Which of the following statements is a basic element of the auditors standard report?

Which of the following provides the most authoritative guidance for the auditor of a nonissuer?

a. An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client's industry.

b. A Journal of Accountancy article discussing implementation of a new standard.

c. General guidance provided by a Statement on Auditing Standards.

d. Specific guidance provided by an interpretation of a Statement on Auditing Standards.

c. General guidance provided by a Statement on Auditing Standards.

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure?

a. By comparing the PCAOB standard with related AICPA auditing standards.

b. By exercising professional judgement in the circumstances.

c. By soliciting input from the issuer's audit committee

d. By evaluating whether the audit is likely to be subject to inspection by the PCAOB.

b. By exercising professional judgement in the circumstances.

Which of the following properly describes the auditor's responsibilities as opposed to management's responsibilities?

a. The auditor is responsible for the entity's financial statements and management is responsible for the selection and application of accounting principles.

b. The auditor is responsible for identifying the laws and regulations applicable to the entity's activities and management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial.

c. Management is responsible for the entity's financial statements and the auditor is responsible for the selection and application of accounting principles.

d. Management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial and the auditor is responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatements.

d. Management is responsible for affirming that the effects of any uncorrected misstatements in the financial statements are immaterial and the auditor is responsible for obtaining reasonable assurance about whether the financial statements are free of material misstatements.

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards be planned and performed with an attitude of:

a. Objective judgement.

b. Independent integrity.

c. Professional skepticism.

d. Impartial conservatism.

c. Professional skepticism

In order to form an opinion on the financial statements, the auditor should consider whether:

a. Sufficient appropriate evidence was obtained as required by the Financial Accounting Standards Board (FASB).

b. The financial statements are prepared, in all material respects, in accordance with the requirements of generally accepted auditing standards (GAAS).

c. Management has correctly identified the appropriate auditing standards.

d. The financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework

d. The financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework

When forming an opinion on the financial statements, the auditor is least likely to evaluate whether:

a. Accounting estimates made by management are reasonable.

b. Financial statements provide adequate disclosure to enable intended users to understand the effect of material events and transactions.

c. Earnings forecasts by investors are met.

d. The terminology used in the financial statements is appropriate.

c. Earnings forecasts by investors are met.

Which of the following best describes when an auditor most likely would modify the audit opinion?

a. The auditor identifies an immaterial misstatement in the financial statements.

b. The auditor concludes that the financial statements as a whole are materially misstated.

c. The entity selects IFRS as the applicable financial reporting framework.

d. The auditor concludes that the financial statements are presented fairly.

b. The auditor concludes that the financial statements as a whole are materially misstated.

Which of the following statements is a basic element of the auditor's report under U.S. auditing standards?

a. The disclosures provided reasonable assurance that the financial statements are free of material misstatement.

b. The auditor evaluated the overall internal control.

c. An audit includes evaluating significant estimates made by management.

d. The financial statements are consistent with those of the prior period

c. An audit includes evaluating significant estimates made by management.

Which paragraphs of a nonissuer auditor's report in financial statements under U.S. auditing standards should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP)?

a. GAAS: Auditor's Responsibility; GAAP: Introductory

b. GAAS: Introductory; GAAP: Auditor's Responsibility

c. GAAS: Auditor's Responsibility; GAAP: Opinion

d. GAAS: Introductor; GAAP: Introductory

c. GAAS: Auditor's Responsibility; GAAP: Opinion

A critical audit matter is a matter that was communicated or is required to be communicated to the audit committee and:

a. Relates to accounts or disclosure that are immaterial to the financial statements.

b. Involves a particularly complex transaction approved by management.

c. Requires a significantly larger sample size to test.

d. Involves an especially challenging judgement made by the auditor.

d. Involves an especially challenging judgement made by the auditor.

Which of the following is a required component of the independent auditor's report expressing an unmodified opinion?

a. An introductory paragraph including the audit firm name.

b. An auditor's responsibility paragraph including a reference to generally accepted auditing standards.

c. An other-matter paragraph including the reason for the unmodified opinion.

d. An opinion paragraph including a reference to generally accepted auditing principles

b. An auditor's responsibility paragraph including a reference to generally accepted auditing standards.

