409 Exam 2

audit exam 2 Quiz
Circle the letter of the Answer that corresponds to the displayed Question.
1. An auditor selects items from the client's inventory listing and identifies the items
in the warehouse. This procedure is most likely related to:
A. provides strong evidence to existence and quality of inventory
B. True
C. designed to allow the more experienced team members to share insights and
exchange ideas about how and where the entity's financial statements might be
susceptible to material misstatement due to fraud, to discuss how to design
procedures
D. existence
2. An auditor's engagement letter most likely will include
A. management's acknowledgement of its responsibility for maintaining effective
internal control
B. HR policies and practices
C. practice of recording transfer as a deposit in one accounting period and as a
disbursement in a subsequent accounting period causing total cash to be inflated
D. refers to the process of assigning transactions occurring near the balance sheet
date to the proper accounting period
3. What is least likely to be required on an audit?
A.
B.
C.
D.
competence and objectivity

make a legal determination of whether fraud has occurred
determine the adequacy of internal control over cash
Overstatement because net income would be overstated also
4. General objective of observe the client's physical inventory

A. provides evidence to the existence assertion, establishes valuation, provide
evidence about cut off of purchases and sales
B. accounts receivable subsidiary ledger
C. understating the sales journal
D. custody of work in process and finished goods is properly maintained
5. Most of the independent auditor's work in formulating an opinion on financial
statements consists of
A.
B.
C.
D.
completeness
establishes existence, rights, and valuation, and provides evidence of cutoff
obtaining and examining evidence
the inference drawn from receiving no reply may not be correct
6. What is not an advantage of establishing an enterprise risk mgmt system within

an organization?
A. significant deficiencies and material weaknesses to mgmt and those charged
with governance
B. nature of services offered, qualifications of firm's personnel, anticipated fees
C. The controller should have control of the accounting functions and the treasurer
should ahve control of cash receipt functions.
D. eliminates all risks
7. purpose of bank transfer schedule
A. to trace bank transfers to disclose overstatement of cash balances resulting from
kiting
B. competence and objectivity
C. Are prelistings made of all cash receipts?
D. segregation of incompatible duties across several people
8. What is an audit confirmation request?
A. material error, material fraud, and certain illegal acts
B. existence
C. confirm the number of shares owned that are held by an independent custodian
D. written communication received by the auditors directly from a party outside the
client organization, affirms the existence of, and rights to, an amount recorded in
the client's accounting records
9. What would the auditors most likely perform to test controls relating to
management's assertion about the completeness of cash receipts for cash sales a
retail outlet?
A.
B.
C.
D.
cutoff bank statement, year end bank statement, bank confirmation

inspect the shipping records documenting the merchandise sold to debtors
preventative
observe the consistency of the employees' use of cash registers and tapes
10. Upon receipt of customer's checks in the mail room,a responsible employee
should prepare a remittance listing that is forwarded to the cashier. A copy of the
listing should be sent to the:
A. designed to disclose kiting whereby a check drawn on one bank is not recorded
as a disbursement as of the balance sheet date, although the deposit of the check
in another bank is properly recorded
B. designed to disclose kiting whereby a check drawn on one bank is not recorded

C. Review amounts of accounts which have been written off as uncollectible prior to
year end.
D. accounts receivable bookkeeper to update the subsidiary accounts receivable
records
Circle the letter of the Question that corresponds to the displayed Answer.
11. search for unrecorded liabilities
A. prior to the balance sheet date-interim period the auditor should
B. What procedure is least likely to be performed before the balance sheet date?
C. audit objective of confirming accounts receivable and notes receivable by direct
communication with debtors
D. a four column bank reconciliation will generally assist an auditor in detecting:
12. search for significant deficiencies in the operation of internal control
A. In obtaining an understanding of a nonissuer's internal control in a financial
statement audit, an auditor is not obligated to:
B. What is most likely to be presumed to represent a fraud risk on an audit?
C. Proper separation of duties reduces the opportunities for persons to be in
positions to both:
D. Audit evidence concerning the separation of duties ordinarily is best obtained by:
13. credit manager
A. B&M auditors have been accepted as the auditors of 3W. What are B&M's
responsibilities with regard to contacting 3W's predecessor auditors?
B. audit committee nature
C. functions of controller:
D. What employee should report to the CFO?
14. members of the board of directors who are not officers or employees
A. COSO
B. The best control to prevent lapping is
C. The audit committee of a company must be made of
D. What is least likely to be considered an inherent risk relating to receivables and
revenue?
15. access to securities requires the signatures and presence of 2 designated
officials
A. the objectives of internal control for a production cycle are to provide assurance
that transactions are properly executed and recorded and that:
B. It is important for the auditor to consider the competence of the audit client's
employees because their competence bears directly and importantly upon the:
C. What best describes what is meant by the term fraud risk factor?
D. What procedure is most likely to give the greatest assurance that securities held
as investments are safeguarded?
16. practice of recording transfer as a deposit in one accounting period and as a
A.
B.
C.
D.
Tests of controls do not address

Major controls over cash
pad a cash position:
Materiality can best be described as
17. the auditor must adequately plan the work and must properly supervise any
assistants
A. If the objective of an auditor's test of details is to detect a possible
understatement of sales, the auditor most likely would trace transactions from the:
C. Foreign Corrupt Practices Act of 1977
D. PCAOB first standard of field work
18. persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, seller's price is fixed or determinable, collectibility is
reasonably assured
A. What condition most likely would pose the greatest risk in accepting a new audit
engagement
B. major controls over accounts receivable
C. What is the criteria according to the SEC Staff Accounting Bulletin No. 104 that
must be met for revenue recognition?
D. What circumstance would permit an independent auditor to accept an
engagement after the close of the fiscal year?
19. theft of cash register sales
A. What is an example of misappropriation of of assets relating to sales?
B. What characteristics should an audit confirmation response possess if a CPA firm
is to consider it to be valid evidence?
C. tests of controls
D. Checks to replenish fund should be drawn payable to
20. bank or petty cash custodian
A. negative confirmation request
B. Checks to replenish fund should be drawn payable to
C. What would provide the most assurance concerning valuation of A/R?
D. What should not appear in an internal control questionnaire relating to cash

disbursements?
EXTRA CREDIT: Give the Answer that corresponds to the displayed
Question.
21. An auditor has accounted for a sequence of inventory tags and is now tracing
information on a representative number of tags to the inventory summary sheets.
Which assertion does this procedure relate to most directly?
1. auditor's responsibility for detection

A. perpetual inventory system
B. The controller should have control of the accounting functions and the treasurer
C. cannot obtain absolute assurance but only reasonable assurance that material
misstatements in the financial statements will be detected
D. report the finding to the appropriate representative of the client with the
recommendation that it be pursued to a conclusion
2. To gather evidence regarding the balance per bank reconciliation the auditors
would least likely examine:
A.
B.
C.
D.
the general ledger

material misstatements may exist in the financial statements
overriding controls or directing employees to carry out fraud
existence, completeness, and valuation
3. objectives of COSO
A. operating effectiveness
B. reliability of financial reporting, effectiveness and efficiency of operations,
compliance with applicable laws and regulations
C. determine the adequacy of internal control over cash
D. completeness
4. The primary purpose of procedures performed to obtain an understanding of
internal control in a financial statement audit is to provide an auditor with:
A. to determine that transactions were properly authorized and recorded and are
adequately disclosed in the financial statements
B. knowledge necessary to plan the audit
C. perpetual inventory system
D. obtaining an understanding of internal control, performing tests of controls,

performing substantive tests
5. auditor's responsibility for detecting fraud
A. observation and inquiry
B. client's business risk and CPA's business risk
C. handling cash and maintaining cash records, opening incoming mail, credit and
collection, reviewing and mailing customer statements, approval of adjustment
credits and write off of uncollectible accounts
D. to plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether caused by error or
fraud
6. What is required documentation in an audit in accordance with auditing
standards?
A. Are prelistings made of all cash receipts?
B. provided for internal control provisions that require all publicly held companies to
maintain an adequate system of internal control. violations of act can result in fines
up 1 mill and imprisonment of members of mgmt
C. An audit plan documenting the procedures to be used to reduce audit risk
D. several overpayments are made for goods received from a supplier
7. an auditor selected items for test counts while observing a client's physical
inventory. The auditor then traced the test counts to the client's inventory listing.
This procedure most likely obtained evidence of:
A. operating effectiveness
B. the auditor's responsibility for ensuring that those charged with governance are
aware of any significant deficiencies or material weaknesses in internal control that
come to the auditor's attention
C. completeness
D. human errors
8. tests of controls
A. internal control is strong
B. designed to proved the auditors with assurance that prescribed internal control
policies and procedures are in use and operating effectively
C. sales
D. may be answered without adequate thought give to question, questions may not
fit client's internal control structure
9. A local gas station has one clerk that accepts cash payments for gas and rings
them up on the cash register. What would be the best control to provide assurance
that the cashier isn't keeping some of the cash?
A. search for unrecorded liabilities

