Question 1

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as:

Accepted Answer

A)  Vertical analysis. 
B)  Horizontal analysis. 
C)  Cross-sectional analysis. 
D)  Comparison analysis. 
A)  Vertical analysis. 
B)  Horizontal analysis. 
C)  Cross-sectional analysis. 
D)  Comparison analysis. A

Question 2

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as:

Accepted Answer

A)  Vertical analysis. 
B)  Horizontal analysis. 
C)  Cross-sectional analysis. 
D)  Comparison analysis. 
A)  Vertical analysis. 
B)  Horizontal analysis. 
C)  Cross-sectional analysis. 
D)  Comparison analysis. B

Question 3

Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards.
a. Describe three major functions of the audit working papers.
b. Distinguish between the permanent working paper file and the current working paper file.

Accepted Answer

a. The functions of audit working papers include (only three required):
• Provide a means of assigning and coordinating audit work.
• Aid in review of the work.
• Provide support for the auditors' report.
• Document compliance with generally accepted auditing standards.
• Aid in planning and conducting future audits.
b. The permanent file is used to organize working papers of continuing audit interest over a number of years. The current file contains the administrative and evidence working papers for the year under examination.

Question 4

Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry) will:

Accepted Answer

A)  Decrease recorded net income. 
B)  Decrease the current ratio. 
C)  Increase days of sales in accounts receivable. 
D)  Increase year-end recorded inventory. 
A)  Decrease recorded net income. 
B)  Decrease the current ratio. 
C)  Increase days of sales in accounts receivable. 
D)  Increase year-end recorded inventory.

Question 5

Concerning retention of working papers, the Sarbanes-Oxley Act:

Accepted Answer

A)  Has no provisions. 
B)  Requires permanent retention. 
C)  Requires retention for at least 7 years. 
D)  Requires retention for a period of 4 or less years. 
A)  Has no provisions. 
B)  Requires permanent retention. 
C)  Requires retention for at least 7 years. 
D)  Requires retention for a period of 4 or less years.

Question 6

The date of the management representation letter should coincide with the:

Accepted Answer

A)  Date of the auditor's report. 
B)  Balance sheet date. 
C)  Date of the latest subsequent event referred to in the notes to the financial statements. 
D)  Date of the engagement agreement. 
A)  Date of the auditor's report. 
B)  Balance sheet date. 
C)  Date of the latest subsequent event referred to in the notes to the financial statements. 
D)  Date of the engagement agreement.

Question 7

Management has centralized purchasing and uses a model based upon previous year's sales with adjustments for trends in the market place (e.g., the trend to more casual shoes). A staff auditor has suggested that the centralized purchasing may be one of the reasons for the lower level of profitability in the Mid-Central Region. Which of the following would be the best single audit procedure to address the staff auditor's assertion?

Accepted Answer

A)  Take a sample of receiving documents at stores and trace to purchase orders to determine the length of time between the purchase and delivery of the goods. 
B)  Interview store managers in the Mid-Central Region to determine their attitude toward centralized purchasing. 
C)  Perform an inventory count at selected stores in the Mid-Central Region and determine if adjustments are needed to the perpetual records. 
D)  Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions. 
A)  Take a sample of receiving documents at stores and trace to purchase orders to determine the length of time between the purchase and delivery of the goods. 
B)  Interview store managers in the Mid-Central Region to determine their attitude toward centralized purchasing. 
C)  Perform an inventory count at selected stores in the Mid-Central Region and determine if adjustments are needed to the perpetual records. 
D)  Perform a product-line analysis of sales and purchases in the Mid-Central Region and compare with other regions.

Question 8

Which of the following expressions is least likely to be included in a client's representation letter?

Accepted Answer

A)  No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. 
B)  The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 
C)  Management acknowledges responsibility for illegal actions committed by employees. 
D)  Management has made available all financial statements, including notes. 
A)  No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. 
B)  The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 
C)  Management acknowledges responsibility for illegal actions committed by employees. 
D)  Management has made available all financial statements, including notes.

Question 9

Which of the following is most likely to be considered an analytical procedure?

