Question 1

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 2

In the planning stage,analytical procedures are used to

Accepted Answer

A) identify potential problem areas. 
B) provide direct evidence about the balances in accounts. 
C) determine the mathematical correctness of the financial statements. 
D) perform all of these. 
A) identify potential problem areas. 
B) provide direct evidence about the balances in accounts. 
C) determine the mathematical correctness of the financial statements. 
D) perform all of these.

Question 3

Analytical procedures used in planning an audit should focus on

Accepted Answer

A) reducing the scope of tests of controls and substantive tests. 
B) providing assurance that potential material misstatements will be identified. 
C) enhancing the auditor's understanding of the client's business. 
D) assessing the adequacy of the available evidential matter. 
A) reducing the scope of tests of controls and substantive tests. 
B) providing assurance that potential material misstatements will be identified. 
C) enhancing the auditor's understanding of the client's business. 
D) assessing the adequacy of the available evidential matter.

Question 4

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 5

Managing Business Risk is the responsibility of

Accepted Answer

A) the auditors. 
B) management. 
C) the SEC. 
D) the PCAOB. 
A) the auditors. 
B) management. 
C) the SEC. 
D) the PCAOB.

Question 6

Which of the following information that comes to an auditor's attention most likely would raise a question about the occurrence of illegal acts?

Accepted Answer

A) The exchange of property for similar property in a nonmonetary transaction 
B) The discovery of unexplained payments made to government employees 
C) The presence of several difficult-to-audit transactions affecting expense accounts 
D) The failure to develop adequate procedures that detect unauthorized purchases 
A) The exchange of property for similar property in a nonmonetary transaction 
B) The discovery of unexplained payments made to government employees 
C) The presence of several difficult-to-audit transactions affecting expense accounts 
D) The failure to develop adequate procedures that detect unauthorized purchases

Question 7

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Accepted Answer

A) nature of substantive tests to more effective procedures. 
B) timing of substantive tests,such as performing them at year-end rather than at an interim date. 
C) extent of substantive tests,such as using larger sample sizes. 
D) assurances provided by substantive tests to a lower level. 
A) nature of substantive tests to more effective procedures. 
B) timing of substantive tests,such as performing them at year-end rather than at an interim date. 
C) extent of substantive tests,such as using larger sample sizes. 
D) assurances provided by substantive tests to a lower level.

Question 8

Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to

Accepted Answer

A) identify the appropriate schedules to be prepared by the client. 
B) identify the types of errors or frauds that can occur in transactions. 
C) identify unusual conditions that deserve additional audit effort. 
D) determine the existence of unrecorded liabilities or overstated assets. 
A) identify the appropriate schedules to be prepared by the client. 
B) identify the types of errors or frauds that can occur in transactions. 
C) identify unusual conditions that deserve additional audit effort. 
D) determine the existence of unrecorded liabilities or overstated assets.

Question 9

The major emphasis in GAAS related to consideration of fraud in a financial statement audit (AU 240)is on

Accepted Answer

A) employee misappropriation of assets. 
B) management fraud. 
C) client fraud on customers. 
D) employee embezzlement. 
A) employee misappropriation of assets. 
B) management fraud. 
C) client fraud on customers. 
D) employee embezzlement.

Question 10

The probability that an audit team will give an inappropriate opinion on financial statements best describes

Accepted Answer

A) audit risk. 
B) inherent risk. 
C) control risk. 
D) detection risk. 
A) audit risk. 
B) inherent risk. 
C) control risk. 
D) detection risk.

Question 11

Management fraud generally refers to

Accepted Answer

A) unintentional mistakes. 
B) noncompliance. 
C) intentional distortions of financial statements. 
D) violations of GAAS. 
A) unintentional mistakes. 
B) noncompliance. 
C) intentional distortions of financial statements. 
D) violations of GAAS.

Question 12

This question tests your ability to perceive the place(s)where various potential problems may exist and the type of problem (overstatement or understatement)that may exist.It asks that you supply the words or descriptions that complete the analysis begun by applying analytical procedures.
Required:
For each of the items below,identify the account(s)that need(s)to be audited carefully and the reason (i.e.,potential overstatement or understatement of _______).
a.If the current year accounts receivable are larger than last year but the allowance for doubtful accounts is the same.
b.If the current year inventory is larger than last year and the current year gross margin (profit)is larger.
c.If current year long-term liabilities are larger than last year and the interest expense is the same.
d.If current year fixed assets are larger and current depreciation expense is the same as last year.

