The auditor's responsibility regarding material misstatements caused by fraud is:

In the same as the auditor's responsibility regarding material misstatements caused by error

Less than the auditor's responsibility regarding material misstatements caused by error

Greater than the auditor's responsibility regarding material misstatements caused by error

Either less than or greater than the auditor's responsibility regarding material misstatements caused by error, depending on the circumstances

Which of the following would not have a direct impact in determining the sufficiency of evidence gathered during an audit?

The cost-benefit relationship of obtaining the audit evidence

The quality of audit evidence obtained

The auditor's professional judgment

When determining the auditor's or management's responsibility for compliance with law & regulations during an audit, which of the following statements below would be incorrect?

The auditor is expected to detect the client's noncompliance with all laws & regulations affecting transaction cycles under review during the audit itself

The auditor is not responsible for preventing noncompliance with laws & regulations

Management & those charged with governance are responsible for ensuring that the company's operations are conducted in accordance with all applicable laws & regulations

The auditor provides reasonable assurance that the financial statements are free of material misstatement due to noncompliance with laws & regulations

Which of the following types of documentary evidence should the auditor consider to be the most reliable?

Confirmation of an account payable balance mailed by & returned directly to the auditor

A sales invoice issued by the client & supported by a delivery receipt from an outside trucker

A check, issued by the company & bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor

An audit schedule prepared by the client's controller & reviewed by the client's treasurer

Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?

Bank statement obtained from the client

Computations made by the auditor

Which of the following presumptions in correct about the reliability of audit evidence?

Effective internal control provides more assurance about the reliability of audit evidence

Info obtained indirectly from outside sources is the most reliable audit evidence

To be reliable, audit evidence should be convincing rather than merely persuasive

Reliability of audit evidence refers to the amount of corroborative evidence obtained

For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent:

In the planning stage: Yes As a substantive test: No In the completion stage: Yes

In the planning stage: Yes As a substantive test: No In the completion stage: No

In the planning stage: No As a substantive test: Yes In the completion stage: No

In the planning stage: No As a substantive test: Yes In the completion stage: Yes

Which of the following situations has the best chance of being detected when a CPA compares 2023 revenues & expenses with the prior year & investigates all changes exceeding a fixed percent?

The company changed its capitalization policy for small tools in 2023

An increase in property tax rates has not been recognized in the company's 2023 accrual

The cashier began lapping accounts receivable in 2023

Because of worsening economic conditions, the 2023 provision for uncollectible accounts was inadequate

Which of the following would not be considered to be an analytical procedure?

Projecting the error rate by comparing the results of a statistical sample with the actual population characteristics

Estimating payroll expense by multiplying the number of employees by the average hourly wage rate & the total hours worked

Computing accounts receivable turnover by dividing credit sales by the average net receivables

Developing the expected current-year sales based on the sales trend of the prior 5 years

Which of the following is NOT a primary purpose of audit documentation?

To support the financial statements

To assist in preparation of the audit report

To provide evidence of the audit work performed

During an audit engagement, pertinent data are compiled & included in the audit files. The audit files primarily are considered to be:

Support for the auditor's representations as to compliance with auditing standards

Evidence supporting financial statements

A client-owned record of conclusions reached by the auditors who performed the engagement

A record to be used as a basis for the following year's engagement

Although the quantity, type & content of audit documentation will vary with the circumstances, audit documentation generally will include the:

Auditing procedures followed & the testing performed in obtaining audit evidence

Copies of those client records examined by the auditor during the course of the engagement

Evaluation of the efficiency & competence of the audit staff assistants by the partner responsible for the audit

Auditor's comments concerning the efficiency & competence of client management personnel

Which of the following types of audit evidence is generally the most reliable?

Inquiries of the audit committee

An auditor most likely would apply analytical procedures in the overall review stage of an audit to:

Identify unusual or unexpected balances that were not previously identified

Obtain an understanding of high-risk areas

Evaluate the design & implementation of internal control

Identify related party transactions that may not have been previously identified

Analytical procedures used in planning an audit should focus on identifying:

Areas that may represent specific risks relevant to the audit

Material weaknesses in the system of internal control

The predictability of financial data from individual transactions

The various assertions that are embodied in the financial statements

Which of the following will most likely indicate the existence of related parties?

Borrowing money at a rate significantly below the market rate

Writing down obsolete inventory prior to year end

Failing to correct deficiencies in the client's system of internal control

An unexplained increase in gross margin

Which of the following is least likely to be included in the auditor's engagement letter?

Details about the preliminary audit strategy

Overview of the objectives of the engagement

Statement that management is responsible for the financial statements

Description of the level of assurance obtained when conducting the audit

When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining whether:

The engagement should be accepted

The predecessor's work should be used

The company follows the policy of rotating its auditors

In the predecessor's opinion, the system of internal control of the company has been satisfactory

A successor would most likely make specific inquiries of the predecessor auditor regarding:

Disagreements with management as to auditing procedures

Specialized accounting principles of the client's industry

The competency of the client's internal audit staff

The uncertainty inherent in applying sampling procedures

Which of the following circumstances would most likely pose the greatest risk in accepting a new audit engagement?

There will be a client-imposed scope limitation

Staff will need to be rescheduled to cover this new client

The firm will have to hire a specialist in one audit area

The client's financial reporting system has been in place for 10 years

Which one of the following statements is correct concerning the concept of materiality?

Materiality is a matter of professional judgment

Materiality is determined by reference to guidelines established by the AICPA

Materiality depends only on the dollar amount of an item relative to other items in the financial statements

Materiality depends on the nature of an item rather than the dollar amount

A client decides not to record an auditor's proposed adjustments that collectively are not material & wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?