B. engagement letter
year end.
D. Compare cash register totals to a total that is automatically generated by each
gas pump
10. prior to the balance sheet date-interim period the auditor should
A. valuation
B. Responsibility for the performance of each duty must be fixed
C. auditors were not appointed by the client until after the physical inventory had
been taken.
D. test of internal controls, audit of assets and related accounts, record liabilities
11. all inventory owned by the client is on hand at the time of the count
A.
B.
C.
D.
In an audit of inventories, an auditor is least likely to verify that:

substantive procedures
negative confirmation request
purpose of bank transfer schedule
12. Kiting
A. A CPA's understanding of internal control in a financial statement audit of a
nonissuer:
B. The risk that the auditors will conclude, based on substantive procedures, that a
material misstatement does not exist when in fact such misstatement does exist is
referred to as:
C. Jones embezzeled $50,000 from his company's account in Bank A. At year end
he hid the shortage by making a deposit on 12/31 in Bank A, drawn on Bank B. He
has not recorded the transaction. This is an example of:
D. an auditor concluded that no excessive costs for an idle plant were charged to
inventory. This conclusion is most likely related to presentation and disclosure and:
13. detection risk
A. What factor most likely would cause an auditor to decline a new audit
engagement?
B. An auditor is most likely to inspect loan agreements under which an entity's
inventories are pledged to support management's financial statement assertions
about:
C. Functions of treasurer:
D. Adequate planning and design of an audit is necessary for an auditor to restrict
which type of audit risk?
14. cutoff bank statement, year end bank statement, bank confirmation
A. An auditor is most likely to learn of slow moving inventory through
B. What circumstance would an auditor most likely consider a risk factor relating to
misstatements arising from fraudulent financial reporting?
C. To gather evidence regarding the balance per bank reconciliation, an auditor
could examine all of the following:
D. type of control for monthly reconciliation of bank accounts
15. preparation is time consuming, weakness in structure is not always obvious
A. disadvantages of flowchart
B. What is the best protection for a company that wishes to prevent the lapping of
trade accounts receivable?
C. What are the 3 ways in which the auditors may respond to fraud risks in an
audit?
D. A proper separation of duties requires that an individual:
16. includes accounting systems and methods and records to record, process,
summarize, and report entity's transactions
A. Adequate planning and design of an audit is necessary for an auditor to restrict
B. objective of tracing all bank transfers during the last week of the audit year and
the first week of the following year
C. general objective: vouch selected purchases of securities to broker's advices
D. the accounting info system characteristics
17. used to determine the effectiveness of IC procedures are controls actually
working properly
A.
B.
C.
D.
type of control for management review of budget/actual information

tests of controls
the accounting info system includes
fraudulent financial reporting
18. designed to detect material misstatement in specific financial statement

amounts
B. An auditor is most likely to verify the interest earned on bond investments by
C. substantive procedures
D. Because of the risk of material misstatements due to fraud, an audit of financial
statements in accordance with auditing standards should be planned and performed
with an attitude of
19. Have customers send payments directly to the company's depository bank
A. What is the best protection for a company that wishes to prevent the lapping of
trade accounts receivable?
B. To provide assurance that each voucher is submitted and paid only once, the
auditors most likely would examine a sample of paid vouchers and determine
whether each voucher is:
C. Assertion and procedure for cost of inventories is properly calculated
D. If internal control is well designed, the same employee may be permitted to
20. stores or warehouse
A. misappropriation of assets
B. An auditor tests an entity's policy of obtaining credit approval before shipping
goods to customers in support of management's financial statement assertion of:
C. What circumstance would an auditor most likely consider a risk factor relating to
misstatements arising from fraudulent financial reporting?
D. To adequately provide for the segregation of duties, purchase requisitions should
be initiated by what department?
Question.
21. An auditor selects items from the client's inventory listing and identifies the
items in the warehouse. This procedure is most likely related to:
1. direction of testing
A. verify existence and completeness
B. the company trades or holds a large number of securities
C. prenumbered, voided should be defaced, protection machine should be used to
print amount, signers should be authorized by BOD, documents supporting should
be perforated
D. Are financial reporting operations controlled by and limited to one location?
2. primary objective of using a standard confirmation form to confirm account
balance information
A. consider the organizational level to which the internal auditors report the results
of their work
B. verify year end cash and liability balance information
C. obtaining and examining evidence
D. search for unrecorded liabilities
3. When documenting the understanding of a client's internal control, the

independent auditor sometimes uses a systems flowchart, which can best be
described as:
A. designed to detect material misstatements in the financial statements, consists
of analytical procedures and detail tests of transactions
B. to eliminate misunderstandings between the CPA firm and the client
C. management is interested in maintaining the entity's earnings trend by using
aggressive accounting practices
D. symbolic representation of a system or series of sequential processes
4. What is most likely to be an example of fraudulent financial reporting relating to
sales?
A.
B.
C.
D.
establish existence of assets, does not establish rights

recording sales when the customer is likely to return the goods
detailed list of procedures
reperformance
5. The auditors are concerned about source documents that reflect valid
transactions that have not been recorded in the journals. What procedure would be
most effective?
A. Vouch from journals to source documents
B. a letter from the auditors to company mgmt that specifies the responsibilities of
both the company and the auditors in completing the audit and the timing for its
completion
C. The billing dept supervisor matches prenumbered shipping documents with
entries in the sales journal
D. Responsibility for the performance of each duty must be fixed
6. Sound internal control procedures dictate that defective merchandise returned by
customers should be presented initially to the
A. valuation
B. receiving clerk
C. integrity and ethical values, management philosophy, active participation by
BOD and audit committee, assignment of authority and responsibility, HR policies
and procedures
D. human errors
7. If an independent audit leading to an opinion on financial statements causes the
auditor to believe that a material misstatement due to fraud exists they should first
A. audit procedures that are effective for detecting an error may be ineffective for
detecting fraud that is concealed through collusion
B. control environment
C. existence
D. consider the implications for other aspects of the audit and discuss the matter
with appropriate levels of mgmt
8. To test the effectiveness of controls an auditor ordinarily selects tests from a
variety of techniques including:
A. reperformance
B. inflated sales for the year
C. auditors were not appointed by the client until after the physical inventory had
been taken.
D. bill of lading
9. What would most likely reduce the risk of diversion of customer receipts by a
client's employees?
A.
B.
C.
D.
used to assess the quality of internal control over time

tour the client's facilities and review the general records
is responsible for mailing checks
a bank lock box system
10. What is confirmed on the standard form used for cash balances at financial
institutions?
A. intentional misstatements, omissions of amoutns or disclosures in the financial
statements
B. test controls for all significant accounts
C. loans payable
D. a combination of the 2 forms. positive used for large balances and negative used
for small balances
11. Avoidance
A. Management of Warren company has decided to respond to a particular risk by
hedging the risk with future contracts. This is an example of:
B. the accounting info system includes
C. disadvantages of questionnaire
D. What is most likely to be an example of fraudulent financial reporting relating to
sales?
12. knowledge necessary to determine the nature, timing, and extent of further
audit procedures
A. a primary objective of procedures performed to obtain an understanding of
internal control is to provide the auditors with
B. When outside firms of nonaccountants specializing in the taking of PI are used to

