finals - at

?60. The capability for computers to communicate with physically remote terminals is an important feature in the design of modern business information systems. Which of the following risks associated with the use of telecommunications systems is minimized through the use of a password control system? A. Unauthorized access to system program and data files. B. Unauthorized physical availability of remote terminals. C. Physical destruction of system program and data files. D. Physical destruction of remote terminals. ?69. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the: A. Efficiency of the audit. B. Effectiveness of the audit. C. Selection of the sample. D. Audit quality controls. ? 16. Which of the following is not ordinarily a procedure for documenting an auditor's understanding of internal control for planning purposes? A. Checklist. B. Flowchart. C. Questionnaire. D. Confirmation. 18. Which is most likely when the assessed level of control risk increases? A. Change from performing substantive procedures at year-end to an interim date. B. Perform substantive procedures directed inside the entity rather than tests directed toward parties outside the entity. C. Use the maximum number of dual purpose tests. D. Use larger sample sizes for substantive procedures. 21. Which of the following would be least likely to be regarded as a test of a control? A. Tests of the additions to property by physical inspection. B. Comparisons of the signatures on cancelled checks to the authorized check signer list. C. Tests of signatures on purchase orders. D. Recalculation of payroll deductions. 22. Which of the following is not considered one of the five major components of internal control? A. Risk assessment. B. Segregation of duties. C. Control activities. D. Monitoring.

24. The effectiveness of controls is not generally tested by: A. Inspection of documents and reports. B. Performance of analytical procedures. C. Observation of the application of accounting policies and procedures. D. Inquiries of appropriate client personnel. 28. Which of the following is most likely to be considered a risk assessment procedure relating to internal control? A. Confirm accounts receivable. B. Perform a test of a control relating to payroll. C. Take test counts of the year-end inventory. D. Trace a transaction through the information system relevant to financial reporting. 38. If the auditors do not perform tests of controls for certain assertions: A. They have performed a substandard audit. B. They are not required to communicate significant deficiencies relating to those accounts to management and the board of directors. C. They must issue a qualified opinion. D. They must assess control risk at the maximum level for those assertions. 48. Which of the following is least likely to be considered a risk assessment procedure? A. Analytical procedures. B. Inspection of documents. C. Observation of the counting of inventory. D. Observation of the performance of certain accounting procedures. 49. Which of the following is not a factor that is considered a part of the client's overall control environment? A. The organizational structure. B. The information system. C. Management philosophy and operating style. D. Board of directors. 50. Which of the following would be least likely to be considered a benefit of effective internal control? A. Eliminating all employee fraud. B. Restricting access to assets. C. Detecting ineffectiveness. D. Ensuring authorization of transactions.

53. Which of the following is correct with respect to control deficiencies discovered during an audit? A. Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management. B. All material weaknesses in internal control should be reported to the audit committee. C. All such matters must be communicated to the audit committee and regulatory agencies. D. All control deficiencies are also significant deficiencies. 54. After considering the client's internal control the auditors have concluded that it is well designed and is functioning as anticipated. Under these circumstances the auditors would most likely: A. Cease to perform further substantive procedures. B. Reduce substantive procedures in areas where the internal control was found to be effective. C. Increase the extent of anticipated analytical procedures. D. Perform all tests of controls to the extent outlined in the preplanned audit program. 55. The use of fidelity bonds protects a company from embezzlement loses and also: A. Minimizes the possibility of employing persons with dubious records in positions of trust. B. Reduces the company's need to obtain expensive business interruption insurance. C. Allows the company to substitute the fidelity bonds for various parts of internal control. D. Protects employees who made unintentional errors from possible monetary damages resulting from such errors. 68. Which of the following audit tests would be regarded as a test of a control? A. Tests of the specific items making up the balance in a given general ledger account. B. Tests confirming receivables. C. Tests of the signatures on canceled checks to board of director's authorizations. D. Tests of the additions to property, plant, and equipment by physical inspection. 73. Which of the following factors would most likely be considered an inherent limitation to an entity's internal control? A. The complexity of the information processing system. B. Human judgment in the decision making process. C. The ineffectiveness of the board of directors. D. The lack of management incentives to improve the control environment. 11. Which of the following factors most likely would cause a CPA to not accept a new audit engagement? A. The prospective client has fired its prior auditor. B. The CPA lacks a thorough understanding of the prospective client's operations and industry. C. The CPA is unable to review the predecessor auditor's working papers. D. The prospective client is unwilling to make financial records available to the CPA.

12. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? A. Large amounts of liquid assets that are easily convertible into cash. B. Low growth and profitability as compared to other entity's in the same industry. C. Financial management's participation in the initial selection of accounting principles. D. An overly complex organizational structure involving unusual lines of authority. 20. Which of the following is correct concerning requirements about auditor communications about fraud? A. Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. B. All fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. C. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. D. The auditor has no responsibility to disclose fraud outside the entity under any circumstances. 41. The risk that the auditors' procedures will lead them to conclude that a material misstatement does not exist in an account balance when in fact such a misstatement does exist is referred to as: A. Account risk. B. Control risk. C. Detection risk. D. Inherent risk. 44. Which of the following topics is not normally included in an engagement letter? A. The auditors' preliminary assessment of internal control. B. The auditors' estimate of the fee for the engagement. C. Limitations on the scope of the engagement. D. A description of responsibility for the detection of fraud. 47. Tests for unrecorded assets typically involve tracing from: A. Source documents to recorded journal entries. B. Source documents to observations. C. Recorded journal entries to documents. D. Recorded journal entries to observations. 48. Tracing from source documents forward to ledgers is most likely to address which assertion related to posted entries: A. Completeness. B. Existence. C. Rights. D. Valuation.

49. Determining that receivables are presented at net-realizable value is most directly related to which management assertion? A. Existence. B. Rights. C. Valuation. D. Presentation and disclosure. 58. The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the auditors. Which of the following would be the most useful source of information for the auditors during the preliminary planning stage when they are trying to obtain a general understanding of audit problems that might be encountered? A. Client manuals of accounts and charts of accounts. B. AICPA Industry Audit Guides. C. Prior-year working papers of the predecessor auditors. D. Latest annual and interim financial statements issued by the client. 66. The auditor faces a risk that the audit will not detect material misstatements in the financial statements. In regard to minimizing this risk, the auditor primarily relies on: A. Substantive procedures. B. Tests of controls. C. Internal control. D. Statistical analysis. 70. An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective of: A. Accuracy. B. Completeness. C. Control. D. Existence. 16. As planning materiality is decreased, the auditor should plan more work on individual accounts to. A. Find smaller misstatements. B. Find larger misstatements. C. Increase the tolerable misstatement in the accounts. D. Decrease the risk of assessing control risk too low. 19. Which of the following is not an assertion relating to classes of transactions? A. Accuracy. B. Sufficiency. C. Cutoff. D. Classification.

24. The inspection of a vendor's invoice by the auditors is: A. Direct evidence about occurrence of a transaction. B. Physical evidence about occurrence of a transaction. C. Documentary evidence about occurrence of a transaction. D. Part of the client's accounting system. 35. Which of the following is not a financial statement assertion relating to account balances? A. Completeness B. Existence. C. Rights and obligations. D. Valuation and allowances. 36. Which of the following is generally true about the sufficiency of audit evidence? A. The amount of evidence that is sufficient varies inversely with the risk of material misstatement. B. The amount of evidence concerning a particular account varies inversely with the materiality of the account. C. The amount of evidence concerning a particular account varies inversely with the inherent risk of the account. D. When evidence is appropriate with respect to an account it is also sufficient. 37. Which of the following is true about analytical procedures? A. Performing analytical procedures results in the most reliable form of evidence. B. Analytical procedures are tests of controls used to evaluate the quality of a client's internal control. C. Analytical procedures are used for planning, but they should not be used to obtain evidence as to the reasonableness of specific account balances. D. Analytical procedures are used in planning, as a substantive procedure for specific accounts, and in the final review of the audited financial statements. 50. Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by: A. Performing substantive procedures. B. Performing tests of controls. C. Assessing control risk. D. Obtaining a client representation letter. 56. Which of the following expressions is least likely to be included in a client's representation letter? A. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. B. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. C. Management acknowledges responsibility for illegal actions committed by employees. D. Management has made available all financial statements, including notes.

