Question 1

Briefly explain each management assertion related to classes of transactions and events for the period under audit.

Accepted Answer

• Occurrence. Transactions and events th

Question 2

Which of the following combinations is correct?

Accepted Answer

A)  Existence relates to whether the amounts in accounts are understated. 
B)  Occurrence relates to whether balances exist. 
C)  Existence relates to whether amounts included exist. 
D)  Occurrence relates to whether the amounts in accounts occurred in the proper year. 
A)  Existence relates to whether the amounts in accounts are understated. 
B)  Occurrence relates to whether balances exist. 
C)  Existence relates to whether amounts included exist. 
D)  Occurrence relates to whether the amounts in accounts occurred in the proper year.

Question 3

General transaction-related audit objectives vary from audit to audit, depending on the nature and characteristics of the client's business and industry.

Accepted Answer

A) True 
 B)False

Question 4

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:

Accepted Answer

A)  plan and perform the engagement with an attitude of professional skepticism. 
B)  not rely on internal controls that are designed to prevent or detect errors or fraud. 
C)  design audit tests to detect unrecorded transactions. 
D)  extend the work to audit most recorded transactions and records of an entity. 
A)  plan and perform the engagement with an attitude of professional skepticism. 
B)  not rely on internal controls that are designed to prevent or detect errors or fraud. 
C)  design audit tests to detect unrecorded transactions. 
D)  extend the work to audit most recorded transactions and records of an entity.

Question 5

Responsibility for the fair presentation of financial statements rests equally with management and the auditor.

Accepted Answer

A) True 
 B)False

Question 6

In describing the cycle approach to segmenting an audit, which of the following statements is not true?

Accepted Answer

A)  All general ledger accounts and journals are included at least once. 
B)  Some journals and general ledger accounts are included in more than one cycle. 
C)  The "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and payment" cycle. 
D)  The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles. 
A)  All general ledger accounts and journals are included at least once. 
B)  Some journals and general ledger accounts are included in more than one cycle. 
C)  The "capital acquisition and repayment" cycle is closely related to the "acquisition of goods and services and payment" cycle. 
D)  The "inventory and warehousing" cycle may be audited at any time during the engagement since it is unrelated to the other cycles.

Question 7

Which of the following statements about the existence and completeness assertions is not true?

Accepted Answer

A)  The existence and completeness assertions emphasize different audit concerns. 
B)  Existence deals with overstatements and completeness deals with understatements. 
C)  Existence deals with understatements and completeness deals with overstatements. 
D)  The completeness assertion deals with unrecorded transactions. 
A)  The existence and completeness assertions emphasize different audit concerns. 
B)  Existence deals with overstatements and completeness deals with understatements. 
C)  Existence deals with understatements and completeness deals with overstatements. 
D)  The completeness assertion deals with unrecorded transactions.

Question 8

Below are five audit procedures, all of which are tests of transactions associated with the audit of the acquisition and payment 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. Foot the purchases journal and trace the totals to the related general ledger accounts.
(1) ________.
(2) ________.
2. Recompute the cash discounts taken by the client.
(1) ________.
(2) ________.
3. Compare dates on cancelled checks with the bank cancellation date.
(1) ________.
(2) ________.
4. Trace from a sample of cancelled checks to the cash disbursements journal.
(1) ________.
(2) ________.
5. Examine supporting documentation for a sample of transactions for authorized payee and amount and to determine services or goods were received.
(1) ________.
(2) ________.

Accepted Answer

1. (1) D (2) X
2. (1

Question 9

The auditor is determining that the recorded sales are for the amount of goods shipped are correctly billed and recorded. She is gathering evidence about which transaction related audit objective?

Accepted Answer

A)  existence 
B)  completeness 
C)  accuracy 
D)  cut-off 
A)  existence 
B)  completeness 
C)  accuracy 
D)  cut-off

Question 10

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

Accepted Answer

A)  The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter. 
B)  The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud 
C)  The auditor may extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist. 
D)  The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued. 
A)  The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter. 
B)  The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud 
C)  The auditor may extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist. 
D)  The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued.

Question 11

An auditor must inform a client's audit committee of an illegal act discovered during an audit in writing.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is the auditor least likely to do when aware of an illegal act?

Accepted Answer

A)  Discuss the matter with the client's legal counsel. 
B)  Obtain evidence about the potential effect of the illegal act on the financial statements. 
C)  Contact the local law enforcement officials regarding potential criminal wrongdoing. 
D)  Consider the impact of the illegal act on the relationship with the company's management. 
A)  Discuss the matter with the client's legal counsel. 
B)  Obtain evidence about the potential effect of the illegal act on the financial statements. 
C)  Contact the local law enforcement officials regarding potential criminal wrongdoing. 
D)  Consider the impact of the illegal act on the relationship with the company's management.

