Question 1

The detail tie-in objective is not concerned that the details in the account balance:

Accepted Answer

A)  agree with related subsidiary ledger amounts. 
B)  are properly disclosed in accordance with GAAP. 
C)  foot to the total in the account balance. 
D)  agree with the total in the general ledger. 
A)  agree with related subsidiary ledger amounts. 
B)  are properly disclosed in accordance with GAAP. 
C)  foot to the total in the account balance. 
D)  agree with the total in the general ledger. B

Question 2

The objective of the ordinary audit of financial statements is the expression of an opinion on:

Accepted Answer

A)  the fairness of the financial statements in all material respects. 
B)  the accuracy of the financial statements. 
C)  the accuracy of the annual report. 
D)  the accuracy of the balance sheet and income statement. 
A)  the fairness of the financial statements in all material respects. 
B)  the accuracy of the financial statements. 
C)  the accuracy of the annual report. 
D)  the accuracy of the balance sheet and income statement. A

Question 3

If several employees collude to falsify documents, the chance a normal audit would uncover such acts is:

Accepted Answer

A)  very low. 
B)  very high. 
C)  zero. 
D)  none of the above. 
A)  very low. 
B)  very high. 
C)  zero. 
D)  none of the above. A

Question 4

The auditor's responsibility for uncovering direct-effect illegal acts is the same as for fraud.

Accepted Answer

A) True 
 B)False

Question 5

An important balance related objective is realizable value. Describe what is the purpose of this audit objective, what it is concerned with, and give an example.

Accepted Answer

Purpose-assets are included on the balan

Question 6

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

Accepted Answer

A)  board of directors. 
B)  company management. 
C)  financial statement auditor. 
D)  company's internal audit department. 
A)  board of directors. 
B)  company management. 
C)  financial statement auditor. 
D)  company's internal audit department.

Question 7

The audit objective of posting and summarization is associated with the management assertion of accuracy.

Accepted Answer

A) True 
 B)False

Question 8

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of:

Accepted Answer

A)  transactions. 
B)  balances. 
C)  costs. 
D)  cutoffs. 
A)  transactions. 
B)  balances. 
C)  costs. 
D)  cutoffs.

Question 9

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:

Accepted Answer

A)  tests of controls. 
B)  tests of transactions. 
C)  understanding the entity's internal control. 
D)  the assessment of whether to accept the audit engagement. 
A)  tests of controls. 
B)  tests of transactions. 
C)  understanding the entity's internal control. 
D)  the assessment of whether to accept the audit engagement.

Question 10

The concept of reasonable assurance indicates that the auditor is:

Accepted Answer

A)  not a guarantor of the correctness of the financial statements. 
B)  not responsible for the fairness of the financial statements. 
C)  responsible only for issuing an opinion on the financial statements. 
D)  responsible for finding all misstatements. 
A)  not a guarantor of the correctness of the financial statements. 
B)  not responsible for the fairness of the financial statements. 
C)  responsible only for issuing an opinion on the financial statements. 
D)  responsible for finding all misstatements.

Question 11

Which of the following is most correct with regard to the auditor's search of indirect-effect illegal acts that may have been committed by the client?

Accepted Answer

A)  No reason to search unless there is sufficient evidence to believe they have occurred. 
B)  Same audit responsibility as the search for financial statement fraud. 
C)  Same audit responsibility as the search for misappropriated assets. 
D)  No reason to search as they would have an indirect effect on the financial statements. 
A)  No reason to search unless there is sufficient evidence to believe they have occurred. 
B)  Same audit responsibility as the search for financial statement fraud. 
C)  Same audit responsibility as the search for misappropriated assets. 
D)  No reason to search as they would have an indirect effect on the financial statements.

Question 12

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:

Accepted Answer

A)  the auditor. 
B)  management. 
C)  both management and the auditor equally. 
D)  management for the statements and the auditor for the notes. 
A)  the auditor. 
B)  management. 
C)  both management and the auditor equally. 
D)  management for the statements and the auditor for the notes.

Question 13

When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:

Accepted Answer

A)  include audit procedures which have a strong probability of detecting illegal acts. 
B)  still include some audit procedures designed specifically to uncover illegalities. 
C)  ignore the issue. 
D)  make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities. 
A)  include audit procedures which have a strong probability of detecting illegal acts. 
B)  still include some audit procedures designed specifically to uncover illegalities. 
C)  ignore the issue. 
D)  make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.

