1. The completeness assertion would be violated if
a. disclosure in the statements of pledged receivables was inadequate.
b. fictitious sales transactions were included in accounts receivable.
c. the allowance for doubtful accounts was understated.
d. unbilled shipments occurred during the period.
2. The rights and obligations assertion applies to
a. balance sheet items only.
b. current liability items only.
c. revenue and expense items only.
d. income statement and balance sheet items.
3. The concept of materiality is defined by the Financial Accounting Standards Board (FASB) in terms of the judgment of the
b. FASB members.
4. Auditor liability under the Securities Act of 1933 extends to the
a. effective date of the registration statement.
b. filing date of the registration statement.
c. financial statement date.
d. auditor's report date.
5. Section 18 liability is relatively narrow in scope because it relates to a false or misleading statement in documents filed with the
a. American Institute of Certified Public Accountants (AICPA).
b. Securities and Exchanges Commission (SEC).
d. Internal Revenue Service (IRS).
6. Anyone identified to the auditor by name prior to the audit who is the principal recipient of the auditor's report is a
a. foreseeable party.
b. primary beneficiary.
c. third party.
d. foreseen beneficiary.
7. Statements on auditing standards (SAS) are interpretations of what?
a. Generally accepted auditing services
b. Generally accepted accounting policies
c. Generally accepted auditing standards
d. Generally accepted accounting principles
8. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when two or more qualified individuals,
a. working together, agree upon the data's accuracy.
b. working independently, prove, beyond doubt, the data's truthfulness.
c. working together, prove, beyond doubt, the data's accuracy.
d. working independently, reach similar conclusions.
9. Within generally accepted auditing standards, general standards relate primarily to
a. the fairness of the financial statements.
b. the relationship between generally accepted auditing standards and accounting principles.
c. qualifications of the auditor and the quality of the auditor's work.
d. qualifications of the auditor.
10. Which of the following are independent private-sector standard-setting bodies?
a. FASB and the Governmental Accounting Standards Board
b. National Association of State Boards of Accountancy and the American Accounting Association
c. SEC and IRS
d. AICPA and IIA
11. Statement on Quality Control Standards No. 2 identifies certain quality control elements that should be considered when performing which types of services?
a. Auditing, accounting, and tax services
b. Accounting, tax, and review services
c. Auditing, accounting, and review services
d. Auditing, tax, and review services
12. Internal auditors are primarily involved with
a. financial statement audits.
b. compliance audits and operational audits.
c. compliance audits.
d. operational audits.
13. Which of the following procedures consists of seeking information from knowledgeable persons throughout or outside the entity?
14. Because of the effects of circulation, some audit evidence is more reliable than other evidence. Which of the following is generally considered to be most reliable?
a. Cutoff bank statements
b. Receipted bank deposit slips
c. Purchase requisitions
d. Suppliers' invoices
15. Specific audit objectives are normally
a. developed for each item in the financial statements.
b. developed for each item in the financial statements and derived from the categories of management's financial statement assertions.
c. derived from the categories of management's financial statement assertions.
d. the same as the categories of management's financial statement assertions.
16. The assessment of inherent risk requires considering matters that have a pervasive effect on assertions for all or many accounts and matters that may pertain only to assertions for specific accounts. Which of the following is an example of a pervasive effects matter?
a. Sensitivity of operating results to economic factors
b. Management turnover, reputation, and accounting skills
c. Susceptibility to misappropriation
d. Complexity of calculations
17. The susceptibility of an assertion to a material misstatement, assuming there are no controls, is
a. inherent risk.
b. control risk.
c. analytical procedures risk.
d. audit risk.
18. The risk that a material misstatement that could occur in an assertion will NOT be prevented or detected on a timely basis by the entity's internal controls is
a. rejection risk.
b. audit risk.
c. inherent risk.
d. control risk.
19. In communicating with the previous auditor, the potential successor should make specific and reasonable inquiries regarding matters that may affect the decision to accept the engagement. Which of the following items is least likely to be included in the inquiries?
a. The predecessor's understanding of the reasons for a change in auditors
b. Disagreements with management about accounting matters
c. Specific areas of audit difficulty and cost
d. The integrity of management
20. Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective client's auditability. Which of the following factors would be least likely to cause concern about an entity's auditability?
a. Important evidence available only in electronic form
b. Lack of audit trail
c. Disregard of responsibility to maintain adequate internal controls
d. Related party transactions
21. The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about the
a. effectiveness of the internal control structure and fairness of the financial statements.
b. effectiveness of management.
c. effectiveness of the internal control structure.
d. integrity of management.
