93 terms


Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?
A bank lockbox system
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?
Stamped "paid" by the check signer
In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also
Is also responsible for mailing the checks
To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except;
General Ledger
You have been assigned to the year-end audit of a financial institution and are planning the timing of audit procedure relating to cash. You decide that it would be preferable to
Coordinate the cont of cash with the count of marketable securities and other negotiable assets.
Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
Observe the consistency of the employees use of cash registers and tapes
Reconciliation of the bank account should not be performed by an individual who also:
Processes cash disbursements
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 this embezzlement scheme, the auditors most likely would compare the
Details of bank deposit slips with details of credits to customer accounts
In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities?
Require that the safekeeping function for securities be assigned to a bank or stock broker that will act as a custodial agent
Hall company had large amounts of funds to invent on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be
An investment committee of the board of directors
The auditors who physically examine securities should insist that a client representative be present in order to
Acknowledge the receipt of securities returned
The best way to verify the amounts of dividend revenue received during the year is
Verification by reference to dividend record books
A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash register. Which of the following would be the best control to provide assurance that the cashier isn't keeping some of the cash?
Compare cash register totals to a total that is automatically generated by each gas pump.
The accounting functions and the cash receipts functions should be handled by which department(s)?
The Controller should have control of accounting functions and the Treasurer should have control of cash receipt functions.
The auditor uses a bank cutoff statement to compare:
Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
It is most likely to be efficient to test the controls over financial investments when:
The company trades or holds a large number of securities.
What of the following is the risk that is of most concern to auditors when auditing cash?
Inherent risk
Which of the following is most likely to indicate fraud?
Several overpayments are made for goods received from a supplier.
An auditor examining check disbursements discovered a missing check number. Upon inquiry to the person responsible for disbursements and reconciliation of the cash account, she is told that the check number is missing because the check was voided. What is the auditor's next step?
Examine the voided checks file to determine whether the check is in the file
Of the following, which procedure or document is most effective for detecting kiting?
A proof of cash.
Jones embezzled $50,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of:
A security owned by a company is from another company that recently declared bankruptcy. Which of the following is the auditor's primary concern with the investment?
A company owns a large amount of debt securities that pay interest twice a year - August 1 and February 1. On the financial statements the company accrued the 5 months of interest it was due as interest receivable. The auditor should:
Verify the company owns the security, check the accuracy of the accrual, and require no adjustment.
A four column bank reconciliation ("proof of cash") will generally assist an auditor in detecting:
An unrecorded (on the books) deposit made at the beginning of the month; the amount was withdrawn late in the month, again with no book entry.
Which of the following is confirmed on the standard form used for cash balances at financial institution?
Loans payable.
Which of the following is least likely to be considered a substantive procedure relating to the payroll?
Test whether employee time reports are approved by supervisors
Which of the following is the best way for the auditors to determine that every name on a company's payroll is that of a bona fide employee presently on the job>
Make a surprise observation of the company;s regular distribution of paychecks on a test basis.
As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year, the auditors should
Consider the possibility of a misstatement in the f/s
When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?
The search for unrecorded liabilities for a public company includes procedures usually performed through the
Date of the auditors report
The aggregated misstatement is the financial statements is made up of
known, projected, and other misstatements
A possible loss, stemming from past events that will be resolved as to existence and amounts is referred to as an
loss contingency
Which of the following is a type 1 event
Customer checks deposited prior to year end, but determined to be uncollectible after year end
Which of the following procedures is most likely to be included in the final review stage of an audit
Perform analytical procedures
Subsequent to the issuance of an auditors report the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts after determining the information is reliable, the auditor should next
Determine if there are any persons relying on the information that would attach importance to the information
Which of the following events occurring on jan. 5 of 20x2 is most likely to result in an adjusting entry to the 20x1 f/s
Settlement of litigation
What is ordinarily the primary concern when auditing the income statement?
Overstatement of Revenues and Net Income, and understatement of Expenses.
In auditing the balance sheet, most revenue and expense accounts are also audited. Which accounts are most likely to be audited when auditing Accounts Receivable?
Sales and Bad Debt Expense.
A manufacturer's employees are paid once a month, on the 3rd of the following month. What audit issue pertaining to labor costs exists at year end?
To have strong internal control over payroll, which of the following functions does not need to be separated from the others?
Personnel verification.
A common audit procedure in the audit of payroll transactions involves vouching selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in support of the audit objective of determining that:
Employees worked the number of hours for which their pay was computed.
The auditors' best course of action with respect to "other financial information" included in a client prepared annual report containing the auditors' report is to:
Read and consider the manner of presentation of the "other financial information."
A company oil tanker recently spilled a large amount of oil in a pristine fishing area. No lawsuits have yet been filed. What is the audit issue?
Unasserted claim.
Management estimates the company's allowance for doubtful accounts as $100,000, and the auditors develop an estimates that suggests that the amount should be between $115,000 and $125,000. The likely misstatement in this situation is:
Which of the following is not a procedure to discover unasserted claims or contingent liabilities?
Substantive testing of company prepaid assets.
Which of the following is not correct concerning a type I and a type II subsequent event?
Through the date of the audit report.
A client's previous two years of financial statements understated estimated warranty payable by $15,000 and $25,000 respectively, immaterial amounts. This year the auditors estimate that the accrual is understated by an additional $30,000. In this year's audit $50,000 represents a material amount. Assuming that the entire understatement is to be recorded, following SEC SAB 108 the decrease in this year's income due to these understatements is
In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate:
Known, projected and other estimated misstatements in the financial statements.
What audit procedure is not ordinarily used to examine selling, general and administrative expenses?
Confirmations to advertising agencies confirming payments.