count, list , price and subsequently compute the total $ amt of inventory on hand,
the auditor will:
C. An auditor is most likely to inspect loan agreements under which an entity's
about:
D. auditor's responsibility for detection
13. request the client to schedule the physical inventory client to schedule the
physical inventory count at the end of the year
A. a client maintains perpetual inventory records in both quantities and dollars. If
the assessed risk of material misstatement is high, an auditor will probably:
B. In assessing whether to accept a client for an audit engagement, a CPA should
consider the
C. Purchase cutoff procedures should be designed to test whether all inventory:
D. In obtaining an understanding of a nonissuer's internal control in a financial
14. The CPA firm drafts the engagement letter which is signed by both
representatives of the CPA firm and client prior to beginning the engagement
A. It is important for the auditor to consider the competence of the audit client's
B. What is an audit confirmation request?
C. Who prepares engagement letter and when?
D. assessment based on expectation that controls are absent or unlikely to be
effective or evaluating effectiveness is not efficient results in
15. rights and obligations and existence
A. type of control for monthly reconciliation of bank accounts
B. 2 assertions for which confirmation of accounts provides primary evidence are:
C. What should be included as part of inventory costs of a manufacturing company?
D. The primary objective of tests of details of transactions performed as
substantive procedures is to:
16. valuation
A. Under what circumstances is observation of physical inventory impossible?
B. employees other than the a/r personnel should perform the following functions:
C. An auditor would most likely analyze inventory turnover rates to obtain evidence
about:
D. Which assertion relating to sales is most directly addressed when the auditors
compare a sample of shipping documents to related sales invoices?
17. age, turnover
A.
B.
C.
D.
after year end to audit report date the auditor should

lapping increases _______ and decreases ________
primary objective of preparing a four column proof of cash
objectivity
18. an unrecorded deposit made at the beginning of the month, the amount was
withdrawn late in the month again with no book entry
A. What are the purposes of the consideration of IC required by GAAS?
B. a four column bank reconciliation will generally assist an auditor in detecting:
C. To determine that all sales have been recorded, the auditors would select a
sample of transactions from the:
D. controls over financial reporting
19. valuation
A. In testing controls over cash disbursements, the auditors most likely would
determine that the person who signs checks also:
B. tracing from source documents to journals most directly addresses which
financial statement assertion?
C. an auditor concluded that no excessive costs for an idle plant were charged to
D. If internal control is well designed, the same employee may be permitted to
20. a bank transfer schedule
A. the most practical and effective audit procedure for detecting lapping is
B. What procedure or document is most effective for detecting kiting?
C. In obtaining an understanding of a nonissuer's internal control in a financial
D. methods of documentation
Question.
21. type of control for supervisory approval of time cards
1. With respect to the auditor's planning of a year-end audit, what statement is

always true?
kiting
B. integrity and ethical values
C. observing the employees as they apply specific controls
D. It is an acceptable practice to carry out part of the audit at interim dates
2. type of control for monthly reconciliation of bank accounts

A. the auditor's responsibility for ensuring that those charged with governance are
B. want the client to schedule the physical inventory count at the end of the year
C. rights and obligations; select a sample of recorded items and examine
supporting vendors invoices and contracts
D. detective
3. As part of the understanding internal control in planning an audit of a nonissuer,
an auditor does not need to:
A. It is an acceptable practice to carry out part of the audit at interim dates
B. the auditor's responsibility for ensuring that those charged with governance are
C. obtain knowledge about the operating effectiveness of internal control
D. concealment of cash shortage by delaying the proper recording of payments to a
customers account
4. What would least likely be considered an objective of internal control?
A. procedures to help ensure that mgmt directives are carried out
B. detecting mgmt fraud
C. Observe merchandise and raw materials during the client's physical inventory
taking
D. valuation
5. what is least likely to be a test of controls
A. exam for proper cut off of revenues and expenses and complete testing of
internal controls and assets
B. observation of confirmations
C. preparing bank reconciliations
D. Review amounts of accounts which have been written off as uncollectible prior to
year end.
6. Assertion and procedure for recorded inventory quantities include all products on
hand
A. detective
C. may be answered without adequate thought give to question, questions may not
fit client's internal control structure
D. completeness and cutoff; select a sample of items during the physical inventory
count and determine that they have been included on count sheets

B. search for unrecorded liabilities
C. because the danger that fictitious inventory tags might be created by dishonest
client personnel after the auditors have completed their observation of the physical
inventory
D. conceals cash shortage in bank, transfer brings account into agreement with
books
8. primary objective of obtaining bank cutoff statements
A. prior year checks listed in the cutoff statement to the year end outstanding
checklist
B. verify reconciling items on the year end bank reconciliation
C. petty cash requirements
D. prenumbered, voided should be defaced, protection machine should be used to
print amount, signers should be authorized by BOD, documents supporting should
be perforated
9. What is a step in an auditor's decision to rely on the internal controls?
A. substitution
B. refers to the process of assigning transactions occurring near the balance sheet
C. to determine whether the financial statements fairly reflect the financial position,
operating results, and cash flows of the business
D. identify specific controls that are likely to detect or prevent material
misstatements and perform tests of controls
10. There is a presumption that auditors will confirm A/R unless the auditors
assessment of material misstatement is low and
A. accounts receivable are immaterial, or the use of confirmations would be
ineffective
B. more efficient manner
C. confirm a/r on a surprise basis using positive confirmation, compare customer
remittance advices, verify propriety of noncash credits to AR, perform surprise
inspection of deposits, foot cash receipts journal, reconcile balance per customer
D. its quality has a major effect on the nature, timing, and extent and nature of the
audit procedures necessary to complete the audit.
11. integrity and ethical values, management philosophy, active participation by

BOD and audit committee, assignment of authority and responsibility, HR policies
and procedures
A. lapping
B. Internal control can provide only reasonable assurance of achieving entity
objectives. One factor limiting the likelihood of achieving those objectives in a small
entity is that:
C. objectivity
D. the control environment includes
12. more evidence is needed to evaluate effectiveness of design and operations of
IC, auditor conducts tests of controls to evaluate effectiveness of controls, then
evaluates results and reassess control risks, then develops substantive tests
A. Use analytical procedures to calculate the
B. Foreign Corrupt Practices Act of 1977
C. assessment based on expectations that control procedures have been designed
to detect or prevent material misstatements, assessed level at which reliance may
be tentatively placed on IC as a result:
D. Jones embezzeled $50,000 from his company's account in Bank A. At year end
13. authorization from company official
A. Assertion and procedure for the entity has legal title to inventories
B. the objectives of internal control for a production cycle are to provide assurance
C. writeoffs of uncollectible notes or accounts receivable should require prior:
D. objectives of observing taking of inventory
14. HR policies and practices
A. kiting
B. What is considered an environmental control factor?
C. risk assessment includes
D. general objective of locate on the client's premises a sample of equipment items
listed in the subsidiary plan and equipment ledger
15. the detailed plan of audit procedures to be performed in the course of the audit
A. The risk that the auditors will conclude, based on substantive procedures, that a
referred to as:
B. an auditor is required to establish an understanding with the client regarding the
services to be performed for each engagement. This understanding generally
includes:
C. An audit program is
D. When perpetual inventory records are maintained, is it necessary for a physical
inventory to be taken at the balance sheet date?
16. report the finding to the appropriate representative of the client with the
A. An auditor most likely would make inquiries of production and sales personnel
concerning possible obsolete inventory to address:
B. Moor, CPA, discovers a likely fraud during an audit but concludes that its effects,
if any, could cont be so material as to affect the opinion. Moor should:
C. control activities includes
D. type of control for dual signatures for checks
17. detective
A. type of control for annual physical inventory
B. risk assessment includes
C. When perpetual inventory records are maintained, is it necessary for a physical
D. monitoring includes
18. accounts receivable bookkeeper to update the subsidiary accounts receivable
records
A. components of internal control
B. The results of the consideration of internal control are least likely to affect the
auditors' decision pertaining to:
C. Who prepares engagement letter and when?
D. Upon receipt of customer's checks in the mail room,a responsible employee
19. reliability of financial reporting, effectiveness and efficiency of operations,
A. What is the control that is most likely to prevent the concealment of a cash
shortage resulting from the improper write off of a trade account receivable
B. objectives of COSO
C. What statement describes why a properly planned and performed audit may not
detect a material misstatement due to fraud?
D. type of control for annual physical inventory
20. petty cash requirements
A. type of control for monthly reconciliation of bank accounts

