Question 1

An audit generally provides no assurance that indirect-effect illegal acts will be detected.

Accepted Answer

A) True 
 B)False

Question 2

The effect of a violation of the completeness transaction-related audit objective for cash disbursements transactions would be an overstatement of cash disbursements.

Accepted Answer

A) True 
 B)False

Question 3

Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated, the auditor should not search for indirect-effect illegal acts unless there is reason to believe they may exist.

Accepted Answer

A) True 
 B)False

Question 4

In order to provide reasonable assurance the audit must be performed with an attitude of professional skepticism. Which of the following is most correct regarding the "attitude" of professional skepticism?

Accepted Answer

A)  auditors should assume that management is dishonest 
B)  auditors should assume that management is neither dishonest nor honest 
C)  auditors should assume that management is honest and mistakes are unintentional 
D)  auditors should assume that management is incumbent in preparing financial statements 
A)  auditors should assume that management is dishonest 
B)  auditors should assume that management is neither dishonest nor honest 
C)  auditors should assume that management is honest and mistakes are unintentional 
D)  auditors should assume that management is incumbent in preparing financial statements

Question 5

When an auditor believes that an illegal act may have occurred, the first step he or she should take is to gather additional evidence to determine the extent of the illegality.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is true of a public company's financial statements?

Accepted Answer

A)  Sarbanes-Oxley requires the CEO only to certify the financial statements. 
B)  Sarbanes-Oxley requires the CFO only to certify the financial statements. 
C)  Sarbanes-Oxley requires the CEO and CFO to certify the financial statements. 
D)  Sarbanes-Oxley neither requires the CEO nor the CFO to certify the financial statements. 
A)  Sarbanes-Oxley requires the CEO only to certify the financial statements. 
B)  Sarbanes-Oxley requires the CFO only to certify the financial statements. 
C)  Sarbanes-Oxley requires the CEO and CFO to certify the financial statements. 
D)  Sarbanes-Oxley neither requires the CEO nor the CFO to certify the financial statements.

Question 7

Audits are expected to provide a higher degree of assurance for the detection of material frauds than is provided for an equally material error.

Accepted Answer

A) True 
 B)False

Question 8

List the four phases of a Financial Statement Audit

Accepted Answer

1. Plan and design an audit approach
2.

Question 9

Auditing standards require that an audit be designed to provide reasonable assurance of detecting:

Accepted Answer

A)  material errors in the financial statements. 
B)  fraud in the financial statements. 
C)  material errors and fraud in the financial statements. 
D)  inadequate disclosure in the notes to the financial statements. 
A)  material errors in the financial statements. 
B)  fraud in the financial statements. 
C)  material errors and fraud in the financial statements. 
D)  inadequate disclosure in the notes to the financial statements.

Question 10

When an auditor has reduced assessed control risk based on tests of controls, he or she may then reduce the extent to which the accuracy of the financial statement information directly related to those controls must be supported through the accumulation of evidence using substantive tests.

Accepted Answer

A) True 
 B)False

Question 11

The most important general ledger account included in and affecting several cycles is the:

Accepted Answer

A)  cash account. 
B)  inventory account. 
C)  income tax expense and liability accounts. 
D)  retained earnings account. 
A)  cash account. 
B)  inventory account. 
C)  income tax expense and liability accounts. 
D)  retained earnings account.

Question 12

Which of the following would most likely be deemed a direct-effect illegal act?

Accepted Answer

A)  violation of federal employment laws 
B)  violation of federal environmental regulations 
C)  violation of federal income tax laws 
D)  violation of civil rights laws 
A)  violation of federal employment laws 
B)  violation of federal environmental regulations 
C)  violation of federal income tax laws 
D)  violation of civil rights laws

Question 13

Why does the auditor divide the financial statements into smaller segments?

Accepted Answer

A)  Using the cycle approach makes the audit more manageable. 
B)  Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces. 
C)  The cycle approach is used because auditing standards require it. 
D)  All of the above are correct. 
A)  Using the cycle approach makes the audit more manageable. 
B)  Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces. 
C)  The cycle approach is used because auditing standards require it. 
D)  All of the above are correct.

Question 14

Which of the following journals would be included most often in the various audit cycles?