A material departure from GAAP will result in auditor consideration of;
Whether to issue an adverse opinion rather than an "except for" opinion
The auditors report should be dated as of the date the
Auditors have accumulated sufficient evidence
In the report of the principal auditor, reference to the fact that a portion of the audit was made by another auditor is
Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms
Assume that the opinion paragraph of an auditors' report begins as follows "With the explanation given in note 6, the financial statements referred to above present fairly"
An improper type of reporting
The auditor who wishes to indicate that the entity has significant transactions with related parties should disclose this fact in
An explanatory paragraph to the auditors' report
When restrictions that significantly limit the scope of the audit are imposed by the client, the auditor should generally issue which of the following opinions?
Which of the following does not ordinarily involve the addition of an explanatory paragraph to an audit report
Part of the audit has been performed by other auditors
An audit report for a public client indicates that the audit was performed in accordance with
An audit report for a public client indicates that the f/s were prepared in conformity with
The likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit reports?
Unqualified w./ explanatory language
A change in accounting principles that the auditors believes is not justified is likely to result in which of the following audit reports
Which of the following is least likely to be considered and emphasis of a matter, in what remains an unqualified audit report?
Decision not to confirm a/r
Which paragraph of the standard audit opinion states the financial statements are the responsibility of the company's management?
Introductory paragraph.
Which of the following is true regarding the notes to financial statements prepared following GAAP?
Notes are an integral part of the financial statements.
In a financial statement audit, an auditor would express an unqualified opinion with an explanatory paragraph added to the audit report
Neither an unjustified accounting change nor an unjustified departure from generally accepted accounting principles.
In which of the following conditions is an unqualified audit opinion least likely?
The auditor believes that inventory is valued at market values that accurately reflect market conditions and materially exceed cost.
CPA Firm A qualifies as the principal auditor. However, since Firm A did not have the resources, it hired CPA Firm B to audit a subsidiary of the client located in Bolivia. If Firm A is willing to take responsibility for the work of Firm B, which type of audit report is Firm A most likely to issue?
Unqualified—standard report.
If a company's financial statements violate GAAP for an immaterial item which is expected to become material in the future, then the audit opinion the company will likely receive is:
Unqualified—standard report.
Which of the following conditions is most likely to result in auditor consideration of issuing a going concern modification?
Default on a loan agreement.
When a company has a probable and material loss contingency, and the company has accrued the loss in the financial statements, the appropriate audit opinion is ordinarily which of the following?
Standard unqualified opinion.
A departure from GAAP with a material effect on the financial statements is most likely to result in a(n):
Qualified opinion.
Issuance of a going concern modification relates most directly to which of the following terms?
Substantial doubt.
In which circumstance would an auditor be most likely to express an adverse opinion?
The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases.
Addition of an "emphasis of a matter" paragraph to what remains an unqualified opinion is least likely for which of the following situations?
Scope limitation
Which of the following is not a covered member for an attest engagement under RULE 101 of the AICPA code of professional conduct?
A partner in the national office of the firm that performs marketing services
Which of the following is not prohibited by the AICPA code of professional conduct?
Advertising in newspapers
In which of the following situation would a public accounting firm have violated the AICPA code of professional conduct in determining its fee
A fee is based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing
A public accounting firm would least likely be considered in violation of the AICPA independence rules in which of the following instances?
A partners checking account, which is fully insured by the federal deposit insurance corporation, is held at a financial institution for which the public accounting firm performs attest services.
Which of the following is impled when a CPA signs a preparer's declaration on a federal tax return
The return is not misleading in all information of which the CPA has knowledge
The AICPA code of Professional conduct states that a CPA shall nto disclose any confidential information obtained in the course of a professional engagement except with the consent of the client . This rule may preclude a CPA from responding to an inquiry made by
CPA shareholder of the client corporation
Which of the following is most likely to be a violation of the AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees?
Jones names his firm Jones and Smith CPA's
Bill Adams CPA accepted the audit engagement of Kelly company. During the audit, Adams became aware of his lack of competence required for the engagement what should Adam do?
suggest that kelly company engage another CPA to perform the audit
Which of the following nonattest services may be performed by the auditors of a public company
preparation of the company's tax return
In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions?
Training client employees
Ethical dilemmas generally involve situations in which the:
Welfare of one or more individuals is affected by another's decision.
Which of the following forms of organization is most likely to restrict the personal liability of CPAs not involved on a particular audit that their firm has conducted?
Limited liability partnership.
Which of the following is correct concerning the AICPA Conceptual Framework for Independence Standards?
It applies only when the Code of Professional Conduct does not directly address a threat to independence.
Which of the following is not considered by the AICPA Conceptual Framework for Independence Standards a broad category of threat to auditor independence?
A CPA's investment in the stock of an audit client is considered a(n):
A) Direct financial interest which impairs independence regardless of amount.
In which circumstance is a CPA firm's independence most likely to be impaired?
In which circumstance is a CPA firm's independence most likely to be impaired?
Which of the following partners is least likely to be considered a "covered member" for purposes of the audit of Company A, performed by the Chicago office of a national CPA firm?
B) A partner in the San Diego office of the CPA firm who maintains a small, immaterial investment in Company A.
Contingency fee based pricing of accounting services is:
Prohibited if associated with the type of audit opinion received.
Which of the following best describes the passing of confidential information from a client to its auditor? That information:
Is not legally protected and can be subpoenaed by a federal court
Which of the following is a correct statement concerning a publicly traded company that purchases the practice of a public accounting firm.
It must separate performance of attest services and allow them to be performed by the remaining "shell" public accounting firm it has purchased (or by another public accounting firm).