B. What employee should report to the CFO?
C. an auditor ordinarily should request to review the predecessor's audit
documentation relating to
D. Imprest system should be used for
Question.
21. When the auditors discover an overstatement of accounts payable, they would
most likely also expect to find an overstatement of:
1. If the objective of an auditor's test of details is to detect a possible

A. mgmt review of weekly performance reports
B. Verify the company owns the security, check the accuracy of the accrual, and
require no adjustment
C. shipping documents to the sales invoices
D. over recorded sales due to a lack of control over the sales entry function
2. What is most likely to be an overall response to fraud risks identified in an audit?
A. completeness and cutoff; select a sample of items during the physical inventory
B. integrity of management, disagreements of predecessor auditor with
management as to acct principles, auditing procedures, and reason for changing
auditors
C. recording of fictitious contracts with customers and recording revenue before a
contract is executed
D. Use less predictable audit procedures
3. In assessing whether to accept a client for an audit engagement, a CPA should
consider the
A. reperformance
B. accounts receivable bookkeeper to update the subsidiary accounts receivable
records
C. completeness
D. client's business risk and CPA's business risk
4. Internal control is a function of management, and effective control is based upon
the concept of charge and discharge of responsibility and duty. What is one of the
overriding principles of internal control?
A. intentional misstatements, omissions of amoutns or disclosures in the financial

statements
B. Responsibility for the performance of each duty must be fixed
C. Vouch from journals to source documents
D. completeness
5. When the auditors are performing a first time internal control audit in accordance
with the SOX act and PCAOB standards they must:
A.
B.
C.
D.
human errors
search for unrecorded liabilities
test controls for all significant accounts
aimed at avoiding the occurrence of misstatements in financial statements
6. auditor's responsibility for detecting fraud

A. send additional requests with return receipt requested, telephone to ascertain
the balance or the reason for failure to respond, examine the duplicate invoices,
shipping records, purchase orders, and any payments made subsequent bs date
B. a letter from the auditors to company mgmt that specifies the responsibilities of
completion
C. facts that might bear on the integrity of mgmt
fraud
7. component for management surveys customers about their satisfaction with the
company's service
A. checks dated prior to year end to the outstanding checks listed on the year end
bank reconciliation
B. monitoring
C. suggest the auditor obtain the client's permission to discuss the reasons
D. want the client to schedule the physical inventory count at the end of the year
8. type of control for segregation of duties over purchasing
A. preventative
B. used to determine the effectiveness of IC procedures are controls actually
working properly
C. orders from customers should be recorded and reviewed by as sales order dept,
numerically controlled sales orders should be prepared for all orders received,
orders should be approved by credit dept
D. An auditor should design the audit to provide reasonable assurance of detecting
errors and fraud that are material to the financial statements
9. inherent limitations of internal control

A. effective separation of duties may not be feasible.
B. misunderstanding of instructions, mistakes by judgment, mistakes caused by
carelessness, distraction, or fatigue, sep of duties circumvented by collusion, mgmt
override of internal control
C. fraudulent financial reporting and misappropriation of assets
D. knowledge necessary to plan the audit
10. An auditor would most likely analyze inventory turnover rates to obtain evidence
about:
A. may agree to report control deficiencies that are significant as well as other
matters to mgmt and the BOD
B. valuation
C. previous experience with the entity, inquiries of appropriate mgmt and staff,
inspection of documents and records, observation of entity's activities and
operations
D. True
11. valuation
A. As part of the understanding internal control in planning an audit of a nonissuer,
B. A security owned by a company is from another company that recently declared
bankruptcy. What is the auditor's primary concern with the investment?
C. The auditors are concerned about transactions that have been recorded in the
journals that are not valid. Which procedure would be most effective?
D. In obtaining an understanding of a nonissuer's internal control in a financial
12. its quality has a major effect on the nature, timing, and extent and nature of the
audit procedures necessary to complete the audit.
A. An internal control questionnaire indicates that an approved receiving report is
required to accompany every check request for payment of merch. What procedure
provides the greatest assurance that this control is operating effectively?
B. What are the purposes of the consideration of IC required by GAAS?
C. If the independent auditor decides that it is efficient to consider how the work
performed by the internal auditors may affect the nature, timing, and extent of
audit procedures, they should assess the internal auditors':
D. In designing written audit plans, an auditor should select specific audit
procedures that relate primarily to the
13. periodic inventory counts are used to adjust the perpetual inventory records
A. What control most likely would be used to maintain accurate inventory records?
B. an auditor concluded that no excessive costs for an idle plant were charged to
C. Why is the observation of physical inventory a mandatory auditing procedure?
D. existence, rights
14. prevent reuse
A. Purchase cutoff procedures should be designed to test whether all inventory:
B. Tracing copies of shipping documents to sales invoices will provide evidence that
all:
C. a primary objective of procedures performed to obtain an understanding of
internal control is to provide the auditors with
D. Documents supporting petty cash requirements should perforated to
15. designed to detect material misstatements in the financial statements, consists
A. Tracing from source documents to journals most directly tests
B. substantive tests
C. The accounting functions and the cash receipts functions should be handled by
which departments?
D. an auditor ordinarily should request to review the predecessor's audit
documentation relating to
16. checks dated prior to year end to the outstanding checks listed on the year end
bank reconciliation
A. a primary use by the auditor of a bank cutoff statement is to compare:
B. What best describes what is meant by the term fraud risk factor?
C. The best control to prevent lapping is
D. Upon receipt of customer's checks in the mail room,a responsible employee
17. It is an acceptable practice to carry out part of the audit at interim dates
A. With respect to the auditor's planning of a year-end audit, what statement is
always true?
B. An entity's ongoing monitoring activities include:
C. If an independent audit leading to an opinion on financial statements causes the
D. Early appointment of the auditor enables preliminary work to be performed by
the auditor that benefits the client because it permits the audit to be performed in a
18. age of accounts receivable and the turnover of accounts receivable
A. What is meant by making a proper year end cut off?

B. Use analytical procedures to calculate the
C. In testing controls over cash disbursements, the auditors most likely would
determine that the person who signs checks also:
D. component for management periodically evaluates the threats to preparing
reliable financial statements
19. True
A. tracing from source documents to journals most directly addresses which
financial statement assertion?
B. What is meant by making a proper year end cut off?
C. Confirmation in writing from the holder of the note is ordinarily considered as an
acceptable alternative to inspection of the note. True or false?
D. When the work performed by internal auditors may have an effect on the nature,
timing, and extent of the CPA's procedures, the CPA should consider the
competence and objectivity of the internal auditors. Relative to objectivity, the CPA
should:
20. Review amounts of accounts which have been written off as uncollectible prior
to year end.
A. What is considered an environmental control factor?
B. An auditor is auditing year 2 of a new client. The auditor did not observe the
counting of year 1 ending inventory and has ? ab the validity of the year 1
beginning inventory figure. inventory is material. the auditor will:
C. an auditor confirm a representative number of open accounts receivable as of
12/31 and investigates respondents' exceptions and comments. by this procedure,
the auditor is most likely to learn what?
D. What procedure is least likely to help auditors to assess the adequacy of
management's accounting estimate of the allowance for doubtful accounts?
Question.
21. To test the effectiveness of controls an auditor ordinarily selects tests from a
1. In assessing the competence and objectivity of an entity's internal auditor, an

independent auditor is least likely to consider information obtained from:
A.
B.
C.
D.
inherent risk
existence
want the client to schedule the physical inventory count at the end of the year
the results of analytical procedures
2. the organization established by congress to narrow the options in cost accounting

