1) The fundamental issues in independence require that the auditor avoid A.

financial connections with the firm and acting as management. B. financial connections with the client and financial connections with the client's competitors. C. acting as management and representing the shareholders interests. D. responsibility for the client's internal control and subordinating judgment concerning audit issues. 2) The ethical philosophy that considers the consequences of similar persons acting under similar circumstances is called A. generalization argument. B. utilitarian principle. C. imperative principle. D. categorical imperative.

3) Rule 102, Integrity and Objectivity, applies to A. all professional services. B. only audit services. C. all attestation services. D. all accounting and audit services.

4) Actions initiated by the user of financial statements seeking damages because of auditor negligence or other inappropriate auditing are called A. constructive fraud. B. malfeasances. C. torts. D. breach of contract.

5) The SEC regulation that governs disclosures in annual reports other than financial statements is the A. Regulation S-K. B. Securities Act of 1933. C. Securities Exchange Act of 1934. D. Regulation S-X.

6) The legal doctrine that states that a successful plaintiff may recover the full amount of damages from any defendant that has the ability to pay is called A. total liability. B. joint and several liabilities. C. proportionate liability. D. complete liability.

7) Which is NOT required by SAS No. 99, Consideration of Fraud in a Financial Statement Audit? A. Conduct inquiries of the audit committee as to their views about the risks of fraud and their knowledge of any fraud or suspected fraud. B. Conduct a continuing assessment of the risks of material misstatement due to fraud throughout the audit. C. Conduct a discussion by the audit team of the risks of material misstatement due to fraud. D. Conduct the audit with professional skepticism, which includes an attitude that assumes balances are incorrect until verified by the auditor. 8) Auditors perform the steps in which order? A. Determine audit risk; set materiality; assess control risk; and determine detection risk. B. Determine audit risk; assess control risk; determine detection risk; and set materiality. C. Set materiality; determine audit risk; assess control risk; and determine detection risk.

D. Set materiality; assess control risk; determine detection risk; and determine audit risk.

9) Inspection of tangible assets provides evidence for which assertion? A. Presentation and disclosure B. Existence and occurrence C. Completeness D. Rights and obligations 10) An entity's internal control consists of the policies and procedures established to provide reasonable assurance that specific entity objectives are achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one is most likely to be considered in such an audit? A. Maintenance of statistical production analyses B. Maintenance of control over unused checks C. Timely reporting and review of quality control results D. Marketing analysis of sales generated by advertising projects

11) Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex operations? A. A detailed narrative approach B. A questionnaire approach C. A flowcharting approach D. A matrix approach

12) The primary responsibility for establishing and maintaining internal controls rests with A. the external auditors. B. management.

C. the internal auditors. D. the Public Company Accounting Oversight Board. 13) The most reliable evidence comes from A. examining a sales invoice. B. a negative confirmation. C. a positive confirmation. D. a blank confirmation.

14) Which of the accounts is NOT included in the revenue and collection cycle? A. Bad debt expense B. Accounts receivable C. Cash in bank D. Raw materials

15) Custody is transferred from the warehouse to the shipping department upon authorization of the A. invoice. B. customer order. C. shipping order. D. purchase order.

16) A proof of cash is normally used A. when lapping is suspected. B. to test the transactions process when controls over cash are weak. C. for all engagements.

D. when control risk for cash is low.

17) In order for internal auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which is a characteristic of fraud? A. Negligence on the part of executive management B. Taking unfair or dishonest advantage of uninformed individuals C. Unintentional deception D. Lack of training

18) Which is an appropriate audit program step for the review of canceled checks for authorized signatures? A. Confirm the signatures from a sample of checks directly with the bank. B. Determine that all checks are to be signed by an individual authorized by the board. C. Compare the check date with the first cancellation date. D. Examine a representative sample of signed checks, and determine that the signatures are authorized in the corporate signature book. 19) Which is NOT recognized by GAAP as appropriate for determining inventory cost? A. Standard costs B. LIFO C. FIFO D. Weighted average

20) Inventory must be recorded when A. it is shipped from the vendor. B. it is received. C. the company has title to it.

D. the related revenue is recognized.

21) The source of authorization for preparation of materials requisitions is the A. sales forecast. B. production plan. C. purchase order. D. bill of materials. 22) Canceling invoices with a paid stamp after payment is a control that relates to which assertion? A. Valuation or allocations B. Rights and obligations C. Completeness D. Existence or occurrence

23) Which account is NOT included in the acquisition and expenditure cycle? A. Freight-in B. Sales returns and allowances C. Inventory D. Cash

24) Which is NOT a step in the search for unrecorded liabilities? A. All of these are steps in the search. B. Examine the unmatched receiving reports. C. Examine disbursements for the period immediately before the end of the period.

D. Examine the open purchase order file.

25) Which best describes the main reason independent auditors report on management's financial statements? A. The management that prepares the statements may have a poorly designed system of internal control. B. Misstated account balances may be corrected as the result of the independent audit work. C. The management that prepares the statements and the persons who use the statements may have conflicting interests. D. A management fraud may exist, and it is likely to be detected by independent auditors.

26) The primary responsibility for an organization's financial statements rests with A. the external auditors. B. the Public Company Accounting Oversight Board. C. management. D. the internal auditors.

27) Which audit objective is related to the assertion that all transactions and accounts must be included in the financial statements? A. Presentation and disclosure B. Completeness C. Rights and obligations D. Existence or occurrence