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98 Cards in this Set
- Front
- Back
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The objective of the ordinary audit of financial statements is the expression of an opinion on: |
A
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If the auditor believes that the financial statements are not fairly stated or is unable to reach an conclusion because of insufficient evidence, the auditor:
a. should withdraw from the engagement. b. should request an increase in audit fees so that more resources can be used to conduct the audit. c. has the responsibility of notifying financial statement users through the auditor’s report. d. should notify regulators of the circumstances. |
C |
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Auditors accumulate evidence to:
a. defend themselves in the event of a lawsuit. b. justify the conclusions they have otherwise reached. c. satisfy the requirements of the Securities Acts of 1933 and 1934. d. enable them to reach conclusions about the fairness of the financial statements. |
D
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The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:
a. board of directors. b. company management. c. financial statement auditor. d. company’s internal audit department. |
B
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The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit:
a. in accordance with auditing standards. b. as effectively as reasonably possible. c. in a timely manner. d. only after an adequate investigation of the management team. |
A
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6. |
A
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If management insists on financial statement disclosures that the auditor finds unacceptable, the auditor can do all but which of the following? |
B
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Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements? |
D
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In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:
a. GAAP. b. the Sarbanes-Oxley Act. c. the Securities Exchange Act of 1934. d. GAAS. |
C
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Which of the following statements is most correct regarding errors and fraud?
a. An error is unintentional, whereas fraud is intentional. b. Frauds occur more often than errors in financial statements. c. Errors are always fraud and frauds are always errors. d. Auditors have more responsibility for finding fraud than errors. |
A
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Which of the following statements is true of a public company’s financial statements?
a. Sarbanes-Oxley requires the CEO only to certify the financial statements. b. Sarbanes-Oxley requires the CFO only to certify the financial statements. c. Sarbanes-Oxley requires the CEO and CFO to certify the financial statements. d. Sarbanes-Oxley neither requires the CEO nor the CFO to certify the financial statements. |
C
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Which of the following is not one of the three categories of assertions?
a. Assertions about classes of transactions and events for the period under audit b. Assertions about financial statements and correspondence to GAAP c. Assertions about account balances at period end d. Assertions about presentation and disclosure |
B
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If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the: |
D
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Professional skepticism requires auditors to possess a(n) ______ mind. |
B
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The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected. |
C
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Fraudulent financial reporting is most likely to be committed by whom? |
C
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Which of the following would most likely be deemed a direct-effect illegal act? |
C
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The concept of reasonable assurance indicates that the auditor is: |
A
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Tests of details of balances are specific procedures intended to: |
A
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Which of the following is the auditor least likely to do when aware of an illegal act? |
C
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The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with it when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead: |
C
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The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:
a. the auditor. b. management. c. both management and the auditor equally. d. management for the statements and the auditor for the notes. |
B
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23. When engaged to audit the financial statements, it is acceptable for the auditor to draft:
medium The client’s financial statements The footnotes to the client’s financial statements a. Yes Yes b. No No c. Yes No d. No Yes |
A
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The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to: |
A
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“The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered.” This is an example of: |
B
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If the auditor were responsible for making certain that all of management’s assertions in the financial statements were absolutely correct: |
D
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The auditor’s best defense when existing material misstatements in the financial statements are not uncovered in the audit is: |
D
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Fraudulent financial reporting is often called:
a. management fraud. b. theft of assets. c. defalcation. d. embezzlement. |
A
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Which of the following statements is usually true? |
C
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Auditing standards make _____ distinction(s) between the auditor’s responsibilities for searching for errors and fraud. |
C
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In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the fraud is:
a. greater for management fraud because managers are inherently more deceptive than employees. b. greater for management fraud because of management’s ability to override existing internal controls. c. greater for employee fraud because of the higher crime rate among blue collar workers. d. greater for employee fraud because of the larger number of employees in the organization. |
B
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Which of the following statements is correct with respect to the auditor’s responsibilities relative to the detection of indirect-effect illegal acts?
