivable for $5,000 
D)  Debit Consulting Fees Earned and credit Unearned Consulting Fees for $5,000

Question 8

Which of the following is an example of an adequate segregation of duties?

Accepted Answer

A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions. 
A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions.

Question 9

Recording $130 of insurance expense as advertising expense will result in

Accepted Answer

A)  An understatement of assets and an understatement of expenses 
B)  An overstatement of assets and an overstatement of expenses 
C)  An overstatement of assets and an understatement of expenses 
D)  None of these are correct 
A)  An understatement of assets and an understatement of expenses 
B)  An overstatement of assets and an overstatement of expenses 
C)  An overstatement of assets and an understatement of expenses 
D)  None of these are correct

Question 10

The income statement and the balance sheet for Trust Company for the year ended December 31, 2012 are shown below:
 
  During the end of year audit, the auditors found the following errors:

Accepted Answer

@#IMG-DLM& During the end of y

Question 11

Earnings management through deceptive accounting is best exemplified by

Accepted Answer

A)  Changing the useful life of a depreciable asset and fully disclosing it in the notes. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit. 
A)  Changing the useful life of a depreciable asset and fully disclosing it in the notes. 
B)  Timing transactions such that large one-time gains and losses occur in the same quarter. 
C)  Changing the interest rate used in accounting for leases without describing the change in the notes to the financial statements. 
D)  Capitalizing as assets expenditures that have no future economic benefit.

Question 12

If an employee steals cash from a company and tries to cover up his/her actions by recording a fictitious debit to Insurance Expense and a credit to Cash, then

Accepted Answer

A)  Expenses will be overstated 
B)  Expenses will be understated 
C)  Cash will be overstated 
D)  Cash will be understated 
A)  Expenses will be overstated 
B)  Expenses will be understated 
C)  Cash will be overstated 
D)  Cash will be understated

Question 13

Which one of the following errors causes net income to be understated?

Accepted Answer

A)  Failure to record wages employees have earned but not yet been paid 
B)  Failure to record depreciation expense 
C)  Failure to record collection of accounts receivable 
D)  Failure to record revenue earned but not billed 
A)  Failure to record wages employees have earned but not yet been paid 
B)  Failure to record depreciation expense 
C)  Failure to record collection of accounts receivable 
D)  Failure to record revenue earned but not billed

Question 14

Which of the following is NOT usually considered a component of a company's control environment?

Accepted Answer

A)  The organizational structure 
B)  The audit committee 
C)  The Foreign Corrupt Practices Act 
D)  Management's philosophy and operating style 
A)  The organizational structure 
B)  The audit committee 
C)  The Foreign Corrupt Practices Act 
D)  Management's philosophy and operating style

Question 15

Which of the following is an example of a proper procedure of authorization?

Accepted Answer

A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions. 
A)  Every year, Doug is required to take one full week of vacation time. 
B)  Greg is in charge of recording receipt of payments made to accounts receivable, while Susan is in charge of making deposits to the bank. 
C)  Every evening, Shellie makes a back-up file of all transactions recorded in the computer that day, burns the back-up file onto a CD and then locks the CD into a fire-proof vault for the night. 
D)  John, a clerk, is authorized to perform transactions as large as $5,000 but must maintain authorization from Andrea to perform larger transactions.

Question 16

According to Sarbanes-Oxley, who are auditors required to report to and be retained by?

Accepted Answer

A)  Chief Financial Officer 
B)  Audit committee 
C)  Chief Executive Officer 
D)  Internal auditors 
A)  Chief Financial Officer 
B)  Audit committee 
C)  Chief Executive Officer 
D)  Internal auditors

Question 17

As William is preparing the end of year financial statements, he realizes that the earnings are not quite up to par for the large loan application that is being currently processed. He decides to stretch the assumptions just enough to be able to meet the requirements for the loan application. This is an example of

Accepted Answer

A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations 
A)  Window dressing 
B)  Meeting internal targets 
C)  Income smoothing 
D)  Meeting external expectations

Question 18

Internal controls are designed to help and protect all of the following groups of people, EXCEPT

Accepted Answer

A)  Creditors 
B)  Management 
C)  Investors 
D)  Tax collectors 
A)  Creditors 
B)  Management 
C)  Investors 
D)  Tax collectors

Question 19

Recording as an asset expenditures that have no future economic benefit is an example of

Accepted Answer

A)  Strategic matching. 
B)  Change in methods or estimates with full disclosure. 
C)  Non-GAAP accounting. 
D)  A fictitious transaction. 
A)  Strategic matching. 
B)  Change in methods or estimates with full disclosure. 
C)  Non-GAAP accounting. 
D)  A fictitious transaction.

Question 20

If an employee steals cash from a company and successfully covers up his/her actions by recording a fictitious debit to Prepaid Advertising and a credit to Cash, then

Accepted Answer

A)  Expenses will be understated 
B)  Net income will be overstated 
C)  Net income will be understated 
D)  Net income will be stated correctly 
A)  Expenses will be understated 
B)  Net income will be overstated 
C)  Net income will be understated 
D)  Net income will be stated correctly

Exam 5: Internal Controls: Ensuring the Integrity of Financial Information

What is the most common professional designation for external auditors?

If an external auditor suspects wrongdoing in financial statements, the concerns should be addressed to

Failure to record the expired amount of prepaid rent expense

Earnings management through strategic matching is best exemplified by

Which of the following are usually members of a company's audit committee?

Which statement best describes the role of external auditors when auditing a large public company?

Which of the following is an example of an adequate segregation of duties?

Recording $130 of insurance expense as advertising expense will result in

The income statement and the balance sheet for Trust Company for the year ended December 31, 2012 are shown below: During the end of year audit, the auditors found the following errors:

Earnings management through deceptive accounting is best exemplified by

If an employee steals cash from a company and tries to cover up his/her actions by recording a fictitious debit to Insurance Expense and a credit to Cash, then

Which one of the following errors causes net income to be understated?

Which of the following is NOT usually considered a component of a company's control environment?

Which of the following is an example of a proper procedure of authorization?

According to Sarbanes-Oxley, who are auditors required to report to and be retained by?

Internal controls are designed to help and protect all of the following groups of people, EXCEPT

Recording as an asset expenditures that have no future economic benefit is an example of

If an employee steals cash from a company and successfully covers up his/her actions by recording a fictitious debit to Prepaid Advertising and a credit to Cash, then

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

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