The first general standard of the PCAOB requires that an audit be performed by which type of person?
An auditor with seasoned judgment in varying degrees of supervision and review.
An auditor with appropriate technical training and proficiency.
An auditor with adequate knowledge of the standards of field work and reporting.
An auditor satisfying the independence standards
Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included?
Rights and Obligations
Which one of the following attributes is not required of an auditor?
Which one of the following is a reporting standard requirement?
The auditor will state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.
The auditor will identify in the auditor’s report, those circumstances in which auditing principles have not been consistently observed in the current period in comparison to the preceding period.
The auditor will review adjusting journal entries for accuracy, and if the auditor concludes those entries are not reasonable accurate, the auditor must so state in the auditor’s report.
The auditor will express an unqualified opinion on the financial statements, or will conduct additional audit procedures until such an opinion can be expressed
When obtaining an understanding of internal controls, what is the independent external auditor primary concerned with?
Detecting all errors
Determining the effectiveness of operations
Determining whether the internal controls can be relied upon
Determining whether the controls promote efficiency
Which of the following is an inherent limitation of internal controls?
Lack of auditor independence
Separation of duties
Employee peer review
Which of the following is clearly a test of controls?
Walk-through of the expense cycle from performance of the service to the reporting in the balance sheet
Examination of a sample of purchase order records for electronic, authenticated, authorization
Observing the controller's use of company owned equipment
Sending a letter to the client's attorney to determine litigation that is pending between plaintiff and the defendant
Which of the following is an example of a detective control in an information system?
Automated reports to management that specifically identify delinquent receivable
A requirement that salaried employees submit written requests to work overtime
Assurance from top management that computer centers are kept locked
The employment of trustworthy people to enter data into the information system
Which of following is not part of the ethical framework derived from utilitarianism and rights theories?
Identification of the legal issues
Determination of affected parties and their rights
Determination of the most important rights
Development of alternative courses of action
In determining the types of activities, engagements and interactions an auditor should have with a client, what must the CPA and the audit firm do?
Follow the rules exactly as they are written
Assess all of their relationships with every client to ensure that independence is intact
Focus on client satisfaction above all other considerations
Realize that ethics are only guidelines and a matter of personal judgment
Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?
A member must not take on an engagement that is beyond the member's professional competence
A member must exercise duties prudently and professionally
A member must adequately plan and supervise the performance of professional services
A member firm must not advertise services to competing clients
Which of the following represents a situation in which auditors may disclose client information to outside parties?
Bringing working papers to a professional CPA workshop as an example of quality work
Complying with a validly issued and enforceable subpoena or summons
Showing the client’s bank statement to a neighbor who is a shareholder to emphasize its cash position
Explaining to the local television news station why the client is likely to miss payroll in the forthcoming periods
The significance of the bill of lading is to provide which of the following?
The warehouse personnel with the product that must be shipped to customers
Invoices to customers for proper collection
A credit application for customer approval
Evidence of title transfer of goods to customers
A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?
Use of prenumbered shipping, invoice and sales documents
Use of prenumbered statements, inventory lists and credit memos
Reconciliation of invoices with customer statements
Use of pre-authorized price lists
The relationship between the sales cycle and an inventory system can best be noted in which of the following examples?
Credit is established prior to completion of a sales order.
Invoices are sent to customers only after shipment is evidenced.
Availability of products ordered are verified prior to processing a sale
Billing information is added to the database for new customers
The aged accounts receivable report is utilized by the auditor to accomplish which of the following?
Encourage the client to collect on receivables that are long past due.
Select the type of confirmations that will be sent to banks.
Assess the adequacy of the allowance for doubtful accounts.
Identify debits in the receivables balance that should be reclassified to payables
All of the following are recommended features of a fire protection system for a computer center except
clearly marked exits
an elaborate water sprinkler system
manual fire extinguishers in strategic locations
automatic and manual alarms in strategic locations
exists because all control structures are flawed in some ways
is the likelihood that material misstatements exist in the financial statements of the firm
is associated with the unique characteristics of the business or industry of the client.
is the likelihood that the auditor will not find material misstatements
The following are examples of commodity assets except
Tests of controls include
confirming accounts receivable
Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?
Which legislation led to the establishment of the Public Company Accounting Oversight Board?