A nonissuer auditor's report under U.S. auditing standards that refers to the use of an accounting principle at variance with generally accepted accounting principle contains the words, "In our opinion, the the forgoing explanation, the financial statements referred to above present fairly...." This is considered an:

a. Adverse opinion.

b. "Except" for qualified opinion.

c. Unmodified opinion with an emphasis-of-matter paragraph.

d. Example of inappropriate reporting.

d. Example of inappropriate reporting.

Which of the following situation best describes when an auditor should express an adverse opinion?

a. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are material and but not pervasive to the financial statements.

b. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are both material and pervasive to the financial statements.

c. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements could be both material and pervasive.

d. The auditor obtains sufficient appropriate audit evidence and concludes that the financial statements are presented fairly.

b. The auditor obtained sufficient appropriate audit evidence and concludes that misstatements are both material and pervasive to the financial statements.

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

a. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures

b. The financial statements fail to disclose information that is required by generally accepted accounting principles.

c. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements

d. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

b. The financial statements fail to disclose information that is required by generally accepted accounting principles.

An auditor's report for financial statements prepared using the special purpose framework of the cash basis of accounting contains the follwoing title and sentences:

Basis of Accounting

We draw attention to Note X of the financial statements, which describes the basis of accounting. The financial statements are prepared on the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to the matter.

This title and sentences:

a. Are an improper form of reporting.

b. Represent an emphasis-of-matter paragraph.

c. Represent an other-matter paragraph.

d. Should appear prior to the opinion paragraph and explained the reason for a modified opinion.

b. Represent an emphasis-of-matter paragraph.

When disclaiming an opinion because of an insufficiency of audit evidence in an audit of a nonissuer, an auditor should refer to the situation in the:

a. Auditor's Responsibility Paragraph: Yes; Notes to the financial statements: Yes

b. Auditor's Responsibility Paragraph: Yes; Notes to the financial statements: No

c. Auditor's Responsibility Paragraph: No; Notes to the financial statements: Yes

d. Auditor's Responsibility Paragraph: No; Notes to the financial statements: No

b. Auditor's Responsibility Paragraph: Yes; Notes to the financial statements: No

An auditor may issue a qualified opinion under which of the following circumstances?

a. Lack of sufficient appropriate audit evidence: Yes; Restrictions to the scope of the audit: Yes

b. Lack of sufficient appropriate audit evidence: Yes; Restrictions to the scope of the audit: No

c. Lack of sufficient appropriate audit evidence: No; Restrictions to the scope of the audit: Yes

d. Lack of sufficient appropriate audit evidence: No; Restrictions to the scope of the audit: No

a. Lack of sufficient appropriate audit evidence: Yes; Restrictions to the scope of the audit: Yes

An auditor is unable to complete a procedure during an audit. Based on this situation, which opinion is least likely to be rendered?

a. An unmodified opinion.

b. A qualified opinion.

c. An adverse opinion.

d. A disclaimer of opinion.

When an auditor qualifies an opinion for a nonissuer due to a scope limitation, the auditor should describe the nature of the scope limitation in a separate paragraph and modify:

a. Introductory Paragraph: No; Basis for Qualified Opinion Paragraph: No; Opinion Paragraph: No

b. Introductory Paragraph: Yes; Basis for Qualified Opinion Paragraph: Yes; Opinion Paragraph: Yes

c. Introductory Paragraph: No; Basis for Qualified Opinion Paragraph: Yes; Opinion Paragraph: Yes

d. Introductory Paragraph: No; Basis for Qualified Opinion Paragraph: No; Opinion Paragraph: Yes

c. Introductory Paragraph: No; Basis for Qualified Opinion Paragraph: Yes; Opinion Paragraph: Yes

In which of the following circumstances would an auditor most liekly add an emphasis-of-matter paragraph to the report while not affecting the auditor's unmodified opinion?

a. The auditor is asked to report on the balance sheet, but not on the other basic financial statements.

b. There is substantial doubt about the entity's ability to continue as a going concern.

c. Management's estimates of the effects of future events are unreasonable.

d. Certain transactions cannot be tested because of management's record retention policy.

b. There is substantial doubt about the entity's ability to continue as a going concern.