a. The auditor has no responsibility for searching for indirect-effect illegal acts. b. The auditor has the same responsibility for searching for indirect-effect illegal acts as any other potential misstatement that may occur. c. Auditors have responsibility for searching for any illegal act, whether direct-effect or indirect-effect. d. Discovery of indirect-effect illegal acts is usually easier than discovery of fraud. |
A
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When comparing the auditor’s responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility: |
C
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If several employees collude to falsify documents, the chance a normal audit would uncover such acts is: |
A
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When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should: |
D
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When the auditor has reason to believe an illegal act has occurred, the auditor should: |
C
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When the auditor knows that an illegal act has occurred, the auditor must:
a. report it to the proper governmental authorities. b. consider the effects on the financial statements, including the adequacy of disclosure. c. withdraw from the engagement. d. issue an adverse opinion. |
B
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If an auditor uncovers an illegal act at a public company, the auditor must notify:
a. local law enforcement officials. b. the Public Company Accounting Oversight Board. c. the Securities and Exchange Commission. d. all of the above. |
C
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Why does the auditor divide the financial statements into smaller segments?
a. Using the cycle approach makes the audit more manageable. b. Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces. c. The cycle approach is used because auditing standards require it. d. All of the above are correct. |
A
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Why does the auditor divide the financial statements into segments around the financial statement cycles?
a. Most auditors are trained to audit cycles as opposed to entire financial statements. b. The approach aids in the assignment of tasks to different members of the audit team. c. The cycle approach is required by auditing standards. d. The cycle approach allows the auditor to detect indirect-effect illegal acts. |
B
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The most important general ledger account included in and affecting several cycles is the:
a. cash account. b. inventory account. c. income tax expense and liability accounts. d. retained earnings account. |
A
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Management assertions are:
a. implied or expressed representations about accounts, transactions, and disclosures in the financial statements. b. stated in the footnotes to the financial statements. c. explicitly expressed representations about the financial statements. d. provided to the auditor in the assertions letter, but are not disclosed on the financial statements. |
A
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Which of the following statements is true?
a. Audit objectives follow and are closely related to management assertions. b. Management’s assertions follow and are closely related to the audit objectives. c. The auditor’s primary responsibility is to find and disclose fraudulent management assertions. d. Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts. |
A
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Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each account balance?
a. The specific audit objectives are applicable to every account balance on the financial statements. b. The general audit objectives are applicable to every account balance on the financial statements. c. The general audit objectives are stated in terms tailored to the engagement. d. For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.. |
B
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Which of the following statements about the existence and completeness assertions is not true?
a. The existence and completeness assertions emphasize different audit concerns. b. Existence deals with overstatements and completeness deals with understatements. c. Existence deals with understatements and completeness deals with overstatements. d. The completeness assertion deals with unrecorded transactions. |
C
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The occurrence assertion applies to _______.
a. presentation and disclosure matters b. classes of transactions and events during the period c. account balances d. proper classification of income statement accounts |
B
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Which of the following management assertions is not associated with transaction-related audit objectives?
a. Occurrence b. Classification and understandability c. Accuracy d. Completeness |
B
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Which of the following statements is not true?
a. Balance-related audit objectives are applied to account balances. b. Transaction-related audit objectives are applied to classes of transactions. c. Balance-related audit objectives are applied to the ending balance in balance sheet accounts. d. Balance-related audit objectives are applied to both beginning and ending balances in balance sheet accounts. |
D
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In testing for cutoff, the objective is to determine:
a. whether all of the current period’s transactions are recorded. b. whether transactions are recorded in the correct accounting period. c. the proper cutoff between capitalizing and expensing expenditures. d. the proper cutoff between disclosing items in footnotes or in account balances. |
B
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The detail tie-in objective is not concerned that the details in the account balance:
a. agree with related subsidiary ledger amounts. b. are properly disclosed in accordance with GAAP. c. foot to the total in the account balance. d. agree with the total in the general ledger. |
B
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The detail tie-in is part of the_______ assertion for account balances.
a. classification b. valuation and allocation c. rights and obligations d. completeness |
B
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Which of the following is not a proper match of a transaction-related audit objective and management assertion?
a. Accuracy and cutoff. b. Classification and classification. c. Posting and summarization with accuracy. d. Occurrence and occurrence. |
A
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Which of the following statements is not correct?