Private Securities Litigation Reform Act
_______ is a performance evaluation method that focuses on both financial and nonfinancial
indicators of performance such as customer satisfaction.
360 degree survey
Critical incidents method
Which of the following applies to a “cookie jar?”
Understated accounts payable
Overstated current assets
Recording fictitious revenues
In asset fraud, assets are most often:
recorded as liabilities
recorded as revenues
Which assertion addresses whether the financial statements items are properly classified in the financial statements?
Presentation and Disclosure
The Standards of the PCAOB can be broken up into three categories, i.e., general, fieldwork, and reporting. Which of the following is considered in the fieldwork standards?
Which of the following is a reason why an auditor needs an understanding of internal controls? Answer
To provide individual comments on internal control non-compliance
To become comfortable that the client will pay its audit bills
To assess materiality.
To assess the risk of possible misstatements in the financial statements.
The PCAOB’s AS No. 5 states that internal controls may be preventive or detective.
Which of the following controls is preventive?
Requiring two persons to open mail containing payments.
Reconciling the accounts receivable subsidiary file with the control account.
Using batch totals.
Preparing bank reconciliations.
How can an auditor use inquiry to gain a better understanding of internal controls?
By interviewing key employees to gain further insight into the internal control environment
By observing the safeguarding of assets by checking locked doors and safes
By tracing a transaction from the boundary of the organization through to the final reporting
By documenting thoroughly the internal control through the use of narratives
Which one of the following components of the system of internal controls influences the tone for the organization?
Control risk assessment
Information and communication
Which of the following is not part of the control environment?
Management philosophy and operating style
Methods of assigning authority and responsibility
Personnel policies and practices
A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients?
To discuss information relating to inadequate disclosure in an audit report
To comply with a validly issued and enforceable subpoena or summons
To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority
To explain to members of the press whether a client is likely to miss payroll in the forthcoming periods
In determining auditor independence, the SEC considers which of the following as an independence impairment?
An auditor performs the accounting work and then audits it.
An auditor has no conflicting interest with the client
An auditor does not act as an advocate for the audit client
An auditor does not act as an employee of the audit client
Which of following is not required by Rule 201?
Integrity and objectivity
Planning and supervision
Gathering sufficient relevant data
Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?
Sales are recorded at the invoice price expected to be collected from customers
Sales orders have sequential numbering
Recorded sales transactions are evidenced by valid invoices and shipping documents
Credits to customer accounts are classified as liabilities
Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?
Shipping documents and tracing them to the sales journal
Accounts receivable and tracing them to cash receipts
Recorded sales transactions and tracing them to the general ledger
Inventory records and tracing them to the shipping documents
What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate?
Accounts receivable aging schedule
Copies of checks received from customers
Confirmations returned without exception
Stock prices of customer companies
Which of the following processes are included in the revenue cycle?
Shipping products to customers
Sending disbursements to suppliers
Issuance of capital stock
Preparation of a time card
The fundamental difference between internal and external auditing is that
internal auditors represent the interests of the organization and external auditors represent outsiders
internal auditors perform IT audits and external auditors perform financial statement audits
internal auditors focus on financial statement audits and external auditors focus on operational audits and financial statement audits
external auditors assist internal auditors but internal auditors cannot assist external auditors
When planning the audit, information is gathered by all of the following methods except
confirming accounts receivable
Which is the most critical segregation of duties in the centralized computer services function?
systems development from data processing
data operations from data librarian
data preparation from data control
data control from data librarian
The least important item to store off-site in case of an emergency is
backups of systems software
backups of application software
documentation and blank forms
results of the latest test of the disaster recovery program
Understanding a company's relationships with financial institutions and bondholders is important because:
it can indicate the extent to which the company is leveraged
it can reveal whether significant short selling of the company’s stock has occurred
it can uncover the fraudulent transactions from special purpose entities
it may help in raising additional funds from the financial institutions
______ refers to the ability to anticipate a fraud perpetrator’s likely method of concealing a fraud.
While generally accepted accounting principles do allow flexibility, standards of _________, ________, and ________ must always prevail in the financial statements.
subjectivity; integrity; validation
objectivity; integrity; judgement
recording; reporting; accounting
quality; excellence; and judgement
Recognizing unearned revenue as earned revenue is an example of which type of fraud?
Cost of goods sold understatement