Question 1

Which of the following is not a potential fraud related to debt?

Accepted Answer

A) Long-term or short-term debt is misclassified. 
B) Entire loan payments are charged to either principal or interest. 
C) Dividends are paid in violation of restrictive covenants. 
D) Debt is not properly authorized. 
A) Long-term or short-term debt is misclassified. 
B) Entire loan payments are charged to either principal or interest. 
C) Dividends are paid in violation of restrictive covenants. 
D) Debt is not properly authorized.

Question 2

The transactions in the stockholders' equity accounts are typically tested using a statistical sampling approach.

Accepted Answer

A) True 
 B)False

Question 3

In auditing equity accounts,the auditor primarily focuses on which of the following two assertions?

Accepted Answer

A) Valuation and completeness. 
B) Valuation and existence. 
C) Presentation and disclosure and valuation. 
D) Presentation and disclosure and completeness. 
A) Valuation and completeness. 
B) Valuation and existence. 
C) Presentation and disclosure and valuation. 
D) Presentation and disclosure and completeness.

Question 4

When auditing pension obligations,the auditor may hire an actuarial specialist to assist the audit team.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not true regarding appropriate tests of controls?

Accepted Answer

A) The auditor selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts. 
B) The client's audit committee selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.as of the client's year end. 
C) The auditor will select both entity-wide and transaction controls for testing. 
D) If the auditor wants to rely on controls for the financial statement audit,the auditor would test the operating effectiveness of those controls throughout the year. 
A) The auditor selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts. 
B) The client's audit committee selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.as of the client's year end. 
C) The auditor will select both entity-wide and transaction controls for testing. 
D) If the auditor wants to rely on controls for the financial statement audit,the auditor would test the operating effectiveness of those controls throughout the year.

Question 6

For integrated audits,a typical test of controls may include an inquiry of personnel performing the control.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not true regarding the testing of transactions in the stockholders' equity accounts?

Accepted Answer

A) The transactions are typically tested on a 100% basis. 
B) The transactions are typically tested on a sampling basis. 
C) The number of transactions is typically small. 
D) Most of these transactions are highly material. 
A) The transactions are typically tested on a 100% basis. 
B) The transactions are typically tested on a sampling basis. 
C) The number of transactions is typically small. 
D) Most of these transactions are highly material.

Question 8

How would an auditor generally measure the value of a stock option expense?

Accepted Answer

A) Fair value. 
B) Appraised value. 
C) By computing a weighted average value of all classes of stock authorized. 
D) All of these methods can be used. 
A) Fair value. 
B) Appraised value. 
C) By computing a weighted average value of all classes of stock authorized. 
D) All of these methods can be used.

Question 9

Which of the following is not important documentation for substantive procedures for capital stock and equity transactions?

Accepted Answer

A) Confirmations with transfer agent or shareholders. 
B) The client's articles of incorporation. 
C) A summary of the changes in equity accounts. 
D) A memo regarding audit ideas generated during the brainstorming session regarding potential frauds applicable to the capital stock and equity transactions. 
A) Confirmations with transfer agent or shareholders. 
B) The client's articles of incorporation. 
C) A summary of the changes in equity accounts. 
D) A memo regarding audit ideas generated during the brainstorming session regarding potential frauds applicable to the capital stock and equity transactions.

Question 10

Which of the following statements is true regarding planning analytical procedures for debt and stockholders' equity transactions?

Accepted Answer

A) Trend analysis would not typically be performed for debt. 
B) The long-term debt to equity ratio could be considered by the auditor as part of the planning analytical procedures. 
C) Because there are typically only a few stockholders' equity transactions,the auditor is not required to perform planning analytical procedures for stockholders' equity accounts. 
D) If unusual or unexpected relationships are identified by planning analytical procedures,the auditor should stick with the original expectations of misstatements,because this could be an anomaly and bias the audit overall. 
A) Trend analysis would not typically be performed for debt. 
B) The long-term debt to equity ratio could be considered by the auditor as part of the planning analytical procedures. 
C) Because there are typically only a few stockholders' equity transactions,the auditor is not required to perform planning analytical procedures for stockholders' equity accounts. 
D) If unusual or unexpected relationships are identified by planning analytical procedures,the auditor should stick with the original expectations of misstatements,because this could be an anomaly and bias the audit overall.

Question 11

An auditor determines that there is an inherent risk that a company has not included both the basic earnings per share and diluted earnings per share amounts in financial statements even though significant dilutive securities are part of the company's complex capital structure.This determination is most likely tied to which of the following management assertions?

Accepted Answer

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

Question 12

In general,which of the following would an auditor not typically perform as part of gaining an understanding of the client's controls?

Accepted Answer

A) A walkthrough of the process. 
B) Inquiry. 
C) Observation. 
D) All of these are used to gain an understanding of the controls. 
A) A walkthrough of the process. 
B) Inquiry. 
C) Observation. 
D) All of these are used to gain an understanding of the controls.

Question 13

Which of the following is not typically included in the audit of debt?