59. Which of the following is not a typical analytical procedure? A. Study of relationships of the financial information with relevant nonfinancial information. B. Comparison of the financial information with similar information regarding the industry in which the entity operates. C. Comparison of recorded amounts of major disbursements with appropriate invoices. D. Comparison of the financial information with budgeted amounts. 60. Which of the following is not a primary purpose of audit working papers? A. To coordinate the examination. B. To assist in preparation of the audit report. C. To support the financial statements. D. To provide evidence of the audit work performed. 63. Although the quantity, type, and content of working papers will vary with the circumstances, the working papers generally would include the: A. Copies of those client records examined by the auditor during the course of the engagement. B. Evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit. C. Auditor's comments concerning the efficiency and competence of client management personnel. D. Auditing procedures followed and the testing performed in obtaining audit evidence. 64. The permanent file section of the working papers that is kept for each audit client most likely contains: A. Review notes pertaining to questions and comments regarding the audit work performed. B. A schedule of time spent on the engagement by each individual auditor. C. Correspondence with the client's legal counsel concerning pending litigation. D. Narrative descriptions of the client's accounting procedures and controls. 67. Confirmation would be most effective in addressing the existence assertion for the: A. Addition of a milling machine to a machine shop. B. Payment of payroll during regular course of business. C. Inventory held on consignment. D. Granting of a patent for a special process developed by the organization. 74. Assertions with high inherent risk are least likely to involve: A. Complex calculations. B. Difficult accounting issues. C. Routine transactions. D. Significant judgment by management.

46. Which of the following is not required by the generally accepted auditing standard that states that due professional care is to be exercised in the performance of the audit? A. Observance of the standards of field work and reporting. B. Critical review of the audit work performed at every level of supervision. C. Degree of skill commonly possessed by others in the profession. D. Responsibility for losses because of errors of judgment. 16. Internal auditing is considered to be part of an organization's: A. Accounting system. B. Control activities. C. Monitoring. D. External controls. 37. The scope of an internal audit is initially defined by the: A. Audit objectives. B. Scheduling and time estimates. C. Preliminary survey. D. Audit program. 22. An assertion that is particularly difficult to audit with respect to personal financial statements is: A. Existence. B. Rights. C. Completeness. D. Legality. 28. When the auditors are associated with the financial statements of a public company, but have not audited the financial statements, they should: A. Issue a compilation report. B. Issue a disclaimer of opinion. C. Issue a qualified opinion. D. Not issue any report. 30. Which of the following does not result in a modification of a compilation report? A. A lack of independence on the part of the auditors. B. A departure from generally accepted accounting principles. C. A lack of adequate disclosure in the financial statements. D. A lack of consistent application of generally accepted accounting principles.

32. Which of the following is correct when a company is issuing condensed financial statements developed from audited financial statements? A. Such condensed statements should always have a CPA's report associated with them when audited financial statements exist. B. The CPA may issue a report on whether the condensed information is fairly stated in all material respects in relation to the basic financial statements. C. The CPA should perform a compilation and review of the condensed financial statements. D. The CPA who has audited the financial statements who is asked to report on the condensed statements should decline the engagement because the condensed statements do not include all disclosures necessary under generally accepted accounting principles. 44. An auditor's report on financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles should include all of the following except: A. Reference to the note to the financial statements that describes the basis of preparation of the financial statements. B. Disclosure that the audit was performed in accordance with generally accepted auditing standards. C. An opinion as to whether the basis of accounting used is appropriate under the circumstances. D. An opinion as to whether the financial statements are presented fairly in conformity with the basis of accounting described. 54. During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should: A. Disclose the departure in a separate paragraph of the report. B. Issue an adverse opinion. C. Attach a note explaining the effects of the departure. D. Issue a compilation report. 11. A summary of findings rather than assurance is most likely to be included in a(n): A. Agreed-upon procedures report. B. Compilation report. C. Examination report. D. Review report. 20. The risk that a company will not be able to meet its obligations when they become due is referred to as: A. Information risk. B. Inherent risk. C. Relative risk. D. Business risk.

