AUDITING CPA REVIEW – MIDTERM
a. Performing substantive procedures.
b. Performing tests of controls.
c. Assessing internal control.
d. Obtaining a client representation letter.
2. Which of the following gives, as Dr. Moore described, a “warm and fuzzy feeling” when an auditor determines that the client has
a. a requirement that two signatures are required on checks
b. a budget and variance analysis system
c. an annual quality control review
d. an internal audit staff
3. Which of the following procedures is least likely to be performed as a part of obtaining an understanding during an audit engagement of a new audit client previously audited by another CPA?
a. Communication with the predecessor auditor.
b. Performing analytical procedures.
c. Obtaining confirmation of cash balances.
d. Considering internal control
4. If internal control is properly designed, the same employee should not be permitted to
a. Sign checks and cancel supporting documents.
b. Receive merchandise and prepare a receiving report.
c. Prepare disbursement vouchers and sign checks.
d. Initiate a request to order merchandise and approve merchandise received.
5. During the process of confirming receivables as of December 31, 2007, a positive confirmation was returned indicating the “balance owed as of December 31 was paid on January 9, 2008.” The auditor would most likely
a. Determine whether there were any changes in the account between January 1 and January 9, 2008
b. Determine whether a customary trade discount was taken by the customer.
c. Reconfirm the zero balance as of January 10, 2008.
d. Verify that the amount was received.
6. An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to
a. Verify that cash disbursements were for goods actually received.
b. Test whether payments were for goods actually ordered.
c. Determine that purchases were properly recorded.
d. Identify unusually large purchases that should be investigated further
7. Which of the following is not an objective of a well-designed system of internal control?
a. Accurate reliable financial statements
b. Safeguarding of assets.
c. Adherence with applicable laws and regulations.
d. Maintaining proper segregation of duties
8. A weakness in internal control over recording retirements of equipment may cause an auditor to
a. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.
b. Select certain items of equipment from the accounting records and locate them in the plant.
c. Inspect certain items of equipment in the plant and trace those items to the accounting records.
d. Trace additions to the other assets account to search for equipment that is still on hand but no longer being used
9. Which of the following is not an interrelated component of internal control?
a. Control activities
b. Risk assessment
d. Management integrity
10 The ultimate purpose of assessing control risk is to contribute to the auditor s evaluation of the risk that
a. Entity policies may be inappropriately overridden by senior management.
b. Specified controls requiring segregation of duties may be circumvented by collusion.
c. Tests of controls may fail to identify procedures relevant to assertions.
d. Material misstatements may exist in the financial statements
11. Which of the following statements concerning audit evidence is true?
a. A client s accounting data can be sufficient audit evidence to support the financial statements.
b. To be competent, audit evidence should be either persuasive or relevant, but it need not be both
c. The measure of the validity of audit evidence lies in the auditor s judgment.
d. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for omitting the test
12. When auditing related party transactions, an auditor places primary emphasis on
a. Ascertaining the rights and obligations of the related parties.
b. Evaluating the disclosure of the related party transactions.
c. Verifying the valuation of the related party transactions.
d. Confirming the existence of the related parties
13. In the consideration of internal control, the auditor is basically concerned that internal control provides reasonable assurance that
a. Controls have not been circumvented by collusion.
b. Misstatements have been prevented or detected.
c. Operational efficiency has been achieved in accordance with management plans.
d. Management cannot override controls.
14. Which of the following is least likely to be a procedure used for planning/acceptance of an engagement?
a. Contacting the predecessor auditor
b. communicating with the client’s attorney and other third parties
c. review financial statements
d. determine internal control risk
15. Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include
a. Schedules that support the current year s adjusting entries.
b. Prior years accounts receivable confirmations that were classified as exceptions.
c. Documentation indicating that the audit work was adequately planned and supervised.
d. Analyses of capital stock and other owners equity accounts.
16. Of the following, which is the least persuasive type of audit evidence?
a. Documents mailed by outsiders to the auditor.
b. Correspondence between auditor and vendors.
c. Copies of sales invoices inspected by the auditor.
d. Computations made by the auditor
17. Which of the following did not have substantive changes under the new clarification standards?
b. internal control
d. related parties
18. An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the
a. Existence of unrealized gains or losses.
b. Completeness of recorded investment income.
c. Valuation of trading securities.
d. Classification as available-for-sale or trading securities
19. When tests of controls reveal that controls are not operating as anticipated, it is most likely that the assessed level of the risk of material misstatement will
a. Be less than the planned level.
b. Equal the planned level.
c. Be greater than the planned level.
d. Be less than the actual level.
20. Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs?
a. Statements on Auditing Standards
b. Auditing Statements of Position.
c. Journal of Accountancy articles.
d. Auditing Interpretations
21. 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 current year’s financial statement with last years
22. Which audit assertion ensures that all recorded sales are valid?
c. Existence or occurrence.
d. Valuation or allocation
23 When an auditor increases the risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the
a. Extent of tests of details.
b. Levels of inherent risk.
c. Extent of tests of controls.
d. Level of detection risk.
24. Factors or components of the control environment include all except
a. Organizational structure
b. Human resources
c. Integrity and ethical values
d. All of the above are factors
25. Which of the following is true?
a. the auditor must document the reasons for assessing control risk at the maximum
b. detection risk is equal to audit risk divided by the product of inherent risk and control risk
c. the auditor has no control over detection risk, control risk or inherent risk
d. the auditor should not accept an engagement when inherent risk is set at maximum
26. Which of the following controls would an auditor be least likely to review
a. Segregation of the asset-handling and recordkeeping functions.
b. Company policy regarding credit and collection efforts.
c. Cost records classified by date of product introduction
d. Authorization of additions to plant and equipment
27. An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the
a. Availability of data aggregated at a high level.
b. Relative effectiveness and efficiency of the tests.
c. Timing of tests performed after the balance sheet date.
d. Auditor s familiarity with industry trends
28. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining
a. Whether the predecessor s work should be utilized.
b Whether the company follows the policy of rotating its auditors.
c. Whether in the predecessor s opinion internal control of the company has been satisfactory.
d. Whether the engagement should be accepted.