Accepted Answer

a.The collectability of accounts receiva

Question 13

When an auditor becomes aware of possible noncompliance by a client,the auditor should obtain an understanding of the nature of the act to

Accepted Answer

A) evaluate the effect on the financial statements. 
B) determine the reliability of management's representations. 
C) consider whether other similar acts may have occurred. 
D) recommend remedial actions to the audit committee. 
A) evaluate the effect on the financial statements. 
B) determine the reliability of management's representations. 
C) consider whether other similar acts may have occurred. 
D) recommend remedial actions to the audit committee.

Question 14

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 15

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Accepted Answer

A) perform extended audit procedures. 
B) consult with fraud examiners. 
C) report directly to the Securities and Exchange Commission within one day. 
D) withdraw from the engagement. 
A) perform extended audit procedures. 
B) consult with fraud examiners. 
C) report directly to the Securities and Exchange Commission within one day. 
D) withdraw from the engagement.

Question 16

Prior to,or in conjunction with,the information-gathering procedures for an audit,audit team members should discuss the potential for material misstatement due to fraud.Which of the following best characterizes the mind-set that the audit team should maintain during this discussion?

Accepted Answer

A) Presumptive 
B) Judgmental 
C) Criticizing 
D) Questioning 
A) Presumptive 
B) Judgmental 
C) Criticizing 
D) Questioning

Question 17

Inherent risk and control risk differ from detection risk in which of the following ways?

Accepted Answer

A) Inherent risk and control risk are calculated by the client. 
B) Inherent risk and control risk exist independently of the audit. 
C) Inherent risk and control risk are controlled by the auditor. 
D) Inherent risk and control risk exist as a result of the auditor's judgment about materiality. 
A) Inherent risk and control risk are calculated by the client. 
B) Inherent risk and control risk exist independently of the audit. 
C) Inherent risk and control risk are controlled by the auditor. 
D) Inherent risk and control risk exist as a result of the auditor's judgment about materiality.

Question 18

Match between columns
                        Premises: Chain of evidence found at an audit client
Refers to changes across two or more years
Procedures performed that rely on relationships among account balances and or relevant nonfinancial data
Financial statement amounts expressed as proportions of a base
A wide range of evidence-gathering activity that

Accepted Answer

The Answer of Audit trail occurs before year-end and Horizontal is...

Question 19

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 20

Auditors would use the Enterprise Risk Model.

Accepted Answer

A) To reduce the client's business risk 
B) To determine detection risk 
C) To evaluate management's risk assessment 
D) To monitor client risk 
A) To reduce the client's business risk 
B) To determine detection risk 
C) To evaluate management's risk assessment 
D) To monitor client risk

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

In the planning stage,analytical procedures are used to

Analytical procedures used in planning an audit should focus on

Auditors use brainstorming

Managing Business Risk is the responsibility of

Which of the following information that comes to an auditor's attention most likely would raise a question about the occurrence of illegal acts?

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to

The major emphasis in GAAS related to consideration of fraud in a financial statement audit (AU 240)is on

The probability that an audit team will give an inappropriate opinion on financial statements best describes

Management fraud generally refers to

When an auditor becomes aware of possible noncompliance by a client,the auditor should obtain an understanding of the nature of the act to

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

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Prior to,or in conjunction with,the information-gathering procedures for an audit,audit team members should discuss the potential for material misstatement due to fraud.Which of the following best characterizes the mind-set that the audit team should maintain during this discussion?

Inherent risk and control risk differ from detection risk in which of the following ways?

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

Auditors would use the Enterprise Risk Model.

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

In the planning stage,analytical procedures are used to

Analytical procedures used in planning an audit should focus on

Auditors use brainstorming

Managing Business Risk is the responsibility of

Which of the following information that comes to an auditor's attention most likely would raise a question about the occurrence of illegal acts?

The auditor uses the assessed level of risk of material misstatement to determine the acceptable level of detection risk for financial statement assertions.As the acceptable level of detection risk decreases,the auditor may do one or more of the following except change the

Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to

The major emphasis in GAAS related to consideration of fraud in a financial statement audit (AU 240)is on

The probability that an audit team will give an inappropriate opinion on financial statements best describes

Management fraud generally refers to

When an auditor becomes aware of possible noncompliance by a client,the auditor should obtain an understanding of the nature of the act to

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

When fraud risk is significant,and management cooperation is unsatisfactory,the auditors will most likely

Prior to,or in conjunction with,the information-gathering procedures for an audit,audit team members should discuss the potential for material misstatement due to fraud.Which of the following best characterizes the mind-set that the audit team should maintain during this discussion?

Inherent risk and control risk differ from detection risk in which of the following ways?

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

Auditors would use the Enterprise Risk Model.

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