35. Which of the following terms best describes the audit of a taxpayer's tax return by an IRS auditor? A. Operational audit. B. Internal audit. C. Compliance audit. D. Government audit. 36. Inquiries and analytical procedures ordinarily form the basis for which type of engagement? A. Agreed-upon procedures. B. Audit. C. Examination. D. Review. 39. Operational auditing is primarily oriented toward: A. Future improvements to accomplish the goals of management. B. The accuracy of data reflected in management's financial records. C. The verification that a company's financial statements are fairly presented. D. Past protection provided by existing internal control.

40. A typical objective of an operational audit is for the auditor to: A. Determine whether the financial statements fairly present the entity's operations. B. Evaluate the feasibility of attaining the entity's operational objectives. C. Make recommendations for improving performance. D. Report on the entity's relative success in attaining profit maximization. 17. Contingency fee based pricing of accounting services is: A. Always strictly prohibited in public accounting practice. B. Never restricted in public accounting practice. C. Prohibited for clients for whom attestation services are provided. D. Considered an act discreditable to the profession.

39. In determining the scope and nature of services to be performed in public practice, a CPA firm should: A. Require independence for all services performed. B. Determine that the performance of all services is consistent with the firm's members' role as professionals. C. Have in place internal control procedures. D. Only perform accounting related services. 47. 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? A. Information obtained as a result of a consulting services engagement is confidential to that specific engagement and should not influence performance of the attest function. B. The decision as to loss of independence must be made by the client based on the facts of the particular case. C. The auditor should not make management decisions for an audit client. D. The auditor who is asked to review management decisions, is also competent to make these decisions and can do so without loss of independence. 51. Competence as a certified public accountant includes all of the following except: A. Having the technical qualifications to perform an engagement. B. Possessing the ability to supervise and to evaluate the quality of staff work. C. Warranting the infallibility of the work performed. D. Consulting others if additional technical information is needed. 55. A primary purpose for establishing a code of conduct within a professional organization is to: A. Reduce the likelihood that members of the profession will be sued for substandard work. B. Ensure that all members of the profession perform at approximately the same level of competence. C. Demonstrate acceptance of responsibility to the interests of those served by the profession. D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization. 12. When an auditor has concluded there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time beyond the current financial statement date (9/30/X1), the auditor's responsibility includes: A. Preparing prospective financial information to verify whether management's plans can be effectively implemented. B. Projecting conditions and events from one year prior to this year's date (9/30/X0) to 9/30/X1. C. Issuing an adverse or negative assurance opinion, depending upon materiality, due to the possible effects on the financial statements. D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern.

13. When the auditor of a nonpublic company issues an adverse opinion an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified?

A. Option A B. Option B C. Option C D. Option D 14. When an auditor issues a qualified report on financial statements due to a scope limitation an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified?

A. Option A B. Option B C. Option C D. Option D 15. When an auditor issues an unqualified report on financial statements, but adds an emphasis of a matter paragraph to the report, which, if any, paragraphs to the report are modified?

A. Option A B. Option B C. Option C D. Option D

17. After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to: A. Increase current dividend distributions. B. Reduce existing lines of credit. C. Increase ownership equity. D. Purchase assets formerly leased. 18. When an auditor of financial statements does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should: A. Issue an unqualified opinion, but disclose elsewhere in the report this departure from a customary procedure. B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action. C. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables. D. Issue an adverse opinion. 21. Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Performing cutoff tests of sales transactions with customers with long-standing receivable balances. B. Evaluating the entity's procedures for identifying and recording related party transactions. C. Inspecting title documents to verify whether any real property is pledged as collateral. D. Inquiring of the entity's legal counsel about litigation, claims, and assessments. 22. When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should: A. Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit. B. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP. C. Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure. D. Issue an unqualified opinion, but inform the reader by including the omitted information in the audit report.

23. CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the principal auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct? A. Such assumption of responsibility violates the profession's standards. B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements. C. In such circumstances, when appropriate requirements have been met, Firm A should issue an unqualified opinion on the financial statements but should make appropriate reference to Firm B in the audit report. D. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.