Accepted Answer

A)  Testing purchases at year-end to determine they were recorded in the proper period. 
B)  Comparing inventory balances to recent sales activities. 
C)  Selecting a sample of year-end receivables for confirmation. 
D)  Reconciling physical counts of inventory to perpetual records. 
A)  Testing purchases at year-end to determine they were recorded in the proper period. 
B)  Comparing inventory balances to recent sales activities. 
C)  Selecting a sample of year-end receivables for confirmation. 
D)  Reconciling physical counts of inventory to perpetual records.

Question 10

During financial statement audits, auditors seek to restrict which type of risk?

Accepted Answer

A)  Control risk. 
B)  Detection risk. 
C)  Inherent risk. 
D)  Account risk. 
A)  Control risk. 
B)  Detection risk. 
C)  Inherent risk. 
D)  Account risk.

Question 11

A vendor's invoice is an example of documentary evidence created by a third party and held by the client.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following groups are not considered a specialist by AICPA Professional Standards?

Accepted Answer

A)  Appraisers. 
B)  Internal auditors. 
C)  Engineers. 
D)  Geologists. 
A)  Appraisers. 
B)  Internal auditors. 
C)  Engineers. 
D)  Geologists.

Question 13

Which of the following is generally true about the sufficiency of audit evidence?

Accepted Answer

A)  The amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement. 
B)  The amount of evidence concerning a particular account varies inversely with the materiality of the account. 
C)  The amount of evidence concerning a particular account varies inversely with the inherent risk of the account. 
D)  When evidence is appropriate with respect to an account it is also sufficient. 
A)  The amount of evidence that is sufficient varies directly with the acceptable risk of material misstatement. 
B)  The amount of evidence concerning a particular account varies inversely with the materiality of the account. 
C)  The amount of evidence concerning a particular account varies inversely with the inherent risk of the account. 
D)  When evidence is appropriate with respect to an account it is also sufficient.

Question 14

Which of the following is not a primary purpose of audit working papers?

Accepted Answer

A)  To coordinate the examination. 
B)  To assist in preparation of the audit report. 
C)  To support the financial statements. 
D)  To provide evidence of the audit work performed. 
A)  To coordinate the examination. 
B)  To assist in preparation of the audit report. 
C)  To support the financial statements. 
D)  To provide evidence of the audit work performed.

Question 15

Which of the following is not a financial statement assertion relating to account balances?

Accepted Answer

A)  Completeness. 
B)  Existence. 
C)  Rights and obligations. 
D)  Recorded value and discounts. 
A)  Completeness. 
B)  Existence. 
C)  Rights and obligations. 
D)  Recorded value and discounts.

Question 16

Financial statement assertions are established for classes of transactions: $$\begin{array} { | l | c | c | } 
\hline & \text { Account Balances } & \text { Disclosures } \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 17

Further audit procedures include: $$\begin{array} { | l | c | c | } 
\hline & \text { Risk as sessment procedures } & \text { Tests of controls } \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 18

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

Accepted Answer

A)  The financial statements must often be adjusted for the effects of material related party transactions. 
B)  Material related party transactions must be disclosed in the notes to the financial statements. 
C)  The substance of related party transactions will differ from their form. 
D)  In a related party transaction one party has the ability to exercise significant influence over the other party. 
A)  The financial statements must often be adjusted for the effects of material related party transactions. 
B)  Material related party transactions must be disclosed in the notes to the financial statements. 
C)  The substance of related party transactions will differ from their form. 
D)  In a related party transaction one party has the ability to exercise significant influence over the other party.

Question 19

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence?

Accepted Answer

A)  A price for a similar asset obtained from an active market. 
B)  An appraisal obtained discounting future cash flows. 
C)  Management's judgment of the cost to purchase an equivalent asset. 
D)  The historical cost of the asset. 
A)  A price for a similar asset obtained from an active market. 
B)  An appraisal obtained discounting future cash flows. 
C)  Management's judgment of the cost to purchase an equivalent asset. 
D)  The historical cost of the asset.

