Question 1

When examining the relationships of the five cycles and general cash, the cycles have no beginning or end except at the origin or final disposition of the company.

Accepted Answer

A) True 
 B)False  True

Question 2

Briefly explain each management assertion related to presentation and disclosure.

Accepted Answer

•Occurrence and rights and obligations.Disclosed events and transactions have occurred and pertain to the entity.
•Completeness.All disclosures that should have been included in the financial statements have been included.
•Accuracy and valuation.Financial and other information are disclosed appropriately and at appropriate amounts.
•Classification and understandability.Financial and other information is appropriately presented and described and disclosures are clearly expressed.

Question 3

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. B

Question 4

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.

Question 5

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 the majority of the recorded transactions and records of an entity.

Question 6

Auditors have found that generally the most efficient and effective way to conduct audits is to:

Accepted Answer

A)  obtain complete assurance about the correctness of each class of transactions affecting the account.
B)  obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts.
C)  obtain assurance about the ending balance of the account only.
D)  verify each entry that was made into an account.

Question 7

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

Accepted Answer

A)  The specific audit objectives are applicable to every class of transactions.
B)  The general audit objectives are applicable to every class of transactions.
C)  Once the specific transaction-related audit objectives are established, they can be used to develop the general transaction-related objectives.
D)  For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.

Question 8

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.

Question 9

If a client has violated federal tax laws:

Accepted Answer

A)  the auditor must notify the IRS.
B)  and the amount is significant, the auditor should communicate with those charged with governance.
C)  the noncompliance generally will not impact the financial statements.
D)  the auditor does not need to evaluate the effects of the noncompliance on other aspects of the audit.

Question 10

Which of the following statements is not true?

Accepted Answer

A)  Balance-related audit objectives are applied to ending account balances.
B)  Transaction-related audit objectives are applied to classes of transactions.
C)  Balance-related audit objectives are applied to the ending balance in balance sheet accounts.
D)  Balance-related audit objectives are applied to both beginning and ending balances in balance sheet accounts.

Question 11

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, law enforcement and the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Two overriding considerations affect the many ways an auditor can accumulate evidence: 1.Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility.
2)Cost of accumulating evidence should be minimized.
In evaluating these considerations:

Accepted Answer

A)  the first is more important than the second.
B)  the second is more important than the first.
C)  they are equally important.
D)  it is impossible to prioritize them.

Question 14

Auditors have a higher degree of responsibility for detecting illegal acts that have a direct effect on the financial statements than illegal acts that do not have a direct effect on the financial statements.

Accepted Answer

A) True 
 B)False

Question 15

Because they operate the business on a daily basis, a company's management knows more about the company's transactions and related assets, liabilities, and equity than the auditors.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

The answer of In the context of the audit of...

Question 17

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.

Question 18

The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated.This imposes upon the auditor a duty to:

Accepted Answer

A)  provide reasonable assurance that material misstatements will be detected.
B)  be a guarantor of the fairness in the statements.
C)  be equally responsible with management for the preparation of the financial statements.
D)  be an insurer of the fairness in the statements.

Question 19

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

Question 20

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.

Accepted Answer

A) True 
 B)False

Exam 6: Audit Responsibilities and Objectives

When examining the relationships of the five cycles and general cash, the cycles have no beginning or end except at the origin or final disposition of the company.

Briefly explain each management assertion related to presentation and disclosure.

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

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:

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

Auditors have found that generally the most efficient and effective way to conduct audits is to:

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

In testing for cutoff, the objective is to determine:

If a client has violated federal tax laws:

Which of the following statements is not true?

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, law enforcement and the Securities and Exchange Commission.

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

Two overriding considerations affect the many ways an auditor can accumulate evidence: 1.Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility. 2) Cost of accumulating evidence should be minimized. In evaluating these considerations:

Auditors have a higher degree of responsibility for detecting illegal acts that have a direct effect on the financial statements than illegal acts that do not have a direct effect on the financial statements.

Because they operate the business on a daily basis, a company's management knows more about the company's transactions and related assets, liabilities, and equity than the auditors.

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

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

The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated.This imposes upon the auditor a duty to:

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?

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.