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Course Auditing I
Test Midterm Exam Part 1
Started2/9/15 12:10 AM
Submitted 2/9/15 1:29 AM
Status Completed
Attempt Score 125 out of 125 points
Time Elapsed 1 hour, 18 minutes out of 2 hours.
Instructions This midterm exam consists of 25 multiple choice questions and covers the material in Chapters 1 through 4.
Question 1
5 out of 5 points
The three requirements for becoming a CPA include all but which of the following?
A) Uniform CPA examination requirement.
B) Educational requirements.
C) Character requirements.
D) Experience requirement.
Question 2
5 out of 5 points
In “auditing” financial accounting data, the primary concern is with:
Answer
A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.
Question 3
5 out of 5 points
Three common types of attestation services are:
Answer
A) audits, reviews, and attestations regarding internal controls.
B) audits, verifications, and attestations regarding internal controls.
C) reviews, verifications, and attestations regarding internal controls.
D) audits, reviews, and verifications.
Question 4
5 out of 5 points
________ risk reflects the possibility that the information upon which the business decision was made was inaccurate.
Answer
A) Client acceptance
B) Information
C) Business
D) Control
Question 5
5 out of 5 points
Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:
Answer
A) finance.
B) auditing.
C) accounting.
D) economics.
Question 6
5 out of 5 points
A correct relationship among the auditor, the client, and the external users is:
Answer
A. management of a public company hires the independent auditor.
B. the audit committee of a private company hires the independent auditor.
C. the client provides capital to the external users.
D. the external users can rely upon the auditor’s report to reduce information risk.
Question 7
5 out of 5 points
Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit:
Answer
A) both private and public companies.
B) public companies only.
C) private companies, public companies, and nonprofit entities.
D) private companies only.
Question 8
5 out of 5 points
In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that:
Answer
A) the internal control policies and procedures are developed by the auditors.
B) the purpose of an audit is to prevent fraud.
C) management is responsible for the preparation of the financial statements.
D) management can restrict the auditor’s access to important information relevant to the financial statements.
Question 9
5 out of 5 points
Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. The PCAOB:
Answer
A) 1.can enforce disciplinary action against the accounting firm 2.report the matter to the Securities and Exchange Commission 3. suspend the license to practice of the CPA guilty of the violation
Yes Yes Yes
B) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation
Yes Yes No
C) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation
Yes No No
D)can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation
No No No
Question 10
5 out of 5 points
Which of the following are audit standards used in professional practice by audit firms?
Answer
A) 1. International Standards on Audit
2. U.S. Generally Accepted Auditing Standards 3. PCAOB Auditing Standards
Yes No No
B) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards Yes Yes No
C) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards Yes Yes Yes
D) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards No Yes Yes
Question 11
5 out of 5 points
The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to:
Answer
A) provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities.
B) monitor the risk factors concerning misstatements that arise from the misappropriation of assets.
C) document objective criteria for the CPA firm’s peer review.
D) minimize the likelihood of associating with a client whose management may lack integrity.
Question 12
5 out of 5 points
For privately held companies who is responsible for establishing auditing standards?
A) Securities and Exchange Commission
B) Public Company Accounting Oversight Board
C) Auditing Standards Board
D) National Association of Accounting
Question 13
5 out of 5 points
When a qualified or adverse opinion is issued, the qualifying paragraph is inserted:
Answer
A) between the introductory and scope paragraphs.
B) between the scope and opinion paragraphs.
C) after the opinion paragraph, as a fourth paragraph.
D) immediately after the address, as the first paragraph.
Question 14
5 out of 5 points
When there is uncertainty about a company’s ability to continue as a going concern, the auditor’s concern is the possibility that the client may not be able to continue its operations or meet its obligations for a “reasonable period of time.” For this purpose, a reasonable period of time is considered not to exceed:
Answer
A) six months from the date of the financial statements.
B) one year from the date of the financial statements.
C) six months from the date of the audit report.
D) one year from the date of the audit report.
Question 15
5 out of 5 points
After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:
Answer
Decide the materiality for each condition
Question 16
5 out of 5 points
The audit report date on a standard unqualified report indicates:
Answer
A) the last day of the fiscal period.
B) the date on which the financial statements were filed with the Securities and Exchange Commission.
C) the last date on which users may institute a lawsuit against either client or auditor.
