Graded Homework

Question 2 of 50
Internal control is a process designed to achieve objectives in __________________. All of these categories.
None of these categories. Compliance with applicable laws.
Operational Effectiveness.
Reliability of financial reporting. 

Question 3 of 50
When an audit firm issues an Integrated Audit Report, it provides opinion(s)
on which of the following? Internal controls.
The financial statements.
Neither financial statements or internal controls.
Sarbanes­Oxley compliance Both financial statements and internal controls. 

Question 4 of 50
Which of the following accounts is not a directly related account in the revenue cycle? Accounts receivable
Warranty expense Sales discounts
Allowance for doubtful accounts
Sales returns and allowances 

Question 5 of 50
Which of the following statements is false? Audit documentation should include the initials or electronic signature in order to identify the audit personnel responsible for the work and the managers and partners reviewing the work.
The client’s verbal evidence is more reliable than evidence from independent outside sources.
The reliability of audit evidence is a measure of the quality of the underlying
evidence and is influenced by risk, potential management bias associated with the evidence, and the quality of the internal control system underlying the preparation of the evidence.
The relevance of audit evidence depends on the audit assertion being tested.
Analytical procedures are a type of substantive evidence. 

Question 6 of 50
In which of the following independent situations, is it most likely that fraud related to revenue recognition will be identified by the auditor? Sales have decreased 5% in the current period over the previous period and is consistent with the results of competitors.
Gross margin is equivalent in the current period to previous periods and is below that of the industry.
The sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.
Sales have increased 5% in the current period over the previous period and
is consistent with the results of competitors.
Sales are higher in the month preceding each quarter end. 

Question 7 of 50
The Sarbanes­Oxley Act strengthened auditor independence by _______________. requiring auditors to report the nature of any auditor­client disagreements to the SEC.
requiring all audit staff members to be certified public accountants.
requiring the lead partner to rotate off the audit engagement at least every five years.
requiring a different audit firm from the one that performs the audit to prepare the client’s tax return. requiring auditors to provide reports in accordance with the Foreign Corrupt
Practices Act. 

Question 8 of 50
In smaller audit firms, it is typical that __________________________. None of these answers are correct.
The type of work is primarily external audits.
The firm has multiple teams that overlap across engagements.
The firm has a relatively higher level of staff turnover.
The firm has multiple teams that work on the audit of a single entitiy and then disband. 

Question 9 of 50
If _________________________, this would indicate that fraud is pervasive throughout the company under audit. All of these would indicate that fraud is pervasive.
The company’s management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.
The company’s management drives luxury vehicles and takes vacations to exotic places. The company’s management takes an overly aggressive approach to revenue recognition.
The company’s management negotiates deals with vendors in such a manner as to pay lower prices.

Question 10 of 50
Which of the following statements is false? The predecessor auditor can be a source of information about the integrity of a company’s management.
Detection Risk equals Audit Risk divided by Control Risk
Technological changes can affect a company’s business risk.
Net profit margin equals Net Income divided by Net Sales.
Trend analysis can involve year­to­year comparisons of projections of account balances. 

Question 11 of 50
An auditor uses an aged accounts receivable report to accomplish which of
the following? Encourage the client to collect on receivables that are long past due.
Assess the adequacy of the allowance for doubtful accounts. To uncover lapping
Select the type of confirmations that will be sent to banks.
Identify debits in the receivables balance that should be reclassified to payables. 

Question 12 of 50
The most common criteria against which the auditor measures the fairness of financial statement presentation for a U.S.­based company is: Auditing standards
Government accounting principles
Generally accepted accounting principles
Generally accepted accounting standards
Sarbanes­Oxley compliance 

Question 13 of 50
An example of a walk­through would be when _______________________. The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding. The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.
All of these are examples of walk­throughs.
The auditor walks the production line to find inefficiencies in the inventory process and reports them to management.
The controller takes a sample of recorded write­offs to ensure they have been properly approved. 

Question 14 of 50
COSO is sponsored by all of the following organizations, except: Financial Executives International
The Institute of Internal Auditors
The American Accounting Association
The Securities and Exchange Commission (SEC)
The AICPA 

Question 15 of 50
All of the following statements are false, except: The SEC and PCAOB independence rules for auditors are identical. The Sarbanes­Oxley Act sought to improve audit quality by removing the auditor independence requirements.
Rule 102, Integrity and Objectivity,of the AICPA Professional Code of Conduct, does not apply to a CPA who is a corporate CFO.
Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved.
Communication between an auditor and an audit client is deemed to be privileged communication in most states. 

