auditing and assurance 433A

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Question 1. 1. The Securities Exchange Commission (SEC) has oversight authority over the PCAOB. Which of the following is not within the SEC’s oversight authority?       [removed] The SEC approves the PCAOB’s rules       [removed] The members of the PCAOB are appointed by the SEC       [removed] The SEC approves the PCAOB’s budget       [removed] The SEC determines which audit firms will be inspected by the PCAOB [removed][removed][removed][removed]Question 2. 2. Before the creation of the PCAOB, the auditing standards of the Auditing Standards Board were used to audit all companies. Which statement best describes the PCAOB and auditing standards?       [removed] In 2003, the PCAOB adopted certain auditing standards of the ASB as interim standards       [removed] In 2003, the PCAOB developed over 100 new auditing standards       [removed] In 2003, the PCAOB developed audit standards to audit all companies, private and public       [removed] In 2003, the PCAOB adopted all the standards of the AICPA to save time in the development of new standards [removed][removed][removed][removed]Question 3. 3. Corresponds to CLO 1(c) Which of the following is correct about the PCAOB?       [removed] The PCAOB receives its authority from the SEC       [removed] Auditing standards issued by the PCAOB must be approved by the SEC       [removed] Anyone who wants to purchase stock on a U.S. stock exchange must follow the rules of the SEC       [removed] All audit firms performing audits of public companies are registered with and agree to comply with the auditing procedures established by the PCAOB [removed][removed][removed][removed]Question 4. 4.  Corresponds to CLO 1(d) Which of the following is correct about the PCAOB? (Points : 6)       [removed] The PCAOB receives its authority from the SEC       [removed] Auditing standards issued by the PCAOB must be approved by the U.S. Congress       [removed] Anyone who wants to purchase stock on a U.S. stock exchange must follow the rules of the SEC       [removed] All audit firms performing audits of public companies are registered with and agree to comply with the auditing standards established by the PCAOB [removed][removed][removed][removed]Question 5. 5. Corresponds to CLO 2(a) When management presents the financial statements to the auditor, management makes several assertions about the financial statements. Which of the following is not one of these assertions?       [removed] residence       [removed] valuation and allocation       [removed] accuracy       [removed] classification [removed][removed][removed][removed]Question 6. 6. Corresponds to CLO 2(b) When management presents the financial statements to the auditor, management makes several assertions about the financial statements. Which of the following is not one of these assertions?       [removed] existence or occurrence       [removed] valuation and allocation       [removed] accuracy       [removed] categorization [removed][removed][removed][removed]Question 7. 7. Corresponds to CLO 2(c) Which of the following are assertions about the revenue process?       [removed] existence or occurrence – for both classes of transactions and account balances       [removed] completeness – account balances       [removed] valuation and allocation – for account balances       [removed] rights and obligations – for classes of transactions and account balances       [removed] accuracy – for classes of transactions and account balances       [removed] both A and C       [removed] both B and D [removed][removed][removed][removed]Question 8. 8. Corresponds to CLO 2(d) Which of the following are assertions about the revenue process? )       [removed] existence or occurrence – for both classes of transactions and account balances       [removed] completeness – for both classes of transactions and account balances       [removed] valuation and allocation – for classes of transactions and account balances       [removed] rights and obligations – for classes of transactions and account balances       [removed] accuracy – for classes of transactions and account balances       [removed] both A and B       [removed] both C and D       [removed] both D and E [removed][removed][removed][removed]Question 9. 9. Corresponds to CLO 3(a) In planning the audit, the auditor makes decisions about the size of misstatements that will be considered material. These decisions allow the auditor to       [removed] determine the nature, timing, and extent of inherent risk assessment procedures       [removed] identify and assess the risk of misstatement       [removed] determine the nature, timing, and extent of audit procedures       [removed] establish an amount below which misstatements will always be evaluated as immaterial       [removed] C and D [removed][removed][removed][removed]Question 10. 