Question 1

The preferred method of determining fair value of transactions is

Accepted Answer

A)  market-based values. 
B)  basing them on reasonable management assumptions. 
C)  external auditor estimates. 
D)  detailed computations by outside experts. 
A)  market-based values. 
B)  basing them on reasonable management assumptions. 
C)  external auditor estimates. 
D)  detailed computations by outside experts. A

Question 2

The focus of substantive tests in the finance and investment cycle is on

Accepted Answer

A)  reconciliation of detailed listings with general ledger amounts. 
B)  proper cut-off. 
C)  search for unrecorded items. 
D)  gaining an understanding and verifying amounts and calculations. 
A)  reconciliation of detailed listings with general ledger amounts. 
B)  proper cut-off. 
C)  search for unrecorded items. 
D)  gaining an understanding and verifying amounts and calculations. A

Question 3

In auditing intangible assets,an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the ASB balance assertion of

Accepted Answer

A)  valuation. 
B)  existence. 
C)  completeness. 
D)  rights and obligations. 
A)  valuation. 
B)  existence. 
C)  completeness. 
D)  rights and obligations. A

Question 4

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

Accepted Answer

"Off-balance-sheet" financing transactio

Question 5

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

Accepted Answer

A)  Read board of directors' minutes for authorization of equity transactions. 
B)  Confirm outstanding common and preferred stock with stock registrar. 
C)  Compare valuation of stock to published market prices. 
D)  Obtain management representation about number of shares issued and outstanding. 
A)  Read board of directors' minutes for authorization of equity transactions. 
B)  Confirm outstanding common and preferred stock with stock registrar. 
C)  Compare valuation of stock to published market prices. 
D)  Obtain management representation about number of shares issued and outstanding.

Question 6

The board of directors authorizes and executes all investment purchases and sales.

Accepted Answer

A) True 
 B)False

Question 7

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

Accepted Answer

A)  market value used to charge retained earnings to account for a 2-for-1 stock split. 
B)  approval of the adjustment to the beginning balance as a result of a write-down of account receivables. 
C)  authorization for both cash and stock dividends. 
D)  dividends received from investments. 
A)  market value used to charge retained earnings to account for a 2-for-1 stock split. 
B)  approval of the adjustment to the beginning balance as a result of a write-down of account receivables. 
C)  authorization for both cash and stock dividends. 
D)  dividends received from investments.

Question 8

Which of the following approaches is most suitable for auditing the finance and investment cycle?

Accepted Answer

A)  Perform extensive tests of controls and limit substantive procedures to analytical procedures. 
B)  Ignore internal controls and perform extensive substantive procedures. 
C)  Gain an understanding of internal controls and perform extensive substantive procedures. 
D)  Ignore internal controls and limit substantive procedures to analytical procedures. 
A)  Perform extensive tests of controls and limit substantive procedures to analytical procedures. 
B)  Ignore internal controls and perform extensive substantive procedures. 
C)  Gain an understanding of internal controls and perform extensive substantive procedures. 
D)  Ignore internal controls and limit substantive procedures to analytical procedures.

Question 9

Related party transactions

Accepted Answer

A)  must be valued as if they were arm's length. 
B)  must be assumed to be valued differently than if they were arm's length. 
C)  must be disclosed in the financial statements. 
D)  must be disclosed in the financial statements and the auditor's report. 
A)  must be valued as if they were arm's length. 
B)  must be assumed to be valued differently than if they were arm's length. 
C)  must be disclosed in the financial statements. 
D)  must be disclosed in the financial statements and the auditor's report.

Question 10

A related party is a person or entity that

Accepted Answer

A)  has a family tie to a management member. 
B)  does business with the company. 
C)  can exert significant influence over or be influenced by the company. 
D)  is a member of the company's management. 
A)  has a family tie to a management member. 
B)  does business with the company. 
C)  can exert significant influence over or be influenced by the company. 
D)  is a member of the company's management.

Question 11

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

Accepted Answer

For interest-bearing liabilities,interes

Question 12

According to auditing standards,specific relevant aspects of an internal control system for making estimates include:
• Management communication of the need for proper accounting estimates.
• Accumulation of relevant,sufficient,and reliable data for estimates.
• Preparation of estimates by qualified personnel.
• Adequate review and approval by appropriate levels of authority.
• Comparison of prior estimates with subsequent results to assess the reliability of the estimation outcomes.
• Consideration by management of whether particular accounting estimates are consistent with the company's operational plans.
Required:
a.How would the auditor test these control activities over the production of estimates?
b.What substantive audit procedures would the auditor use to test the accounting estimates?

Accepted Answer

a.An auditor would primarily use inquiri

Question 13

When the client holds a large amount of negotiable securities,auditors need to plan to guard against

Accepted Answer

A)  unauthorized negotiation of the securities before they are counted. 
B)  unrecorded sales of securities after they are counted. 
C)  substitution of securities already counted for other securities that should be on hand but are not. 
D)  substitution of authentic securities with counterfeit securities. 
A)  unauthorized negotiation of the securities before they are counted. 
B)  unrecorded sales of securities after they are counted. 
C)  substitution of securities already counted for other securities that should be on hand but are not. 
D)  substitution of authentic securities with counterfeit securities.

