ACC 562 Final Exam – Strayer New
ACC 562 Week 11 Final Exam Solved
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1.Developing
an understanding of the client's business and industry is essential to
proficiency as discussed in the general standards of GAAS. (Points: 4)
True
False
2. Ratio
analysis only involves a year-to-year comparison of account balances. (Points:
4)
True
False
3.
Control is considered to be part of corporate governance. (Points: 4)
True
False
4. When
control risk is assessed at a maximum level, the auditor assumes that the
internal controls are reliable in preventing or detecting material
misstatements. (Points: 4)
True
False
5.
Accounting subsystems are accounting cycles composed of one or more accounting applications.
(Points: 4)
True
False
6.
Presentation and disclosure assertions imply that all transactions and balances
are properly presented, disclosures represent what actually happened, and the
footnote disclosures are appropriate and adequate. (Points: 4)
True
False
7.
Vouching recorded transactions involves taking a sample from the journal and
tracing them back to the source documents to ensure they occurred. (Points: 4)
True
False
8. Audit
documentation serves as support for the financial statements. (Points: 4)
True
False
9. In
analysis of the results of audit sampling, an auditor may determine that the
sample size must be increased. (Points: 4)
True
False
10. The
revenue cycle considered by auditors includes the sales process but not
collections. (Points: 4)
True
False
11.
Inventory is complex and typically considered a high-risk area in audits of
service firms. (Points: 4)
True
False
12. An
auditor can utilize a cross-sectional analysis for a client operating in
multiple locations to identify areas of further inventory testing. (Points: 4)
True
False
13.
Legal expenses are reviewed by auditors for possible litigation and related FAS
5 treatment. (Points: 4)
True
False
14. An
imprest payroll account will never reach a zero balance. (Points: 4)
True
False
15. A
turnaround document is an effective completeness control because they list
essential information for further processing of the collection on account.
(Points: 4)
True
False
16.
Auditors will perform an analysis of leases using SFAS 13 criteria and other
EITF statements to substantiate the accounting treatment. (Points: 4)
True
False
17.
Contingencies are considered by the auditor in relation to the SFAS No. 5
criteria to determine whether material contingencies exist with the client and,
if so, that they are properly accrued or disclosed. (Points: 4)
True
False
18. An
example of a Type II Subsequent Event includes the settlement two months after
year-end of a liability for an amount well in excess of the amount that was
accrued at year-end. (Points: 4)
True
False
19. A
report on agreed-upon procedures issued by accountants provides the lowest form
of attestation assurance. (Points: 4)
True
False
20. The
need for assurance services arises for all of the following reasons EXCEPT:
(Points: 4)
potential bias in providing
information.
closeness between a user and the
organization.
complexity of the processing systems.
remoteness between a user and the
organization.
21.
Which one of the following is not part of the attest process? (Points: 4)
evaluating evidence against objective
criteria
gathering evidence about assertions
proving the accuracy of the books and
records
communicating the conclusions reached
22.
Users can reasonably expect audited financial statements to be (Points: 4)
complete and contain all important
financial disclosures, be free from material misstatements and be presented
fairly.
complete and contain all-important financial
disclosures, be free from material misstatements and be presented fairly
according to GAAP.
complete, be accurate and be presented
fairly according to GAAP.
complete and contain all-important
financial disclosures, be free from all misstatements and be presented fairly
according to the substance of GAAP.
23.
Which one of the following is not a provider of assurance services? (Points: 4)
CPAs
internal auditors
governmental auditors
AICPA
24. The
primary governing board that performs quality reviews on registered CPA firms
that audit public companies is the (Points: 4)
PCAOB
GAO
AICPA
FASB
25.
Management of an organization has the responsibility for all of the following
except: (Points: 4)
accounting principles used in financial
reporting
engagement of a qualified auditor
internal control over financial
reporting
financial statements and disclosures
26. The
financial statement auditor must understand the client's internal control as a
component of the fieldwork standards. The one of the reason for this
understanding is so that the auditor may (Points: 4)
provide individual comments on internal
control non-compliance.
become comfortable that the client will
pay its audit bills.
assess materiality.
assess the risk of possible
misstatements in the financial statements.
27. For
an auditor to be independent, he or she must be independent in (Points: 4)
fact.
appearance.
fact and appearance.
either fact or appearance.
28. An
auditor is concerned with materiality for which of the following reasons?