The financial statements are free from material misstatement & no disclosure is required in the notes to the financial statements.

The financial statements do not conform with GAAP.

The financial statements contain unadjusted misstatements that should result in a qualified opinion.

The financial statements are free from material misstatement, but disclosure of the proposed adjustment is required in the notes to the financial statements.

In which of the following circumstances would an auditor of an issuer be least likely to reevaluate established materiality levels?

The client released 3rd quarter results before the SEC-prescribed deadline

The materiality level was established based on preliminary financial statement amounts that differ significantly from actual amounts

The client disposed of a major portion of the client's business

Significant new contractual arrangements draw attention to a particular aspect of a client's business that is separately disclosed in the financial statements

Which of the following procedures would a CPA least likely perform during the planning stage of the audit?

Perform inquiries of outside legal counsel regarding pending litigation

Determine the timing of testing

Take a tour of the client's facilities

Determine the effect of information technology on the audit

A successor auditor's inquiries of the predecessor auditor should include questions regarding

Communications to management & those charged with governance regarding significant deficiencies in the system of internal control

The number of engagement personnel the predecessor assigned to the engagement

The assessment of the objectivity of the client's internal audit function

The response rate for confirmations of accounts receivable

Which of the following circumstances most likely would cause the auditor to suspect that there are material misstatements in the entity's financial statements?

Significant differences between the physical inventory count & the accounting records are not investigated

The entity's management places no emphasis on meeting publicized earnings projections

Monthly bank reconciliations ordinarily include several large outstanding checks

Cash transactions are electronically processed & recorded, leaving no paper audit trail

Inherent risk & control risk differ from planned detection risk in that they

Exist independently of the financial statement audit

Arise from the misapplication of auditing procedures

May be assessed in either quantitative or nonquantitative terms

Can be changed at the auditor's discretion

Which of the following does not increase the need for sufficient appropriate audit evidence?

A decrease in the assessed inherent risk

A lower acceptable level of detection risk

An increase in the assessed control risk

As lower acceptable levels of both audit risk & materiality are established, the auditor should plan more work on individual accounts to

Increase the performance materiality in the accounts

Increase inherent risk in the accounts

An auditor may compensate for a high assessed level of control risk by increasing the:

Preliminary judgment of acceptable audit risk

Which of the following procedures would a CPA most likely perform during the planning stage of the audit?

Determine areas where there is a higher risk of material misstatement

Evaluate the reasonableness of management's allowance for doubtful accounts

Evaluate the significance of uncorrected misstatements

Confirm a sample of accounts receivable

Dan, CPA, has been engaged to audit Modern Home, a manufacturing company that specializes in furniture. Which of the following matters related to the year under audit would most likely result in an increase of inherent risk?

Modern Home recently engaged in a complex derivative transaction

The furniture industry has experienced an overall increase in demand

Modern Home experienced an increase in working capital

Modern Home purchased expensive new equipment in the current year

After making a preliminary assessment of the risk of material misstatement during planning & beginning to apply audit procedures, an auditor determines that this risk is actually higher than anticipated. Which would be the most likely effect of this finding on the auditor's desired level of detection risk & the overall level of auditor risk, as compared to the levels originally planned?

Auditor's Desired Level of Detection Risk: Decrease Overall Level of Audit Risk: Same

Auditor's Desired Level of Detection Risk: Increase Overall Level of Audit Risk: Same

Auditor's Desired Level of Detection Risk: Same Overall Level of Audit Risk: Higher

Auditor's Desired Level of Detection Risk: Decrease Overall Level of Audit Risk: Lower

ACCT 4160 Exam #2

Authored by J Nope

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48 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The major reason an independent auditor gathers audit evidence is to:

Form an opinion on the financial statements

Detect fraud

Evaluate management

Assess control risk

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following best describes the reason why an independent auditor reports on financial statements?

A misappropriation of assets may exist & its more likely to be detected by independent auditors

Different interests may exist between the company preparing the statements & the persons using the statements

A misstatement of account balances may exist & is generally corrected as the result of the independent auditor's work

Poorly designed internal controls may be in existence

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Because of the risk of material misstatement, an audit should be planned & performed with an attitude of:

Professional skepticism

Independent integrity

Objective judgment

Impartial conservatism

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors & fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?

Misappropriation of an asset or groups of assets

Clerical mistakes in the accounting data underlying the financial statements

Mistakes in the application of accounting principles

Misinterpretation of facts that existed when the financial statements were prepared

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What assurance does the auditor provide that errors & fraud that are material to the financial statements will be detected?

Errors: Limited

Fraud: Negative

Errors: Reasonable

Fraud: Reasonable

Errors: Limited

Fraud: Limited

Errors: Reasonable

Fraud: Limited

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following statements describes why a properly designed & executed audit may not detect a material misstatement in the financial statements resulting from fraud?

The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole

Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion

An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud

The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of

Existance

Completeness

Accuracy, valuation & allocation

Rights & obligations

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ACCT 4160 Exam #2

The major reason an independent auditor gathers audit evidence is to:

Which of the following best describes the reason why an independent auditor reports on financial statements?

Because of the risk of material misstatement, an audit should be planned & performed with an attitude of:

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors & fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?

What assurance does the auditor provide that errors & fraud that are material to the financial statements will be detected?

Which of the following statements describes why a properly designed & executed audit may not detect a material misstatement in the financial statements resulting from fraud?

An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of

An auditor will most likely review an entity's periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management's assertion about classes of transactions of:

In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of:

The auditor's responsibility regarding material misstatements caused by fraud is:

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