10. Corresponds to CLO 3(b)  In planning the audit, the auditor makes decisions about the size of misstatements that will be considered material. These decisions allow the auditor to       [removed] determine the nature, timing, and extent of inherent risk assessment procedures       [removed] identify and assess the risk of material misstatement       [removed] determine the nature, timing, and extent of internal control procedures       [removed] establish an amount below which misstatements will always be evaluated as immaterial [removed][removed][removed][removed]Question 11. 11. Corresponds to CLO 3(c) In the planning process, the auditor assesses the risk that misstatements have occurred in the financial statements. The source of misstatements includes (      [removed] inaccuracies in gathering or processing data used to audit the financial statements       [removed] the use of auditing standards that may be unreasonable or inappropriate       [removed] differences between the amount or classification of a financial statement item and what should have been reported under generally accepted auditing standards       [removed] omissions of financial statement explanations       [removed] financial statement disclosures that are not in accordance with generally accepted accounting principles [removed][removed][removed][removed]Question 12. 12. Corresponds to CLO 3(d) In the planning process, the auditor assesses the risk that misstatements have occurred in the financial statements. The source of misstatements includes ()       [removed] the use of auditing standards that the auditor may consider unreasonable or inappropriate       [removed] inaccuracies in gathering or processing data used to audit the financial statements       [removed] differences between the amount or classification of a financial statement item and what should have been reported under generally accepted accounting principles       [removed] omissions of financial statement explanations       [removed] financial statement disclosures that are not in accordance with generally accepted auditing standards [removed][removed][removed][removed]Question 13. 13. Corresponds to CLO 4 (a) Which of the following is a correct statement about internal controls? ()       [removed] The internal control function in a company is a process designed by management and others charged with governance to provide reasonable assurance that the financial statements are prepared in accordance with the COSO financial reporting framework.       [removed] Management develops internal controls to prevent or detect misstatements in the financial statements.       [removed] The auditor reviews the internal controls developed by management to assess whether the internal controls are effective in detecting misstatements.       [removed] The auditing standards define internal controls over financial statements as processes designed by management and others charged with governance to provide assurance that company responsibilities are met. [removed][removed][removed][removed]Question 14. 14. Corresponds to CLO 4 (b) The internal control deficiencies identified in a financial statement audit may be reported in which of the following ways? (      [removed] Significant deficiencies are reported in a management letter.       [removed] Material weaknesses are verbally reported to the audit committee.       [removed] Deficiencies that fail to reach the level of significant deficiencies or material weaknesses are reported in a management letter.       [removed] Significant deficiencies and material weaknesses may be verbally reported to both management and the audit committee. [removed][removed][removed][removed]Question 15. 15. A significant deficiency is: ()       [removed] a control deficiency or a combination of control deficiencies that adversely affects the company’s ability to initiate, authorize, record, process, or report internal financial data reliably in accordance with an applicable financial reporting framework       [removed] a control deficiency or a combination of control deficiencies that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with an applicable financial reporting framework       [removed] a control deficiency or combination of control deficiencies that result in more than a remote likelihood that a material misstatement in the financial statements would not be prevented or detected       [removed] a control deficiency or combination of control deficiencies that results in a remote likelihood that a material misstatement in the financial statements would not be prevented or detected   [removed][removed][removed][removed]Question 16. 16. Corresponds to CLO 4 (d) The auditor must communicate in writing all significant deficiencies and material weaknesses to management and the audit committee. The written communication from the auditor should include:       [removed] a definition of a significant deficiency and a material weakness       [removed] a statement that the objective of the audit is to report on the financial statements and to provide assurance on internal controls       [removed] a statement that the communication is intended solely for the use of stockholders, the board of directors, the audit committee, and management       [removed] a statement that there is no such thing as absolute assurance [removed][removed][removed][removed]Question 17. 