The following paragraph was included in an auditor's report to indicate a lack of consistency:

"As discussed in note T to the financial statements, the company changed its method of computing depreciation in Year 2."

How should the auditor report on the mater if the auditor concurred with the change?

a. Type of opinion: Unmodified; Location of paragraph: Before opinion paragraph

b. Type of opinion: Unmodified; Location of paragraph: After opinion paragraph

c. Type of opinion: Qualified; Location of paragraph: Before opinion paragraph

d. Type of opinion: Qualified; Location of paragraph: After opinion paragraph

b. Type of opinion: Unmodified; Location of paragraph: After opinion paragraph

An auditor would express an unmodified opinion with an emphasis-of-matter paragraph added to the report for: a justified change in accounting principle; an unjustified change in accounting principle; a justified change in accounting estimate.

a. No; Yes; Yes

b. Yes; Yes; No

c. Yes; No; No

d. No; No; Yes

An auditor has previously expressed a qualified opinion on the financial statements of a prior period because of a departure from generally accepted accounting principles. The prior-period financial statements are restated in the current period to conform with generally accepted accounting principles. The auditor's updated report on the prior-period financial statements should:

a. Express an unmodified opinion concerning the restated financial statements.

b. Be accompanied by the original auditor's report on the prior period.

c. Bear the same date as the original auditor's report on the prior period.

d. Qualify the opinion concerning the restated financial statements because of a change in accounting principle.

a. Express an unmodified opinion concerning the restated financial statements.

An auditor's report contains the following sentences:

We did not audit the financial statements o JK Co. a wholly owned subsidiary, which statements reflect total assets and revenues constituting 17 percent and 19 percent, respectively, of the related consolidated total. Those statements were audited by other auditors whose report has been furnished to us and our opinion. insofar as it related to the amounts included for JK Co., is based solely on the report of the other auditors.

These sentences:

a. Are an improper form of reporting.

b. Divide responsibility.

c. Disclaim an opinion.

d. Qualify the opinion.

b. Divide responsibility.

Before a predecessor auditor reissues the prior year's audit report on the financial statements of a former client for inclusion with the successor auditor's report in comparative financial statements, the predecessor does all of the following except:

a. Obtain the current comparative financial statements

b. Compare the current period comparative financial statements with those of the prior year.

c. Review the audit documentation of the successor auditor.

d. Obtain a successor auditor representation letter.

c. Review the audit documentation of the successor auditor.

Jules, CPA, is reporting on comparative financial statements, but Shah, CPA conducted the previous year's audit. Which of the following is not true in this situation?

a. Dual dating may be used to indicate the appropriate dates for each audit.

b. If Shah's report is not presented, an other-matter paragraph should be included to describe this situation

c. If Shah's report was qualified due to a scope limitation, Jules may still issue an unmodified opinion on the current year's financial statements.

d. If Shah's report will be presented, management will need to provide a representation letter to Shah.

a. Dual dating may be used to indicate the appropriate dates for each audit.

Which of the following procedure would an auditor be least likely to use in an effort to obtain evidence regarding subsequent events?

a. Making inquiry of management about unusual adjustments after year-end.

b. Obtaining lists of litigation for review with the client's attorneys.

c. Reading minutes of board meetings an dreading interim financial statements.

d. Investigating personnel changes which occurred after year-end.

d. Investigating personnel changes which occurred after year-end.

Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:

a. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

b. Request that management disclose the newly discovered information by issuing revised financial statements.

c. Issue revised pro forma financial statements taking into consideration the newly discovered information.

d. Give public notice that the auditor is no longer associated with the financial statements.

a. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

Which of the following statements is not true regarding the auditor's responsibility for subsequent events?

a. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted.

b. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date of the auditor's report.

c. The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date on which sufficient appropriate audit evidence has been obtained.

d. The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.

a. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted.