24. Which of the following is most accurate with respect to a CPA's responsibility in considering a going concern question on financial statement audits? A. Perform analytical procedures aimed particularly at assessing whether bankruptcy is probable. B. Issue a report with a "going concern" modification when failure is at least reasonably probable. C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern. D. Determine that related uncertainties are properly disclosed and make no mention in the audit report. 29. A scope restriction is least likely to result in a(an): A. Qualified opinion. B. Disclaimer of opinion. C. Adverse opinion. D. Standard unqualified opinion. 32. A client has changed the salvage values of a number of its fixed assets. The auditors believe that the salvage values are realistic. The appropriate report on the financial statements is: A. Standard unqualified. B. Unqualified with explanatory language as to consistency. C. Qualified for consistency. D. Disclaimer. 34. The term "except for" in an audit report is: A. Used in an adverse opinion. B. No longer considered appropriate. C. Used in a qualified opinion D. Used for an unqualified opinion when an explanatory paragraph is added. 38. Which of the following circumstances generally results in the issuance of a report that is other than unqualified? A. Circumstances have significantly limited the scope of the auditors' procedures. B. The principal auditors for the engagement are relying on the work of other auditors. C. The financial statements depart from a standard established by the FASB because the auditors have concluded that application of the standard would result in materially misleading financial statements. D. The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.

39. Which of the following modifications of the auditors' report does not include an additional paragraph? A. The report is qualified because the financial statements contain a material departure from generally accepted accounting principles. B. The report includes an emphasis of a matter. C. The audit report indicates a division of responsibility between two CPA firms. D. The report is qualified because the scope of the auditors' work was restricted. 41. An audit client has refused to allow the auditors to perform a generally accepted auditing procedure. The circumstance would normally result in the issuance of: A. A disclaimer of opinion. B. An adverse opinion. C. An "except for" qualification of the report. D. An unqualified report with explanatory language. 43. If principal auditors make no reference to other auditors whose work they have relied on as a part of the basis for their report, the principal auditors: A. Are not required to investigate the professional reputation of the other auditors. B. Are issuing an inappropriate report. C. Are assuming full responsibility for the work of the other auditors. D. Are issuing a qualified opinion. 49. It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an): A. Change in accounting principle. B. Limitation in the scope of the audit. C. Uncertainty. D. Related party transaction. 51. Which of the following will not result in qualification of the auditors' report due to a scope limitation? A. Restrictions imposed by the client. B. Reliance placed upon the report of other auditors. C. Inability to obtain sufficient competent evidential matter. D. Inadequacy in the accounting records. 54. For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected: A. Be appropriate in the circumstances for the particular entity. B. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. C. Present information in the financial statements that is classified and summarized in a reasonable manner. D. Be applied on a basis consistent with those followed in the prior year.

55. In which of the following circumstances would an adverse opinion be appropriate? A. The auditor is not independent with respect to the enterprise being audited. B. The statements are not in conformity with generally accepted accounting principles because they omit a statement of changes in financial position. C. The statements are not in conformity with generally accepted accounting principles regarding pension plans. D. A client-imposed scope limitation prevents the auditor from complying with generally accepted auditing standards. 60. The principal auditor is satisfied with the independence and professional reputation of the other auditor who has audited a subsidiary. To indicate the division of responsibility, the principal auditor should modify: A. The introductory, scope, and opinion paragraphs of the report. B. Only the scope paragraph of the report. C. Only the opinion paragraph of the report. D. Only the opinion paragraph of the report and include an explanatory paragraph. 61. Morgan, CPA, is the principal auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's audit. With respect to Morgan's report on the consolidated financial statements, taken as a whole, Morgan: A. Must not refer to the audit of the other CPA. B. Must refer to the audit of the other CPA. C. May refer to the audit of the other CPA. D. May refer to the audit of the other CPA, in which case Morgan must include in the audit report on the consolidated financial statements a qualified opinion with respect to the audit of the other CPA. 69. An auditor's report on comparative financial statements should be dated as of the date of the: A. Issuance of the report. B. Accumulation of sufficient appropriate audit evidence. C. Latest financial statements being reported on. D. Last related-party transaction disclosed in the statements.