D) the last day of the auditor’s responsibility for the review of significant events that occurred subsequent to the date of the financial statements.
Question 17
5 out of 5 points
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:
Answer
A) included in the scope paragraph.
B) included in the opinion paragraph.
C) included in a separate paragraph in the report.
D) included in the introductory paragraph
Question 18
5 out of 5 points
If most or all users’ decisions that are based on the financial statements are likely to be significantly affected, the materiality level is:
Answer
A) unrestricted.
B) material.
C) pervasive.
D) risky.
Question 19
5 out of 5 points
Which of the following represents all of the ways a CPA firm can be organized under Rule 505?
Answer
A) Proprietorships and partnerships
B) Proprietorships, partnerships, and professional corporations
C) Proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law
D) Single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations
Question 20
5 out of 5 points
When a member observes the profession’s technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising:
Answer
A) due care.
B) integrity.
C) independence.
D) objectivity.
Question 21
5 out of 5 points
The financial interests of a CPA’s family members can affect the CPA’s independence. Which of the following parties would not be included as a “direct financial interest” of the CPA?
Answer
A) Spouse
B) Dependent child
C) Relative supported by the CPA
D) Sibling living in the same city as the CPA
Question 22
5 out of 5 points
Rule 301 of the AICPA’s Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client’s consent as a result of a:
Answer
A) subpoena or summons.
B) peer review.
C) complaint filed with the trial board of the Institute.
D) request by a client’s largest stockholder.
Question 23
5 out of 5 points
The AICPA’s Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term “objectivity” in the Code refers to a CPA’s ability to:
Answer
A) choose independently between alternate accounting principles and auditing standards. B) distinguish between accounting practices that are acceptable and those that are not.
C) be unyielding in all matters dealing with auditing procedures.
D) maintain an impartial attitude on matters that come under the CPA’s review.
Question 24
5 out of 5 points
The members of a client’s “audit committee” should be:
Answer
A) members of management.
B) directors who are not a part of company management.
C) non-directors and non-managers.
D) directors and managers.
Question 25
5 out of 5 points
Which of the following services are allowed by the SEC whenever a CPA also audits the company?
Answer
A) Internal audit outsourcing
B) Legal services unrelated to the audit
C) Appraisal or valuation services
D) Services related to assessing the effectiveness of internal control over financial reporting
MIDTERM part II
Test Midterm Exam Part 2
Started2/9/15 1:30 AM
Submitted 2/9/15 1:47 AM
Status Completed
Attempt Score 120 out of 125 points
Time Elapsed 17 minutes out of 2 hours.
Instructions This midterm exam consists of 25 multiple choice questions and covers the material in Chapters 5 through 8.
Question 1
5 out of 5 points
The laws that have been developed through court decisions are called:
Answer
A. common laws.
B. criminal laws.
C. statutory laws.
D. civil laws
Question 2
5 out of 5 points
Laws that have been passed by the U.S. Congress and other governmental units are:
Answer
A. statutory laws.
B. judicial laws.
C. federal laws.
D. common laws.
Question 3
5 out of 5 points
The Foreign Corrupt Practices Act (FCPA) of 1977:
Answer
A. requires auditors to review and evaluate systems of internal control as a part of an audit.
B. requires SEC registrants to maintain a reasonably complete and accurate set of records and an adequate system of internal control.
C. requires auditors to review client’s internal control system in a manner which is thorough enough to judge whether client meets the requirements of the FCPA.
D. requires auditors to file a report with the SEC if client’s internal control system is inadequate
Question 4
5 out of 5 points
Which of the following most accurately describes fraud?
Answer
A. Absence of reasonable care
B. Lack of slight care
C. Knowledge and intent to deceive
D. Extreme or unusual negligence without the intent to deceive
Question 5
0 out of 5 points
The expectation gap:
Answer
Often results in unwarranted lawsuits against the auditor
Question 6
5 out of 5 points
Recklessness in the case of an audit is present if the auditor knew an adequate audit was not done but still issued an opinion, even though there was no intent to deceive financial statement users. This description is the legal term for:
Answer
constructive fraud.
Question 7
5 out of 5 points
In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:
Answer
A) GAAP.
B) the Sarbanes-Oxley Act.
C) the Securities Exchange Act of 1934.
D) GAAS.
Question 8
5 out of 5 points
The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit:
Answer
A) in accordance with generally accepted auditing standards.
B) as effectively as reasonably possible.