(Points: 4)
to assess internal control
to comply with the quality assurance
standards of GAAS
to determine the effects of
misstatements on the users of financial information
to cut down on audit procedures and
testing
29. A
proper system of corporate governance is one that demands (Points: 4)
decision making by auditors in place of
management.
internal audit representation on the
board of directors.
audit planning to obtain competent and
sufficient audit evidence.
accountability back through the system
to the shareholders.
30. In
determining the types of activities, engagements and interactions an auditor
should have with a client, the CPA and the audit firm must (select the best
answer) (Points: 4)
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.
31. The
AICPA Principles of Professional Conduct include (Points: 4)
due professional care and supervision.
scope and nature of services and
adequate training.
integrity and independence
public interest, integrity and
objectivity.
32. A
public client is required to report material changes in internal control
(Points: 4)
monthly.
quarterly.
annually.
never.
33.
Programs written to accomplish specific processing tasks, such as computing
payroll, are (Points: 4)
application programs.
operating system programs.
Java scripts.
access control programs.
34. The
combination of which functions in an information technology environment are not
necessarily a control weakness? (Points: 4)
user and programming functions
database administrator and data input
functions
programmers and authorization of
changes
users and certain data access
35.
Backup controls, used to prevent data and software loss would include
procedures to: (Points: 4)
load balance in the event of heavy
traffic across the network.
constantly monitor the network for
intrusion and attack.
provide an alternate form of
electricity to the corporate facilities.
fail-over to a mirrored storage device
in the event of interruption or loss.
36.
Which one of the following is an example of an edit test for limits? (Points:
4)
Only numbers are allowed to be input into
the social security number field and dashes are pre-formatted.
Each sales order is given an identifier
that is also tagged to the receipt of goods record, the customer invoice record
and the cash receipts record
The purchasing department may order
materials up to $5,000 in total before a second electronic authorization is
required.
Supplies may not be purchased from any
vendor not authorized and existing in the vendor table.
37. The
control totals used to ensure the completeness of processing in a batch
processing environment include (Points: 4)
record count.
control totals.
hash totals.
all of the above.
38. The
type of test used to check that no hourly employee is paid more than $400.00 in
one week is: (Points: 4)
an edit test.
a batch control test.
an output control test.
none of the above.
39.
Tagging and tracing might best be used to test which of the following? (Points:
4)
The number of confirmations returned
compared to the number of confirmations sent out.
The corporate credit card is only being
used for business transactions.
All customer orders shipped were also
invoiced and that cash was received.
Quantities of product F411029 have been
accurately counted in the warehouse.
40.
Which one of the following would be the least persuasive type of evidence?
(Points: 4)
Confirmations returned by bank directly
to the auditor.
Letters of communication from the
Securities Exchange Commission.
Physical examination of perpetual
inventory.
General ledger in a newly developed
information system.
41. The
primary support of an audit is (are) (Points: 4)
the financial statements.
the audit working papers.
the audit report.
the confirmation documentation.
42. The
primary assertion that is satisfied by physically observing the client's count
of inventory is (Points: 4)
existence.
rights.
valuation.
completeness.
43. The
audit team asks the client to pull a sample vendor files and examines the
invoices supporting the purchases of inventory items during the year. What is
the most probable reason for the use of this evidence? (Points: 4)
Confirmation of vendors supplying
inventory for existence.
Analytical procedures to determine
completeness of inventory.
Testing for the valuation of inventory
using the FIFO cost flow assumption.
Reading the terms of the arrangements
with vendors for disclosure.
44. The
extent of procedures is affected mostly by: (Points: 4)
the sheer volume of procedures to be
applied by the auditor.
the time of year in which the client
takes a physical inventory in the warehouse.
the auditor's judgment that
misstatements are probable in certain balances.
the availability of the client's staff
at or near the balance sheet date.
45. An
audit program is created to specify: (Points: 4)
the type of audit opinion to be
rendered based upon procedures performed.
the audit procedures that will be performed
each year for the client.
how an auditor should think while
performing audit procedures.
objectives and procedures to be
followed during the audit process.
46.
Which one of the following is primary reason for documenting audit work?
(Points: 4)
to prevent litigation by other parties
that question the audit performance.
to provide a stand-alone medium that
gives audit conclusions and supports the opinion.
to supply a point of reference for all
auditors performing the work subsequently.
to supply a point of reference for all
auditors performing the work subsequently.
47.
Which of the following would most likely be considered intentional
misapplication of accounting principles on financial statements? (Points: 4)
A capital lease is presented as
periodic rent expense rather than interest and depreciation.
