Audit-Gleim Quiz 1-9

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Q.1 WebTrust is an example of a(n)

Assurance service.

Q.1 Which of the following is true regarding the SysTrust assurance service?

SysTrust reports are always based on a period of time, not a particular moment in time.

Q.1 Assurance services differ from consulting services because

Assurance services usually involve situations in which one party wants to monitor another and focus on improving information.

Q.1 WebTrust requires from client management a

Written assertion.

Q.1 Which of the following is a professional engagement that a CPA may perform to provide assurance on a system's reliability?

CPA SysTrust.

Q.1 According to the AICPA, the CPA WebTrust seal may relate to the principles and criteria of

Confidentiality YES
Availability YES
Internal Controls NO

Q.1 Engagement letters for ElderCare (PrimePlus) services should

Be tailored to fit each situation.

Q.2 Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?

Advisor to a client's board of trustees.

Q2
In which of the following situations would a covered member's independence be considered to be impaired?
1.The covered member maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution.
2.The covered member has a direct financial interest in an audit client, but the interest is maintained in a blind trust.
3.The covered member owns a commercial building and leases it to an audit client. The lease is properly classified as a capital lease, and the rental income is material to the CPA.

II and III.

Q.2 Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct?

Paul Fall
Certified Public Accountant
Endorsed by AICPA

Q2 Adams is the executive partner of Adams & Co., CPAs. One of its smaller clients is a large nonprofit charitable organization. The organization has asked Adams to be on its board of directors, which consists of a large number of the community's leaders. Membership on the board is honorary. Adams & Co. would be considered to be independent

As long as Adams does not perform or give advice on management functions of the organization.

Q2 Which activity performed as nonattest services for a nonpublic attest client impairs a CPA's independence?

Determining which recommendations for improving internal control should be implemented.

Q2 A member of the AICPA may render which service under a contingent fee arrangement?

A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio.

Q2 Which of the following most likely is an allowable service that an auditor may provide to a public client?

Tax compliance services.

Q2 Which of the following violates the AICPA's Code of Professional Conduct?

A member shares offices with another member. Their joint letterhead implies that a partnership exists when each member is in fact practicing individually.

Q2 Which of the following actions by a CPA most likely violates the profession's ethical standards?

Retaining client-provided records after the client has demanded their return.

Q2 A CPA audits the financial statements of a local bank. According to the AICPA Code of Professional Conduct, the appearance of independence ordinarily would not be impaired if the CPA

Designs an information system for the bank that is unrelated to its accounting records.

Q2 Inspections performed by the PCAOB focus on quality control of registered CPA firms that perform audits of public companies (issuers). As required by the Sarbanes-Oxley Act, inspections determine all of the following except that

Only staff with prior experience work on audits.

Q2 Which of the following reports may be issued only by an accountant who is independent of a client?

Standard report on an examination of a financial forecast.

Q2 Which of the following legal situations would be considered to impair the auditor's independence?

Actual litigation by the auditor against the current management alleging management fraud or deceit.

Q2 A violation of the profession's ethical standards would most likely have occurred when a CPA in public practice

Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.

Q2 The Sarbanes-Oxley Act of 2002 has strengthened auditor independence by requiring that management of a public company

Select auditors through audit committees.

Q2 According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession?

Retaining client records after the client demands their return.

Q2 Which AICPA Conduct Rule applies only to members in the practice of public accounting?

Independence (101).

Q2 An accounting firm's independence is most likely to be impaired when

The firm and the client have a material cooperative arrangement.

Q2 According to the PCAOB, an accounting firm's independence is least likely to be impaired if the firm

Has an audit client that employs a former firm professional.

Q2 Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client?

A policy-making position in the client's finance division.

Q2 According to the ethical standards of the profession, a CPA's independence would most likely be impaired if the CPA

Contracted with a client to supervise the client's office personnel.

Q2 Under the IFAC's Code of Ethics for Professional Accountants, fundamental principles include

1 Objectivity and independence
2 Professional behavior
3 Confidentiality
4 The public interest

II and III only.

Q2 According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?

The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.

Q2 Under the IFAC's Code of Ethics for Professional Accountants, independence is least likely to be impaired when

The firm's overdue fees from an audit client are a small part of the firm's total fees.

Q2 The PCAOB has the power to

Inspect large firms annually.

Q2 An auditor's independence is most likely considered impaired if the auditor has

A joint, closely held business investment with the client that is material to the auditor's net worth.

Q2 An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue?

The auditor should not make management decisions for an audit client.

Q2 Regarding employment or association with attest clients, the employment of a former partner by a client in a key position most likely impairs firm independence if

The former partner consults with the accounting firm.

Q2 Which of the following statements is true regarding an accountant's working papers?

