Audit-1 Test one

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1. According to the AICPA, the purpose of B) Enhance the 9. The audit objective that all balances B) Rights and
an audit of financial statements is to degree of include items owned by the client is obligations
A) Express an opinion on the fairness confidence that related most closely to which one of the
with which they present financial intended users ASB balance assertions?
position, results of operations, and cash can place in the A)Existence
flows in conformity with accounting financial B) Rights and obligations
standards promulgated by the U.S. statements. C) Completeness
Securities and Exchange Commission. D) Valuation
B) Enhance the degree of confidence
10. The audit objective that all transactions and C)
that intended users can place in the
accounts that should be presented in the Completeness
financial statements.
financial statements are in fact included is
D) Obtain systematic and objective
related to which of the PCAOB assertions?
evidence about financial assertions and
A) Existence
report the results to interested users.
B) Rights and obligations
E) Express an opinion on the fairness with
C) Completeness
which they present financial position,
D) Valuation
results of operations, and cash flows
inconformity with accounting standards 11. The audit objective that all transactions are D)
promulgated by the Financial Accounting recorded in the proper account is related Classification
Standards Board. most closely to which one of the ASB
transaction assertions?
2. Accurancy Assertion is that
A) Occurrence
full amounts of
B) Completeness
all transactions
C) Accuracy
were recorded
D) Classification
without error.
12. The audit objective that all transactions are C) cutoff
3. Accurancy assertion that all
recorded in the proper period is related
information
most closely to which of the Audit
diclosed is the
Standards Board (ASB) transaction
correct amounts
assertions?
and which
A)Occurrence
reflect their
B)Completeness
proper values.
C)Cutoff
4. The assertion is that all account balances Existence D)Accuracy
exist for asset, liability, and equity. assertion
13. An auditor selected items from the client's D)existence
5. The assertion is that all asset, liability, valuation detailed inventory listing (that agreed to
and equity balances have been recorded assertion the financial statements). During the
at the proper valuations. physical inventory observation, the auditor
then found each item selected and
6. The assertion is that all reported asset, Completeness
counted the number of units on hand.
liability, and equity balances have been assertion
Assuming that the amount on hand was the
fully reported.
same as the amount in the client's detailed
7. The assertion is that the entity has the Rights and inventory listing, this procedure most likely
rights to the assets it owns and is obligations would provide evidence concerning
obligated under its reported liabilities. assertion management's assertion of
8. The audit objective that all balances C)Completeness A)completeness.
include all items that should be recorded B)valuation.
in that account is related most closely to C)presentation and disclosure.
which one of the ASB balance D)existence.
assertions? E) rights and obligations.
A)Existence
B)Rights and obligations
C)Completeness
D)Valuation
14. Bankers who are processing
loan applications from
companies seeking large loans
will probably ask for financial
statements audited by an
independent CPA because...
A) Financial statements are too
complex for the bankers to
analyze themselves.
B) They are too far away from
company headquarters to
perform accounting and auditing
themselves.
C) The consequences of making
a bad loan are very undesirable.
D) They generally see a
potential conflict of interest
between company managers
who want to get loans and the
bank's needs for
reliable financial statements.
15. Because of the risk of material
misstatement, an audit of
financial statements in
accordance with generally
accepted auditing standards
should be planned and
performed with an attitude of
A) objective judgment.
B)independent integrity.
C)professional skepticism.
D)Impartial conservatism.
16. Completeness
17. Completeness
18. cutoff
D) They generally see a 19.
potential conflict of
interest between
company managers who
want to get loans and the
banks needs for reliable
financial statements.
20.
C) professional
skepticism.
21.
The assertion is that all
transactions that should
be disclosed have been
disclosed.
22.
The assertion is that all
business events to which
the company was
subjected were recorded.
The assertion is that all
transaction were recorded
within the correct
reporting period.
In an attestation engagement, a A) Prepare a written
CPA practitioner is engaged to report containing a
A) Prepare a written report conclusion about the
containing a conclusion about the reliability of a
reliability of a management management
assertion. assertion.
B) Compile a company's financial
forecast based on management's
assumptions without expressing any
form of assurance.
C) Give expert testimony in court
on particular facts in a corporate
income tax controversy.
D) Prepare a tax return using
information the CPA has not
audited or reviewed.
In auditing the long-term debt Completeness
account, an auditor's procedures
most likely would focus primarily
on management's assertion of
A) existence.
B) completeness.
C) allocation.
D)rights and obligations.
Independent auditors of financial A) information risk
statements perform audits that
reduce
A) Information risk faced by
investors.
B)Complexity of financial
statements.
C) Business risks faced by investors.
D) Timeliness of financial
statements
Inquiries of warehouse personnel D) valuation
concerning possible obsolete or
slow moving inventory items
provide assurance about the ASB
balance assertion of
A)completeness.
B)existence.
C)presentation.
D)valuation.
E)rights and obligations.
23. It is always a good idea for auditors B) A potential 27. The organization primarily responsible B) Government
to begin an audit with the Conflict of interest for ensuring that public officials are Accountability
professional skepticism always exists using public funds efficiently, Office (GAO)
characterized by the assumption that between the auditor economically, and effectively is the
A) In audits of financial statements, and the management A) Central Internal Auditors (CIA).
the auditor acts exclusively in the of the enterprise B) Government Accountability Office
capacity of an auditor. under audit. (GAO).
B) A potential conflict of interest C)Securities and Exchange
always exists between the auditor Commission (SEC).
and the management of the D) Governmental Internal Audit
enterprise under audit. Agency (GIAA).