Jamison, CPA, is auditing the financial statements of Deegan Industries. Jamison had obtained appropriate audit evidence, sufficient to support an opinion, by January 24, year 3, and issued his audit report (dated January 24, year 3) on February 12, year 3. In which case would Jamison most likely use dual dating?

c. On January 10, year 3, one of Deegan's primary customers declared bankruptcy due to its deteriorating financial condition. As a result, Deegan wrote off a material account receivable that had been included in the year 2 balance sheet. A note was also added to the year 2 financial statements to discuss the financial impact of losing this customer.

d. On February 8, year 3, a lawsuit in which Deegan was the defendant was settled out of court. The year 2 financials were appropriately adjusted to reflect the resolution of this matter, and a footnote explanation was added.

d. On February 8, year 3, a lawsuit in which Deegan was the defendant was settled out of court. The year 2 financials were appropriately adjusted to reflect the resolution of this matter, and a footnote explanation was added.

Which of the following is not true regarding audit documentation for a specific audit?

a. Audit documentation should be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures performed.

b. Audit documentation should indicate which member(s) of the audit team performed and reviewed the audit work.

c. Audit documentation should demonstrate compliance with quality control standards.

d. Audit documentation should demonstration with the standards of fieldwork.

c. Audit documentation should demonstrate compliance with quality control standards.

Which of the following factors most likely would lead to a CPA to conclude that a potential audit engagement should not be accepted?

a. There are significant related party transactions that management claims occurred in the ordinary course of business.

b. Internal control activities requiring the segregation of duties are subject to management override.

c. Management continues to employ an inefficient system of information technology to record financial transactions.

d. It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

d. It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding:

a. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

b. The predecessor's evaluation of matters of continuing accounting significance.

c. The degree of cooperation the predecessor received concerning the inquiry of the client's lawyer.

d. The predecessor's assessments of inherent risk and judgements about materiality.

a. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

An accountant who had begun an audit of the financial statements of a nonissuer was asked to change the engagement to a review because of a restriction on the scope of the audit. If there is reasonable justification for the change, the accountant's review report should include reference to the: Scope limitation that caused the changed engagement; Original engagement that was agreed to

a. Yes; No

b. No; Yes

c. No; No

d. Yes; Yes

Which of the following factors most likely would cause an auditor not to accept a new audit engagement?

a. An adequate understanding of the entity's internal control.

b. The close proximity to the end of the entity's fiscal year.

c. Concluding that the entity's management probably lacks integrity.

d. An inability to perform preliminary analytical procedures before accepting the engagement.

c. Concluding that the entity's management probably lacks integrity.

Which of the following is not assessed by the auditor as part of the decision regarding the acceptance of a new client?

a. The audit firm's ability to meet required reporting deadlines.

b. The integrity of the audit firm.

c. The audit firm's inability to adequately staff the engagement.

d. The independence of the audit firm.

b. The integrity of the audit firm.

Which of the following is not a required part of the understanding between the client and the auditor?

a. management's responsibility to adjust the financial statements if the auditor identifies material misstatements.

b. Management's responsibility to correct deficiencies in internal control identified by the auditor.

c. The auditor's responsibility to obtain reasonable assurance about whether the financial statements are free of material misstatement caused by deliberate fraud.

d. The auditor's responsibility to obtain reasonable assurance about whether the financial statement are free of material misstatement caused by unintentional error.

b. Management's responsibility to correct deficiencies in internal control identified by the auditor.

Which of the following are required as part of an auditor's planning process: Understanding the design of controls; Determining whether controls have been implemented; Evaluating the operating effectiveness of controls; Documenting the understanding of internal controls?

a. Yes; No; No; Yes

b. No; No; Yes; No

c. No; Yes; Yes; No

d. Yes; Yes; No; Yes

Which of the following is a false statement regarding the drafting or use of an audit plan?

a. The audit plan specifies audit procedure necessary to accomplish audit objectives.

b. It serves as a work plan for the audit supervisor and assistants on an audit engagement.

c. An audit plan is required for new and existing client audit engagements.

d. The initial plan is rarely modified.

d. The initial plan is rarely modified.

The audit engagement team is in the process of planning the upcoming audit for a new client. As part of the planning phase, the auditors would perform all of the following activities with the exception of:

a. Developing an audit strategy.

b. Performing risk assessment procedures.

c. Sampling a small number of client transactions for planned audit procedures.

d. Obtaining knowledge of the client's business and industry.

c. Sampling a small number of client transactions for planned audit procedures.