The accountant owns the working papers but generally may not disclose them without the client's consent or a court order.

Q2 Under the IFAC's Code of Ethics for Professional Accountants, independence is most likely impaired when

An immediate family member of a member of the audit team is a director of the client.

Q3 Which of the following statements is true concerning an auditor's responsibilities regarding financial statements?

Which of the following statements is true concerning an auditor's responsibilities regarding financial statements?

Q3 Which of the following best describes the reason an independent auditor reports on financial statements?

The company preparing the statements and the persons using the statements may have different interests.

Q3 The first standard of field work requires, in part, that audit work be properly planned. Proper planning as intended by the first standard of field work occurs when the auditor

Physically observes the movement of securities already counted to guard against the substitution of such securities for others that are not actually on hand.

Q3 Which of the following statements best describes the primary purpose of Statements on Auditing Standards?

Which of the following statements best describes the primary purpose of Statements on Auditing Standards?

Q3 Assurance services are best described as

Independent professional services that improve the quality of information, or its context, for decision makers.

Q3 The SEC has strengthened auditor independence by requiring that management

Report the nature of disagreements with former auditors.

Q3 Who establishes generally accepted auditing standards?

Auditing Standards Board and the Public Company Accounting Oversight Board.

Q3 A CPA is most likely to refer to one or more of the three general auditing standards in determining

Whether the CPA should undertake an audit engagement.

Q3 The objective of assurance services is to

Enhance decision making.

Q3 Which of the following categories is included in generally accepted auditing standards?

Standards of field work.

Q3 The AICPA committee on assurance services has identified a professional service called ElderCare (PrimePlus) services. One fundamental purpose of this assurance service is to assist the elderly and their families by

Reporting whether specified objectives are being met by caregivers.

Q3 What is the nature of the three generally accepted auditing standards classified as standards of field work?

The criteria for audit planning and evidence-gathering.

Q4 In connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if

The auditor planned the work in a hasty and inefficient manner.

Q4 The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the

Results are consistent with the conclusions to be presented in the auditor's report.

Q4 Which of the following statements best describes an auditor's responsibility to detect errors and fraud?

An auditor should design an audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

Q4 In developing an overall audit strategy, an auditor should

Perform risk assessment procedures.

Q4 In general, fraudulent financial reporting perpetrated by which of the following are most difficult to detect?

Controller

Q4 Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly heighten the auditor's concern about the risk of material misstatements when

Management is dominated by one individual who is also a shareholder.

Q4 Which of the following should an auditor document with respect to the consideration of fraud in a financial statement audit?

Reasons for not identifying improper revenue recognition as a fraud risk.

Q4 The objective of performing analytical procedures in planning an audit is to identify the existence of

Unusual transactions and events.

Q4 Which of the following is ordinarily designed to detect possible material dollar misstatements in the financial statements?

Analytical procedures.

Q4 Before accepting an engagement to audit a new client, an auditor is required to

Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.

Q4 An auditor who is engaged in obtaining information to identify the risks of material misstatement due to fraud should perform which procedures?
1. Make inquiries directly to the audit committee or its chair
2. Apply analytical procedures to revenue accounts
3. Assess identified fraud risks

I and II only.

Q4 Which of the following statements is true concerning analytical procedures?

Analytical procedures used in planning an audit ordinarily use data aggregated at a high leve

Q4 In a financial statement audit, substantial consideration must be given to potential fraud. The conditions for fraud ordinarily include

The ability to rationalize commission of fraud.

Q4 A client decides not to make an auditor's proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?

The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.

Q4 For all audits of financial statements made in accordance with generally accepted auditing standards, the auditor should apply analytical procedures to some extent

In the Planning Stage YES

As a Substantive Test NO

In the Review Stage YES

Q4 Which of the following statements would least likely appear in an auditor's engagement letter?

After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.

Q4 Which one of the following statements is correct concerning the concept of materiality?

Materiality is a matter of professional judgment.

Q4 Which of the following statements concerning illegal acts by clients is correct?

An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud.

Q4 Which of the following statements is correct concerning an auditor's responsibility to report fraud?

The disclosure of fraudulent activities to parties other than the client's senior management and its audit committee is not ordinarily part of the auditor's responsibility.

Q4 Analytical procedures used in planning an audit should focus on

Enhancing the auditor's understanding of the client's business.

Q4 Analytical procedures used in planning an audit should focus on

Enhancing the auditor's understanding of the client's business.

Q4 Which of the following procedures would an auditor most likely perform in planning a financial statement audit?

Comparing the financial statements with anticipated results.