17. Corresponds to CLO 5 (a) In the revenue business process, the auditor might perform the following analytical procedures:       [removed] Compare sales revenue, accounts receivable, sales returns and allowance, bad debt expense, and allowance for uncollectible accounts for the current year to the prior year. Investigate changes from the auditor’s expectations that appear to be unreasonable.       [removed] Compare sales revenue, accounts payable, sales returns and allowance, bad debt expense, and allowance for uncollectible accounts for the current year to the prior year. Investigate changes from the auditor’s expectations that appear to be unreasonable.       [removed] Calculate the accounts receivable turnover ratio and the number of days outstanding in accounts receivable for the current and prior years. Investigate a change from the auditor’s expectations if it appears to be unreasonable.       [removed] Calculate the accounts receivable turnover ratio and the number of days outstanding in accounts payable for the current and prior years. Investigate a change from the auditor’s expectations if it appears to be unreasonable.       [removed] Consider the number of vendor accounts for the current year and the prior year and new accounts added and lost in each year.       [removed] both A and C       [removed] both B and E [removed][removed][removed][removed]Question 18. 18. Corresponds to CLO 5 (b) For an auditor to make the decision about whether a change noted in analytical procedures is unreasonable he needs       [removed] knowledge of the client’s industry       [removed] knowledge of current political conditions       [removed] knowledge of prior economic conditions       [removed] an understanding of the client’s competitors       [removed] an understanding of the business under audit       [removed] both A and E       [removed] both B and C [removed][removed][removed][removed]Question 19. 19. Corresponds to CLO 5 (c) In sales cut-off testing, the auditor uses the inspection procedure of vouching and tracing to gather evidence about which assertion(s)?       [removed] existence and occurrence       [removed] accuracy       [removed] valuation or allocation       [removed] completeness       [removed] presentation and disclosure       [removed] both A and B       [removed] both A and D [removed][removed][removed][removed]Question 20. 20. Corresponds to CLO 5 (d) The auditing standards presume that the auditor will request confirmation of the accounts receivable balances unless       [removed] the balance in accounts receivable is immaterial       [removed] the use of confirmations would be effective if the amounts were significant       [removed] the auditor can reduce the risk of issuing an audit opinion to an acceptable low level without confirming accounts receivable       [removed] the client believes that confirmations are not necessary [removed][removed][removed][removed]Question 21. 21. Corresponds to CLO 6 (a) The auditor’s responsibility for fraud detection is to:       [removed] plan the audit so sufficient appropriate evidence is gathered to determine whether the auditor has reasonable assurance that the financial statements are free of material misstatement from fraud or error       [removed] plan the audit so sufficient appropriate evidence is gathered to determine whether the financial statements are free of misstatement       [removed] plan the audit so sufficient appropriate evidence is gathered to determine whether the financial statements are free of material misstatement from fraud or error       [removed] plan the audit so sufficient evidence is gathered to determine whether the financial statements are free of misstatement [removed][removed][removed][removed]Question 22. 22. Corresponds to CLO 6 (b) Three conditions are present in a company when fraud occurs. They are )       [removed] revenge, opportunity, and rationalization       [removed] pressure, revenge, and rationalization       [removed] pressure, opportunity, and rationalization       [removed] pressure, opportunity, and revenge [removed][removed][removed][removed]Question 23. 23. Corresponds to CLO 6(c) The condition, opportunity to commit fraud, is present when)       [removed] An individual believes that he is underpaid       [removed] An individual believes that the company has plenty of money       [removed] An individual believes that the company does not deal with customers fairly       [removed] An individual believes that internal controls can be overridden [removed][removed][removed][removed]Question 24. 24. Corresponds to CLO 6 (d) Management can override controls by )       [removed] suggesting fictitious journal entries (particularly at year end)       [removed] inappropriately changing assumptions and methods used to estimate account balances       [removed] omitting, advancing, or delaying modification of events that occurred during the reporting period       [removed] failing to disclose facts that could affect the amounts recorded in the financial statements       [removed] engaging in complex transactions designed to represent the financial condition of the company       [removed] both A and C       [removed] both B and D       [removed] both C and E [removed][removed][removed][removed]Question 25. 