Question 16 of 50
All of the following statements are false except: Inspection of an asset generally provides reliable evidence about the rights and obligations assertion related to that asset.
Tracing is a process that helps establish that recorded transactions are valid.
Inspection of tangible assets generally provides reliable evidence with the respect to the completeness of the assets, but not necessarily about the existence of the assets.
While inspecting documents, auditors should use original documents rather
than copies, because copies are easy for management to falsify.
Auditors should mail third party confirmations through the client’s mailroom. 

Question 17 of 50 Which of the following statements is true? Auditors need to choose materiality amounts carefully because once a materiality judgment has been made, it cannot be revised.
The revenue cycle considered by auditors includes the sales process but not collections.
The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable.
Auditors and management should agree on what is considered material.
The use of prenumbered sales invoices is the primary control procedure to satisfy the objective of authorization. 

Question 18 of 50
All of the following statements are true, except: An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits
Auditors need to consider fraud arising from misappropriation of assets and
fraudulent financial reporting.
Contingent fees are prohibited for tax professionals when preparing tax returns for clients Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees.
Managers must use professional judgment to determine whether identified control deficiencies rise to the level of a significant deficiency or material weakness. 

Question 19 of 50
The best definition of a scienter is _________________________. None of these choices is correct.
A causal connection between a misstatement and a material loss.
A wrongful state of mind when making a misrepresentation.
A material omission of facts.
Fraudulent conduct in the purchase of a security. 

Question 20 of 50
The auditor’s detection of __________________ is a key indicator of fraud in the revenue cycle. None of these answers are correct.
Altered shipping documents and invoices. Customer collections that are over 90 days past due.
Credit entries in customer accounts receivable for authorized writeoffs.
Recurring entries in the sales journal. 

Question 21 of 50
Research consistently shows that there are three factors associated with most frauds. The three factors are:
1. Incentives or Pressures
2. Opportunities
3. Attitudes or Rationalization
With each factor, there are indicators that the factor may exist.
Which of the following indicators is not associated with the Opportunities factor? Ineffective monitoring by management.
Weak or nonexistent internal controls.
Complex or difficult to understand transactions.
Aggressive accounting stance.
Audit firm focus is on consulting for higher fees rather that audit services. Question 22 of 50
Having _________________ is the best description of professional skepticism. an attitude of intrusion and obstinacy
an independent appearance
a character that does not waiver
a questioning mind
an intent to deceive Question 23 of 50
An example of ________________________ is when an auditor selects a sample of items recorded and traces them back to the supporting documentation. Direct testing for rights.
Accuracy testing for presentation.
Direct testing for valuation.
Directional testing for existence.
Directional testing for completeness. 

Question 24 of 50 Of the following types of audit evidence, _______________ is the least reliable. Evidence that the auditor observed directly.
Evidence from the client’s organization.
Original documents.
Evidence derived from a well­controlled system.
Evidence from independent outside sources. 

Question 25 of 50
Under the Sarbanes­Oxley Act, __________________ performed by registered accounting firms for their audit clients would not impair their independence. systems design services
bookkeeping services
tax services
appraisal services
internal audit services 

Question 26 of 50
Which of the following statements is false? An appropriate mix of evidence for a low risk client could include 20% tests of details, 40% analytics, and 40% tests of controls; an appropriate mix of evidence for a high risk client could include 60% tests of details, 20% analytics, and 20% tests of controls.
When business risk is low, the auditor does not have a high concern about the ability of the organization to operate efficiently.
The purpose of the auditor’s consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.
Touring a company’s plant offers much insight into potential audit issues.
A company that ships a large quantity of its products from its manufacturing
plant to a warehouse that it leases until the customer is ready for the product should record the delivery as revenue. 

Question 27 of 50
Appropriateness of evidence is a measure of ______________. Quantity of evidence.
Quality of evidence.
Meaning of evidence. None of these answers are correct.
Sufficiency of evidence. 

Question 28 of 50
Performance of audit procedures at an interim date causes the risk of material misstatement occurring between the interim date and the end of the year to _________________. Become less difficult to ascertain
Remain the same
Decrease
Increase
Become more difficult to ascertain Question 29 of 50
The _______________ is responsible for setting International Standards of Auditing. AICPA
IFRS
IASB IAASB
FASB 

Question 30 of 50
The _________________ phase of the audit opinion formulation process is
most commonly thought of as auditing by the general public. performing risk assessment
obtaining evidence about internal controls
None of these answers are correct.
obtaining substantive evidence about accounts
making reporting decisions 

Question 31 of 50
The concept of the Third­Party Beneficiary Test was established by the _________________ court case. None of these answers are correct.
Rosenblum v. Adler
Citizens State Bank v. Timm, Schmidt, & Co. Ultramares Corp. v. Touche
Credit Alliance Corp. v. Arthur Andersen & Co. Question 32 of 50
__________________ would be an example of a physical control to safeguard assets. Locks on the warehouse doors.
All of these are examples of physical controls to safeguard assets.
Separation of duties.
Hiring only trustworthy cashiers.
Safety audits on the production­line. 