Question 20

The following is an audit working paper prepared by an assistant on the Williams audit:   ƒ Column footed.
√ Amount agrees to amount recorded as a deposit on the bank statement and description agrees with receipt enclosed with 12/31/0X bank statement. This note is the Wilde note receivable that was recorded as a receipt by the client in the cash receipts journal on 1/3/0X. The receivable was appropriately credited and properly reflected in the January cash receipts journal. No adjustment needed as bank and books simply record this in different periods.
Γ Agreed to 12/31/0X bank statement.
♥ Agreed to general ledger.
A - 1
Required:
Prepare a list of review points as the preparer of this working. You may assume that any other working papers referred to appropriate. You will receive credit for proper points you bring up and lose credit for improper ones and omissions.

Accepted Answer

The working paper's deficiencies include

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as:

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as:

Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards. a. Describe three major functions of the audit working papers. b. Distinguish between the permanent working paper file and the current working paper file.

Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry) will:

Concerning retention of working papers, the Sarbanes-Oxley Act:

The date of the management representation letter should coincide with the:

Which of the following expressions is least likely to be included in a client's representation letter?

Which of the following is most likely to be considered an analytical procedure?

During financial statement audits, auditors seek to restrict which type of risk?

A vendor's invoice is an example of documentary evidence created by a third party and held by the client.

Which of the following groups are not considered a specialist by AICPA Professional Standards?

Which of the following is generally true about the sufficiency of audit evidence?

Which of the following is not a primary purpose of audit working papers?

Which of the following is not a financial statement assertion relating to account balances?

Financial statement assertions are established for classes of transactions: Account Balances Disclosures A. Yes Yes B. Yes No C. No Yes D. No No

Further audit procedures include: Risk as sessment procedures Tests of controls A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Planning the Audit; Linking Audit Procedures to Risk

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters

Exam 5: Audit Evidence and Documentation

An auditor is performing an analytical procedure that involves developing common-size financial statements. This technique is referred to as:

An auditor is performing an analytical procedure that involves comparing a client's account balances over time. This technique is referred to as:

Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards. a. Describe three major functions of the audit working papers. b. Distinguish between the permanent working paper file and the current working paper file.

Fraudulent sales and accounts receivables recorded at year-end (with no cost of goods sold entry) will:

Concerning retention of working papers, the Sarbanes-Oxley Act:

The date of the management representation letter should coincide with the:

Which of the following expressions is least likely to be included in a client's representation letter?

Which of the following is most likely to be considered an analytical procedure?

During financial statement audits, auditors seek to restrict which type of risk?

A vendor's invoice is an example of documentary evidence created by a third party and held by the client.

Which of the following groups are not considered a specialist by AICPA Professional Standards?

Which of the following is generally true about the sufficiency of audit evidence?

Which of the following is not a primary purpose of audit working papers?

Which of the following is not a financial statement assertion relating to account balances?

Financial statement assertions are established for classes of transactions: Account Balances Disclosures A. Yes Yes B. Yes No C. No Yes D. No No

Further audit procedures include: Risk as sessment procedures Tests of controls A. Yes Yes B. Yes No C. No Yes D. No No

Which of the following best describes the reason that auditors are concerned with the detection of related party transactions?

In auditing an asset valued at fair value, which of the following potentially provides the auditor with the strongest evidence?

The Role of the Public Accountant in the American Economy

Professional Standards

Professional Ethics

Legal Liability of Cpas

Planning the Audit; Linking Audit Procedures to Risk

Internal Control

Consideration of Internal Control in an Information Technology Environment

Audit Sampling

Cash and Financial Investments

Accounts Receivable, Notes Receivable, and Revenue

Inventories and Cost of Goods Sold

Property, Plant, and Equipment: Depreciation and Depletion

Accounts Payable and Other Liabilities

Debt and Equity Capital

Auditing Operations and Completing the Audit

Auditors Report

Integrated Audits of Public Companies

Additional Assurance Services: Historical Financial Information

Additional Assurance Services: Other Information

Internal, Operational, and Compliance Auditing

Filters