Which of the following is not a type of financial statement assertion?

a. Rights and obligations.

b. Fairness and accuracy.

c. Valuation and allocation.

d. Understandability and classification.

b. Fairness and accuracy.

When determining the nature, extent, and timing of supervision for an audit, the audit supervisor may consider all of the following, except for which factor?

a. The nature of the audit work assigned to an assistant.

b. Assessed risk of material misstatement pertaining to the current audit.

c. Size and complexity of the client.

d. The assistant's familiarity with the client's industry.

d. The assistant's familiarity with the client's industry.

In order to gain knowledge of a new client's business during the audit planning phase, the auditor may engage in several information gathering activities. Which of the following is not one of those activities?

a. Reviewing the minutes of the stockholder and Board of Directors' meetings.

b. Taking a tour of the client's facilities.

c. Performing inquiries with outside legal counsel to gain understanding of existing lawsuits.

d. Reviewing the client's policies and procedures manual to gather information on the client's accounting processes.

c. Performing inquiries with outside legal counsel to gain understanding of existing lawsuits.

An entity has an internal audit staff that the independent auditor assessed to be both competent and objective. Which of the following statements is correct about the independent auditor's use of the internal auditors to provide direct assistance in performing tests of controls?

a. The auditor cannot rely on any of the work of the internal auditors.

b. The internal auditors should not be performing any audit procedures that the auditor is able to perform.

c. The auditor can use internal auditors to assess control risk, but cannot rely on their tests of controls.

d. The auditor should supervise, review, evaluate, and test the work performed by the internal auditors.

d. The auditor should supervise, review, evaluate, and test the work performed by the internal auditors.

The engagement partner is currently assessing how to use the client's internal audit staff on the upcoming audit. If the competence of the internal audit manager is first being assessed, all of of the following may be considered, except for which criteria?

a. Number of internal auditors under supervision

b. Number of years of experience in profession

c. Performance evaluations

d. Quality of internal audit documentation

a. Number of internal auditors under supervision

During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing: Tests of controls; Substantive tests.

a. Yes; Yes

b. Yes; No

c. No; Yes

d. No; No

Which of the following statements is correct concerning an auditor's use of the work of an actuary in assessing a client's pension obligations?

a. The auditor is required to understand the objectives and scope of the actuary's work.

b. The reasonableness of the actuary's assumptions is strictly the auditor's responsibility.

c. The client is required to consent to the auditor's use of the actuary's work.

d. If the actuary has a relationship with the client, the auditor may not use the actuary's work.

a. The auditor is required to understand the objectives and scope of the actuary's work.

Under which of the following circumstances would an auditor be considered to be using the work of a specialist?

a. The auditor engages a lawyer to interpret the provisions of a complex contract.

b. The auditor makes inquiries of the client's lawyer regarding pending litigation.

c. A tax expert employed by the auditor's CPA firm reviews the client's tax accruals.

d. The client engages an outside computer service organization to prepare its payroll.

a. The auditor engages a lawyer to interpret the provisions of a complex contract.

While working on a current audit for an insurance company, the auditor discovers that the client uses an actuary to assist in technical matters related to the preparation of the company's financial statements. The actuary above would best be described as a(n):

a. Management specialist

b. General specialist

c. Auditor's specialist

d. External accounting expert

Which of the following statements is correct concerning the materiality in a financial statement audit?

a. Analytical procedures performed during an audit's review stage usually decrease materiality levels.

b. If the materiality amount used in evaluating audit findings increases from the amount used in planning, the auditor should apply additional substantive tests.

c. The auditor's materiality judgements generally involve quantitative, but not qualitative, considerations.

d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatements that could be considered material to any one of the financial statements.

d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatements that could be considered material to any one of the financial statements.

If new information becomes available that could require a reevaluation of the quantitative level of materiality applied during an audit of an issuer, the the auditor should:

a. Not change the materiality level once it has been established.

b. Lower the materiality level, but not raise it.

c. Raise the materiality level, but not lower it.

d. Raise or lower the materiality level as appropriate to the situation.

d. Raise or lower the materiality level as appropriate to the situation.