that are available under generally accepted account principles is the:
A. theft of an entity's assets also referred to as defalcations committed usually by
employees against the entity
B. to the auditor's office
C. Cost Accounting Standards Board
D. intentional misstatements, omissions of amoutns or disclosures in the financial
statements
3. The auditors suspect that a client's cashier is misappropriating cash receipts for
personal use by lapping customer checks received in the mail. In attempting to
uncover the embezzlement scheme, the auditors most likely would compare the:
A. handling cash and maintaining cash records, opening incoming mail, credit and
collection, reviewing and mailing customer statements, approval of adjustment
credits and write off of uncollectible accounts
B. cash is properly classified and adequately disclosed in financial statements
C. details of the bank deposit slips with details of credits to customer accounts
D. cannot obtain absolute assurance but only reasonable assurance that material
4. An audit plan is
A. designed to detect material misstatements in the financial statements, consists
B. The auditor's judgement
C. respond fully to successor's inquiries because of the confidential client
relationship
D. documentation that provides an overview of the company and a general plan for
the audit work to be accomplished, timing of the work, and other matters of concern
to the audit
5. Moor, CPA, discovers a likely fraud during an audit but concludes that its effects,
if any, could cont be so material as to affect the opinion. Moor should:
A. detection risk
B. preparation of a shipping document
C. report the finding to the appropriate representative of the client with the
D. Are prelistings made of all cash receipts?
6. When perpetual inventory records are maintained, is it necessary for a physical
A. a physical inventory at least once a year is generally essential regardless of
whether perpetual inventories are maintained.
B. auditor documents conclusion and goes to extensive substantive testing does

not perform test of controls
C. symbolic representation of a system or series of sequential processes
D. risk assessment
7. monitoring includes
A. continuous monitoring of customer complaints, reviewing reasonableness of
mgmt reports, periodic audits by internal auditors
B. completeness
C. determine the adequacy of internal control over cash
D. several overpayments are made for goods received from a supplier
8. COSO
A. management may establish appropriate controls but not act on them
B. to aid corporate mgmt in efficient administration by investigating and reporting
upon compliance with company policies, reliability of acct and statistical records
and reports, adequacy of IC, efficiency of operating procedures
C. maintains accounting records, reconciles bank statements, etc. never handles
cash
D. a process designed to provide reasonable assurance regarding the achievement
of objectives
9. The accounting functions and the cash receipts functions should be handled by
which departments?
A. The controller should have control of the accounting functions and the treasurer
B. reliability of financial reporting, effectiveness and efficiency of operations,
C. obtain knowledge about the operating effectiveness of internal control
D. the planned assessed level of control risk
10. Controls over financial reporting are often classified as preventative, detective,
or corrective. What would be an example of a detective control?
A.
B.
C.
D.
preparing bank reconciliations

the detailed plan of audit procedures to be performed in the course of the audit
valuation
the results of analytical procedures
11. management's acknowledgement of its responsibility for maintaining effective
internal control
A.
B.
C.
D.
audit committee nature

An auditor's engagement letter most likely will include
procedures for detecting lapping
What employee should report to the CFO?
12. existence or occurrence

A. The best way to verify the amounts of dividend revenue received during the year
is:
B. A secondary result of the auditor's understanding of internal control in an audit
of nonissuer's financial statements is that the understanding may:
C. the organization established by congress to narrow the options in cost
accounting that are available under generally accepted account principles is the:
D. An auditor observes the mailing of monthly statements to a client's customers
and reviews evidence of followup on errors reported by the customers. This test of
controls most likely is performed to support mgmt's financial statement assertions
of:
13. provides strong evidence to existence and quality of inventory
A. Why is the observation of physical inventory a mandatory auditing procedure?
B. What is the purpose of the team meeting on fraud risk?
C. component for entry into the warehouse is strictly controlled by security
personnel
D. an auditor concluded that no excessive costs for an idle plant were charged to
14. sales
A. At the completion of the audit, the auditors are least likely to know
B. What is least likely to be considered an inherent risk relating to receivables and
revenue?
C. What is most likely to be an example of fraudulent financial reporting relating to
sales?
D. a client's physical count of inventories was lower than the inventory quantities
per the perpetual records. This situation could be the result of the failure to record:
15. mgmt review of weekly performance reports
A. What is the criteria according to the SEC Staff Accounting Bulletin No. 104 that
B. What would not be considered an inherent limitation of the potential
effectiveness of an entity's internal control?
C. Risk assessment characteristics
D. An entity's ongoing monitoring activities include:
16. Responsibility for the performance of each duty must be fixed
A. The best control to prevent lapping is

B. An auditor may compensate for a weakness in internal control by increasing the
extent of
C. When the work performed by internal auditors may have an effect on the nature,
timing, and extent of the CPA's procedures, the CPA should consider the
competence and objectivity of the internal auditors. Relative to objectivity, the CPA
should:
D. Internal control is a function of management, and effective control is based upon
the concept of charge and discharge of responsibility and duty. What is one of the
overriding principles of internal control?
17. auditors were not appointed by the client until after the physical inventory had
been taken.
A. general objective: vouch selected purchases of securities to broker's advices
B. concealment of a cash shortage:
C. Which assertion relating to sales is most directly addressed when the auditors
compare a sample of shipping documents to related sales invoices?
D. Under what circumstances is observation of physical inventory impossible?
18. Verify the company owns the security, check the accuracy of the accrual, and
A. What control most likely would be used to maintain accurate inventory records?
B. AU 311, Planning and Supervision, states that the auditor should establish an
overall audit strategy and an audit plan. What audit standard is most closely related
to this requirement?
C. A company owns a large amount of debt securities that pay interest twice a year.
On the financial statements the company accrued the 5 months of interest it was
due as interest receivable. The auditor should:
D. Adequate planning and design of an audit is necessary for an auditor to restrict
19. accounts are collected by the balance sheet date
A. primary objective of preparing a four column proof of cash
B. Confirmation in writing from the holder of the note is ordinarily considered as an
C. For what purposes do the auditors make and record test counts of inventory
quantities during their observation of the taking of the physical inventory?
D. An inappropriate audit procedure relative to accounts receivable is to determine
that the
20. control activities
A. What procedure is least likely to be performed before the balance sheet date?
B. component for invoices are reviewed for accuracy before they are mailed to
customers
C. When the auditors are performing a first time internal control audit in
accordance with the SOX act and PCAOB standards they must:
D. What should be included as part of inventory costs of a manufacturing
company?
Question.
1. primary objective of using a standard confirmation form to confirm account

balance information
A. factors often observed in circumstances where frauds have occurred
C. an unrecorded deposit made at the beginning of the month, the amount was
D. work performed by internal auditors may be a factor in determining the nature
timing and extent of the independent auditor's procedures
2. When scheduling audit work, the auditor's are most likely to confirm accounts
receivable balances at an interim date if
A. integrity and ethical values
B. accounts receivable bookkeeper to update the subsidiary accounts receivable
records
C. because the danger that fictitious inventory tags might be created by dishonest
inventory
D. internal control is strong
3. What should be included as part of inventory costs of a manufacturing company?
A. systems approach focuses on testing controls to make sure they are effective,
while the substantive approach is the detailed testing of specific accounts for
accuracy
B. direct labor, raw materials, and factory overhead
C. tailor made for engagement, requires a detailed analysis and thus forces auditor
to understand functioning of internal control
D. used to establish written understanding with the client regarding the services to
be performed, including the objectives of engagement, mgmt responsibilities, the
auditors responsibilities, and limitations of engagement
4. The best way to verify the amounts of dividend revenue received during the year
is:
A. the inference drawn from receiving no reply may not be correct
B. continuous monitoring of customer complaints, reviewing reasonableness of
mgmt reports, periodic audits by internal auditors
C. Verify the company owns the security, check the accuracy of the accrual, and
D. verification by reference to dividend record books
5. What is least likely to be included in an auditor's inquiry of mgmt while obtaining
info to identify the risks of material misstatement due to fraud?
A.
B.
C.
D.
members of the board of directors who are not officers or employees

inflated sales for the year
Are financial reporting operations controlled by and limited to one location?
monitoring
6. What element underlies the application of generally accepted auditing standards,

particularly the standards of fieldwork and reporting
A. materiality and audit risk
B. The controller should have control of the accounting functions and the treasurer
C. True
D. quality of the internal auditor's documentation
7. Materiality can best be described as
A. The billing dept supervisor matches prenumbered shipping documents with
entries in the sales journal
B. identify related party transactions

C. the amount at which judgments based on the financial statements may be
altered
D. inquiries of client vendors
8. components of internal control
A. completeness and cutoff; select a sample of items during the physical inventory
B. trace from source documents to journals
C. actual control risk
D. the control environment, risk assessment, accounting info system, control
activities, and monitoring
9. advantages of questionnaire
A. permits the examination of many checks listed as outstanding in the bank
reconciliation and establishes a collectibility of customer checks included in
undeposited receipts on the balance sheet date
B. misunderstanding of instructions, mistakes by judgment, mistakes caused by
carelessness, distraction, or fatigue, sep of duties circumvented by collusion, mgmt
override of internal control
C. easy to complete, comprehensive list of questions makes it unlikely that
important portions of internal control will be overlooked
fraud
10. competence
A.
B.
C.
D.
separation of recordkeeping for receivables from custody of cash

evaluate whether controls operated effectively
education level, professional experience, and professional certifications
Are prelistings made of all cash receipts?
11. assessing the allowance for uncollectible accounts for reasonableness
A. Tracing copies of shipping documents to sales invoices will provide evidence that
all:
B. Assertion and procedure for the major categories of inventories and their basis of
valuation are adequately reported in the financial statements
C. Tests of controls are used to test whether controls are:
D. What would most likely give the most assurance concerning the valuation
assertion about accounts receivable?
12. Verify the company owns the security, check the accuracy of the accrual, and
A. To test the effectiveness of controls an auditor ordinarily selects tests from a
B. A company owns a large amount of debt securities that pay interest twice a year.
On the financial statements the company accrued the 5 months of interest it was
due as interest receivable. The auditor should:
C. An auditor is auditing year 2 of a new client. The auditor did not observe the
D. substantive tests
13. sales of merchandise are improperly billed to customers prior to delivery, with
the goods being held by the seller. overstate revenues and net income
A. There is a presumption that auditors will confirm A/R unless the auditors
assessment of material misstatement is low and
B. What is meant by a "bill and hold" scheme?
C. Vouching from journals to source documents most directly tests:
D. auditor's responsibility for detection
14. valuation
A. what is not an assertion tested in an audit of trading securities?
B. general objective of obtain a listing of inventory and reconcile the total to the
general ledger
C. the control environment includes
D. In assessing the competence and objectivity of an entity's internal auditor, an
independent auditor is least likely to consider information obtained from:
15. well kept records of perpetual inventory are maintained
A. A washing machine manufacturer puts bar codes on all boxes containing
washing machines. The bar codes are scanned prior to shipping. This is indicative of
what type of system?
B. Instead of taking a physical inventory count on the balance sheet date, the client
may take physical counts prior to the year end of internal control is adequate and:
C. objectives of COSO
D. If the perpetual inventory records show lower quantities of inventory than the
physical count, an explanation of the difference might be unrecorded
16. how controls were originated
A. Use analytical procedures to calculate the
B. Tests of controls do not address
positions to both:
D. The auditors are concerned about transactions that have been recorded for
improper amounts. Which procedure would be most effective?
17. The auditor must adequately plan the work and must properly supervise any
assistants
A. 2 assertions for which confirmation of accounts provides primary evidence are:
B. tests of controls
C. To gather evidence regarding the balance per bank reconciliation, an auditor
D. AU 311, Planning and Supervision, states that the auditor should establish an
18. detection risk
A. The scope and nature of an auditor's contractual obligation to a client is
ordinarily set forth in the
B. The risk that the auditors will conclude, based on substantive procedures, that a
referred to as:
C. What is one of the most conclusive forms of evidence in establishing the
existence of accounts receivable?
D. Proper authorization of write offs of uncollectible accounts should be approved in
which department?
A. What are the 3 ways in which the auditors may respond to fraud risks in an
audit?
B. auditor's responsibility for detecting fraud
C. To adequately provide for the segregation of duties, purchase requisitions should
D. purpose of bank transfer schedule
20. purchased and received before year end was recorded
A. During the audit of financial statements, an internal auditor may provide direct
assistance to an independent CPA in:
B. The primary purpose of procedures performed to obtain an understanding of
internal control in a financial statement audit is to provide an auditor with:
C. Purchase cutoff procedures should be designed to test whether all inventory:
D. type of control for supervisory approval of time cards
Question.
21. Tracing from source documents to journals most directly tests
An auditor selects items from the client's inventory listing and identifies the items in
the warehouse. This procedure is most likely related to:
A. provides strong evidence to existence and quality of inventory
B. True
C. designed to allow the more experienced team members to share insights and
procedures
D. existence
2. An auditor's engagement letter most likely will include
A. management's acknowledgement of its responsibility for maintaining effective
internal control
B. HR policies and practices
C. practice of recording transfer as a deposit in one accounting period and as a
3. What is least likely to be required on an audit?
A.
B.
C.
D.
competence and objectivity

make a legal determination of whether fraud has occurred
determine the adequacy of internal control over cash
Overstatement because net income would be overstated also

B. accounts receivable subsidiary ledger
C. understating the sales journal
D. custody of work in process and finished goods is properly maintained
5. Most of the independent auditor's work in formulating an opinion on financial
A.
B.
C.
D.
completeness
establishes existence, rights, and valuation, and provides evidence of cutoff
obtaining and examining evidence
the inference drawn from receiving no reply may not be correct
6. What is not an advantage of establishing an enterprise risk mgmt system within

an organization?
A. significant deficiencies and material weaknesses to mgmt and those charged
with governance
B. nature of services offered, qualifications of firm's personnel, anticipated fees
C. The controller should have control of the accounting functions and the treasurer
D. eliminates all risks
7. purpose of bank transfer schedule
kiting
B. competence and objectivity
C. Are prelistings made of all cash receipts?
D. segregation of incompatible duties across several people
8. What is an audit confirmation request?
A. material error, material fraud, and certain illegal acts
B. existence
C. confirm the number of shares owned that are held by an independent custodian
D. written communication received by the auditors directly from a party outside the
client organization, affirms the existence of, and rights to, an amount recorded in
the client's accounting records
9. What would the auditors most likely perform to test controls relating to
management's assertion about the completeness of cash receipts for cash sales a
retail outlet?
A.
B.
C.
D.
cutoff bank statement, year end bank statement, bank confirmation

inspect the shipping records documenting the merchandise sold to debtors
preventative
observe the consistency of the employees' use of cash registers and tapes
10. Upon receipt of customer's checks in the mail room,a responsible employee
B. designed to disclose kiting whereby a check drawn on one bank is not recorded
year end.
D. accounts receivable bookkeeper to update the subsidiary accounts receivable
records
11. search for unrecorded liabilities
B. What procedure is least likely to be performed before the balance sheet date?
C. audit objective of confirming accounts receivable and notes receivable by direct
communication with debtors
D. a four column bank reconciliation will generally assist an auditor in detecting:
12. search for significant deficiencies in the operation of internal control
B. What is most likely to be presumed to represent a fraud risk on an audit?
positions to both:
D. Audit evidence concerning the separation of duties ordinarily is best obtained by:
13. credit manager
A. B&M auditors have been accepted as the auditors of 3W. What are B&M's
responsibilities with regard to contacting 3W's predecessor auditors?
B. audit committee nature
C. functions of controller:
D. What employee should report to the CFO?
14. members of the board of directors who are not officers or employees
A. COSO
C. The audit committee of a company must be made of
revenue?
15. access to securities requires the signatures and presence of 2 designated
officials
A. the objectives of internal control for a production cycle are to provide assurance
B. It is important for the auditor to consider the competence of the audit client's
C. What best describes what is meant by the term fraud risk factor?
D. What procedure is most likely to give the greatest assurance that securities held
as investments are safeguarded?
16. practice of recording transfer as a deposit in one accounting period and as a
A.
B.
C.
D.
Tests of controls do not address

Major controls over cash
pad a cash position:
Materiality can best be described as
17. the auditor must adequately plan the work and must properly supervise any
assistants
A. If the objective of an auditor's test of details is to detect a possible
C. Foreign Corrupt Practices Act of 1977
D. PCAOB first standard of field work
18. persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, seller's price is fixed or determinable, collectibility is
reasonably assured
A. What condition most likely would pose the greatest risk in accepting a new audit
engagement
B. major controls over accounts receivable
C. What is the criteria according to the SEC Staff Accounting Bulletin No. 104 that
D. What circumstance would permit an independent auditor to accept an
19. theft of cash register sales
A. What is an example of misappropriation of of assets relating to sales?
B. What characteristics should an audit confirmation response possess if a CPA firm
is to consider it to be valid evidence?
C. tests of controls
D. Checks to replenish fund should be drawn payable to
20. bank or petty cash custodian
A. negative confirmation request
B. Checks to replenish fund should be drawn payable to
C. What would provide the most assurance concerning valuation of A/R?
D. What should not appear in an internal control questionnaire relating to cash
disbursements?

