2024 – 1 The most important general ledger account included in and affecting several cycles is the Points

 

1. The most important general ledger account included in and affecting several cycles is the: (Points : 10)
       cash account.
       inventory account.
       income tax expense and liability accounts.
       retained earnings account.

2. The detail tie-in is part of the_______ assertion for account balances. (Points : 10)
       classification
       valuation and allocation
       rights and obligations
       completeness

3. Management assertions are: (Points : 10)
       implied or expressed representations about accounts, transactions, and disclosures in the financial statements.
       stated in the footnotes to the financial statements.
       explicitly expressed representations about the financial statements.
       provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

4. The occurrence assertion applies to _______. (Points : 10)
       presentation and disclosure matters
       classes of transactions and events during the period
       account balances
       proper classification of income statement accounts

5. The detail tie-in objective is not concerned that the details in the account balance: (Points : 10)
       agree with related subsidiary ledger amounts.

       are properly disclosed in accordance with GAAP.
       foot to the total in the account balance.
       agree with the total in the general ledger.

 

6. Which of the following statements about the existence and completeness assertions is not true? (Points : 10)
       The existence and completeness assertions emphasize different audit concerns.
       Existence deals with overstatements and completeness deals with understatements.
       Existence deals with understatements and completeness deals with overstatements.
       The completeness assertion deals with unrecorded transactions.

7. To be considered reliable evidence, confirmations must be controlled by: (Points : 10)
       a client employee responsible for accounts receivable.
       a financial statement auditor.
       a client’s internal audit department.
       a client’s controller or CFO.

8. Which of the following is not one of the major types of analytical procedures? (Points : 10)
       Compare client with industry averages.
       Compare client with prior year.
       Compare client with budget.
       Compare client with SEC averages.

9. The primary purpose of performing analytical procedures in the planning phase of an audit is to: (Points : 10)
       help the auditor obtain an understanding of the client’s industry and business.
       assess the going concern assumption.
       indicate possible misstatements.
       reduce detailed tests.

10. The Auditing Standards Board has concluded that analytical procedures are so important that they are required during: (Points : 10)
       planning and test of control phases.
       planning and completion phases.
       test of control and completion phases.
       planning, test of control, and completion phases.

11. Which of the following is not a correct combination of terms and related type of audit evidence? (Points : 10)
       Foot – reperformance.
       Compare – documentation.
       Vouch – documentation.
       Trace – analytical procedures.

12. Which of the following statements regarding analytical procedures is not correct? (Points : 10)
       Analytical tests emphasize a comparison of client internal controls to GAAP.
       Analytical procedures are required on all audits.
       Analytical procedures can be used as substantive tests.
       For certain accounts with small balances, analytical procedures alone may be sufficient evidence.

13. Which of the following normally signs the engagement letter for an audit of a public company? (Points : 10)
       Corporate treasurer.
       Chief financial officer.
       Chairman of the board of directors.
       Audit committee.

14. Which of the following is not likely to be a related party? (Points : 10)
       Affiliated companies.
       A major stockholder of the company.
       A warehouse employee.
       The chief executive officer.

15. An engagement letter sent to an audit client usually would not include a(n): (Points : 10)
       reference to the auditor’s responsibility for the detection of errors or irregularities.
       estimation of the time to be spent on the audit work by audit staff and management.
       statement that management advisory services would be made available upon request.
       reference to management’s responsibility for the financial statements.

16. Which of the following statements is not correct with respect to analytical procedures? (Points : 10)
       Auditing standards emphasize the need for auditors to develop and use expectations.
       Analytical procedures must be performed throughout the audit.
       Analytical procedures may be performed at any time during the audit.
       Analytical procedures use comparisons and relationships to assess whether account balances appear reasonable.

17. Which of the following is correct with respect to a company’s corporate charter? (Points : 10)
       The corporate charter is granted by the federal government and is required to recognize the corporation as a separate entity.
       The corporate charter includes the rules and procedures used to operate a corporation.
       The corporate charter includes the exact name of the corporation, the date of incorporation, and the types of business the corporation is authorized to conduct.
       The corporate charter must be annually reviewed by the PCAOB.

18. The first standard of field work, which states that the work is to be adequately planned and that assistants, if any, are to be properly supervised, recognizes that: (Points : 10)
       early appointment of the auditor is advantageous to the auditor and the client.
       acceptance of an audit engagement after the close of the client’s fiscal year is generally not permissible.
       appointment of the auditor subsequent to the physical count of inventories requires a             disclaimer of opinion.
       performance of substantial parts of the examination is necessary at interim dates.

19. One accounting issue that does not require management to use significant judgments is: (Points : 10)
       the allowance for doubtful accounts.
       the useful life of equipment for tax purposes.
       obsolete inventory.
       the liability for warranty payments.

20. Acceptable audit risk is ordinarily set by the auditor during planning and: (Points : 10)
       held constant for each major cycle and account.
       held constant for each major cycle but varies by account.
       varies by each major cycle and by each account.
       varies by each major cycle but is constant by account.

21. If planned detection risk is reduced, the amount of evidence the auditor accumulates will: (Points : 10)
       increase.
       decrease.
       remain unchanged.
       be indeterminate.

22. When discussing control risk (CR) and the audit risk model, which of the following is false? (Points : 10)
       CR is a measure of the auditor’s assessment of the likelihood that misstatements will not be prevented or detected by internal control.
       If the auditor concludes that internal control is completely ineffective to prevent or detect errors, he/she would assign a low value (e.g., 0%) to CR.
       The relationship between control risk and detection risk is inverse.
       The relationship between control risk and evidence needed to support account balances is direct.

23. When setting a preliminary judgment about materiality: (Points : 10)
       more evidence is required for a low dollar amount than for a high dollar amount.
       less evidence is required for a low dollar amount than for a high dollar amount.
       the same amount of evidence is required for either low or high dollar amounts.
       there is no relationship between it and the dollar amount of evidence needed.
                                 
                                 
Chapter 13

24. To what extent do auditors typically rely on internal controls of their public company clients? (Points : 10)
       Extensively
       Only very little
       Infrequently
       Never

25. A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a: (Points : 10)
       test of controls.
       substantive test.
       test of attributes.
       monetary-unit sampling test.

26. Tests of transactions are used to determine whether ___________ have been satisfied. (Points : 10)
       compliance test requirements.
       balance coverage requirements.
       transaction-related audit objectives.
       existence assertions

27. When the auditor finds that there are missing controls in an area of the accounting system, the audit program in that area would be modified in such a way as to: (Points : 10)
       increase the amount of tests of controls.
       increase the reliance on tests of controls.
       cause the issuance of a qualified or adverse opinion.
       eliminate the need for a test of controls.

28. Which of the following is not appropriate for purposes of testing the effectiveness of controls? (Points : 10)
       Make inquiries of client personnel.
       Evaluate prior experience with the client.
       Observe control-related activities.
       Reperform client procedures.

29. The primary emphasis in most tests of details of balances is on the: (Points : 10)
       balance sheet accounts.
       revenue accounts.
       cash flow statement accounts.
       expense accounts.

30. The most important consideration in developing the audit plan and audit program is the: (Points : 10)
       client’s size.
       client’s industry.
       audit firm’s available personnel.
       the audit risk model used in its planning form.