Audit Final Exam May 2010

53 Questions | Total Attempts: 540

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Audit Final Exam May 2010

Dr. Hwangs final audit 416 multiple choice form book


Questions and Answers
  • 1. 
    The audit step most likely to reveal the existence of contingent liabilities is?
    • A. 

      A review of vouchers paid during the month following the year end

    • B. 

      An inquiry directed to legal counsel

    • C. 

      Accounts payable confirmation

    • D. 

      Mortgage note confirmation

  • 2. 
    When obtaining evidence regarding litigation against a client, the CPA will be least interested in determining?
    • A. 

      The period in which the underlying cause of the litigation occured

    • B. 

      The probability of an unfavorable outcome

    • C. 

      An estimate of when the matter will be resolved

    • D. 

      An estimate of the potential loss

  • 3. 
    When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of the contingency in the footnotes based on information available at the date of issuance, the auditor should?
    • A. 

      Take no action regarding the event

    • B. 

      Insist that the client issue revised financial statements

    • C. 

      Inform the audit committee that the report cannot be relied on

    • D. 

      Inform the appropriate authorities that the report cannot be relied on

  • 4. 
    A principal purpose of a letter of representation from management is to?
    • A. 

      Serve as an introduction to company personnel and an authorization to examine the records

    • B. 

      Discharge the auditor from legal liability for the audit

    • C. 

      Confirm in writing managements approval of limitations on the scope of the audit

    • D. 

      Remind management of its primary responsibility for financial statements

  • 5. 
    The date of the management representation letter should coincide with the?
    • A. 

      Balance sheet date

    • B. 

      Date of the auditors report

    • C. 

      Date of the latest subsequent event referred to in the notes to the financial statements

    • D. 

      Date of the engagement agreement

  • 6. 
    Management's refusal to furnish a written representation on a matter that the auditor considers essential constitutes?
    • A. 

      Prima facie evidence that the financial statements are not presented fairly

    • B. 

      A violation of the foreign corrupt practices act

    • C. 

      An uncertainty sufficient to preclude an unqualified opinion

    • D. 

      A scope limitation sufficient to preclude an unqualified opinion

  • 7. 
    Subsequent events for reporting purposes are defined as events that occur subsequent to the?
    • A. 

      Balance sheet date

    • B. 

      Date of the auditors report

    • C. 

      Balance sheet date but before the date of the auditor's report

    • D. 

      Date of the auditor's report and concern contingencies that are not reflected in the financial statements

  • 8. 
    Ana example of an event occurring in the period of the auditors field work subsequent to the end of the year being audited that normally will not require disclosure in the financial statements or auditor's report is?
    • A. 

      Serious damage to the company's plant from a widespread flood

    • B. 

      Issuance of a widely advertised capital stock issue with restrictive covenants

    • C. 

      Settlement of a large liability for considerably less than the amount recorded

    • D. 

      Decreased sales volume resulting from a general business recession

  • 9. 
    Karr has audited the F/S of Lurch corporation for the year ended Dec. 31, 2009. Karr's field work was completed on Feb. 27 2010, Karrs auditor's report was dated Feb. 28 2010 and was received by the management of Lurch on March 5, 2010. On April 4, 2010, the management of Lurch asked that Karr approve inclusion of this report in their annual report to stockholders, which will include unaudited financial statements for the first quarter ended March31, 2010. Karr approved the inclusion of the auditor's report in the annual report to stockholders. Under the circumstances, Karr is responsible for inquiring as to the subsequent events occurring through?
    • A. 

      Feb. 27, 2010

    • B. 

      Feb. 28, 2010

    • C. 

      March 31, 2010

    • D. 

      April 4, 2010

  • 10. 
    Which of the following best describes the auditors reporting responsibility concerning information accompanying the basic financial statements in an auditor submitted document?
    • A. 

      The auditor has no reporting responsibility concerning info accompanying the basic financial statements

    • B. 

      The auditor should report on the info accompanying the basic financial statements only if the auditor participated in its preparation

    • C. 

      The auditor should report on the information accompanying the basic f/s only if the auditor did not participate in its preparation

    • D. 

      The auditor should report on all the information included in the document

  • 11. 
    Ansman, CPA, has been requested by a client, Rainco Corp., to prepare info in addition to the basic F/S for this years audit. which of the following is the best reason for Rainco's requesting the additional info?
    • A. 

      To provide an opinion about the supplemental info when certain items are not in accordance with GAAP

    • B. 

      To provide Rainco's creditors a greater degree of assurance as to the financial soundness of the company

    • C. 

      To provide Rainco's management with info to supplement and analyze the basic F/S

    • D. 

      To provide the documentation required by the SEC in anticipation of a public offering of Raincos stock

  • 12. 
    Ansman, CPA, has been requested by a client, Rainco corp, to prepare additional info accompanying the basic F/S for this years audit. In issuing the additional info, Ansman must be certain to?
    • A. 

      Issue a standard short-form report on the same audit

    • B. 