Q4 Inherent risk and control risk differ from detection risk in that inherent risk and control risk are

Functions of the client and its environment whereas detection risk is

Q4 Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

Management's disregard of its responsibility to maintain an adequate internal control environment.

Q4 The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the

Engagement letter.

Q4 The acceptable level of detection risk is inversely related to the

Assurance provided by substantive procedures.

Q4 A basic premise underlying analytical procedures is that

Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

Q4 In every audit, which of the following must be identified as a potential risk of material misstatement due to fraud?

Management override of controls.

Q4 An auditor most likely obtains an understanding of a new client to

Identify areas of audit emphasis.

Q4 Before accepting an audit engagement, an auditor should make specific inquiries of the predecessor auditor regarding the predecessor's

Understanding as to the reasons for the change of auditors.

Q4 An auditor assesses control risk because it

Affects the level of detection risk that the auditor may accept.

Q4 Which of the following statements concerning analytical procedures is true?

Analytical procedures alone may provide the appropriate level of assurance for some assertions.

Q4 Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Payroll expense.

Q4 Detection risk differs from both control risk and inherent risk in that detection risk

Can be changed at the auditor's discretion.

Q4 The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants

Possible accounting issues.

Q1.5 A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by

Having an appropriate system of quality control.

Q1.5 Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's accounting and auditing practice?

Engagement performance.

Q1.5 In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of

Documentation to demonstrate compliance with its policies and procedures.

Q1.5 The primary purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to

Minimize the likelihood of association with clients whose management lacks integrity.

Q1.5 In pursuing its quality control objectives with respect to human resources, a firm of independent auditors may use policies and procedures such as

Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be assigned.

Q1.5 In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and procedures such as

Emphasizing independence of mental attitude in firm training programs and in supervision and review of work.

Q1.5 The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to

Minimize the likelihood of association with clients whose management lacks integrity.

Q1.5 All of the following are audit quality control requirements contained in the Sarbanes-Oxley Act of 2002 except

The audit report must be submitted to the Public Company Accounting Oversight Board prior to issuance.

Q5 Which of the following statements is true concerning an auditor's use of the work of a specialist?

The work of a specialist who has a contractual relationship with the client may be acceptable under certain circumstances.

Q5 The work of internal auditors may affect the independent auditor's
1. Procedures performed in obtaining an understanding of internal control
2. Procedures performed in assessing the risk of material misstatement
3. Substantive procedures performed in gathering direct evidence

I, II, and III.

Q5 Transactions indicative of the existence of related parties include all of the following except

Selling real estate at a price significantly different from the book value.

Q5 Which of the following procedures most likely could assist an auditor in identifying related-party transactions?

Reviewing confirmations of compensating balance arrangements.

Q5 Which of the following statements is true about the auditor's use of the work of a specialist?

The auditor should obtain an understanding of the methods and assumptions used by the specialist.

Q5 In assessing the competence and objectivity of an entity's internal auditor, an independent auditor would least likely consider information obtained from

The results of analytical procedures.

Q5 When auditing related party transactions, an auditor places primary emphasis on

Evaluating the disclosure of the related party transactions.

Q5 Which of the following steps should an auditor perform first to determine the existence of related parties?

Request a list of related parties from management

Q5 Which of the following statements is correct concerning an auditor's use of the work of an actuary in assessing a client's pension obligations?

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

Q5 In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the

Quality of the internal auditor's documentation.

Q5When assessing internal auditors' objectivity, an independent auditor should

Consider the policies that prohibit the internal auditors from auditing areas where they were recently assigned.

Q5 When assessing an internal auditor's objectivity, an independent auditor should

Consider the organizational level to which the internal auditor reports.

Q5 Which of the following events least likely would indicate the existence of related party transactions?

Writing off obsolete inventory to net realizable value just before year end.

Q5 When assessing an internal auditor's competence, an auditor ordinarily obtains information about all of the following except

Access to information about related parties.

Q5 An internal auditor's work would most likely affect the nature, timing, and extent of an independent auditor's auditing procedures when the internal auditor's work relates to assertions about the

Existence of fixed asset additions.

Q6 Which of the following should an auditor do when control risk is assessed at the maximum level?

Document the assessment.

Q6 After obtaining an understanding of internal control and assessing control risk in a financial statement audit, an auditor decided to perform tests of controls. The auditor most likely decided that

It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.

Q6 If an auditor wishes to decrease the acceptable level of detection risk, which of the following changes in the substantive tests performed will not effectively provide greater assurance?

A change in the timing of substantive tests from year-end to interim dates.

Q6 Which of the following types of evidence would an auditor most likely consider to determine whether internal controls are operating effectively?

A questionnaire completed by an employee in the receiving department concerning her duties and responsibilities

Q6 Which of the following procedures is considered a test of controls?