C) in a timely manner.
D) only after an adequate investigation of the management team.
Question 9
5 out of 5 points
If a short-term note payable is included in the accounts payable balance on the financial statement, there is a violation of the:
Answer
A) completeness assertion.
B) existence assertion.
C) cutoff assertion.
D) classification and understandability assertion.
Question 10
5 out of 5 points
The essence of the attest function is to:
Answer
A) assure the consistent application of correct accounting procedures.
B) determine whether the client’s financial statements are fairly stated in accordance with an applicable financial reporting framework such as U.S. GAAP or IFRS.
C) examine individual transactions so that the auditor may certify as to their validity.
D) detect collusion and fraud.
Question 11
5 out of 5 points
Management assertions are:
Answer
A) directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS
B) stated in the footnotes to the financial statements.
C) explicitly expressed representations about the financial statements.
D) provided to the auditor in the assertions letter, but are not disclosed on the financial statements.
Question 12
5 out of 5 points
Tests of details of balances are specific audit procedures that are intended to:
Answer
A) test for monetary errors in the financial statements.
B) prove that the accounts with material balances are classified correctly.
C) prove that the trial balance is in balance.
D) identify the details of the internal control system.
Question 13
5 out of 5 points
Physical examination:
Answer
A) is a direct means of verifying that an asset really exists.
B) is sufficient evidence to verify that the existing assets are owned by the client.
C) can be used for both tangible assets and documents.
D) is not generally a reliable type of audit evidence.
Question 14
5 out of 5 points
When practical and reasonable, U.S. auditing standards require the confirmation of:
Answer
A) individual transactions between organizations, such as sales transactions.
B) accounts receivable.
C) fixed asset additions.
D) payroll expenses.
Question 15
5 out of 5 points
When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called:
Answer
A) inquiry.
B) confirmation.
C) vouching.
D) physical examination.
Question 16
5 out of 5 points
________ is the auditor’s examination of the client’s documents and records to substantiate that the information is included in the financial statements.
Answer
A) Inspection
B) Recalculation
C) Observation
D) Verification
Question 17
5 out of 5 points
Which of the following is not one of the four decisions about what evidence to gather and how much of it to accumulate?
A) Which audit procedures to use
B) Which accounts must agree to the general ledger
C) When to perform the procedures
D) What sample size to select for a given procedure
Question 18
5 out of 5 points
The two characteristics of the appropriateness of evidence are:
Answer
A) relevance and timeliness.
B) relevance and accuracy.
C) relevance and reliability.
D) reliability and accuracy
Question 19
5 out of 5 points
An example of an external document that provides reliable information for the auditor is:
Answer
A) employees’ time reports.
B) bank statements.
C) purchase order for company purchases.
D) carbon copies of checks.
Question 20
5 out of 5 points
Smith, CPA has requested permission to communicate with the predecessor auditor in order to review certain workpapers for high risk accounts for a new audit client. The new audit client’s refusal to allow this communication to occur would impact Rodgers decision concerning:
Answer
A) the auditor’s ability to design audit tests.
B) possible scope exception due to lack of access.
C) the desirability of accepting the prospective engagement.
D) violation of the GAAP rules concerning consistency and comparability of financial information.
Question 21
5 out of 5 points
Which of the following normally signs the engagement letter for an audit of a private company?
Answer
A) Management
B) Board of directors representative
C) Audit committee representative
D) Corporate treasurer
Question 22
5 out of 5 points
The purpose of an engagement letter is to:
Answer
A) document the CPA firm’s responsibility to external users of the audited financial statements.
B) document the terms of the engagement.
C) notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.
D) emphasize management’s responsibility for approving the audit program.
Question 23
5 out of 5 points
A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is called:
Answer
A) control risk.
B) acceptable audit risk.
C) statistical risk.
D) inherent risk
Question 24
5 out of 5 points
In making client acceptance decisions, the audit firm will consider:
Answer
A) inherent and control risk of the client.
B) audit risk to the CPA Firm.
C) the client’s business risk and the risk of material misstatements in the financial statements.
D) CPA Firm’s potential ongoing revenue from the audit client
Question 25
5 out of 5 points
Related party:
Answer
A) transactions must be disclosed in the footnotes even if the amounts are immaterial.
B) disclosures include the nature of the related party relationship and a description of the transaction.
C) transactions are considered arms-length transactions.
D) disclosures are required only for public companies
