Question 1

The effect of a violation of the existence transaction-related audit objective for the sales account would be an overstatement of that account.

Accepted Answer

A) True 
 B)False

Question 2

Discuss the actions an auditor should take when the auditor discovers an illegal act.

Accepted Answer

1. The auditor should first consider the

Question 3

If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct:

Accepted Answer

A)  bankruptcies could no longer occur. 
B)  bankruptcies would be reduced to a very small number. 
C)  audits would be much easier to complete. 
D)  audits would not be economically practical. 
A)  bankruptcies could no longer occur. 
B)  bankruptcies would be reduced to a very small number. 
C)  audits would be much easier to complete. 
D)  audits would not be economically practical.

Question 4

The general balance-related audit objective that deals with determining that details in the account balance agree with related master file amounts, foot to the total in the account balance, and agree with the total in the general ledger is the detail tie-in objective.

Accepted Answer

A) True 
 B)False

Question 5

In the context of the audit of sales, distinguish between the existence and completeness transaction-related audit objectives. State the effect on the sales account (overstatement or understatement) of a violation of each objective.

Accepted Answer

When testing the existence objective for

Question 6

The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected.

Accepted Answer

A)  important to the financial statements 
B)  statistically significant to the financial statements 
C)  material to the financial statements 
D)  identified by the client 
A)  important to the financial statements 
B)  statistically significant to the financial statements 
C)  material to the financial statements 
D)  identified by the client

Question 7

The detail tie-in is part of the ________ assertion for account balances.

Accepted Answer

A)  classification 
B)  valuation and allocation 
C)  rights and obligations 
D)  completeness 
A)  classification 
B)  valuation and allocation 
C)  rights and obligations 
D)  completeness

Question 8

Auditors accumulate evidence to:

Accepted Answer

A)  defend themselves in the event of a lawsuit. 
B)  justify the conclusions they have otherwise reached. 
C)  satisfy the requirements of the Securities Acts of 1933 and 1934. 
D)  enable them to reach conclusions about the fairness of the financial statements. 
A)  defend themselves in the event of a lawsuit. 
B)  justify the conclusions they have otherwise reached. 
C)  satisfy the requirements of the Securities Acts of 1933 and 1934. 
D)  enable them to reach conclusions about the fairness of the financial statements.

Question 9

Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each account balance?

Accepted Answer

A)  The specific audit objectives are applicable to every account balance on the financial statements. 
B)  The general audit objectives are applicable to every account balance on the financial statements. 
C)  The general audit objectives are stated in terms tailored to the engagement. 
D)  For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded. 
A)  The specific audit objectives are applicable to every account balance on the financial statements. 
B)  The general audit objectives are applicable to every account balance on the financial statements. 
C)  The general audit objectives are stated in terms tailored to the engagement. 
D)  For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.

Question 10

Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.

Accepted Answer

• Most audit evidence results from testi

Question 11

Briefly explain each management assertion related to presentation and disclosure.

Accepted Answer

• Occurrence and rights and obligations.

Question 12

Which of the following statements is correct with respect to the auditor's responsibilities relative to the detection of indirect-effect illegal acts?

Accepted Answer

A)  The auditor has no responsibility for searching for indirect-effect illegal acts. 
B)  The auditor has the same responsibility for searching for indirect-effect illegal acts as any other potential misstatement that may occur. 
C)  Auditors have responsibility for searching for any illegal act, whether direct-effect or indirect-effect. 
D)  Discovery of indirect-effect illegal acts is usually easier than discovery of fraud. 
A)  The auditor has no responsibility for searching for indirect-effect illegal acts. 
B)  The auditor has the same responsibility for searching for indirect-effect illegal acts as any other potential misstatement that may occur. 
C)  Auditors have responsibility for searching for any illegal act, whether direct-effect or indirect-effect. 
D)  Discovery of indirect-effect illegal acts is usually easier than discovery of fraud.

Question 13

The cutoff objective, "transactions near the balance sheet date are recorded in the proper period," is a balance-related audit objective.

Accepted Answer

A) True 
 B)False

Question 14

When the auditor has reason to believe an illegal act has occurred, the auditor should:

Accepted Answer

A)  inquire of management only at one level below those likely to be involved with the illegality. 
B)  begin communication with the FASB in accordance with PCAOB regulations. 
C)  consider accumulating additional evidence to determine if there is actually an illegal act. 
D)  withdraw from the engagement. 
A)  inquire of management only at one level below those likely to be involved with the illegality. 
B)  begin communication with the FASB in accordance with PCAOB regulations. 
C)  consider accumulating additional evidence to determine if there is actually an illegal act. 
D)  withdraw from the engagement.