22. In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is that
a. the former is lower than the latter.
b. the former may be higher or lower than the latter.
c. the former is higher than the latter.
d. they must be identical.
23. When setting the level of materiality on a particular engagement, the auditor must consider
a. both the unique circumstances pertaining to the entity and the users' information needs.
b. the users' information needs.
c. neither the unique circumstances pertaining to the entity nor the users' information needs.
d. the unique circumstances pertaining to the entity.
24. Professional standards recognize that a misstatement that is quantitatively immaterial may be qualitatively material. In regards to these items, professional standards require the auditor to
a. report them to the audit committee.
b. design explicit procedures to detect them.
c. be on the alert for them.
d. plan the audit to search for them.
25. Which of the following requires managing public companies to assess the adequacy of internal controls over financial reporting and further requires auditors to audit management's assessment of internal controls over financial reporting and the actual effectiveness of the system of internal controls?
a. Section 404 of Sarbanes-Oxley
b. Securities Exchange Act of 1934
c. SAS 55
d. Foreign Corrupt Practices Act
26. Which of the following is an INCORRECT quotation from the second field work standard?
a. "determine the nature, timing, and extent of compliance tests..."
b. "of the internal control structure is..."
c. "to be obtained to..."
d. "A sufficient understanding..."
27. The Committee of Sponsoring Organizations (COSO) report identified five interrelated components of internal control. Since then, a sixth category has been identified, which is
a. information and communication.
c. antifraud programs and controls.
d. risk assessment.
28. Which of the following is one of the four basic functions of every transaction?
29. Which of the following tests of controls would be most effective in testing controls designed to prevent checks from being issued or recorded for the wrong amount?
a. Computer-assisted audit techniques, such as test data to test computer application control
b. Observing bank reconciliations
c. Observing documents being marked or cancelled as paid
d. Observing segregation of duties
30. "A significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected" is the definition of a
a. control deficiency.
b. material weakness.
c. material misstatement.
d. significant deficiency.
31. Which of the following is NOT a characteristic of management's philosophy and operating style?
a. Conscientiousness and conservatism in developing accounting estimates
b. Approach to taking and monitoring business risks
c. Its attitudes and actions toward financial reporting
d. Monitoring policies for developing and modifying accounting systems
32. To emphasize the importance of integrity and ethical values among all personnel or an organization, the chief executive officer and other top managers should do all of the following EXCEPT
a. send e-mail messages to all employees, promoting ethical values.
b. set the tone by example.
c. reduce or eliminate incentives and temptations.
d. communicate to all employees.
33. Which of the following is NOT one of the factors that make up the control environment?
a. Organizational structure
b. Accounting personnel
c. Human resource policies and practices
d. Board of directors and audit committee
34. When evaluating the planned level of substantive tests for each significant financial statement assertion, the auditor will consider the evidence obtained from all of the following EXCEPT
a. assessing inherent risk.
b. evidence about the effectiveness of internal controls gained while obtaining an understanding of internal controls.
c. evidence of effectiveness of computer control procedures and related follow-up.
d. assessing detection risk.
e. procedures to understand the business and industry, and related completed analytical procedures.
35. Who is responsible for establishing the process and controls for preparing accounting estimates?
b. The independent auditor
c. The audit committee
d. The internal auditor
36. An inaccurate form of the audit risk model would show that
a. audit risk is directly related to all other risks in the model.
b. detection risk is inversely related to audit risk.
c. detection risk is inversely related to inherent risk.
d. increases in control risk will cause decreases in detection risk.
e. detection risk may be determined from audit risk, inherent risk, and control risk.
37. Audit sampling in involved whenever an auditor
a. performs tests of controls.
b. examines 100% of the population.
c. performs tests of details.
d. makes an inference about a population characteristic based on a partial examination of that population.
1. D - unbilled means they were left off and so not "complete."
2. A - rights and obligations are about assets, liabilities and equity. It also applies to disclosures but that was not a choice.
3. D - the preparer is the one that decides the materiality from FASB's view. PCAOB/AICPA decides from the auditor's view.
4. B - until filing of the registration statement.
6. B the client getting the report is the primary beneficiary
7. C "GAAS" == Generally accepted auditing standards
8. D given the number of assumptions in financial reporting, no two will get exactly the same ...
A few words explain the choice for the harder ones.
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