a. There are many ways an auditor can accumulate evidence to meet overall audit objectives. b. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility. c. It is appropriate to minimize the cost of accumulating evidence. d. Gathering evidence and minimizing costs are equally important considerations that affect the approach the auditor selects. |
D
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Two overriding considerations affect the many ways an auditor can accumulate evidence:
1. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility. 2. Cost of accumulating evidence should be minimized. In evaluating these considerations: a. the first is more important than the second. b. the second is more important than the first. c. they are equally important. d. it is impossible to prioritize them. |
A
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If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls, and analytical procedures, then the auditor:
a. can issue an unqualified opinion. b. can significantly reduce other substantive tests. c. can write the engagement letter. d. needs to perform additional tests of controls so that the assurance level can be increased. |
B
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After the auditor has completed all audit procedures, it is necessary to combine the information obtained to reach an overall conclusion as to whether the financial statements are fairly presented. This is a highly subjective process that relies heavily on:
a. generally accepted auditing standards. b. the AICPA’s Code of Professional Conduct. c. generally accepted accounting principles. d. the auditor’s professional judgment. |
D
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Which of the following combinations is correct?
a. Existence relates to whether the amounts in accounts are understated. b. Occurrence relates to whether balances exist. c. Existence relates to whether amounts included exist. d. Occurrence relates to whether the amounts in accounts occurred in the proper year. |
C
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If an auditor conducted an audit in accordance with auditing standards, which of the following would the auditor likely detect?
a. Unrecorded transactions. b. Incorrect postings of recorded transactions. c. Counterfeit signatures on paid checks. d. Fraud involving collusion. |
B
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Which of the following statements best describes the auditor’s responsibility with respect to illegal acts that do not have a material effect on the client’s financial statements?
a. Generally, the auditor is under no obligation to notify parties other than personnel within the client’s organization. b. Generally, the auditor is under an obligation to inform the PCAOB. c. Generally, the auditor is obligated to disclose the relevant facts in the auditor’s report. d. Generally, the auditor is expected to compel the client to adhere to requirements of the Foreign Corrupt Practices Act. |
A
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Which of the following statements best describes the auditor’s responsibility regarding the detection of fraud?
a. The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter. b. The auditor must extend auditing procedures to actively search for evidence of fraud in all situations. c. The auditor must extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist. d. The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued. |
C
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The essence of the attest function is to:
a. assure the consistent application of correct accounting procedures. b. determine whether the client’s financial statements are fairly stated. c. examine individual transactions so that the auditor may certify as to their validity. d. detect collusion and fraud. |
B
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The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of:
a. transactions. b. authorizations. c. costs. d. cutoffs. |
A
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The auditor’s evaluation of the likelihood of material employee fraud is normally done initially as a part of:
a. tests of controls. b. tests of transactions. c. understanding the entity’s internal control. d. the assessment of whether to accept the audit engagement. |
C
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When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that:
a. the transactions are related to financing a company rather than to its operations. b. most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively. c. both a and b are correct. d. neither a nor b is correct. |
C
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Illegal acts are defined in SAS 54 (AU217) as:
a. violations of laws or government regulations. b. violations of laws or government regulations other than errors. c. violations of laws or government regulations other than fraud. d. violations of law which would result in the arrest of the perpetrator. |
C
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Most illegal acts affect the financial statements:
a. directly. b. only indirectly. c. both directly and indirectly. d. materially if direct; immaterially if indirect. |
B
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With respect to the detection of illegal acts, auditing standards state that the auditor provides:
a. no assurance that they will be detected. b. the same reasonable assurance provided for other items. c. assurance that they will be detected, if material. d. assurance that they will be detected, if highly material. |
A
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In describing the cycle approach to segmenting an audit, which of the following statements is not true?
a. All general ledger accounts and journals are included at least once. b. Some journals and general ledger accounts are included in more than one cycle. c. The “capital acquisition and repayment” cycle is closely related to the “acquisition of goods and services and payment” cycle. d. The “inventory and warehousing” cycle may be audited at any time during the engagement since it is unrelated to the other cycles. |
D
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Which of the following journals would be included most often in the various audit cycles?