25. Corresponds to CLO 7 (a) Substantive audit tests for the acquisition and expenditure process are       [removed] inspection of computer logs       [removed] internal controls       [removed] questioning       [removed] inquiry       [removed] recalculation of the assessed risk [removed][removed][removed][removed]Question 26. 26. Corresponds to CLO 7 (b) In the acquisition and expenditure process, the auditor might perform the following analytical procedures       [removed] Compare accounts payable, accrued liabilities, cost of goods sold, and the balance in all the expense accounts for the current year to the prior year. Investigate changes from the auditor’s expectations that appear to be unreasonable.       [removed] Calculate the vendor margin percentage for the current and prior years. Investigate any changes from the auditor’s expectations that appear to be unreasonable.       [removed] Consider the number of vendor accounts for the current year and the prior year and the new vendors added or lost in each year.       [removed] Compare accounts payable, accrued liabilities, cost of goods available for sale, and the balance in all the expense accounts for the current year to the prior year. Investigate changes from the auditor’s expectations that appear to be unreasonable.       [removed] Calculate the merchandize inventory percentage for the current and prior years. Investigate any changes from the auditor’s expectations that appear to be unreasonable.       [removed] both A and C       [removed] both B and D [removed][removed][removed][removed]Question 27. 27. The auditor uses substantive tests of transactions to gather evidence for       [removed] balance sheet transactions in a business process       [removed] income statement transactions in a business process       [removed] income statement accounts in a business process       [removed] policies and procedures in a business process [removed][removed][removed][removed]Question 28. 28. Corresponds to CLO 7 (d) An effective way to identify liabilities that were unrecorded at year-end is)       [removed] reviewing liabilities recorded after year-end       [removed] reviewing journal entries after year-end       [removed] reviewing account closings after year-end       [removed] reviewing the bills paid after year-end [removed][removed][removed][removed]Question 29. 29. Corresponds to CLO 8 (a)  In the inventory process, the auditor might perform the following analytical procedures       [removed] Compare inventory balances by category – raw material, work-in-process, and finished goods – for the current year with the prior year.       [removed] Compare inventory purchases by category – raw material, work-in-process, and finished goods – for the current year with the prior year.       [removed] Compute material margin with the current year with the prior year. Investigate any unexpected changes in the ratio.       [removed] Compute cost of goods sold with the current year with the prior year. Investigate any unexpected changes in the ratio.       [removed] Compute inventory turnover. Compare the current year’s turnover to the prior year. Investigate any differences.       [removed] both A and C       [removed] both B and D       [removed] both A and E [removed][removed][removed][removed]Question 30. 30. Corresponds to CLO 8 (b)  IT technology related to inventory can be very useful in maintaining accurate records for inventory balances if       [removed] the internal controls for the technology are effectively designed to prevent or detect misstatements of purchases       [removed] the internal controls for the technology are effectively designed to prevent or detect misstatements in the financial statements       [removed] the internal controls for the technology are effectively designed to prevent or detect misstatements of inventory       [removed] the internal controls for the technology are effectively designed to prevent or detect misstatements of costs of goods sold [removed][removed][removed][removed]Question 31. 31. Corresponds to CLO 8 (c)  The transactions audited in the inventory process include      [removed] determining the correct quality of the inventory       [removed] internal controls relevant to transactions       [removed] pricing the inventory according to accounting standards       [removed] internal controls relevant to balances       [removed] valuing the year-end inventory transactions [removed][removed][removed][removed]Question 32. 32. Corresponds to CLO 8 (d)  Substantive audit procedures in the inventory process are       [removed] inspection of records, documents, or tangible assets       [removed] monitoring       [removed] inquiry       [removed] risk assessment       [removed] reviewing policies and procedures       [removed] both A and C       [removed] both B and D       [removed] both D and E [removed][removed][removed][removed]

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