Question 1

U.S. accounting standards require organizations to use a two-step process to determine the impairment of goodwill.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not an audit challenge relevant to fair value estimation of Level 1, 2, and 3 assets?

Accepted Answer

A)  Determining identical assets and active markets. 
B)  Assessing client methodology and cash flows to originally estimate value. 
C)  Determining appropriate model and inputs expected cash flows. 
D)  Determining similar assets and relevant markets.

Question 4

Material misstatements in the financial statements, including those requiring restatements strongly imply a material weakness in which of the following?

Accepted Answer

A)  Income statement. 
B)  Balance sheet. 
C)  Internal control over financial reporting. 
D)  Cash flow statements.

Question 5

A materiality level where the auditor believes that the errors below that level would not, even when aggregated with all other misstatements, be material to the financial statements is often based on whether something is considered clearly trivial.

Accepted Answer

A) True 
 B)False

Question 6

According to SAB 108, what approach is used when assessing uncorrected misstatements?

Accepted Answer

A)  Matrix approach. 
B)  Dual approach. 
C)  Percentage approach. 
D)  Judgmental approach.

Question 7

Goodwill is the excess of the purchase price over the fair market value of the acquired company's tangible assets, identifiable intangible assets, and liabilities.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will the auditor will not consider when making a materiality determination?

Accepted Answer

A)  Potential default on loan covenants. 
B)  Changes in segment earnings or trends in earnings. 
C)  Factors that would affect the market's perception of future growth and cash flow for the company. 
D)  All of these insights would be considered.

Question 9

Internal auditors can perform both consulting services and assurance services.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

The accumulation of which potential misstatements to accumulate for the purpose of assessing the materiality of misstatements is often based on whether items are considered clearly trivial.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following factors is not relevant when assessing identified internal control deficiencies?

Accepted Answer

A)  Weaknesses in the control environment. 
B)  The absence of a material misstatement in the financial statements. 
C)  Volume of transactions affected by the deficiency. 
D)  Effectiveness of oversight/governance.

Question 14

Auditors are constantly challenged to evaluate the quality of a client's estimates, including areas such as obsolescence of inventory, allowance for doubtful accounts, and tax provisions among others.

Accepted Answer

A) True 
 B)False

Question 15

Planning materiality helps the auditor determine the extent of audit evidence needed in order to provide an opinion on the financial statements.

Accepted Answer

A) True 
 B)False

Question 16

When assessing fair value of Level 2 assets, auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following general factors would not be considered when assessing identified internal control deficiencies?

Accepted Answer

A)  Control environment. 
B)  Audit evidence from a poorly controlled system. 
C)  Repeatability of a process. 
D)  Complexity and subjectivity of the account balance affected by the deficiency.

Question 18

Effect of Internal Audit's Work on the External Audit.
Provide examples of audit judgments made by the external auditor which would not typically be delegated to the internal auditor.

Accepted Answer

The answer of Effect of Internal Audit's Work on the...

Question 19

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 a...

Question 20

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.

Exam 16: Advanced Topics Concerning Complex Auditing Judgments

U.S. accounting standards require organizations to use a two-step process to determine the impairment of goodwill.

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

Which of the following is not an audit challenge relevant to fair value estimation of Level 1, 2, and 3 assets?

Material misstatements in the financial statements, including those requiring restatements strongly imply a material weakness in which of the following?

A materiality level where the auditor believes that the errors below that level would not, even when aggregated with all other misstatements, be material to the financial statements is often based on whether something is considered clearly trivial.

According to SAB 108, what approach is used when assessing uncorrected misstatements?

Goodwill is the excess of the purchase price over the fair market value of the acquired company's tangible assets, identifiable intangible assets, and liabilities.

Which of the following will the auditor will not consider when making a materiality determination?

Internal auditors can perform both consulting services and assurance services.

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

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

The accumulation of which potential misstatements to accumulate for the purpose of assessing the materiality of misstatements is often based on whether items are considered clearly trivial.

Which of the following factors is not relevant when assessing identified internal control deficiencies?

Auditors are constantly challenged to evaluate the quality of a client's estimates, including areas such as obsolescence of inventory, allowance for doubtful accounts, and tax provisions among others.

Planning materiality helps the auditor determine the extent of audit evidence needed in order to provide an opinion on the financial statements.

When assessing fair value of Level 2 assets, auditors will use information on the sale of identical items in active or inactive markets as a source of audit evidence.

Which one of the following general factors would not be considered when assessing identified internal control deficiencies?

Effect of Internal Audit's Work on the External Audit. Provide examples of audit judgments made by the external auditor which would not typically be delegated to the internal auditor.

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