a. Cash receipts journal. b. Cash disbursements journal. c. General journal. d. Sales journal. |
C
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Transaction cycles begin and end:
a. at the beginning and end of the fiscal period. b. each start of the annual audit. c. at January 1 and December 31. d. at the origin and final disposition of the company. |
D
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After general audit objectives are understood, specific audit objectives for each account balance on the financial statements can be developed. Which of the following statements is true?
a. There should be at least one specific objective for each relevant general objective. b. There will be only one specific objective for each relevant general objective. c. There will be many specific objectives developed for each relevant general objective. d. There must be one specific objective for each general objective. |
A
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An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
a. plan and perform the engagement with an attitude of professional skepticism. b. not rely on internal controls that are designed to prevent or detect errors or fraud. c. design audit tests to detect unrecorded transactions. d. extend the work to audit most recorded transactions and records of an entity. |
A
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Responsibility for the fair presentation of financial statements rests equally with management and the auditor.
a. True b. False |
B
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Errors are usually more difficult for an auditor to detect than frauds.
a. True b. False |
B
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Auditors have found that the most efficient way to conduct audits is to focus primarily on testing classes of transactions and performing minimal or no tests of ending account balances.
a. True b. False |
A
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When an auditor has reduced assessed control risk based on tests of controls, he or she may then reduce the extent to which the accuracy of the financial statement information directly related to those controls must be supported through the accumulation of evidence using substantive tests.
a. True b. False |
A
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Tests of details of balances typically involve the use of comparisons and relationships to assess the overall reasonableness of account balances.
a. True b. False |
B
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Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated, the auditor should not search for indirect-effect illegal acts unless there is reason to believe they may exist.
a. True b. False |
A
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When an auditor believes that an illegal act may have occurred, the first step he or she should take is to inquire of management at a level above those likely to be involved in the potential illegal act.
a. True b. False |
A
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Audits are expected to provide a higher degree of assurance for the detection of material frauds than is provided for an equally material error.
a. True b. False |
B
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Auditors have a higher degree of responsibility for detecting direct-effect illegal acts than indirect-effect illegal acts.
a. True b. False |
A
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The auditor’s first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities, including but not limited to the police, and for publicly held companies, the Securities and Exchange Commission.
a. True b. False |
B
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Under the cycle approach to segmenting an audit, transactions recorded in different journals should never be combined with the general ledger balances that result from those transactions.
a. True b. False |
B
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General transaction-related audit objectives vary from audit to audit, depending on the nature and characteristics of the client’s business and industry.
a. True b. False |
B
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The audit objective of posting and summarization is associated with the management assertion of accuracy.
a. True b. False |
A
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Balance-related audit objectives are usually applied to the ending balance in income statement accounts; transaction-related audit objectives are usually applied to transactions reflected in balance sheet accounts.
a. True b. False |
B
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The transaction-related audit objective of timing is related to the assertion of cutoff.
a. True b. False |
A
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The effect of a violation of the existence transaction-related audit objective for the sales account would be an overstatement of that account.
a. True b. False |
A
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The effect of a violation of the completeness transaction-related audit objective for cash disbursements transactions would be an overstatement of cash disbursements.
a. True b. False |
B
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The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.
a. True b. False |
B
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The general balance-related audit objective that deals with determining that details in the account balance agree with related master file amounts, foot to the total in the account balance, and agree with the total in the general ledger is the detail tie-in objective.
a. True b. False |
A
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The cutoff objective, “transactions near the balance sheet date are recorded in the proper period,” is a balance-related audit objective.
a. True b. False |
A
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For a private company audit, tests of controls are normally performed only on those internal controls the auditor believes have not been operating effectively during the period under audit.
a. True b. False |
B
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An audit generally provides no assurance that indirect-effect illegal acts will be detected.
a. True b. False |
A
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When an auditor believes there is a moderate or high risk of management fraud, the auditor will normally do less audit work at interim dates instead of at year-end.
a. True b. False |
A
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An auditor must inform a client’s audit committee of an illegal act discovered during an audit in writing.
a. True b. False |
B
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The objective of the audit of financial statements by an independent auditor is to verify that the financial statements are free of misstatements and accurately represent the company’s financial position and results of operations.
a. True b. False |
B
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The auditor’s responsibility for uncovering direct-effect illegal acts is the same as for fraud.
a. True b. False |
A
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