While planning the audit strategy for the current audit, the auditor establishes the materiality for the client's financial statements taken as a whole. Which of the following is incorrect regarding the process in which the auditor actually determines the level of materiality for the financial statements taken as a whole.

a. No specific dollar amount of materiality threshold is required to be established.

b. Both quantitative and qualitative factors are considered.

c. Materiality is based on the smallest level of misstatement for any one financial statement.

d. The auditor uses his or her professional judgement when assessing materiality.

a. No specific dollar amount of materiality threshold is required to be established.

Which of the following is least likely to affect an auditor's judgements about materiality?

a. The nature of an item, such as an illegal but very small payment.

b. The client's evaluation of materiality.

c. The dollar amount of key figures in the previous years' financial statements.

d. Consideration of what a reasonable person would think.

b. The client's evaluation of materiality.

Which of the following is not a risk assessment procedure recommended by PCAOB standards when performing an issuer audit?

a. Performing analytical procedures related to the client's revenue.

b. Performing preliminary test of controls over selected transaction cycles.

c. Inquiring of client management and the audit committee about the risks of material misstatement.

d. Developing an understanding of the client's internal control over financial reporting.

b. Performing preliminary test of controls over selected transaction cycles.

Analytical procedures used in the planning phase of an audit should focus on:

a. Documenting the risk factors relating to the susceptibility of assets to misappropriation.

b. Identifying he internal control activities that could reduce the assessed level of the control risk.

c. Discovering uncorrected misstatements that should be communicated to the audit committee.

d. Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit

d. Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit

The primary objective of procedures performed to obtain an understanding of the entity and its environment is to provide an auditor with:

a. Knowledge necessary for risk assessment and audit planning.

b. Audit evidence to use in assessing inherent risk.

c. A basis for issuing an opinion on the financial statements.

d. An evaluation of the consistency of application of management's policies.

a. Knowledge necessary for risk assessment and audit planning.

The objective of performing analytical procedures in planning an audit is to identify the existence of:

a. Unusual transactions and events

b. Acts of noncompliance with laws and regulations that went undetected because of internal control weaknesses.

c. Related party transactions.

d. Recorded transactions that were not properly authorized.

a. Unusual transactions and events

In an audit of financial statements, an auditor's priary consideration regarding internal control is whether the control:

a. Reflects management's philosophy and operating style.

b. Affects management's financial statement assertions.

c. Provides adequate safeguards over access to assets.

d. Enhances management's decision-making processes.

b. Affects management's financial statement assertions.

By obtaining an understanding of the client and its internal control environment, the auditor is directly assessing the client's:

a. Detection risk.

b. Control risk.

c. Inherent risk.

d. Inherent and control risk.

d. Inherent and control risk.

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?

a. Management places little emphasis on meeting earnings projections.

b. The board of directors makes all major financing decisions.

c. Significant deficiencies in internal control previously communicated to management are not corrected.

d. Transactions selected for testing are not supported by proper documentation.

d. Transactions selected for testing are not supported by proper documentation.

Which of the following factors is most important concerning an auditor's responsibility to detect errors and fraud?

a. The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication of accounting principles.

b. The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts to misstate the financial statements.

c. The possibility that management fraud, defalcations, and the misappropriation of assets may indicate the existence of acts of noncompliance with laws and regulations.

d. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain material misstatements.

d. The risk that mistakes, falsifications, and omissions may cause the financial statements to contain material misstatements.

During an audit, the auditor discovers a fraudulent expense reimbursement for a low-level manager. The auditor determines that this transaction is inconsequential and several similar transactions would no be material to the financial statements in the aggregate. Which of the following statements best describes the auditor's required response to the discovery?

a. The auditor should fully investigate other transactions related to this manager to determine if fraud exists.

b. The auditor should bring the transaction to the attention of an appropriate level of management.

c. The auditor should report this finding to those charged with governance.

d. The auditor's responsibility is satisfied by the documenting that the single transaction is inconsequential.

b. The auditor should bring the transaction to the attention of an appropriate level of management.

Control risk should be assessed in terms of:

a. Specific controls.

b. Types of potential irregularities.

c. Financial statement assertions.

d. Control environment factors.

c. Financial statement assertions.

The existence of audit risk is recognized by the statement in the auditor's standard report that the:

a. Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management.

b. Financial statements are presented fairly, in all material respects, in conformity with GAAP.

c. Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

d. Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.

d. Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.

While performing audit fieldwork on a client, the auditor reviews the client's depreciation policies and schedules on a select group of fixed assets. After careful review of the estimated lives on these fixed assets, the auditor determines that the basis used to determine the length of the estimated useful lives for certain fixed assets is unreasonable and not supported by any internal or industry factors. Based on the above, the auditor would most likely consider this a:

a. Projected misstatement

b. Fraudulent misstatement

c. Judgmental misstatement

d. Factual misstatement

c. Judgmental misstatement

Which of the following statements regarding the risk of material misstatement is correct?

a. Only factual misstatements should be considered when making the assessment of risk and the determination of any adjustments that may need to be made.

b. The risk that a material misstatement may occur due to complex calculation, faulty estimates, or high volume transactions is known as control risk.

c. Detection risk is the risk that a material misstatement will not be detected by the entity's internal controls.

d. The risk of material misstatement includes the auditor's assessment of inherent risk as well as control risk.

d. The risk of material misstatement includes the auditor's assessment of inherent risk as well as control risk.

If an auditor's risk assessment is based on the effective operation of controls, the auditor will likely:

a. Apply analytical procedure to both financial data and non financial information to detect conditions that may indicate weak controls.

b. Perform tests of details of transactions and account balances to identify potential errors and fraud.

c. Identify specific internal controls that are likely to detect or prevent material misstatements.

d. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

c. Identify specific internal controls that are likely to detect or prevent material misstatements.

As part of understanding internal control, an auditor is not required to:

a. Consider factors that affect the risk of material misstatement.

b. Ascertain whether internal controls have been implemented.

c. Identify the types of potential misstatements that can occur.

d. Obtain knowledge about the operating effectiveness of internal control.

d. Obtain knowledge about the operating effectiveness of internal control.

While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate?

a. Move detailed analytical procedures from year end to interim.

b. Increase the dollar threshold of vouching customer invoices.

c. Send negative accounts receivable confirmations instead of positive accounts receivable confirmations.

d. Use more experienced audit team members to perform year-end testing.

d. Use more experienced audit team members to perform year-end testing.

An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following?

a. The planned level of control risk.

b. Management's assertions that internal controls exist and are operating efficiently.

c. The effectiveness of internal controls.

d. The planned level of assurance at the relevant assertion level.

d. The planned level of assurance at the relevant assertion level.

When auditing related party transactions, an auditor places primary emphasis on:

a. Ascertaining the rights and obligations of the related parties.

b. Confirming the existence of the related parties.

c. Verifying the valuation of the related party transactions.

d. Evaluating the disclosure of the related party transactions.

d. Evaluating the disclosure of the related party transactions.

When determining the auditor's and management's responsibility for compliance with laws and regulations during an audit, which of the following statements below would be incorrect?

a. The auditor is not responsible for preventing noncompliance with laws and regulations.

b. Management and those charged with governance are responsible for ensuring that the company's operation are conducted in accordance with applicable laws and regulations.

c. The auditor provides reasonable assurance that the financial statements are free of material misstatement due to noncompliance with laws and regulations.

d. The auditor is expected to detect the client's non compliance with all laws and regulations affecting the transaction cycles under review during the audit itself.

d. The auditor is expected to detect the client's non compliance with all laws and regulations affecting the transaction cycles under review during the audit itself.

When an auditor becomes aware of a possible noncompliance with laws and regulation by a client, the auditor should obtain an understanding of the nature of the noncompliance to:

a. Evaluate the effect on the financial statements.

b. Determine the reliability of management's representations.

c. Consider whether other similar acts may ave occurred.

d. Recommend remedial actions to those charged with governance.

a. Evaluate the effect on the financial statements.

Which of the following statements concerning audit evidence is correct?

a. To be appropriate, audit evidence should be either reliable or relevant, but need not be both.

b. The measure of sufficiency of audit evidence lies in the auditor's judgement.

c. The difficulty and expense of obtaining audit evidence concerning an account balance is always a valid basis for omitting the test.

d. A client's accounting data can be sufficient audit evidence to support the financial statements.

b. The measure of sufficiency of audit evidence lies in the auditor's judgement.