      Include a description of the scope of the audit in more detail than the description in the usual short-form report

    • C. 

      State the source of any statistical data and that such data have not been subjected to the same auditing procedures as the basic F/S

    • D. 

      Maintain a clear cut distinction between management's representations and the auditor's representations

  • 13. 
    In a company with materials and supplies that include a great number of items, a fundamental deficiency in control requirements would be indicated if?
    • A. 

      The cycle basis for physical inventory taking was to be used

    • B. 

      Minor supply items were to be expensed when acquired

    • C. 

      A perpetual inventory master file is not maintained for items of smaller value

    • D. 

      The storekeeping function were to be combined with production and record keeping

  • 14. 
    For control purposed, the quantities of materials ordered may be omitted from the copy of the purchase order that is?
    • A. 

      Returned to the requisitioner

    • B. 

      Forwarded to the receiving department

    • C. 

      Forwarded to the accounting department

    • D. 

      Retained in the purchasing departments files

  • 15. 
    Which of the following procedures will best detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?
    • A. 

      Maintain a perpetual inventory master file of only the more valuable items with frequent periodic verification of the validity of the perpetuals

    • B. 

      Have an independent CPA firm prepare an internal control report on the effectiveness of the administrative and accounting controls over inventory

    • C. 

      Have separate warehouse space for the more valuable items with sequentially numbered tags

    • D. 

      Require an authorized officer's signature on all requisitions for the more valuable items

  • 16. 
    When an auditor tests a client's cost accounting records, the auditors tests are primarily designed to determine that?
    • A. 

      Costs have been correctly assigned to finished goods, work in process, and cost of goods sold

    • B. 

      Quantities on hand have been computed based on acceptable cost accounting techniques that reasonably approximate actual quantities on hand

    • C. 

      Physical inventories are in substantial agreement with book inventories

    • D. 

      The internal controls are in accordance with GAAP and are functioning as planned

  • 17. 
    The accuracy of perpetual inventory master files may be established, in part, by comparing perpetual inventory records with?
    • A. 

      Purchase requisitions

    • B. 

      Receiving reports

    • C. 

      Purchase orders

    • D. 

      Vendor payments

  • 18. 
    When evaluating inventory controls with respect to segregation of duties, a CPA will be least likely to?
    • A. 

      Make inquiries

    • B. 

      Inspect documents

    • C. 

      Observe procedures

    • D. 

      Consider policy and procedure manuals

  • 19. 
    An auditor will be most likely to learn of slow moving inventory through?
    • A. 

      Inquiry of sales personnel

    • B. 

      Inquiry of store personnel

    • C. 

      Physical observation

    • D. 

      Review of perpetual inventory master files

  • 20. 
    An inventory turnover analysis is useful to the auditor because it may detect?
    • A. 

      Inadequacies in inventory pricing

    • B. 

      Methods of avoiding cyclical holding costs

    • C. 

      The existence of obsolete inventory

    • D. 

      Physical quantity of inventory items

  • 21. 
    A CPA auditing inventory may appropriately apply attributes sampling to estimate the?
    • A. 

      Average price of inventory items

    • B. 

      Percentage of slow moving items

    • C. 

      Dollar value of inventory

    • D. 

      Physical quantity of inventory items

  • 22. 
    Which of the following controls most likely will justify a reduced assessed level of control risk concerning plant and acquisitions?
    • A. 

      Periodic physical inspection of plant and equipment by the internal audit staff

    • B. 

      Comparison of current-year plant and equipment account balances with prior-year balances

    • C. 

      Review of prenumbered purchase orders to detect unrecorded trade-ins

    • D. 

      Approval of periodic depreciation entries by a supervisor independent of the accounting department

  • 23. 
    Which of the following is not an internal control deficiency related to factory equipment?
    • A. 

      Checks issued in payment of acquisitions of equipment are not signed by the controller

    • B. 

      All acquisitions of factory equipment are required to be made by the department in need of equipment

    • C. 

      Factory equipment replacements are generally made when estimated useful lives as indicated in depreciation schedules, have expired

    • D. 

      Proceeds from sales of fully depreciated equipment are credited to other income

  • 24. 
    With respect to an internal control measure that will ensure accountability for fixed asset retirements, management should implement controls that include?
    • A. 

      Continuous analysis of miscellaneous revenue to locate any cash proceeds from sale of plant assets

    • B. 

      Periodic inventory of plant executives by internal auditors as to whether any plant assets have been retired

    • C. 

      Continuous use of serially numbered retirement work orders

    • D. 

      Periodic observation of plant assets by the internal auditors

  • 25. 
    Which of the following comparisons will be most useful to an auditor in auditing an entity's income and expense accounts?
    • A. 

      Prior year accounts payable to current year accounts payable

    • B. 

      Prior year payroll expense to budgeted current year payroll expense

    • C. 

      Current year revenue to budgeted current year revenue

    • D. 

      Current year warranty expense to current year contingent liabilities