Which of the following are the responsibilities of the external auditor in auditing financial statements?
a. Maintaining internal controls and
... [Show More] preparing financial reports.
b. Providing internal assurance on internal control and financial reports.
c. Providing internal oversight of the reporting process.
d. Providing independent assurance on the financial statements.
Providing independent assurance on the financial statements.
Which of the following factors does not create a demand for external audit services?
a. Potential bias by management in providing information.
b. Requirements of the state boards of accountancy.
c. Complexity of the accounting processing systems.
d. Remoteness between a user and the organization.
Requirements of the state boards of accountancy.
Audit quality involves which of the following?
a. Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
b. Performing an audit in accordance with GAAP to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAS and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
c. Performing an audit in accordance with GAAS to provide absolute assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
d. Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements contain no misstatements due to errors or fraud.
Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
Which of the following factors is not a driver of audit quality as discussed by the FRC?
a. Audit firm culture.
b. Skills and personal qualities of client management.
c. Reliability and usefulness of audit reporting.
d. Factors outside the control of auditors
Skills and personal qualities of client management.
Which of the following is not a threat to auditor independence?
a. Self-review threat.
b. Advocacy threat.
c. Adverse interest threat.
d. Regulatory interest threat.
Regulatory interest threat.
Which of the following statements is false?
a. An auditor in public practice shall be independent in the performance of professional services.
b. In performing audit services, the auditor shall maintain objectivity and integrity, be free of conflicts of interest, and not knowingly misrepresent facts or subordinate his or her judgment to others.
c. In performing audit services, the auditor may accept only contingent fees for publicly traded audit clients.
d. An auditor in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive.
In performing audit services, the auditor may accept only contingent fees for publicly traded audit clients.
Which of the following statements related to rights theory is false?
a. The highest-order rights include the rights to life, autonomy, and human dignity.
b. Second-order rights include rights granted by the government, such as civil rights and legal rights.
c. Third-order rights include social rights, such as the right to higher education, to good health care, and to earning a living.
d. Fourth-order rights include one's essential interests or personal tastes.
Fourth-order rights include one's essential interests or personal tastes.
Utilitarianism does not require which of the following actions when a person considers how to resolve an ethical dilemma?
a. Identification of the potential problem and courses of action.
b. Identification of the potential direct or indirect impact of actions on each affected party who has an interest in the outcome.
c. Identification of the motivation of the person facing the ethical dilemma.
d. Assessment of the desirability of each action for each affected party
Identification of the motivation of the person facing the ethical dilemma.
With regard to client acceptance/continuance decisions, which of the following is false?
a. Client acceptance/continuance decisions are one part of the audit firm's overall portfolio management activities.
b. The primary driver of the client acceptance/continuance decision is the level of audit fees that the audit firm can charge the client.
c. One can view an individual audit client as analogous to an individual stock in an investment portfolio.
d. Audit firms are not required to provide audit services for all organizations requesting an audit.
The primary driver of the client acceptance/continuance decision is the level of audit fees that the audit firm can charge the client.
Which of the following factors is not an example of a risk relevant to the client continuance decision?
a. Client entity characteristics.
b. Independence risk factors.
c. Third-party/due diligence risk factors.
d. Advocacy threat.
Advocacy threat.
What is the primary difference between fraud and error in financial statement reporting?
a. The materiality of the misstatement.
b. The intent to deceive.
c. The level of management involved.
d. The type of transaction effected.
The intent to deceive.
Which of the following examples best represents an example of fraudulent financial reporting?
a. The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors.
b. The controller of the company inappropriately records January sales in December so that year-end results will meet analysts' expectations.
c. The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris.
d. The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.
The controller of the company inappropriately records January sales in December so that year-end results will meet analysts' expectations.
Which of the following factors creates an opportunity for fraud to be committed in an organization?
a. Management demands financial success.
b. Poor internal control.
c. Commitments tied to debt covenants.
d. Management is aggressive in its application of accounting rules.
Poor internal control.
Which of the following is a common rationalization for fraudulent financial reporting?
a. This is a one-time transaction and it will allow the company to get through the current financial crisis, but I'll never do it again.
b. I am only borrowing the money; I will pay it back next year.
c. Executives at other companies are getting paid more than I am, so I deserve the money.
d. The accounting rules don't make sense for our company, and they make our financial results look weaker than is necessary. Therefore, we have good reason to record revenue using a non-GAAP method.
e. Both (a) and (d).
Both (a) and (d)
Which of the following types of transactions did WorldCom management engage in as part of that company's fraudulent financial reporting scheme?
a. Recorded barter transactions as sales.
b. Used restructuring reserves from prior acquisitions to decrease expenses.
c. Capitalizing line costs rather than expensing them.
d. All of the above.
e. None of the above.
All of the above.
Which of the following is an implication resulting from the results of the COSO studies?
a. The most common frauds involve outright theft of assets.
b. The individuals most often responsible for fraud include low-level accounting personnel, such as accounts payable clerks.
c. The majority of frauds take place at smaller companies listed on the OTC market rather than at larger companies listed on the NYSE.
d. All of the above.
e. None of the above.
The majority of frauds take place at smaller companies listed on the OTC market rather than at larger companies listed on the NYSE.
Which of the following statements is true regarding the deterrence and detection of fraud in financial reporting?
a. Preventing and detecting fraud is the job of the external auditor alone.
b. An effective fraud risk management program can be expected to prevent virtually all frauds, especially those perpetrated by top management.
c. Communication among those involved in the financial reporting process is critical.
d. All of the above.
e. None of the above.
Communication among those involved in the financial reporting process is critical.
Which of the following statements are true?
a. Unless an independent audit can provide reasonable assurance that financial information has not been materially misstated because of fraud, it has little, if any, value to society.
b. Repeated revelations of accounting scandals and audit failures related to undetected frauds have seriously damaged public confidence in external auditors.
c. A strong ethical tone at the top of an organization that permeates corporate culture is essential in mitigating the risk of fraud.
d. All of the above.
e. None of the above
All of the above
The Sarbanes-Oxley Act enacted which of the following provisions relevant to auditors and the audit opinion formulation process?
a. The PCAOB was established, and it has the power to conduct inspections of public company audits.
b. The lead audit partner and reviewing partner must rotate off the audit of a publicly traded company at least every 10 years.
c. In the annual report, management must acknowledge that they are required to have the company's internal audit function attest to the accuracy of the annual reports.
d. All of the above.
e. None of the above.
The PCAOB was established, and it has the power to conduct inspections of public company audits.
Which of the following statements is true regarding the PCAOB?
a. The PCAOB is a nonprofit corporation, not an agency of the U.S. government.
b. The PCAOB will have five financially literate members who are prominent individuals of integrity and reputation with a commitment to the interests of investors and the public.
c. The PCAOB has authority to set standards related to public company audit reports and to conduct inspections of registered external audit firms.
d. All of the above.
e. None of the above.
All of the above.
Audit committee activities and responsibilities include which of the following?
a. Selecting the external audit firm.
b. Approving corporate strategy.
c. Reviewing management performance and determining compensation.
d. All of the above.
e. None of the above.
Selecting the external audit firm.
Which of the following audit committee responsibilities has the NYSE mandated?
a. Obtaining a report each year by the internal auditor that addresses the company's internal control procedures, any quality-control or regulatory problems, and any relationships that might threaten the independence of the internal auditor.
b. Discussing in its meetings the company's earnings press releases as well as financial information and earnings guidance provided to analysts.
c. Reviewing with the internal auditor any audit problems or difficulties that they have had with management.
d. All of the above.
e. None of the above.
Discussing in its meetings the company's earnings press releases as well as financial information and earnings guidance provided to analysts.
Which of the following are affected by the quality of an organization's internal controls?
a. Reliability of financial data.
b. Ability of management to make informed business decisions.
c. Ability of the organization to remain in business.
d. All of the above.
e. Only a and c.
All of the above.
Which of the following creates an opportunity for committing fraudulent financial reporting in an organization?
a. Management demands financial success.
b. Poor internal control.
c. Commitments tied to debt covenants.
d. Management is aggressive in its application of accounting rules.
Poor internal control.
What are the components of internal control per COSO's Internal Control-Integrated Framework?
a. Organizational structure, management philosophy, planning, risk assessment, and control activities.
b. Control environment, risk assessment, control activities, information and communication, and monitoring.
c. Risk assessment, control structure, backup facilities, responsibility accounting, and natural laws.
d. Legal environment of the firm, management philosophy, organizational structure, control activities, and control assessment.
Control environment, risk assessment, control activities, information and communication, and monitoring.
Which of the following statements regarding internal control is false?
a. Internal control is a process consisting of ongoing tasks and activities.
b. Internal control is primarily about policy manuals, forms, and procedures.
c. Internal control is geared toward the achievement of multiple objectives.
d. A limitation of internal control is faulty human judgment.
e. All of the above statements are true.
Internal control is primarily about policy manuals, forms, and procedures.
Which of the following principles would not be considered a principle of an organization's control environment?
a. Independence and competence of the board.
b. Competence of accounting personnel.
c. Structures, reporting lines, and authorities and responsibilities.
d. Commitment to integrity and ethical values.
e. They would all be considered principles of the control environment.
Competence of accounting personnel.
Which one of the following components of internal control over financial reporting sets the tone for the organization?
a. Risk assessment.
b. Control environment.
c. Information and communication.
d. Monitoring Risk Assessment Organizations face risks of material misstatement in their financial reports.
Control environment.
Which of the following statements is false regarding the risk assessment component of internal control?
a. Risk assessment includes assessing fraud risk.
b. Risk assessment includes assessing internal and external sources of risk.
c. Risk assessment includes the identification and analysis of significant changes.
d. Economic changes would not be considered a risk that needs to be analyzed as part of the risk assessment process.
Economic changes would not be considered a risk that needs to be analyzed as part of the risk assessment process.
Which of the following is not part of management's fraud risk assessment process?
a. The assessment considers ways the fraud could occur.
b. The assessment considers the role of the external auditor in preventing fraud.
c. Fraud risk assessments serve as an important basis for determining the control activities needed to mitigate fraud risks.
d. The assessment considers pressures that might lead to fraud in the financial statements.
The assessment considers the role of the external auditor in preventing fraud.
Which of the following scenarios provides the best example of segregation of duties?
a. Employees perform multiple jobs, and have access to related records.
b. The internal audit function performs an independent test of transactions throughout the year and reports any errors to departmental managers.
c. The person responsible for reconciling the bank account is responsible for cash disbursements but not for cash receipts.
d. The payroll department cannot add employees to the payroll or change pay rates without the explicit authorization of the Human Resources Department.
The payroll department cannot add employees to the payroll or change pay rates without the explicit authorization of the Human Resources Department.
Which of the following statements about application controls is true?
a. Organizations can have manual application controls or automated application controls, but not a combination of the two.
b. Application controls are intended to mitigate risks associated with data input, data processing, and data output.
c. Application controls are a part of the monitoring component of internal control.
d. Self-checking digits are an output control.
Application controls are intended to mitigate risks associated with data input, data processing, and data output.
Which of the following is an effective implementation of the information and communication component of COSO's Internal Control-Integrated Framework?
a. The organization has one-way communication with parties external to the organization.
b. The organization has a whistleblower function that allows parties internal and external to the organization to communicate concerns about possible inappropriate actions in the organization's operations.
c. The organization has a robust process for assessing risks internal and external to the organization.
d. The organization builds in edit checks to determine whether all purchases are made from authorized vendors.
e. All of the above.
The organization has a whistleblower function that allows parties internal and external to the organization to communicate concerns about possible inappropriate actions in the organization's operations.
Which of the following is not a principle of the information and communication component of COSO's Internal Control-Integrated Framework?
a. The organization identifies, obtains, and uses relevant information.
b. The organization communicates internally.
c. The organization communicates externally.
d. All of the above are principles of the information and communication component of COSO's Internal Control- Integrated Framework.
All of the above are principles of the information and communication component of COSO's Internal Control- Integrated Framework.
Which of the following is not an effective implementation of the monitoring component of COSO's Internal Control- Integrated Framework?
a. Internal audit periodically works to improve internal controls.
b. Management reviews current economic performance against expectations and investigates to determine causes of significant deviations from the expectations.
c. The organization implements software that captures all instances in which the underlying program identifies processed transactions that exceed company-authorized limits.
d. The organization builds in edit checks to determine whether all purchases are made from authorized vendors, and flags those that are not.
The organization implements software that captures all instances in which the underlying program identifies processed transactions that exceed company-authorized limits.
Which of the following is the most accurate statement related to the monitoring component of COSO's Internal Control-Integrated Framework?
a. Monitoring is a process that is relevant only to the control activities component of COSO's Internal Control- Integrated Framework.
b. Separate evaluations are more timely than ongoing evaluations in identifying control deficiencies.
c. Monitoring is a process that provides feedback on the effectiveness of each component of internal control.
d. Monitoring includes automated edit checks to determine whether all purchases are made from authorized vendors.
Monitoring is a process that provides feedback on the effectiveness of each component of internal control.
Which of the following statements is false regarding management's documentation of internal control over financial reporting?
a. Management needs to maintain sufficient and appropriate documentation of the internal controls they have designed and implemented to achieve the objective of reliable financial reporting.
b. Internal control documentation is useful in training new personnel or serving as a reference tool for all employees.
c. Management only needs to maintain documentation if the company's auditors will be providing an opinion on internal control effectiveness.
d. Documentation provides evidence that the controls are operating.
Management only needs to maintain documentation if the company's auditors will be providing an opinion on internal control effectiveness.
Which of the following is not included in management's report on internal control?
a. A statement that management is responsible for internal control.
b. A definition of internal control.
c. A discussion of the limitations of internal control.
d. The criteria used in assessing internal control.
e. A description of the work that the internal auditors performed.
A description of the work that the internal auditors performed.
Assume that an organization sells software. The sales contracts with the customers often have nonstandard terms that impact the timing of revenue recognition. Thus, there is a risk that revenue may be recorded inappropriately. To mitigate that risk, the organization has implemented a policy that requires all nonstandard contracts greater than $1 million to be reviewed on a timely basis by an experienced and competent revenue accountant for appropriate accounting, prior to the recording of revenue. Management has classified this deficiency as a material weakness. Which of the following best describes the conclusion made by management?
a. There is more than a remote possibility that a material misstatement could occur.
b. The likelihood of misstatement is reasonably possible.
c. There is more than a remote possibility that a misstatement could occur.
d. There is a reasonable possibility that a material misstatement could occur.
e. There is a reasonable possibility that a misstatement could occur
There is a reasonable possibility that a material misstatement could occur.
Which of the following scenarios represents a control deficiency?
a. A missing control that is required for achieving objectives.
b. A control that operates as designed.
c. A control that provides reasonable, but not absolute assurance, about the reliability of financial reporting.
d. An immaterial individual misstatement in internal.
A missing control that is required for achieving objectives.
Which of the following is a reason that the auditor obtains an understanding of the client's internal control over financial reporting?
a. This understanding is required by professional auditing standards.
b. Understanding of internal control is needed to properly plan the audit.
c. This understanding helps an auditor assess a client's risk of material misstatement.
d. All of the above are reasons why the auditor obtains an understanding of the client's internal control over financial reporting.
All of the above.
Which of the following statements is true regarding the auditor's assessment of a client's internal control over financial reporting?
a. The auditor reviews management's documentation of its internal control and management's evaluation and findings related to internal control effectiveness.
b. The auditor's assessments of control deficiencies will be the same as management's assessment of the same deficiencies.
c. In testing controls, the auditor is only concerned about the client's control environment and risk assessment.
d. All of the above are true.
The auditor reviews management's documentation of its internal control and management's evaluation and findings related to internal control effectiveness.
Which of the following factors is not a reason that audit firms experience litigation for business failures, rather than audit failures?
a. Joint and several liability statutes.
b. Class action lawsuits.
c. Contingent-fee compensation for audit firms.
d. A misunderstanding by some users that an unqualified audit opinion represents an insurance policy against investment losses.
Contingent-fee compensation for audit firms.
The shareholders of a bank sue Karen Frank, CPA, for malpractice due to an audit failure that preceded the bank's financial failure. The jury determines that Frank is 60% at fault and that management is 40% at fault. The bank has no financial resources, nor does its management. Under joint and several liability, what is the likely percentage of damages that Frank will?
a. 100%.
b. 50%.
c. 40%.
d. None of the above.
100%
Which of the following statements is false?
a. Breach of contract occurs when a person competently performs a contractual duty.
b. Negligence is the failure to exercise reasonable care, thereby causing harm to another person or to property.
c. Gross negligence is operating with a reckless disregard for the truth, or the failure to use even minimal care.
d. Fraud is an intentional concealment or misrepresentation of a material fact with the intent to deceive another person, causing damage to the deceived person.
Breach of contract occurs when a person competently performs a contractual duty.
An audit client can sue the auditor under contract law for which of the following?
a. Breach of contract.
b. Negligence.
c. Gross negligence.
d. Fraud.
e. All of the above.
All of the above.
The remedies for breach of contract include which of the following?
a. Requiring specific performance of the contract agreement.
b. Granting an injunction to prohibit the auditor from doing certain acts, such as disclosing confidential information.
c. Providing for recovery of amounts lost as a result of the breach.
d. All of the above.
All of the above.
Which of the following scenarios includes an example of a foreseen user?
a. The auditor knows that the First National Bank wants audited financial statements as part of the client's application for a loan.
b. The auditor knows that the client needs audited financial statements because it wants to obtain a loan from one of several possible banks.
c. Current and prospective creditors and stockholders are likely to use the audited financial statements.
d. None of the above.
The auditor knows that the client needs audited financial statements because it wants to obtain a loan from one of several possible banks.
Which of the following statements is true regarding auditing standard setting in the United States?
a. The AICPA is responsible for setting auditing standards for audits of nonpublic entities.
b. The PCAOB is responsible for setting auditing standards for audits of public companies.
c. The AICPA is responsible for setting auditing standards for audits of both public and nonpublic companies.
d. The SEC sets auditing standards for auditors of public and nonpublic companies.
e. Both (a) and (b) are correct.
Both (a) and (b) are correct.
The following describes a situation in which an auditor has to determine the most appropriate standards to follow. The audited company is headquartered in Paris but has substantial operations within the United States (60% of all operations) and has securities registered with the SEC and is traded on the New York Stock Exchange (NYSE). The company uses International Financial Reporting Standards (IFRS) for its accounting framework. What would be the most appropriate set of auditing standards to follow?
a. PCAOB.
b. Either PCAOB or AICPA.
c. Either IAASB or AICPA.
d. Only the AICPA standards would be appropriate.
PCAOB
Which of the following statements is false?
a. The purpose of an audit is to enhance the degree of confidence that managers can place in the financial statements, thereby facilitating their decision making.
b. Auditors are responsible for having the appropriate competence and capabilities to perform the audit, should comply with ethical requirements, and maintain professional skepticism throughout the audit.
c. The auditor needs to obtain reasonable assurance as to whether the financial statements are free from material misstatement.
d. An audit has inherent limitations such that the auditor is not able to obtain absolute assurance about whether the financial statements are free from misstatement.
The purpose of an audit is to enhance the degree of confidence that managers can place in the financial statements, thereby facilitating their decision making.
Which of the following is included as part of the AICPA's principles governing an audit?
a. Auditors need to obtain a high level of assurance that the financial statements are free of all misstatements.
b. An audit has inherent limitations such that the auditor cannot provide absolute assurance about whether the financial statements are free of misstatement.
c. Auditors need to maintain professional skepticism only on audits where there is a high risk of material misstatement.
d. All of the above are included as part of the AICPA's principles governing an audit.
An audit has inherent limitations such that the auditor cannot provide absolute assurance about whether the financial statements are free of misstatement.
Which of the following statements is true about the audit opinion formulation process presented in this chapter?
a. The audit opinion formulation process is different for the financial statement only audit and the integrated audit.
b. The audit opinion formulation process is based on the premise that management has responsibility to prepare the financial statements and maintain internal control over financial reporting.
c. The audit opinion formulation process is comprised of seven phases.
d. All of the above are true statements regarding the audit opinion formulation process.
The audit opinion formulation process is based on the premise that management has responsibility to prepare the financial statements and maintain internal control over financial reporting.
Which of the following activities is not part of the activities within the audit opinion formulation process?
a. The auditor develops a common understanding of the audit engagement with the client.
b. The auditor determines the appropriate nonaudit consulting services to provide to the client.
c. The auditor identifies and assesses risks of material misstatements and then responds to those identified risks.
d. The auditor determines the appropriate audit opinion(s) to issue.
The auditor determines the appropriate non audit consulting services to provide to the client.
Which of the following is a reason that the auditor uses an accounting cycle approach when performing an audit?
a. The accounting cycle approach allows the auditor to focus exclusively on either the balance sheet or the income statement.
b. COSO internal control components are based on the accounting cycles.
c. The accounting cycles provide a convenient way to break the audit up into manageable pieces.
d. The auditor needs to be able to provide an opinion related to each accounting cycle.
The accounting cycles provide a convenient way to break the audit up into manageable pieces.
Which of the following accounts would not be included in the Acquisition and Payment for Long-Lived Assets Cycle?
a. Revenue.
b. Depreciation expense.
c. Gain on disposal.
d. Equipment.
Revenue.
Which of the following is not a management assertion?
a. Completeness.
b. Existence.
c. Rights and obligations.
d. Valuation.
e. Placement.
Placement.
Which management assertion is usually most relevant for liability accounts?
a. Completeness.
b. Existence.
c. Rights and obligations.
d. Presentation and disclosure.
e. None of the above address whether the components of the financial statements are properly classified, described, and disclosed.
Rights and obligations.
Audit procedures fall into three categories. Which of the following is not a category of audit procedures?
a. Risk assessment procedures.
b. Tests of risks.
c. Tests of controls.
d. Substantive procedures.
e. All of the above are categories of audit procedures.
Tests of risks.
Which of the following is a true statement regarding audit evidence and audit procedures?
a. The auditor has a responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence.
b. Inquiry is a type of audit procedure that typically does not require the auditor to perform additional procedures.
c. Substantive procedures are performed to test the operating effectiveness of a client's internal control.
d. Risk assessment procedures alone provide sufficient appropriate audit evidence on which to base an audit opinion.
The auditor has a responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence.
Which of the following information should be included in audit documentation?
a. Procedures performed.
b. Audit evidence examined.
c. Conclusions reached with respect to relevant financial statement assertions.
d. All of the above should be included.
All of the above should be included.
Which of the following statements is false regarding audit documentation?
a. An audit program is an example of audit documentation.
b. The only purpose of audit documentation is to provide evidence that the audit was planned and performed in accordance with auditing standards.
c. Audit documentation helps facilitate internal and external inspections of completed audits.
d. Audit documentation is required on all audit engagements.
The only purpose of audit documentation is to provide evidence that the audit was planned and performed in accordance with auditing standards.
Which of the following factors would an auditor typically not consider when making a client acceptance decision?
a. Any potential independence-impairing relationships.
b. Any internal control deficiencies.
c. Management's commitment to GAAP.
d. Management integrity.
e. An auditor would consider all of the above factors.
An auditor would consider all of the above factors.
Which of the following statements regarding client acceptance/continuance decisions is false?
a. An audit firm's client portfolio is impacted by both audit firm decisions and client decisions.
b. It would not be appropriate for audit firms to perform background checks on management of a potential client.
c. Auditors are not required to perform audits for any organization that asks for an audit.
d. Auditors should assess the background and experience of accounting personnel of a potential client.
It would not be appropriate for audit firms to perform background checks on management of a potential client.
Which of the following statements is true regarding the design of controls related to credit limits?
a. The effectiveness of the control design is contingent on the credit manager's process for establishing and reviewing credit limits.
b. Because the process of establishing credit limits is fairly time consuming, the control should be designed so that the marketing manager has the ability to approve sales on an ad hoc basis while waiting for the credit approval.
c. The control should be designed so that the sales manager has final approval regarding credit limits.
d. All are true statements regarding the design of controls related to credit limits.
The effectiveness of the control design is contingent on the credit manager's process for establishing and reviewing credit limits.
The baseline for quality financial reporting is that the organization will have controls over which of the following?
a. Significant, unusual transactions, particularly those that result in late or unusual journal entries.
b. Top-side journal entries.
c. Related-party transactions.
d. Significant management estimates.
e. All of the above.
All of the above.
What actions should auditors take if they identify control deficiencies at their client?
a. Assess the severity of those deficiencies.
b. Determine whether and how the preliminary control risk assessment should be modified.
c. Provide documentation about the effect of the control risk assessment on modifications to substantive procedures.
d. Actions (a), (b), and (c) are all appropriate.
e. Only (a) and (c) are appropriate.
Actions (a), (b), and (c) are all appropriate.
In testing controls over adjusting journal entries, which of the following would the auditor likely review?
a. Supporting documentation for the entry.
b. Evidence proving that the entry is material.
c. Evidence that the debits and credits are to appropriate accounts.
d. All of the above.
e. Only two of the above (a-c) are appropriate.
Only two of the above (a-c) are appropriate.
In performing substantive procedures, which of the following statements provides appropriate guidance to the auditor?
a. The auditor can perform both substantive analytical procedures and substantive tests of details.
b. The auditor should perform substantive procedures for all assertions of all financial statement accounts.
c. The auditor should perform more (or more rigorous) substantive procedures when control risk is low than when control risk is high.
d. All of the above statements provide appropriate guidance.
e. Only two of the above statements (a-c) provide appropriate guidance.
Only two of the above statements (a-c) provide appropriate guidance.
In which of the following scenarios is the auditor most likely to obtain more (or more rigorous) substantive evidence?
a. When subjectivity related to the assertion is low.
b. When controls are determined to be operating effectively.
c. When the account is immaterial.
d. When the design of controls is determined to be ineffective.
When the design of controls is determined to be ineffective.
Which of the following procedures is least likely to be performed during Phase V of the audit opinion formulation process?
a. Assessment of misstatements detected during the performance of substantive procedures and tests of controls.
b. Performance of preliminary analytical review procedures.
c. Performance of an engagement quality review.
d. Determination of the appropriate audit opinion(s) to issue.
Performance of preliminary analytical review procedures.
Which of the following statements is true regarding the auditor's report on a public company's internal control over financial reporting?
a. The audit report will indicate whether it was the company or the auditor that initially identified the indicated material weakness.
b. The auditor must explicitly reference the criteria for evaluating internal control using, for example, the COSO framework.
c. The audit is performed in conjunction with the auditing standards promulgated by the AICPA's ASB.
d. The auditor must report on whether management used the appropriate tools in its assessment of internal control over financial reporting.
The audit is performed in conjunction with the auditing standards promulgated by the AICPA's ASB. [Show Less]