Transcript

1. Which of the following should not normally be included in the engagement letter for an audit?

A. B. C. D.

A description of the limitations of an audit.. A listing of the client’s branch offices selected for testing. A description of the responsibilities of client personnel to provide assistance. An indication of the amount of the audit fee.

2. Which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement?

A. B. C. D.

Analysis of income statement accounts. Analysis of balance sheet accounts. Facts that might bear on the integrity of management. All matters of continuing accounting significance.

3. The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as

A. B. C. D.

Detection risk. Engagement risk. Business risk. Control risk.

4. Which of the following best describes what is meant by the term “fraud risk factor”?

A. B. C. D.

Factors that, when present, indicate that risk exists. Factors often observed in circumstances where frauds have occurred. Factors that, when present, require modification of planned audit procedures. Weaknesses in internal control identified during an audit.

5. Three conditions generally are present when fraud occurs. Select the one below that is not one of those conditions.

A. B. C. D.

Attitude. Supervisory position. Incentive or pressure. Opportunity.

D. An identification of the financial statements audited. Standards for reviews of the interim financial information issued by public companies. Supervise members of the audit team less closely and rely more upon judgment. The CPA’s opinion that the financial statements comply with generally accepted accounting principles. Which of the following is not explicitly included in a standard report for a nonpublic company? A. D. Place increased emphasis on the audit of objective transactions rather than subjective transactions. Yes B. That generally accepted auditing standards were followed during the audit. C. No Misappropriation of Assets No Yes No Yes 10. Which of the following standards are currently established by the AICPA? A. Use only certified public accountants on the engagement. Use less predictable audit procedures. Which of the following is not included in an integrated audit report on the financial statements of a public company? A. An audit provides reasonable assurance of detecting material misstatement due to: Fraudulent Financial Reporting A. C. B. 7. D.6. C. 8. Accounting standards applicable to nonpublic companies. No D. 9. The report indicates that the auditors have also audited the effectiveness of the company's . The AICPA over time has played an important role in standards setting. B. B. Yes C. Auditing standards applicable to audits of nonpublic companies. Which of the following is most likely to be an overall response to fraud risks identified in an audit? A. That internal control of the client was satisfactory. Quality control standards applicable to audits of public companies.

Which of the following would be least likely to be considered an objective of internal control? A. 14. Detecting management fraud. clear-cut responsibility for a separate major transaction cycle to each employee. timing. The Securities and Exchange Commission. Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by: A. 12. B. A basis for modifying tests of controls. Which of the following organizations can revoke the right of an individual to practice as a CPA? A. The applicable state board of accountancy. D. Knowledge necessary to determine the nature. C. C. 13. and extent of further audit procedures. C. Engaging a CPA to perform monthly write-up work. The Public Company Accounting Oversight Board. Audit evidence to use in reducing detection risk.internal control. B. The American Institute of Certified Public Accountants. When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards. A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with: A. Direct participation by the owner in key record keeping and control activities of the business. Encouraging adherence to managerial policies. D. Safeguarding assets. D. The report indicates that the financial statements are the responsibility of management. 11. Employment of temporary personnel to aid in the separation of duties. D. An evaluation of the consistency of application of management policies. C. B. B. The report states that the audit was performed in accordance with AICPA standards. 15. D. Delegation of full. The report is signed in the name of the CPA firm. they must: . C. B. Checking the accuracy and reliability of accounting data.