Question 14

If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls, and analytical procedures, then the auditor:

Accepted Answer

A)  can issue an unqualified opinion. 
B)  can significantly reduce other substantive tests. 
C)  can write the engagement letter. 
D)  needs to perform additional tests of controls so that the assurance level can be increased. 
A)  can issue an unqualified opinion. 
B)  can significantly reduce other substantive tests. 
C)  can write the engagement letter. 
D)  needs to perform additional tests of controls so that the assurance level can be increased.

Question 15

International auditing standards and U.S. GAAP classify assertions into three categories. Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

Accepted Answer

A)  Assertions about classes of transactions for the period under audit 
B)  Assertions about account balances at period end 
C)  Assertions about the quality of source documents used to prepare the financial statements 
D)  Assertions about presentation and disclosure 
A)  Assertions about classes of transactions for the period under audit 
B)  Assertions about account balances at period end 
C)  Assertions about the quality of source documents used to prepare the financial statements 
D)  Assertions about presentation and disclosure

Question 16

Which of the following statements is usually true?

Accepted Answer

A)  It is easier for the auditor to uncover fraud than errors. 
B)  It is easier for the auditor to uncover indirect-effect illegal acts than fraud. 
C)  The auditor's responsibility for detecting direct-effect illegal acts is similar to the responsibility to detect fraud. 
D)  The auditor's responsibility for detecting indirect-effect illegal acts is similar to the responsibility to detect fraud. 
A)  It is easier for the auditor to uncover fraud than errors. 
B)  It is easier for the auditor to uncover indirect-effect illegal acts than fraud. 
C)  The auditor's responsibility for detecting direct-effect illegal acts is similar to the responsibility to detect fraud. 
D)  The auditor's responsibility for detecting indirect-effect illegal acts is similar to the responsibility to detect fraud.

Question 17

Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements?

Accepted Answer

A)  The auditor commonly examines a sample, rather than the entire population of transactions. 
B)  Accounting presentations contain complex estimates which involve uncertainty. 
C)  Fraudulently prepared financial statements are often difficult to detect. 
D)  Auditors believe that reasonable assurance is sufficient in the vast majority of cases. 
A)  The auditor commonly examines a sample, rather than the entire population of transactions. 
B)  Accounting presentations contain complex estimates which involve uncertainty. 
C)  Fraudulently prepared financial statements are often difficult to detect. 
D)  Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

Question 18

When an auditor believes that an illegal act may have occurred, the auditor should first:

Accepted Answer

A)  inquire of management at a level above those likely to be involved. 
B)  consult with legal counsel of others knowledgeable about the illegal acts. 
C)  accumulate additional evidence. 
D)  withdraw from the engagement. 
A)  inquire of management at a level above those likely to be involved. 
B)  consult with legal counsel of others knowledgeable about the illegal acts. 
C)  accumulate additional evidence. 
D)  withdraw from the engagement.

Question 19

If an auditor conducted an audit in accordance with auditing standards, which of the following would the auditor likely detect?

Accepted Answer

A)  unrecorded transactions 
B)  errors in postings of recorded transactions 
C)  counterfeit signatures on paid checks 
D)  fraud involving collusion 
A)  unrecorded transactions 
B)  errors in postings of recorded transactions 
C)  counterfeit signatures on paid checks 
D)  fraud involving collusion

Question 20

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities, including but not limited to the police, and for publicly held companies, the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Exam 6: The CPA Profession

The detail tie-in objective is not concerned that the details in the account balance:

The objective of the ordinary audit of financial statements is the expression of an opinion on:

If several employees collude to falsify documents, the chance a normal audit would uncover such acts is:

The auditor's responsibility for uncovering direct-effect illegal acts is the same as for fraud.

An important balance related objective is realizable value. Describe what is the purpose of this audit objective, what it is concerned with, and give an example.

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

The audit objective of posting and summarization is associated with the management assertion of accuracy.

The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of:

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:

The concept of reasonable assurance indicates that the auditor is:

Which of the following is most correct with regard to the auditor's search of indirect-effect illegal acts that may have been committed by the client?

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:

When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:

If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls, and analytical procedures, then the auditor:

International auditing standards and U.S. GAAP classify assertions into three categories. Which of the following is not a category of assertions that management makes about the accounting information in financial statements?

Which of the following statements is usually true?

Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements?

When an auditor believes that an illegal act may have occurred, the auditor should first:

If an auditor conducted an audit in accordance with auditing standards, which of the following would the auditor likely detect?

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities, including but not limited to the police, and for publicly held companies, the Securities and Exchange Commission.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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