C) Financial statements and financial
28. Presentations and disclosure Accuracy,
data are verifiable.
assertions completeness,
D) The professional status of the
occurrence, rights
independent auditor imposes
and obligations,
commensurate professional
understandably
obligations.
29. A risk to investors that a company's A) information risk
24. Jones, CPA, is planning the audit of D) Is not considered
financial statements may be
Rhonda's Company. Rhonda verbally a sufficient basis for
materially misleading is called
asserts to Jones that all expenses Jones to conclude
A) Information risk.
for the year have been recorded in that all expenses
B) Business risk.
the accounts. Rhonda's have been recorded.
C) Moral hazard.
representation in this regard
D) Client acceptance risk.
A) Is sufficient evidence for Jones to
conclude that the completeness 30. The Sarbanes-Oxley Act of 2002 d)All of the above.
assertion is supported for expenses. generally prohibits public accounting
B)Should be disregarded because it firms from
is not in writing. A) Acting in a managerial decision-
C) Can enable Jones to minimize the making role for an audit client.
work on the gathering of evidence B)Auditing the firm's own work on an
to support Rhonda's completeness audit client.
assertion. C)Providing tax consulting to an audit
D)Is not considered a sufficient basis client without audit committee
for Jones to conclude that all approval.
expenses have been recorded. D)All of the above.

25. Occurrence The assertion is that 31. The Sarbanes-Oxley Act of 2002 C) All of the above
disclosed prohibits public accounting firms from
transactions have providing which of the following
indeed occured. services to an audit client?
A) Bookkeeping services.
26. occurrence the assertion is that
B) Internal audit services.
recorded business
C) Valuation services.
transactions actually
C)All of the above.
took place.
32. To be proficient as an auditor, a
person must first be able to
accomplish which of these tasks in
a decision-making process?
A)Identify audit evidence
relevant to the verification of
assertions management makes in
its unaudited financial statements
and notes.
B)Formulate evidence-gathering
procedures (audit plan) designed
to obtain sufficient, competent
evidence about assertions
management makes in financial
statements and notes.
C)Recognize the financial
assertions made in management's
financial statements and
footnotes.
D)Evaluate the evidence
produced by the performance of
procedures and decide whether
management's assertions conform
to generally accepted accounting
principles and reality.
33. understandability
34. What is the term used to identify
the risk that the client's financial
statements may be materially
false and misleading?
A)Business risk
B)Information risk
C)Client risk
D)Risk assessment
35. What is the term used to identify
the risk that the client's financial
statements may be materially
false and misleading?
A) Business risk
B) Information risk
C) Client risk
D) Risk assessment
C) Recognize the 36.
financial assertions
made in management's
financial statements and
footnotes.
37.
38.
The assertion is that the
information included in
the financial statement
has been appropriately
presented and is clearly
understandable.
B) Information risk
39.
B)Information risk
What type of evidence would B) evidence obtained
provide the highest level of from independent
assurance in an attestation sources.
engagement?
A) Evidence secured solely from
within the entity B) B)Evidence
obtained from independent
sources C)Evidence obtained
indirectly
D)Evidence obtained from
multiple internal inquiries
When testing the completeness B)Potentially unrecorded
assertion for a liability account, items to the financial
an auditor ordinarily works from statements.
the
A) financial statements to the
potentially unrecorded items.
B) potentially unrecorded items
to the financial statements.
C) accounting records to the
supporting evidence.
D) trial balance to the subsidiary
ledger.
Which of the following best d)
describes the focus of the Financial statements
following engagements? Financial information
Any information
Auditing Engagement Advice and decision
Attestation Engagement support
Assurance Engagement
Consulting Services Engagement
Which of the following best a) Auditing is a subset of
describes the relationship attestation engagement
between auditing and attestation that focuses on the
engagements? certification of financial
A)Auditing is a subset of statements.
attestation engagements that
focuses on the certification of
financial statements.
B) Auditing is a subset of
attestation engagements that
focuses on providing clients with
advice and decision support.
C) Attestation is a subset of
auditing that provides lower
assurance than that provided by
an audit engagement.
D) Attestation is a subset of
auditing that improves the
quality of information or its
context for decision makers.
40. Which of the following is an underlying condition that in part creates the demand by users for reliable E)All of these
information?
A)Economic transactions that are numerous and complex
B) Decisions that are time-sensitive
C)Users separated from accounting records by distance and time
D)Financial decisions that are important to investors and users
E)All of these
41. Which of the following management assertions is an auditor most likely testing if the audit objective states D) inventory is
that all inventory on hand is reflected in the ending inventory balance? complete
A) The entity has rights to the inventory.
B) Inventory is properly valued.
C) Inventory is properly presented in the financial statements.
D)Inventory is complete.
42. Which of the following questions would be inappropriate for an auditor to ask a client when exhibiting an B)Which of your
appropriate level of professional skepticism while completing an audit procedure related to the internal employees is a
control system? fraudster?
A)What can go wrong in this process?
B)Which of your employees is a fraudster?
C)What else is important to know about this process? D)What happens when a key employee goes on
vacation?
43. Which of the following would be considered an assurance engagement ? E) all of the above
A) Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the
past.
B) Giving an opinion on the conformity of the financial statements of a university with generally accepted
accounting principles.
C) Giving an opinion on the fair presentation of a newspaper's circulation data.
D) Giving assurance about the average drive length achieved by golfers with a client's golf balls.
E) All of the above.