Question.
1. Tests of controls do not address
A. subcommittee of BOD, at least 3 independent outside directors, should not
receive consulting, advisory, or other compensation from company, must be
financially literate
B. perpetrate and conceal errors or fraud
C. discover misstatements after they have occurred
D. how controls were originated
2. The auditors suspect that a client's cashier is misappropriating cash receipts for
personal use by lapping customer checks received in the mail. In attempting to
uncover the embezzlement scheme, the auditors most likely would compare the:
A. integrity and ethical values
B. direct participation by the owner in key record keeping and control activities of
the business
C. It is an acceptable practice to carry out part of the audit at interim dates
D. details of the bank deposit slips with details of credits to customer accounts
3. audit plan
A. confirm the number of shares owned that are held by an independent custodian
B. make inquiries of the predecessor auditor after obtaining the consent of the
prospective client
C. an overview of the engagement outlines the nature and characteristics of the
client, its environment and the overall audit strategy
D. risk assessment
4. What procedure is least likely to help auditors to assess the adequacy of
management's accounting estimate of the allowance for doubtful accounts?
A. valuation
B. Review amounts of accounts which have been written off as uncollectible prior to
year end.
C. fraudulent financial reporting and misappropriation of assets
D. missappropriate assets
5. control
A. Checks should be sequentially numbered and the numerical sequence should be

accounted for by the person preparing bank reconciliations
B. access to securities requires the signatures and presence of 2 designated
officials
C. more efficient manner
D. determine the adequacy of internal control over cash
6. objectives of observing taking of inventory
A. receiving clerk
B. determine credibility of inventory quantities, observe that quantity information is
correct, quality or condition of inventory, personnel adherence to instruction s for
taking inventory, adequacy of storage facilities
C. sales of merchandise are improperly billed to customers prior to delivery, with
D. systems approach focuses on testing controls to make sure they are effective,
while the substantive approach is the detailed testing of specific accounts for
accuracy
7. Proper authorization of write offs of uncollectible accounts should be approved in
which department?
A. CFO
B. concealment of cash shortage by delaying the proper recording of payments to a
customers account
C. cutoff bank statement, year end bank statement, bank confirmation
D. reliability of financial reporting, effectiveness and efficiency of operations,
8. Hall company had large amounts of funds to invest on a temporary basis. The
BOD decided to purchase securities and derivatives and assigned the future
purchase and sale decisions to a responsible financial executive. The best person:
A. more efficient manner
B. an investment committee of the BOD
C. subcommittee of BOD, at least 3 independent outside directors, should not
receive consulting, advisory, or other compensation from company, must be
financially literate
9. to test the existence assertion for recorded receivables, the auditors would select
a sample from the
A. separate ledger
B. a graphic representation of internal control structure, unlikely that important
portions of internal control will be overlooked, avoids long wording description

C. verify year end cash and liability balance information
D. accounts receivable subsidiary ledger
10. A client's physical count of inventories was higher than the inventory quantities
per the perpetual records. This situation could be the result of the failure to record:
A. an unrecorded deposit made at the beginning of the month, the amount was
B. includes accounting systems and methods and records to record, process,
summarize, and report entity's transactions
C. purchases
D. checks dated prior to year end to the outstanding checks listed on the year end
bank reconciliation
11. chart of accounts, manual of accounting policies, procedures for communicating
policies
A. the accounting info system includes
B. type of control for supervisory approval of time cards
C. An auditor wishes to evaluate the design and perform tests of controls over a
client's cash disbursements procedures. If the controls leave no audit trail of
documentary evidence, the auditor most likely will test the procedures by:
D. advantages of flowchart
12. Remedy of the limitations resulting from accepting the engagement after the
close of the end of the year, such as those relating to the existence of physical
inventory
A. the auditor's analytical procedures will be facilitated if the client:
B. Tracing from source documents to journals most directly tests
C. What circumstance would permit an independent auditor to accept an
D. At the completion of the audit, the auditors are least likely to know
13. sale in the current period
A. An auditor is auditing year 2 of a new client. The auditor did not observe the
B. Confirmation in writing from the holder of the note is ordinarily considered as an
C. The year end physical inventories should include steps to verify that the client's
purchases and sales cutoffs were adequate. The audit steps should be designed to
detect whether merchandise included in the physical count at year end was not
recorded as:
D. What alternative auditing procedures may be undertaken in connection with the
confirmation of accounts receivable where customers having substantial balances
fail to reply after second request forms have been mailed to them?
14. facts that might bear on the integrity of mgmt
A. Who prepares engagement letter and when?
B. management has the ability to perpetrate fraud by
C. What should auditors obtain from the predecessor auditors before accepting an
audit engagement
D. With respect to the auditor's planning of a year-end audit, what statement is
always true?
15. Inspect contracts and agreements to determine whether any inventory is
pledged as collateral or subject to any liens
A. What audit procedure probably provides the most reliable evidence concerning
the entity's assertion of rights and obligations related to inventories?
B. Assertion and procedure for recorded inventory quantities include all products on
hand
C. When a primary risk related to an audit is possible overstated inventory, the
assertion most directly related is:
D. What factor most likely would cause an auditor to decline a new audit
engagement?
16. It is an acceptable practice to carry out part of the audit at interim dates
A. With respect to the auditor's planning of a year-end audit, what statement is
always true?
B. Internal control can provide only reasonable assurance of achieving entity
objectives. One factor limiting the likelihood of achieving those objectives in a small
entity is that:
C. For what purposes do the auditors make and record test counts of inventory
quantities during their observation of the taking of the physical inventory?
D. When perpetual inventory records are maintained in quantities and in dollars,
and internal control over inventory is weak, the auditor would probably:
17. tailor made for engagement, requires a detailed analysis and thus forces auditor
to understand functioning of internal control
A.
B.
C.
D.
type of control for segregation of duties over purchasing

auditors consideration of internal control-2nd standard of field work
advantages of written narrative
Alpha Co. uses its sales invoices for posting perpetual inventory records.
Inadequate internal control over the invoicing function allows goods to be shipped
that are not invoiced. The inadequate controls could cause an:
18. risk that organization's objectives will not be achieved, basis for determining
how risks should be managed
A. Risk assessment characteristics
B. positive confirmation request
C. In the confirmation of accounts receivable, the auditor will most likely:
D. Billy Jo is responsible for custody of the finished goods in the warehouse. If his
company wishes to maintain strong internal control, what responsibility is
incompatible to his job?
19. control environment
A. To gather evidence regarding the balance per bank reconciliation, an auditor
B. the most practical and effective audit procedure for detecting lapping is
C. component for management has prepared and distributed an organization chart
D. advantages of flowchart
20. control activities
A. When an entity uses a trust company as custodian of its trading securities, the
possibility of concealing the fraud most likely will be reduced if:
B. AU 311, Planning and Supervision, states that the auditor should establish an
C. What is not an advantage of establishing an enterprise risk mgmt system within
an organization?
D. component for budgets and forecasts are used by the production depts to
control expenses
Question.
21. type of control for adjustment of perpetual inventory records to physical counts
1. what is an internal control weaknesses for a company whose inventory of

supplies consists of a large number of individual items?
A. a bank lock box system
B. provide reasonable assurance that the company's objectives will be achieved
C. may agree to report control deficiencies that are significant as well as other