Accepted Answer

A)  cash receipts journal 
B)  cash disbursements journal 
C)  general journal 
D)  sales journal 
A)  cash receipts journal 
B)  cash disbursements journal 
C)  general journal 
D)  sales journal

Question 15

Below are five audit procedures, all of which are tests of transactions associated with the audit of the sales and collection cycle. Also below are the six general transaction-related audit objectives and the five management assertions. For each audit procedure, indicate (1) its audit objective, and (2) the management assertion being tested.
   
1. Vouch recorded sales from the sales journal to the file of bills of lading.
(1) ________.
(2) ________.
2. Compare dates on the bill of lading, sales invoices, and sales journal to test for delays in recording sales transactions.
(1) ________.
(2) ________.
3. Account for the sequence of prenumbered bills of lading and sales invoices.
(1) ________.
(2) ________.
4. Trace from a sample of prelistings of cash receipts to the cash receipts journal, testing for names, amounts, and dates.
(1) ________.
(2) ________.
5. Examine customer order forms for credit approval by the credit manager.
(1) ________.
(2) ________.

Accepted Answer

1. (1) A (2) V
2. (1

Question 16

Auditing standards indicate that reasonable assurance is a moderate, but not absolute, level of assurance that the financial statements are free of material misstatement.
B) True

Accepted Answer

A) True 
 B)False

Question 17

In testing for cutoff, the objective is to determine:

Accepted Answer

A)  whether all of the current period's transactions are recorded. 
B)  whether transactions are recorded in the correct accounting period. 
C)  the proper cutoff between capitalizing and expensing expenditures. 
D)  the proper cutoff between disclosing items in footnotes or in account balances. 
A)  whether all of the current period's transactions are recorded. 
B)  whether transactions are recorded in the correct accounting period. 
C)  the proper cutoff between capitalizing and expensing expenditures. 
D)  the proper cutoff between disclosing items in footnotes or in account balances.

Question 18

The essence of the attest function is to:

Accepted Answer

A)  assure the consistent application of correct accounting procedures. 
B)  determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework such as U.S. GAAP or IFRS. 
C)  examine individual transactions so that the auditor may certify as to their validity. 
D)  detect collusion and fraud. 
A)  assure the consistent application of correct accounting procedures. 
B)  determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework such as U.S. GAAP or IFRS. 
C)  examine individual transactions so that the auditor may certify as to their validity. 
D)  detect collusion and fraud.

Question 19

The transaction-related audit objective of timing is related to the assertion of cutoff.

Accepted Answer

A) True 
 B)False

Question 20

In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

Accepted Answer

A)  GAAP. 
B)  the Sarbanes-Oxley Act. 
C)  the Securities Exchange Act of 1934. 
D)  GAAS. 
A)  GAAP. 
B)  the Sarbanes-Oxley Act. 
C)  the Securities Exchange Act of 1934. 
D)  GAAS.

Exam 6: The CPA Profession

An audit generally provides no assurance that indirect-effect illegal acts will be detected.

The effect of a violation of the completeness transaction-related audit objective for cash disbursements transactions would be an overstatement of cash disbursements.

Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated, the auditor should not search for indirect-effect illegal acts unless there is reason to believe they may exist.

In order to provide reasonable assurance the audit must be performed with an attitude of professional skepticism. Which of the following is most correct regarding the "attitude" of professional skepticism?

When an auditor believes that an illegal act may have occurred, the first step he or she should take is to gather additional evidence to determine the extent of the illegality.

Which of the following statements is true of a public company's financial statements?

Audits are expected to provide a higher degree of assurance for the detection of material frauds than is provided for an equally material error.

List the four phases of a Financial Statement Audit

Auditing standards require that an audit be designed to provide reasonable assurance of detecting:

When an auditor has reduced assessed control risk based on tests of controls, he or she may then reduce the extent to which the accuracy of the financial statement information directly related to those controls must be supported through the accumulation of evidence using substantive tests.

The most important general ledger account included in and affecting several cycles is the:

Which of the following would most likely be deemed a direct-effect illegal act?

Why does the auditor divide the financial statements into smaller segments?

Which of the following journals would be included most often in the various audit cycles?

Auditing standards indicate that reasonable assurance is a moderate, but not absolute, level of assurance that the financial statements are free of material misstatement. B) True

In testing for cutoff, the objective is to determine:

The essence of the attest function is to:

The transaction-related audit objective of timing is related to the assertion of cutoff.

In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

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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