You are on page 1of 5

Instructions: Please respond to each question in the Excel spreadsheet provided with this examination.

For multiple choice questions, there is one correct answer for each question. Once completed, post the completed Excel spreadsheet to Gradebook by 11:59 pm MST (Phoenix time) on the final day of class. No late assignments will be accepted. Good luck! Contact me with any questions prior to submitting your completed Final Exam.

True/False
REQUIRED: For each of the following items, indicate whether it is (T) True or (F) False. For those marked False, identify the error(s) and indicate the change or changes that are needed to make the statement true. 1. The state boards of accountancy work under direct control of the AICPA. 2. The securities acts give the SEC the power to establish GAAP for all domestic companies. 3. The US Senate enacted the Sarbanes-Oxley Act of 2002. 4. Auditing procedures are the methods used and the acts performed by the auditor during an audit. 5. The overall objective of a financial statement audit is the expression of an opinion on whether the clients financial statements are presented fairly, in all material respects, in conformity with GAAS. 6. The completeness assertion relates primarily to possible overstatements in the financial statements. 7. CPAs who perform audit services also provide a variety of other services to clients. 8. Procedures to obtain an understanding of the internal control structure are required in every financial statement audit. 9. Relevance is the measure of the quality or reliability of the audit evidence, whereas competence relates to whether the evidence is pertinent to the assertion being tested. 10. The second standard of fieldwork requires the auditor to obtain sufficient competent evidence through audit procedures to afford a reasonable basis for an opinion on the financial statements. 11.Confirmations provide important evidence and are used in auditing because the evidence is usually objective and comes from an internal source. 12. The performing audit tests phase of the audit is also referred to as performing the fieldwork. 13.Within the public accounting profession, there is little competition among firms for clients. 14. In evaluating a firms independence with respect to a prospective audit client, it is not necessary to consider whether acceptance of the client would result in any conflicts of interest with other clients. 15. In audit planning, the auditor should recognize that there may be several levels of materiality. 16.Inherent risk cannot be greater for some assertions than for others. 17.There is an inverse relationship between audit risk and the amount of evidence needed.

18. Auditors are required to perform risk assessment procedures in every

audit to assess the risk of fraud due to both misappropriation and fraudulent financial reporting. 19. The use of prenumbered documents is a common control designed for the existence and occurrence assertion. 20. Professional standards do not allow the performing of substantive audit procedures at an interim date.

Multiple Choice
REQUIRED: Indicate the best answer choice for each of the following. 1.

Within the generally accepted auditing standards, the general standards relate primarily t a. qualifications of the auditor and the quality of the auditors work. b. qualifications of the auditor. c. the relationship between GAAS and generally accepted accounting principles. d. the fairness of the financial statements. e. the general distribution of audit reports. The a. b. c. d. e. essence of the due care standard is that the auditor should not be guilty of: bias. objectivity. errors in judgment. fraud. negligence.

2.

3.

Gross negligence can best be defined as: a. failure to exercise due care. b. misrepresentation. c. failure to exercise even slight care. d. criminal fraud. e. collusion. Section 18 liability is relatively narrow in scope because it relates only to a false or misleading statement in documents filed with the: a. FASB b. IRS c. SEC d. AICPA e. IMA

4.

5.

For a. b. c. d. e.

a particular assertion, control risk is the risk that: a material misstatement will occur in the accounting process. controls will not detect a material misstatement that occurs. audit procedures will fail to detect a weak control system. the prescribed control procedures will not be applied uniformly. an immaterial misstatement will occur in the accounting process.

6.

Which of the following would not be an important factor in understanding an entitys industry, regulatory environment and other external factors? a. The competitive environment. b. The political environment. c. Relevant accounting pronouncements. d. Technological developments. e. The nature of the entity. Which of the following would not be considered underlying accounting data? a. sales invoices b. the general ledger c. books of original entry d. accounting manuals e. accounts receivable ledger Which of the following would not be considered corroborating information? a. canceled checks held by the client b. confirmation from vendors c. oral evidence obtained from client personnel d. the accountants work sheet e. other information obtained by the auditor The importance of the accept/reject decision for a particular client is reflected in the inclusion of acceptance and continuation of clients as: a. the subject of Statement of Financial Accounting Standards 96. b. the subject of Statement on Auditing Standards 7. c. a separate rule in the AICPA Code of Conduct. d. an explicit part of the General Standards. e. one of the quality control elements for CPA firms.

7.

8.

9.

10 In the communication with the predecessor auditor, the potential successor should make specific and reasonable inquiries regarding matters that may affect the decision to accept the engagement. Which of the following items is least likely to be included in the inquiries? a. the integrity of management b. disagreements with management about accounting matters c. specific areas of audit difficulty and cost d. the predecessors understanding of the reasons for a change in auditors e. disagreements with management about auditing matters The quality control element (s) most directly related to the auditors assessment of her competence to perform the audit is (are):

11.

a. b. c. d. e. 12.

assigning personnel to the engagement and consultation. assigning personnel to the engagement. consultation. independence. supervision.

In making judgments about materiality at the account balance level, the auditor must consider the relationship between it and financial statement materiality. This should lead the auditor to plan the audit to detect misstatements that: a. are individually material to the statements taken as a whole. b. are individually immaterial to the statements taken as a whole. c. may be immaterial individually, but may aggregate with misstatements in other accounts to a material level. d. bring the cumulative total of known misstatements to the level of materiality established by management. e. are individually material to the account balance. The auditor has chosen the preliminary strategy of lower assessed control risk. Which of the following is not a validly specified component of this strategy? a. use a planned assessed level of control risk of moderate or low b. plan tests of controls, probably testing computer controls embedded in the clients system c. plan restrictive substantive tests d. plan few, if any, tests of controls e. use a planned assessed level of analytical procedures risk at a high level For which of the following accounts is the primarily substantive testing strategy least likely? a. bonds payable b. trade accounts payable c. equipment d. capital stock e. machinery Which of the following risk factors is an example of an assertion specific inherent risk factor? a. Management override of internal controls. b. The impact of technological developments. c. Inadequate accounting skills. d. Management turnover. e. Contentious accounting issues.

13.

14.

15.

16.

Which of the following would be considered the most conservative settings for inherent risk and control risk? Inherent Risk 1.0 1.0 0.0 0.0 0.5 Control Risk 1.0 0.0 0.0 1.0 0.5

a. b. c. d. e. 17.

Which of the following factors are included in a firms control environment? Board of Directors a. b. c. d. e. No Yes Yes Yes Yes Integrity and Ethical Values Yes Yes No Yes No Commitment to Competence Yes Yes No No Yes

18.

A significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected is the definition of: a. a material weakness. b. a significant deficiency. c. a control deficiency. d. a material misstatement. e. an internal control deficiency. In PPS sampling plans, the risk of incorrect rejection is: a. stated explicitly in the model. b. not controlled at all. c. directly related to sample size. d. controlled indirectly by specifying anticipated misstatement. e. always quantified. In the audit risk model, audit sampling applies to: a. detection risk. b. inherent risk and control risk. c. control risk and detection risk. d. inherent risk and detection risk. e. control risk.

19.

20.

You might also like