Question 13

Match seven of the terms (a-k) with the definitions provided below (1-7):
a. Tests of details of balances
b. Tests of controls
c. Substantive tests of transactions
d. Analytical procedures
e. Transaction-related audit objectives
f. Management assertions
g. Balance-related audit objectives
h. Fraud
i. Illegal act
j. Error
k. Management fraud
________ 1. An intentional misstatement of the financial statements.
________ 2. A set of six audit objectives the auditor must meet, including timing, posting and summarization, and accuracy.
________ 3. Implied or expressed representations made by the client about classes of transactions, account balances and disclosures in the financial statements.
________ 4. Audit procedures testing for monetary misstatements to determine whether the balance-related audit objectives have been satisfied for each significant account balance.
________ 5. A set of nine audit objectives the auditor must meet, including completeness, detail tie-in, and rights and obligations.
________ 6. Audit procedures designed to test the effectiveness of control policies and procedures.
________ 7. Use of comparisons and relationships to assess whether account balances or other data appears reasonable.

Accepted Answer

1. h
2. e

Question 14

The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.

Accepted Answer

A) True 
 B)False

Question 15

The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:

Accepted Answer

A)  in accordance with generally accepted auditing standards. 
B)  as effectively as reasonably possible. 
C)  in a timely manner. 
D)  only after an adequate investigation of the management team. 
A)  in accordance with generally accepted auditing standards. 
B)  as effectively as reasonably possible. 
C)  in a timely manner. 
D)  only after an adequate investigation of the management team.

Question 16

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

Accepted Answer

A)  should withdraw from the engagement. 
B)  should request an increase in audit fees so that more resources can be used to conduct the audit. 
C)  has the responsibility of notifying financial statement users through the auditor's report. 
D)  should notify regulators of the circumstances. 
A)  should withdraw from the engagement. 
B)  should request an increase in audit fees so that more resources can be used to conduct the audit. 
C)  has the responsibility of notifying financial statement users through the auditor's report. 
D)  should notify regulators of the circumstances.

Question 17

Which of the following management assertions is not associated with transaction-related audit objectives?

Accepted Answer

A)  Occurrence 
B)  Classification and understandability 
C)  Accuracy 
D)  Completeness 
A)  Occurrence 
B)  Classification and understandability 
C)  Accuracy 
D)  Completeness

Question 18

Fraudulent financial reporting is most likely to be committed by whom?

Accepted Answer

A)  line employees of the company 
B)  outside members of the company's board of directors 
C)  company management 
D)  the company's auditors 
A)  line employees of the company 
B)  outside members of the company's board of directors 
C)  company management 
D)  the company's auditors

Question 19

Most illegal acts affect the financial statements:

Accepted Answer

A)  directly. 
B)  only indirectly. 
C)  both directly and indirectly. 
D)  materially if direct; immaterially if indirect. 
A)  directly. 
B)  only indirectly. 
C)  both directly and indirectly. 
D)  materially if direct; immaterially if indirect.

Question 20

"The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered." This is an example of:

Accepted Answer

A)  unprofessional behavior. 
B)  an attitude of professional skepticism. 
C)  due diligence. 
D)  a rule in the AICPA's Code of Professional Conduct. 
A)  unprofessional behavior. 
B)  an attitude of professional skepticism. 
C)  due diligence. 
D)  a rule in the AICPA's Code of Professional Conduct.

Exam 6: The CPA Profession

Briefly explain each management assertion related to classes of transactions and events for the period under audit.

Which of the following combinations is correct?

General transaction-related audit objectives vary from audit to audit, depending on the nature and characteristics of the client's business and industry.

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:

Responsibility for the fair presentation of financial statements rests equally with management and the auditor.

In describing the cycle approach to segmenting an audit, which of the following statements is not true?

Which of the following statements about the existence and completeness assertions is not true?

The auditor is determining that the recorded sales are for the amount of goods shipped are correctly billed and recorded. She is gathering evidence about which transaction related audit objective?

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

An auditor must inform a client's audit committee of an illegal act discovered during an audit in writing.

Which of the following is the auditor least likely to do when aware of an illegal act?

The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.

The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

Which of the following management assertions is not associated with transaction-related audit objectives?

Fraudulent financial reporting is most likely to be committed by whom?

Most illegal acts affect the financial statements:

"The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered." This is an example 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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