Question 14

XYZ Company has investment securities held by a broker.An auditor is reviewing the last broker's statement for the year.For each of the tests 1-5,select the ASB balance assertions listed in A-D that the auditor is testing.

Accepted Answer

1.A; 2.B;

Question 15

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Accepted Answer

A)  Are assets that collateralize notes payable critically needed for the entity's continued existence? 
B)  Are two or more authorized signatures required on checks that repay notes payable? 
C)  Are the proceeds from notes payable used for the purchase of noncurrent assets? 
D)  Are direct borrowings on notes payable authorized by the board of directors? 
A)  Are assets that collateralize notes payable critically needed for the entity's continued existence? 
B)  Are two or more authorized signatures required on checks that repay notes payable? 
C)  Are the proceeds from notes payable used for the purchase of noncurrent assets? 
D)  Are direct borrowings on notes payable authorized by the board of directors?

Question 16

Which of the following is not a relevant aspect of internal controls over estimates?

Accepted Answer

A)  External auditor involvement in developing assumptions. 
B)  Adequate review by appropriate levels of authority. 
C)  Comparison of prior estimates with subsequent results. 
D)  All the above are relevant aspects of internal controls over estimates. 
A)  External auditor involvement in developing assumptions. 
B)  Adequate review by appropriate levels of authority. 
C)  Comparison of prior estimates with subsequent results. 
D)  All the above are relevant aspects of internal controls over estimates.

Question 17

Loan covenants

Accepted Answer

A)  describe the collateral of the loan. 
B)  require the borrower to maintain certain financial characteristics. 
C)  describe the lender's responsibilities. 
D)  include all the above. 
A)  describe the collateral of the loan. 
B)  require the borrower to maintain certain financial characteristics. 
C)  describe the lender's responsibilities. 
D)  include all the above.

Question 18

Which ASB balance assertion is of the most importance to auditors for long-term liabilities?

Accepted Answer

A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Valuation. 
A)  Existence. 
B)  Completeness. 
C)  Rights and obligations. 
D)  Valuation.

Question 19

Taking a "big bath" in the financial statements refers to

Accepted Answer

A)  overstating income. 
B)  overstating revenues. 
C)  understating income. 
D)  an economic downturn. 
A)  overstating income. 
B)  overstating revenues. 
C)  understating income. 
D)  an economic downturn.

Question 20

An agent of a bond issuer who handles the administrative aspects of a loan and ensures that the borrower complies with the terms of the bond indenture is called a

Accepted Answer

A)  registrar. 
B)  transfer agent. 
C)  trustee. 
D)  none of the above. 
A)  registrar. 
B)  transfer agent. 
C)  trustee. 
D)  none of the above.

The preferred method of determining fair value of transactions is

The focus of substantive tests in the finance and investment cycle is on

In auditing intangible assets,an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the ASB balance assertion of

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

The board of directors authorizes and executes all investment purchases and sales.

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

Which of the following approaches is most suitable for auditing the finance and investment cycle?

Related party transactions

A related party is a person or entity that

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

When the client holds a large amount of negotiable securities,auditors need to plan to guard against

XYZ Company has investment securities held by a broker.An auditor is reviewing the last broker's statement for the year.For each of the tests 1-5,select the ASB balance assertions listed in A-D that the auditor is testing.

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Which of the following is not a relevant aspect of internal controls over estimates?

Loan covenants

Which ASB balance assertion is of the most importance to auditors for long-term liabilities?

Taking a "big bath" in the financial statements refers to

An agent of a bond issuer who handles the administrative aspects of a loan and ensures that the borrower complies with the terms of the bond indenture is called a

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

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Exam 10: Finance and Investment Cycle

The preferred method of determining fair value of transactions is

The focus of substantive tests in the finance and investment cycle is on

In auditing intangible assets,an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the ASB balance assertion of

What are "off-balance-sheet" financing transactions? Explain and provide two or more examples.

Which of the following audit procedures would not likely be performed for audits of shareholders' equity?

The board of directors authorizes and executes all investment purchases and sales.

An audit plan for the examination of the retained earnings account should include a step that requires verification of the

Which of the following approaches is most suitable for auditing the finance and investment cycle?

Related party transactions

A related party is a person or entity that

Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.

When the client holds a large amount of negotiable securities,auditors need to plan to guard against

XYZ Company has investment securities held by a broker.An auditor is reviewing the last broker's statement for the year.For each of the tests 1-5,select the ASB balance assertions listed in A-D that the auditor is testing.

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable?

Which of the following is not a relevant aspect of internal controls over estimates?

Loan covenants

Which ASB balance assertion is of the most importance to auditors for long-term liabilities?

Taking a "big bath" in the financial statements refers to

An agent of a bond issuer who handles the administrative aspects of a loan and ensures that the borrower complies with the terms of the bond indenture is called a

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters