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1. (TCO 6) Physical
examination is the inspection or count by the auditor of items such as
(Points : 3)
|
cash or inventory only.
cash, inventory, canceled checks, and sales documents.
cash, inventory, canceled checks, and tangible fixed assets.
cash, inventory, securities, notes receivable, and tangible fixed assets.
Chapter 7
|
|
1. (TCO 6) The distinction
between physical examination of assets and examination of documents is
dependent on the item being examined. If the object being examined has no
inherent value, the evidence is called (Points : 3)
|
documentation.
physical examination.
confirmation.
none of the above.
Chapter 7
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1. (TCO 6) Which of the
following statements regarding documentation is not correct? (Points : 3)
|
Documentation includes examining
client records, such as general ledgers and supporting journals.
Internal documents are documents that are generated within the company and
used to communicate with external parties.
External documents are documents that are generated outside of the company
and are used to communicate the results of a transaction.
All of the above are correct statements
Chapter 7
|
|
2. (TCO 6) Which of the
following is not a purpose of analytical procedures? (Points : 3)
|
Understand the client’s
industry
Assess the client’s ability to continue as a going concern
Identify misstatements
Reduce detailed audit tests
Chapter 7
|
|
2. (TCO 6) Analytical procedures
are (Points : 3)
|
diagnostic tests of financial
information that may not be classified as evidential matter.
calculations of financial information made by a computer.
substantive tests of financial information made by a study and comparison of
relationships among data.
statistical tests of financial information designed to identify areas
requiring intensive investigation.
Chapter 7
|
2. (TCO 6) When analytical
procedures reveal no unusual fluctuations, the implication is that
(Points : 3)
|
there are no material errors or
irregularities.
there are no material errors.
there are no material irregularities.
the possibility of a material error or irregularity is lessened.
Chapter 7
|
3. (TCO 6) The Auditing Standards
Board has concluded that analytical procedures are so important that they
are required during (Points : 3)
|
planning and testing phases.
planning and completion phases.
testing and completion phases.
planning, testing, and completion phases.
Chapter 7
|
|
3. (TCO 6) The primary purpose
of performing analytical procedures in the testing phase of an audit is to
(Points : 3)
|
help the auditor obtain an
understanding of the client’s industry and business.
assess the going concern assumption.
indicate possible misstatements.
reduce detailed tests.
Chapter 7
|
3. (TCO 6) Which of the
following statements regarding analytical procedures is not correct?
(Points : 3)
|
The definition of analytical tests
emphasizes a comparison of client’s data to GAAP.
Analytical procedures are required on all audits.
Analytical procedures can be used as substantive tests.
For certain accounts with small balances, analytical procedures alone may be
sufficient evidence.
|
Chapter 7
|
4. (TCO 6) Which of the
following statements about confirmation is true? (Points : 3)
|
Confirmations are expensive and
so are often not used.
Confirmations may inconvenience those asked to supply them, but they are
widely used.
Confirmations are sometimes not reliable and so auditors use them only as
necessary.
None of the above statements are true.
Chapter 7
|
|
4. (TCO 6) Three common types of
confirmations used by auditors are (1) negative confirmations where only a
response is requested if the debtor disagrees with the amount, (2) positive
confirmations with a request for information where the debtor is requested
to respond and to include their believed balance, and (3) positive
confirmations with the information included where the debtor is requested
to respond and to confirm the balance we give them. If they were placed in
the order of their competence, from highest to lowest, the sequence would
be (Points : 3)
|
3, 1, 2.
1, 2, 3.
3, 2, 1.
2, 3, 1.
Chapter 7
|
4. (TCO 6) Traditionally,
confirmations are used to verify (Points : 3)
|
individual transactions between
organizations, such as sales transactions.
bank balances and accounts receivables.
fixed asset additions.
All of the above
Chapter 7
|
5. (TCO 7) The major concern
when using nonfinancial data in analytical procedures is the (Points : 3)
|
accuracy of the nonfinancial
data.
source of the nonfinancial data.
type of nonfinancial data.
presence of multiple sources of nonfinancial data.
Chapter 8
|
|
5. (TCO 7) Analytical procedures
used in planning an audit should focus on identifying (Points : 3)
|
material weaknesses of internal
control.
the predictability of financial data from individual transactions.
the various assertions that are embodied in the financial statements.
areas that may represent specific risks relevant to the audit.
Chapter 8
|
5. (TCO 7) Which of the
following is correct with respect to the use of analytical procedures?
(Points : 3)
|
Analytical procedures may be
used in evaluating balances in the testing phase as long as the auditor
also uses them in assessing the going concern assumption.
Analytical procedures must be used throughout the audit.
Analytical procedures used in the testing phase of the audit are primarily
used to direct an auditor’s attention so that the auditor’s understanding
of the business is improved.
None of the above
Chapter 8
|
6. (TCO 7) A measure of how
willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified
opinion has been issued is the (Points : 3)
|
inherent risk.
acceptable audit risk.
statistical risk.
financial risk.
Chapter 8
|
|
6. (TCO 7) When inherent risk is
high, there will need to be (Points : 3)
|
more evidence accumulated.
more experienced staff assigned to the work.
either a or b, but not both.
both a and b.
Chapter 8
|
6. (TCO 7) A measure of the
auditor’s assessment of the likelihood that there are material
misstatements in an account before considering the effectiveness of the
client’s internal control is (Points : 3)
|
acceptable audit risk.
control risk.
inherent risk.
statistical risk.
Chapter 8
|
|
|
7. (TCO 7) What is the
responsibility of a successor auditor with respect to communicating with
the predecessor auditor in connection with a prospective new audit client?
(Points : 3)
|
The successor auditor has no
responsibility to contact the predecessor auditor.
The successor auditor should obtain permission from the prospective client to
contact the predecessor auditor.
The successor auditor should contact the predecessor regardless of whether
the prospective client authorizes contact.
The successor auditor need not contact the predecessor if the successor is
aware of all available relevant facts.
Chapter 8
|
7. (TCO 7) A successor auditor
may perform which of the following for a new audit client? (Points : 3)
|
Speak to local attorneys, banks,
and other businesses regarding the company’s reputation
Speak to the predecessor auditor about disagreements they had with management
Interview client personnel to better understand the business and associated
risks
All of the above
Chapter 8
|
7. (TCO 7) Which of the
following is not correct regarding the communications between successor and
predecessor auditors? (Points : 3)
|
The burden of initiating the
communication rests with the predecessor auditor.
The burden of initiating the communication rests with the successor
auditor.
The predecessor auditor must receive their former client’s permission prior
to divulging information to the successor auditor.
The predecessor auditor may choose to provide a limited response to a
successor auditor.
Chapter 8
|
|
8. (TCO 8) The FASB definition
of materiality emphasizes what class of financial statement users?
(Points : 3)
|
Regulators
Informed investors
Reasonable persons
Potential investors
Chapter 9
|
|
8. (TCO 8) Auditors are
responsible for determining whether financial statements are materially
misstated, so upon discovering a material misstatement, they must bring it
to the attention of (Points : 3)
|
regulators.
the audit firm’s managing partner.
no one in particular.
the client’s management.
Chapter 9
|
8. (TCO 8) The preliminary
judgment about materiality is the _____ amount by which the auditor believes
the statements could be misstated and still not affect the decisions of
reasonable users. (Points : 3)
|
minimum
maximum
mean average
median average
Chapter 9
|
|
9. (TCO 8) In setting
materiality guidelines for current assets, the two standard setters, FASB
and the AICPA, provide the following guidelines to practitioners (Points
: 3)
|
Both agree that materiality
should be set at an amount greater than 10% of current assets.
FASB’s guideline is greater than 10%, but the AICPA’s is greater than 5%.
Both agree that it should be greater than 5%.
No specific materiality guidelines are provided by either of them.
Chapter 9
|
|
9. (TCO 8) Auditors are _____ to
decide on the combined amount of misstatements in the financial statements
that they would consider material early in the audit. (Points : 3)
|
permitted
required
not allowed
strongly encouraged
Chapter 9
|
9. (TCO 8) When auditors
allocate the preliminary judgment about materiality to account balances,
the materiality allocated to any given account balance is referred to as
(Points : 3)
|
the materiality range.
the error range.
tolerable materiality.
tolerable misstatement.
Chapter 9
|
|
10. (TCO 8) Which of the
following is not a correct statement regarding the allocation of the
preliminary judgment about materiality to balance sheet accounts? (Points
: 3)
|
Auditors expect certain accounts
to have more misstatements than others.
The allocation has virtually no effect on audit costs because the auditor
must collect sufficient appropriate audit evidence.
Auditors expect to identify overstatements as well as understatements in
the accounts.
Relative audit costs affect the allocation.
|
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