An auditor interviews and observes appropriate personnel to determine segregation of duties.

Q6 In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would

Perform tests of controls to support a lower level of assessed control risk.

Q6 After obtaining an understanding of internal control for the audit of a nonissuer's financial statements, an auditor decided not to perform tests of controls. The auditor most likely decided that

Performing only substantive tests would effectively restrict detection risk to an acceptable level.

Q6 To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques, including

Inquiries

Q6 To obtain evidential matter about the effectiveness of control risk, an auditor ordinarily selects tests from a variety of techniques, including

Reperformance

Q6 Assessing control risk at a low level most likely involves

Identifying specific controls relevant to specific assertions.

Q6 An auditor examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. The purpose is to determine the operating effectiveness of the verification. This audit procedure is an example of a

Test of controls.

Q6 When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate?

Test the operating effectiveness of such controls in the current audit.

Q6 Which of the following explanations best describes why an auditor may decide to reduce tests of details for a particular audit objective?

Analytical procedures have revealed no unusual or unexpected results.

Q7 When compared with a nineteenth-century auditor, today's auditor places less relative emphasis upon

Examination of documentary support.

Q7 Most of the independent auditor's work in formulating an opinion on financial statements consists of

Obtaining and examining audit evidence.

Q7 Evidential matter supporting the financial statements consists of the accounting records and all other corroborating information available to the auditor. Which of the following is an example of other corroborating information?

Minutes of meetings.

Q7 Which of the following best describes the primary purpose of audit procedures?

To gather evidence.

Q7 Which of the following types of evidential matter generally is the most reliable?

Confirmation of account information from third parties.

Q7 Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

The auditor's judgment.

Q7 The permanent file section of the audit documentation that is kept for each audit client most likely contains

Narrative descriptions of the client's accounting procedures and internal control.

Q7 Which of the following is usually included or shown in the auditor's audit documentation?

The manner in which exceptions and unusual matters disclosed by the auditor's procedures were resolved or treated.

Q7 The objective of tests of details of transactions performed as substantive procedures is to

Detect material misstatements at the relevant assertion level.

Q7 Audit documentation that records the procedures used by the auditor to gather evidence should be

Designed to meet the circumstances of the particular engagement.

Q7 The current file of an auditor's audit documentation most likely would include a copy of the

Bank reconciliation.

Q7 Which of the following in a predecessor's audit documentation is the auditor least likely to be interested in reviewing?

Analysis of income statement accounts.

Q7 The strongest criticism of the reliability of audit evidence that the auditor physically observes is that

The auditor may not be qualified to evaluate the items (s)he is observing.

Q7 During the confirmation of accounts receivable, an auditor receives a confirmation via the client's fax machine. Which of the following actions should an auditor take?

Accept the confirmation but verify the source and content through a telephone call to the respondent.

Q7 When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations

Client-prepared statements of account that show the details of the account balances.

Q7 Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Including a list of items or invoices that constitute the account balance.

Q7 In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditor will normally prepare a schedule of unadjusted differences for which (s)he did not propose adjustment when they were uncovered. The primary purpose served by this schedule is to

Identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

Q7 The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of

Transactions

Q7 To test for unsupported entries in the ledger, the direction of audit testing should be from the

Ledger entries.

Q7 An auditor may achieve audit objectives related to particular assertions by

Performing analytical procedures.

Q8 An auditor uses the knowledge provided by the understanding of internal control and the assessed risk of material misstatement primarily to

Determine the nature, timing, and extent of substantive procedures for financial statement assertions.

Q8 For the audit of a nonissuer, the primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with

Knowledge necessary to plan the audit.

Q8 A conceptually logical approach to the auditor's consideration of internal control consists of the following four steps:
1.Determine whether the necessary procedures are prescribed and are being followed satisfactorily.

2. Consider the types of errors and fraud that could occur.

3.Determine the internal controls that should prevent or detect errors and fraud.

4.Evaluate any weakness to determine its effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client.

II, III, I, IV.

Q8 An auditor should obtain sufficient knowledge of an entity's information system relevant to financial reporting to understand the

Process used to prepare significant accounting estimates.

Q8 Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity?

Preparation of system flowcharts.

Q8 The auditor should document the understanding of internal control. For example, a narrative memorandum may be used to

Provide a written description of the process and flow of documents and of the control points.

Q8 Which of the following procedures is an auditor most likely to include in the planning phase of a financial statement audit?

Obtain an understanding of the entity's risk assessment process.

Q8 Each of the following types of controls is considered to be an entity-level control, except those

Regarding the company's annual stockholder meeting.

Q8 The normal sequence of documents and operations on a well-prepared systems flowchart is

Top to bottom and left to right.

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