Question 15

Tests of details of balances are specific audit procedures that are intended to:

Accepted Answer

A)  test for monetary errors in the financial statements. 
B)  prove that the accounts with material balances are classified correctly. 
C)  prove that the trial balance is in balance. 
D)  identify the details of the internal control system. 
A)  test for monetary errors in the financial statements. 
B)  prove that the accounts with material balances are classified correctly. 
C)  prove that the trial balance is in balance. 
D)  identify the details of the internal control system.

Question 16

Below are five audit procedures, all of which are tests of balances associated with the audit of accounts receivable. Also below are the eight general balance-related audit objectives and the four management assertions. For each audit procedure, indicate (1) its audit objective, and (2) the management assertion being tested.
   
1. Obtain an aged listing of accounts receivable. For a sample of individual customers on the listing, agree the customer's name, amount, and other information with the corresponding information in the accounts receivable master file.
(1) ________.
(2) ________.
2. Examine details of sales for five days before and five days after year-end to determine whether sales have been recorded in the proper period.
(1) ________.
(2) ________.
3. Assess the reasonableness of the balance in the allowance for doubtful accounts.
(1) ________.
(2) ________.
4. Inquire as to whether any accounts receivable have been factored or sold during the period.
(1) ________.
(2) ________.
5. Inquire as to whether there are any receivables from related parties.
(1) ________.
(2) ________.

Accepted Answer

1. (1) F (2) X
2. (1

Question 17

Discuss the differences between errors, frauds, and illegal acts. Give an example of each.

Accepted Answer

The primary difference between errors an

Question 18

Which of the following is not one of the three categories of assertions?

Accepted Answer

A)  Assertions about classes of transactions and events for the period under audit 
B)  Assertions about financial statements and correspondence to GAAP 
C)  Assertions about account balances at period end 
D)  Assertions about presentation and disclosure 
A)  Assertions about classes of transactions and events for the period under audit 
B)  Assertions about financial statements and correspondence to GAAP 
C)  Assertions about account balances at period end 
D)  Assertions about presentation and disclosure

Question 19

Illegal acts are defined in auditing standards as:

Accepted Answer

A)  violations of laws or government regulations. 
B)  violations of laws or government regulations other than errors. 
C)  violations of laws or government regulations other than fraud. 
D)  violations of law which would result in the arrest of the perpetrator. 
A)  violations of laws or government regulations. 
B)  violations of laws or government regulations other than errors. 
C)  violations of laws or government regulations other than fraud. 
D)  violations of law which would result in the arrest of the perpetrator.

Question 20

Balance-related audit objectives are usually applied to the ending balance in income statement accounts; transaction-related audit objectives are usually applied to transactions reflected in balance sheet accounts.

Accepted Answer

A) True 
 B)False

Exam 6: The CPA Profession

The effect of a violation of the existence transaction-related audit objective for the sales account would be an overstatement of that account.

Discuss the actions an auditor should take when the auditor discovers an illegal act.

If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct:

The general balance-related audit objective that deals with determining that details in the account balance agree with related master file amounts, foot to the total in the account balance, and agree with the total in the general ledger is the detail tie-in objective.

In the context of the audit of sales, distinguish between the existence and completeness transaction-related audit objectives. State the effect on the sales account (overstatement or understatement) of a violation of each objective.

The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected.

The detail tie-in is part of the ________ assertion for account balances.

Auditors accumulate evidence to:

Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each account balance?

Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.

Briefly explain each management assertion related to presentation and disclosure.

Which of the following statements is correct with respect to the auditor's responsibilities relative to the detection of indirect-effect illegal acts?

The cutoff objective, "transactions near the balance sheet date are recorded in the proper period," is a balance-related audit objective.

When the auditor has reason to believe an illegal act has occurred, the auditor should:

Tests of details of balances are specific audit procedures that are intended to:

Discuss the differences between errors, frauds, and illegal acts. Give an example of each.

Which of the following is not one of the three categories of assertions?

Illegal acts are defined in auditing standards as:

Balance-related audit objectives are usually applied to the ending balance in income statement accounts; transaction-related audit objectives are usually applied to transactions reflected in balance sheet accounts.

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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