D. The storekeeper is responsible for maintenance of perpetual inventory records
2. audit objectives
A. control, existence, completeness, presentation and disclosure, rights and
obligations
B. evaluate whether controls operated effectively
C. valuation
D. may agree to report control deficiencies that are significant as well as other
3. objective of internal auditors
A. comparing recorded cash receipts in detail against items making up the bank
deposit as shown on duplicate deposit slips validated by the bank
B. material misstatements may exist in the financial statements
C. to aid corporate mgmt in efficient administration by investigating and reporting
upon compliance with company policies, reliability of acct and statistical records
and reports, adequacy of IC, efficiency of operating procedures
D. designed to allow the more experienced team members to share insights and
procedures
4. Tests of controls are least likely to conclude:
B. management is interested in maintaining the entity's earnings trend by using
aggressive accounting practices
C. existence, completeness, and valuation
D. inquiries of client vendors
5. Imprest system should be used for
A.
B.
C.
D.
detective
assessing the allowance for uncollectible accounts for reasonableness
valuation
petty cash requirements
6. An auditor observes the mailing of monthly statements to a client's customers

and reviews evidence of followup on errors reported by the customers. This test of
controls most likely is performed to support mgmt's financial statement assertions
of:
A. consider the organizational level to which the internal auditors report the results
of their work
B. determine credibility of inventory quantities, observe that quantity information is
correct, quality or condition of inventory, personnel adherence to instruction s for
taking inventory, adequacy of storage facilities
C. existence or occurrence
D. because the danger that fictitious inventory tags might be created by dishonest
inventory
7. In an audit of inventories, an auditor is least likely to verify that:
A. all inventory owned by the client is on hand at the time of the count
B. requires a reply from the client's customer in every case
C. conceals cash shortage in bank, transfer brings account into agreement with
books
D. monitoring
8. What element underlies the application of generally accepted auditing standards,
particularly the standards of fieldwork and reporting
A. be able to issue an unqualified opinion on the ending balance sheet
B. sales of merchandise are improperly billed to customers prior to delivery, with
C. a letter from the auditors to company mgmt that specifies the responsibilities of
completion
D. materiality and audit risk
9. component for management periodically evaluates the threats to preparing
reliable financial statements
A. Either trace from source documents to journals or vouch from journals to source
documents
B. the planned assessed level of control risk
C. the securities are authentic
D. risk assessment
10. substantive procedures
A. obtaining and examining evidence
B. cannot obtain absolute assurance but only reasonable assurance that material
C. the trust company has no direct contact with the entity employees responsible
for maintaining investment accounting records.
D. designed to detect material misstatement in specific financial statement

amounts
11. valuation
A. An entity's ongoing monitoring activities include:
B. What is not an advantage of establishing an enterprise risk mgmt system within
an organization?
C. controls over financial reporting
D. A security owned by a company is from another company that recently declared
bankruptcy. What is the auditor's primary concern with the investment?
12. improper cutoff of cash involving bank transfer around the BS date resulting in a
pad of a cash position, concealment of a cash shortage, or concealment of bank
overdraft
A. What is most likely to be considered an inherent limitation of a client's internal
control?
B. In the confirmation of accounts receivable, the auditor will most likely:
C. Jones embezzeled $50,000 from his company's account in Bank A. At year end
D. kiting
13. provided for internal control provisions that require all publicly held companies
to maintain an adequate system of internal control. violations of act can result in
fines up 1 mill and imprisonment of members of mgmt
A. management has the ability to perpetrate fraud by
B. Foreign Corrupt Practices Act of 1977
C. A secondary result of the auditor's understanding of internal control in an audit
of nonissuer's financial statements is that the understanding may:
D. When documenting the understanding of a client's internal control, the
independent auditor sometimes uses a systems flowchart, which can best be
described as:
14. assess risks of material misstatement, document procedures performed and
conclusions reached, exercise professional skepticism and due care, communicate
possible fraud to management, audit committee, and others
A. If an independent audit leading to an opinion on financial statements causes the
B. control activities includes
C. In confirming a client's A/R, what characteristics should be present in the
accounts if the CPA firm is to use negative confirmation?

D. further responsibilities of auditor for detecting fraud
15. obtain knowledge about the operating effectiveness of internal control
A. An auditor examining check disbursements discovered a missing check number.
Upon inquiry to the person responsible for disbursements and reconciliation of cash
account, she is told that the check number is missing bc it was voided. What is the
next step?
B. purpose of engagement letter
C. As part of the understanding internal control in planning an audit of a nonissuer,
D. What would be least likely to diminish the validity of evidence obtained from
confirmation of accounts receivable?
A. What is the risk that is of most concern to auditors when auditing cash?
B. To adequately provide for the segregation of duties, purchase requisitions should
C. the most practical and effective audit procedure for detecting lapping is
D. What is least likely to be included in an auditor's inquiry of mgmt while obtaining
info to identify the risks of material misstatement due to fraud?
17. Vouch from journals to source documents
A. primary objective of preparing a four column proof of cash
B. The auditors are concerned about source documents that reflect valid
transactions that have not been recorded in the journals. What procedure would be
most effective?
C. control
D. What is most likely to be an overall response to fraud risks identified in an audit?
18. over recorded sales due to a lack of control over the sales entry function
A. An auditor wishes to evaluate the design and perform tests of controls over a
client's cash disbursements procedures. If the controls leave no audit trail of
documentary evidence, the auditor most likely will test the procedures by:
B. primary objective of searching for large checks to directors, officers, and
employees
C. To adequately provide for the segregation of duties, purchase requisitions should
revenue?
19. reperformance
A. an auditor concluded that no excessive costs for an idle plant were charged to
inventory. This conclusion most likely related to the auditors objective to obtain
evidence ab the financial statement assertions regarding inventory including
presentation and
B. To test the effectiveness of controls an auditor ordinarily selects tests from a
C. 2 types of misstatements arise from fraudulent activities
D. tests of controls ordinarily are designed to provide evidence of
20. obtaining and examining evidence
B. Most of the independent auditor's work in formulating an opinion on financial
C. Audit evidence concerning the separation of duties ordinarily is best obtained by:
D. An auditor is most likely to inspect loan agreements under which an entity's
about:
Question.
21. If the perpetual inventory records show lower quantities of inventory than the
physical count, an explanation of the difference might be unrecorded

409 Exam 2

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

409 Exam 2

Transféré par

Droits d'auteur :

Formats disponibles

audit exam 2 Quiz

competence and objectivity

4. General objective of observe the client's physical inventory

6. What is not an advantage of establishing an enterprise risk mgmt system within

cutoff bank statement, year end bank statement, bank confirmation

in another bank is properly recorded

Tests of controls do not address

D. What should not appear in an internal control questionnaire relating to cash

1. auditor's responsibility for detection

the general ledger

D. obtaining an understanding of internal control, performing tests of controls,

A. search for unrecorded liabilities

In an audit of inventories, an auditor is least likely to verify that:

type of control for management review of budget/actual information

18. designed to detect material misstatement in specific financial statement

3. When documenting the understanding of a client's internal control, the

establish existence of assets, does not establish rights

used to assess the quality of internal control over time

B. When outside firms of nonaccountants specializing in the taking of PI are used to

after year end to audit report date the auditor should

1. With respect to the auditor's planning of a year-end audit, what statement is

2. type of control for monthly reconciliation of bank accounts

7. General objective of observe the client's physical inventory

11. integrity and ethical values, management philosophy, active participation by

A. type of control for monthly reconciliation of bank accounts

1. If the objective of an auditor's test of details is to detect a possible

A. intentional misstatements, omissions of amoutns or disclosures in the financial

6. auditor's responsibility for detecting fraud

9. inherent limitations of internal control

A. What is meant by making a proper year end cut off?

1. In assessing the competence and objectivity of an entity's internal auditor, an

2. the organization established by congress to narrow the options in cost accounting

B. auditor documents conclusion and goes to extensive substantive testing does

preparing bank reconciliations

audit committee nature

12. existence or occurrence

A. The best control to prevent lapping is

1. primary objective of using a standard confirmation form to confirm account

members of the board of directors who are not officers or employees

6. What element underlies the application of generally accepted auditing standards,

B. identify related party transactions

separation of recordkeeping for receivables from custody of cash

21. Tracing from source documents to journals most directly tests

competence and objectivity

4. General objective of observe the client's physical inventory

6. What is not an advantage of establishing an enterprise risk mgmt system within

cutoff bank statement, year end bank statement, bank confirmation

Tests of controls do not address

EXTRA CREDIT: Give the Answer that corresponds to the displayed

A. Checks should be sequentially numbered and the numerical sequence should be

portions of internal control will be overlooked, avoids long wording description

type of control for segregation of duties over purchasing

1. what is an internal control weaknesses for a company whose inventory of

matters to mgmt and the BOD

6. An auditor observes the mailing of monthly statements to a client's customers

D. designed to detect material misstatement in specific financial statement

accounts if the CPA firm is to use negative confirmation?

Vous aimerez peut-être aussi