Question 1

What document is prepared so that auditors can aggregate potential misstatements in order to assess the materiality of misstatements?

Accepted Answer

A) The audit opinion. 
B) The summary of unadjusted audit differences. 
C) The summary of earnings trends. 
D) The post-closing trial balance.

Question 2

Which one of the following statements is not accurate about goodwill impairment valuations?

Accepted Answer

A) Goodwill arising from acquisitions can be netted into one test at the operating segment level,but not netted at the company level. 
B) Market valuation may be volatile.A temporary decline in market value may not be a good indicator of FMV. 
C) FMV might not exist,might require independent appraisals by investment bankers or estimates using cash flow and discounted present value factors. 
D) No assumptions are required about competition,economic development,product placement,and so forth.

Question 3

For nonprofit entities,appropriate benchmarks for materiality judgments would include which of the following?

Accepted Answer

A) Total assets and total liabilities. 
B) Total revenues and total assets. 
C) Total liabilities,total income,or total assets. 
D) Total expenses,total revenues,or total assets.

Question 4

The significant judgments of "Assets of Held-for-Sale Operations" are subject to impairment testing based on the most likely sale or disposal price.

Accepted Answer

A) True 
 B)False

Question 5

The auditor should have a sound basis,supported by objective evidence,regarding accounting estimates and should not fall victim to an "all estimates are subjective" argument in order to waive which of the following?

Accepted Answer

A) Contingent liability. 
B) Material misstatements. 
C) Unrecorded liability. 
D) Material adjustments.

Question 6

In the U.S.a CPA firm can provide both internal and external audit services for the same public company client.

Accepted Answer

A) True 
 B)False

Question 7

The SEC issued SAB 108 in 2006,which mandates what is termed a dual approachto assessing uncorrected misstatements.

Accepted Answer

A) True 
 B)False

Question 8

There are systematic processes that the auditor can use in making most of the complex judgments in the financial statements.

Accepted Answer

A) True 
 B)False

Question 9

When evaluating identified misstatements,the auditor only needs to consider misstatements in the current year,and not misstatements from the prior year.

Accepted Answer

A) True 
 B)False

Question 10

When auditing pension obligations,the auditor will likely use a specialist to assist the audit team.

Accepted Answer

A) True 
 B)False

Question 11

Evaluating the Quality of Client's Internal Audit Function An external auditor assesses the quality of the internal audit function to determine whether the internal auditors' work is relevant to the external audit and of sufficient quantity and quality.Describe the three factors of the internal audit function that would be considered by the external auditor in this quality assessment.

Accepted Answer

The answer of Evaluating the Quality of Client's Internal Audit...

Question 12

The SEC's position is generally that if management refuses to correct a material misstatement,then the auditor is obligated to issue a qualified or an adverse opinion on the financial statements.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following models is associated with Level 3 in the FASB hierarchy for ascertaining fair value?

Accepted Answer

A) Mark to market model. 
B) Replacement model. 
C) Mark to model. 
D) Historical cost model.

Question 14

Audits of Level 3 assets are the most straightforward as they involve an observable,active market.

Accepted Answer

A) True 
 B)False

Question 15

Although different audit firms take different approaches,performance materiality could be the same as overall materiality,or could be a percentage of overall materiality.Generally this range is which of the following?

Accepted Answer

A) 25% to 75% of overall materiality. 
B) 50% to 75% of overall materiality. 
C) 25% to 50% of overall materiality. 
D) 40% to 75% of overall materiality.

Question 16

A sensitivity analysis of changes in value based on industry and cash-flow assumptions is one of the aspects of the audit program for goodwill impairment testing.

Accepted Answer

A) True 
 B)False

Question 17

Auditing Merger and Acquisition Transactions How does a company measure the cost of an acquisition of another company? What factors often complicate the determination of actual cost? Explain how each factor complicates the calculation of cost and the steps the auditor has to take to reach a conclusion about the cost of the acquisition.

Accepted Answer

The answer of Auditing Merger and Acquisition Transactions How does...

Question 18

The partial or complete outsourcing of internal audit activities is most likely made to public accounting firms or to other specialized firms who perform which of the following?

Accepted Answer

A) Primarily risk,control,and audit activities. 
B) Attestation services as demanded by market place. 
C) Operations analysis and risk analysis. 
D) Analytical and substantial procedures.

Question 19

In the audit approach for assessing fair value,which should the auditor determine for Level 2 assets?

Accepted Answer

A) The correspondence of the client's assets to similar assets in an active market. 
B) Contingent liabilities. 
C) Sensitivity of model used for marking to model. 
D) The performance of tests of controls.

Question 20

The FASB has set a hierarchy of inputs to consider in assessing fair value.Which of the following valuations are generally viewed as the most subjective?

Accepted Answer

A) Level 0. 
B) Level 1. 
C) Level 2. 
D) Level 3.

Exam 16: Advanced Topics Concerning Complex Auditing Judgments

What document is prepared so that auditors can aggregate potential misstatements in order to assess the materiality of misstatements?

Which one of the following statements is not accurate about goodwill impairment valuations?

For nonprofit entities,appropriate benchmarks for materiality judgments would include which of the following?

The significant judgments of "Assets of Held-for-Sale Operations" are subject to impairment testing based on the most likely sale or disposal price.

The auditor should have a sound basis,supported by objective evidence,regarding accounting estimates and should not fall victim to an "all estimates are subjective" argument in order to waive which of the following?

In the U.S.a CPA firm can provide both internal and external audit services for the same public company client.

The SEC issued SAB 108 in 2006,which mandates what is termed a dual approachto assessing uncorrected misstatements.

There are systematic processes that the auditor can use in making most of the complex judgments in the financial statements.

When evaluating identified misstatements,the auditor only needs to consider misstatements in the current year,and not misstatements from the prior year.

When auditing pension obligations,the auditor will likely use a specialist to assist the audit team.

The SEC's position is generally that if management refuses to correct a material misstatement,then the auditor is obligated to issue a qualified or an adverse opinion on the financial statements.

Which of the following models is associated with Level 3 in the FASB hierarchy for ascertaining fair value?

Audits of Level 3 assets are the most straightforward as they involve an observable,active market.

Although different audit firms take different approaches,performance materiality could be the same as overall materiality,or could be a percentage of overall materiality.Generally this range is which of the following?

A sensitivity analysis of changes in value based on industry and cash-flow assumptions is one of the aspects of the audit program for goodwill impairment testing.

The partial or complete outsourcing of internal audit activities is most likely made to public accounting firms or to other specialized firms who perform which of the following?

In the audit approach for assessing fair value,which should the auditor determine for Level 2 assets?

The FASB has set a hierarchy of inputs to consider in assessing fair value.Which of the following valuations are generally viewed as the most subjective?