Accepted Answer

A) Interest expense. 
B) Interest income. 
C) Notes payable. 
D) Bonds payable. 
A) Interest expense. 
B) Interest income. 
C) Notes payable. 
D) Bonds payable.

Question 14

Which of the following is not a common debt covenant restriction?

Accepted Answer

A) Maintenance of a minimum level of retained earnings before dividends can be paid. 
B) Maintenance of a minimum working-capital ratio. 
C) Specification of a maximum debt-equity ratio. 
D) Specification of a minimum earnings per share. 
A) Maintenance of a minimum level of retained earnings before dividends can be paid. 
B) Maintenance of a minimum working-capital ratio. 
C) Specification of a maximum debt-equity ratio. 
D) Specification of a minimum earnings per share.

Question 15

An auditor determines that there is an inherent risk that stock options exercised or expired remain on the organization's books.This determination is most likely tied to which of the following management assertions?

Accepted Answer

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

Question 16

When performing a substantive analytical procedure related to interest expense,the auditor will likely not test the client's internal controls.

Accepted Answer

A) True 
 B)False

Question 17

A substantive approach using only tests of controls is most commonly used to audit equity accounts.

Accepted Answer

A) True 
 B)False

Question 18

An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury stock.This determination is most likely tied to which of the following management assertions?

Accepted Answer

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

Question 19

As part of brainstorming activities,the auditor might identify possible fraudulent transactions related to stockholders' equity accounts that are the result of charging expenses directly to retained earnings rather than to the appropriate expense accounts.

Accepted Answer

A) True 
 B)False

Question 20

For additions to debt,the auditor traces the proceeds into the cash receipts records and the bank statement.

Accepted Answer

A) True 
 B)False

Which of the following is not a potential fraud related to debt?

The transactions in the stockholders' equity accounts are typically tested using a statistical sampling approach.

In auditing equity accounts,the auditor primarily focuses on which of the following two assertions?

When auditing pension obligations,the auditor may hire an actuarial specialist to assist the audit team.

Which of the following is not true regarding appropriate tests of controls?

For integrated audits,a typical test of controls may include an inquiry of personnel performing the control.

Which of the following is not true regarding the testing of transactions in the stockholders' equity accounts?

How would an auditor generally measure the value of a stock option expense?

Which of the following is not important documentation for substantive procedures for capital stock and equity transactions?

Which of the following statements is true regarding planning analytical procedures for debt and stockholders' equity transactions?

In general,which of the following would an auditor not typically perform as part of gaining an understanding of the client's controls?

Which of the following is not typically included in the audit of debt?

Which of the following is not a common debt covenant restriction?

An auditor determines that there is an inherent risk that stock options exercised or expired remain on the organization's books.This determination is most likely tied to which of the following management assertions?

When performing a substantive analytical procedure related to interest expense,the auditor will likely not test the client's internal controls.

A substantive approach using only tests of controls is most commonly used to audit equity accounts.

An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury stock.This determination is most likely tied to which of the following management assertions?

As part of brainstorming activities,the auditor might identify possible fraudulent transactions related to stockholders' equity accounts that are the result of charging expenses directly to retained earnings rather than to the appropriate expense accounts.

For additions to debt,the auditor traces the proceeds into the cash receipts records and the bank statement.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Completing a Quality Audit

Audit Reports

Filters

Exam 13: Auditing Long-Term Liabilities and Stockholders Equity Transactions

Which of the following is not a potential fraud related to debt?

The transactions in the stockholders' equity accounts are typically tested using a statistical sampling approach.

In auditing equity accounts,the auditor primarily focuses on which of the following two assertions?

When auditing pension obligations,the auditor may hire an actuarial specialist to assist the audit team.

Which of the following is not true regarding appropriate tests of controls?

For integrated audits,a typical test of controls may include an inquiry of personnel performing the control.

Which of the following is not true regarding the testing of transactions in the stockholders' equity accounts?

How would an auditor generally measure the value of a stock option expense?

Which of the following is not important documentation for substantive procedures for capital stock and equity transactions?

Which of the following statements is true regarding planning analytical procedures for debt and stockholders' equity transactions?

In general,which of the following would an auditor not typically perform as part of gaining an understanding of the client's controls?

Which of the following is not typically included in the audit of debt?

Which of the following is not a common debt covenant restriction?

An auditor determines that there is an inherent risk that stock options exercised or expired remain on the organization's books.This determination is most likely tied to which of the following management assertions?

When performing a substantive analytical procedure related to interest expense,the auditor will likely not test the client's internal controls.

A substantive approach using only tests of controls is most commonly used to audit equity accounts.

An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury stock.This determination is most likely tied to which of the following management assertions?

As part of brainstorming activities,the auditor might identify possible fraudulent transactions related to stockholders' equity accounts that are the result of charging expenses directly to retained earnings rather than to the appropriate expense accounts.

For additions to debt,the auditor traces the proceeds into the cash receipts records and the bank statement.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Completing a Quality Audit

Audit Reports

Filters