Which of the following procedure would provide the most reliable audit evidence?

a. Inquiries of the client's internal audit staff held in private.

b. Inspection of prenumbered client purchase orders filed in the vouchers payable department.

c. Analytical procedures performed by the auditor on the entity's trial balance.

d. Inspection of bank statements obtained directly from the client's financial institution.

d. Inspection of bank statements obtained directly from the client's financial institution.

Which of the following evidence provides the least assurance of reliability?

a. Accounts receivable confirmation.

b. Sales invoice.

c. Vendor invoice.

d. Bank statement.

Which of the following is an accurate statement regarding audit evidence?

a. Examining a photocopy of a document is less reliable than obtaining a description of a transaction procedure by client management.

b. More assurance can be placed on audit evidence when the results are consistent from multiple sources.

c. Internal evidence obtained is considered more reliable than external evidence.

d. Inspecting a sample of a client's physical inventory is considered more reliable evidence than observing a client's inventory count.

b. More assurance can be placed on audit evidence when the results are consistent from multiple sources.

Which of the following is true about using analytical procedure as a substantive test?

a. Analytical procedures are required to be used to some extent as a substantive test.

b. Analytical procedures are only required to be used as a substantive test for material account balances and classes of transactions

c. Analytical procedures are not required to be used as a substantive test and are more likely to be used for accounts that are predictable.

d. Analytical procedures are not required to be used as a substantive test and are more likely to be used when transactions affecting the account are subject to management discretion.

c. Analytical procedures are not required to be used as a substantive test and are more likely to be used for accounts that are predictable.

The objective of tests f details of transactions performed as a substantive tests is to:

a. Comply with generally accepted auditing standards

b. Attain assurance about the reliability of the information system relevant to financial reporting.

c. Detect material misstatements in the financial statements.

d. Evaluate whether management's control operated effectively.

c. Detect material misstatements in the financial statements.

All of the following would be considered an external audit confirmation with the exception of a:

a. Customer's written response to a negative confirmation.

b. Customer's electronic response to a positive confirmation.

c. Customer's oral response to a positive confirmation.

d. Customer's written response to a blank confirmation.

c. Customer's oral response to a positive confirmation.

Which of the following would not be considered a relevant assertion when testing transactions and events during a client audit?

a. Cutoff

b. Valuation, allocation, and aaccuracy.

c. Existence and occurrence.

d. Rights and obligations.

d. Rights and obligations.

For which of the following audit tests would an auditor most likely use attribute sampling?

a. Selecting accounts receivable for confirmation of account balances.

b. Inspecting employee time cards for proper approval by supervisors.

c. Making an independent estimate of the amount of a LIFO inventory.

d. Examining invoices in support of the valuation of fixed asset additions.

b. Inspecting employee time cards for proper approval by supervisors.

d. Tolerable rate (7%) was less than the upper deviation rate (8%)

The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?

a. The auditor selecting inappropriate auditing procedures.

b. The internal control being more effective than the auditor believes.

c. The auditor concluding the account balance is not materially misstated, but it, in face, materially misstated.

d. The internal control not being as effective as the auditor believes.

a. The auditor selecting inappropriate auditing procedures.

b. Larger than the required sample size from population 2.

In a test of purchase orders, the auditor selected a random sample of 60 items out of a population of 1,200 purchase orders. The auditor discovered $4,000 in overstatement in the sample. The company's materiality is $65,000. The tolerable misstatement for purchases is $50,000. What should the auditor do next?

a. Pass on the exceptions

b. Propose an adjustment to purchases.

c. Consider expanding the size of the sample.

d. Project the detected error to the entire population

d. Project the detected error to the entire population

An auditor randomly samples 50 out of 1,000 items and discovers an overstatement of $3,000. What is the projected misstatement for the entire population?

a. $150,000

b. $120,000

c. $60,000

d. $48,000

In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be:

a. $1,000

b. $2,000

c. $4,000

d. $5,000

What are the basic elements of Auditors report?

Which of the following are the three sets of auditing standards?

What is an auditor's reporting responsibility concerning information accompanying the basic financial statements in an auditor submitted document?

Which of the following statements most accurately describes the distinction between the auditor's responsibilities and management's responsibilities?