. The substance of related party transactions may differ from their form. To increase the efficiency of the audit by eliminating the need for other audit procedures. All related party transactions must be eliminated as a step in preparing consolidated financial statements. B. Copies of sales invoices inspected by the auditors. To remind the client's management of its primary responsibility for the financial statements. 19. 17. To document in the audit working papers the client’s responses to certain verbal inquiries made by the auditors during the engagement. Test controls for all significant accounts. Related party transactions generally are illegal acts. Canceled checks returned in the year-end bank statement directly to the client. Use a “bottom-up” approach to identify controls to test. Support the underlying concepts included in the preparation of the basic financial statements. which is the least reliable type of audit evidence? A. B. 16. Of the following. D. Modify their report for any significant deficiencies identified. D. B. Confirmations mailed by outsiders to the auditors. D. C. Perform a separate assessment of controls over operations. auditors obtain a representation letter from their client. 18. Which of the following is not a valid purpose of such a letter? A. C. Which of the following statements best describes why auditors investigate related party transactions? A. B. Related party transactions are a form of management fraud. Provide a point of reference for future audit engagements. Correspondence between the auditors and suppliers. D. Aid the auditors by providing a list of required procedures. As part of their audit. C.A. To provide evidence in those areas dependent upon management’s future intentions. B. C. C. A primary purpose of the audit working papers is to: A.

D. Client understands the auditors' corroborative use of the specialist’s findings in relation to the representations in the financial statements. A partner in the office of the partner in charge of the attest engagement. Acceptance of a contingent fee for a review of financial statements. Which of the following is not prohibited by the AICPA Code of Professional Conduct? A. as a result of the specialist’s findings. D. An individual assigned to the attest engagement. the auditors referred to the specialist’s findings in their report. C. 21. In using the work of a specialist. B. A fee is to be established at a later date by the Bankruptcy Court. personal reputation. D. In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee? A. Which of the following is not a covered member for an attest engagement under Rule 101 of the AICPA Code of Professional Conduct? A. Engaging in discriminatory employment practices. A fee is based on whether or not the public accounting firm’s audit report leads to the approval of the client’s application for bank financing. give a qualified opinion on the financial statements. 23. Auditors. Advertising in newspapers. 22. B. decide to indicate a division of responsibility with the specialist. B. This would be an appropriate reporting practice if the: A. A fee is based upon the nature of the engagement rather than upon the actual time spent on the engagement. Support the auditors' opinion. C.D. A manager who is in charge of providing tax services to the attest client. A partner in the national office of the firm that performs marketing services. C. C. as a result of the specialist's findings. . 20. Client is not familiar with the professional certification. A fee is based on the fee charged by the client’s former auditors. Payment of commission to obtain an audit client. B. Auditors. D. or particular competence of the specialist.

Preparation of the company’s tax return. An attest client owes the firm fees for this and last year’s annual engagements. Tax planning for all company officers. Internal audit outsourcing. C. This rule may preclude a CPA from responding to an inquiry made by: A. CPA. A CPA-shareholder of the client corporation. Bill Adams. B. D. C. A partner’s checking account. is held at a financial institution for which the public accounting firm performs attest services. . The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. A manager of the firm donates services as vice president of a charitable organization that is an audit client of the firm. B. D. D. An AICPA quality review body. Adams became aware of his lack of competence required for the engagement. Issue an adverse opinion. An investigative body of a state CPA society. C. B. B. During the audit. Suggest that Kelly Company engage another CPA to perform the audit. Rely on the competence of client personnel. 27. A public accounting firm would least likely be considered in violation of the AICPA independence rules in which of the following instances? A. 25. What should Adams do? A. D. Bookkeeping services. C. Disclaim an opinion. 26. which is fully insured by the Federal Deposit Insurance Corporation. accepted the audit engagement of Kelly Company.24. The trial board of the AICPA. A covered member’s dependent son owns stock in an attest client. Which of the following nonattest services may be performed by the auditors of a public company? A.

Rule 202—Compliance with Standards requires CPAs to adhere to all of the following applicable standards. Review financial reports filed with the SEC. To identify opportunities for fraud within the client’s operations. To make recommendations to the client regarding improvements in internal control. Statements on Standards for Attestation Engagements. Statements on Standards for Consulting Services. timing. . except: A.28. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). B. and extent of audit testing. To train new auditors on accounting and control systems. Which of the following is not one of the responsibilities of that board? A. Sanction registered audit firms. To determine the nature. B. 29. What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company? A. Establish auditing standards for audits of public companies. Establish independence standards for auditors of public companies. D. Statements on Auditing Standards. D. B. D. C. C. C. Statements on Responsibilities for Assurance services. 30.