Question 33 of 50
According to the SEC, all of the following are criteria for determining revenue recognition, except: Persuasive evidence of an arrangement should exist
All of these criteria should be present
Collectibility should be reasonably assured The seller’s price to the buyer should be fixed or determinable
Delivery should have occurred, or services should have been rendered 

Question 34 of 50
Which of the following statements is true? Internal audit is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.
Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization.
The AICPA has a peer review program that reviews and evaluates the portions of an audit firm’s accounting and audit practice that are not inspected by the PCAOB.
Obtaining evidence about internal controls is the phase of the audit opinion formulation process that is most commonly thought of as auditing by the general public.
The SEC and PCAOB independence rules for auditors are identical. 

Question 35 of 50
The public expects which of the following from a firm’s external auditors? Understand and enforce principles that best portray the spirit of FASB concepts.
Take responsibility for the discovery of fraud.
Be neutral to preparers and users of financial information.
The public expects all of these from a firm’s external auditors.
Recognize that the investing public is the primary user of audit services. 

Question 36 of 50
Auditing is important in a free market society because __________________. The public requires auditors to function as divisions of regulatory bodies.
The auditor is an amiable insurance policy for investors.
Auditors detect all errors and fraud perpetrated by company employees.
It provides reliable information upon which to judge economic performance.
All of these are correct. 

Question 37 of 50
All of the following statements are false, except: The auditor’s determination that day’s sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.
Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.
Audit procedures have to be announced or be completed at predictable times.
A detection risk of 90% would suggest that an auditor must perform extensive substantive audit testing.
An attitude of professional skepticism by the auditor is not needed when internal controls over revenue have been tested and found to be effective. 

Question 38 of 50
According to the SOX Act, an auditor may perform ______________ without impairing their independence. Performing any of these services would impair an auditor’s independence.
tax services
actuarial services
appraisal services
internal audit services 

Question 39 of 50 The relationship between audit risk and detection risk is ______________. no relationship
none of these answers are correct
inverse
indirect
direct Question 

40 of 50
A company will implement credit approval policies primarily _______________. to ensure the realization of receivables.
to ensure customer satisfaction.
to prevent lapping by the accounts receivable department.
to determine revenue recognition policies.
to minimize sales returns and allowances. 

Question 41 of 50 Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons? None of these answers are correct.
The address may be routed to the client for retrieval and fraudulent signing.
Confirmations should be sent only to business addresses and not residential.
Confirmations are selected based upon zip codes.
A P.O. Box is more reliable than a street address. 

Question 42 of 50
All of the following are threats to an auditor’s independence, except: Management participation threat
Political association threat
Advocacy threat
Financial self­interest threat
Self­review threat Question 

43 of 50 The auditor would perform an audit procedure to ________________ in order to determine whether any accounts receivables are pledged or assigned to others. Test a sample of transactions to the general ledger.
None of these answers are correct.
Derive an independent estimate of the allowance and compare it to pledged assets.
Examine subsequent collections.
Review loan agreements and board of directors’ meeting minutes. 

Question 44 of 50
The process of vouching helps establish that ___________________. Transactions are valid.
Transactions are presented properly.
Transactions have been recorded.
Transactions are complete.
None of these answers are correct. 

Question 45 of 50
______________ is the audit report referred to when the auditor has no reservations about management’s financial statements. An integrated report
An unqualified report
A peer review
A qualified report
An adverse report 

Question 46 of 50
Which of the following statements is true? Auditors generally need quantitative and mathematical skillsets more than they need communication and leadership skills.
Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.
The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement. Management of companies should have the ability to hire and fire the external auditor.
Audits of publicly traded companies must be performed by multinational accounting firms. 

Question 47 of 50
Which of the following procedures has to be completed at or after the end of the period? Evaluation of adjusting entries
Engagement letter
All of these must be completed prior to period end
Brainstorming
Assessment of control risk 

Question 48 of 50
All of the following are true, except: An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.
The direction of testing from recorded amounts toward supporting documentation provides evidence as to existence of assets and revenues. Tracing is a process that helps establish that recorded transactions are valid.
Valid evidence obtained in an audit for testing the cutoff of gross sales includes receiving reports for returned merchandise.
The auditor uses professional judgment to determine which audit procedures to perform. 

Question 49 of 50
__________________ are most often involved in perpetuating fraudulent financial reporting. The chief executive and chief financial officers.
The treasurer and the board of directors.
The auditors and the attorneys.
The corporate secretary and accounting manager.
The shareholders and the chief operating officer. 

Question 50 of 50
_________________ is the first phase in an audit. Client acceptance or client continuance Understanding the client
Testing the revenue cycle
Testing of account balances
Understanding internal controls