A deferred tax asset is reduced to zero
with a valuation allowance.
A stock option is expensed even though
the fair value of the underlying stock on the date of grant was the same as the
option's exercise price.
Revenues for up-front fees are deferred
rather than recognized immediately.
48. The
audit of financial statements includes the initial approach of addressing
fraud. How must an auditor address fraud in the planning stage? (Points: 4)
The auditor must test for fraud in the
planning stage by sampling accounts.
The auditor must consider the
likelihood of fraud existing in the company in the planning stage.
The auditor must realize that most
people are honest and not automatically assume that fraud exists when planning
the audit.
The auditor must not be aggressive in
its initial approach to fraud as trust may be lost by the client.
49.
Which of the following creates an opportunity for fraud to be committed in an
organization? (Points: 4)
Management demands financial success.
Poor internal control.
Commitments tied to debt covenants.
Management is aggressive in its
application of accounting rules.
50. Sam
Jones, controller of Mitnikco, spends three days researching the accounting
statements to find loopholes in the "rules" and to make a case for
recognizing revenue earlier, rather than in later years. In the end, Sam and
the other members of management determine that they will reduce the company's
deferred revenue accounts and begin accounting for all revenues as agreements
are signed. What are the motivations of Mitnikco management based solely on the
information above? (Points: 4)
Pressures
Opportunity
Rationalization
Skepticism
51.
Sampling risk is the risk that (Points: 4)
the sample will not contain
characteristics representative of the population such that inferences made
about that population will be incorrect.
the population will not contain
characteristics representative of the sample such that inferences made about
that sample will be incorrect.
Neither A nor B is correct.
Both A and B are correct.
52. The
sample size varies directly with (Points: 4)
the expected failure rate.
the tolerable error rate.
the allowable risk of assessing control
risk too low.
the nonsampling risk
53. The
steps used in sampling during substantive testing includes the determination of
each of the following except (Points: 4)
the audit objective.
the method of selecting a sample.
expected misstatement conditions
control failure risk.
54. The
design of a PPS sample requires the auditor to determine all of the following
except (Points: 4)
detection risk.
inherent risk.
tolerable misstatement.
expected misstatement in the account
balance.
55.
Which of the following is the best example of the control objective in the
revenue cycle that all transactions are recorded accurately? (Points: 4)
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.
56. In
an audit of financial statements, the risk of the high rate of return of
products sold includes that of (Points: 4)
sales that are recorded improperly.
an estimate of accrued returns that
reduces net income.
a reduction of net sales for an
increase to the sales returns and allowance account.
consignment goods that are returned and
forwarded to third parties.
57.
Confirmations that are sent to select customers asking them to review the
current balance due the client as shown on the client's statement and return
the letters directly to the auditor indicating whether they agree with the
indicated balance, are known as (Points: 4)
direct confirmations.
indirect confirmations.
positive confirmations.
negative confirmations.
58.
Which of the following is an example of the type of analytics that an auditor
would use for inventory? (Points: 4)
Number of day's sales in receivables
compared to industry averages.
Inventory turnover for the previous
five years.
Number of obsolete units this period
compared to last.
Salaries of marketing personnel as a
percent of total inventory.
59.
Which one of the following accounts would an auditor most likely test by
performing analytical procedures? (Points: 4)
Sales commissions expense.
Legal expenses.
Repairs and maintenance expense.
Travel expense.
60.
Operational audits of cash management seek to identify areas in which cash
management may be improved to contribute to the overall profitability and
effectiveness of the organization. The internal auditor would use which of the
following procedures on an operational audit of cash? (Points: 4)
determine the compliance of treasury
activities with company policy
review procedures for identifying and
investing excess funds
review procedures for handling cash
receipts
all of the above
61.
Which represents the most significant risk associated with restructuring liabilities
on the financial statements? (Points: 4)
Future smoothing of income by releasing
the reserves.
Related party transactions that are not
recorded at arms-length.
Understatement of assets in the period
of recording the liabilities.
Payroll liabilities that are not
disclosed in the notes.
62. All
of the following are significant issues for consideration when auditing for the
impairment of goodwill, except (Points: 4)
timing of the assessment by management.
amortization in years of the goodwill.
clear objective evidence supporting the
assessment.
understanding the client's business and
its risks.
63.
Simco's shaving products division was acquired over ten years ago in a purchase
transaction by BlizzardCraft. The related goodwill was amortized until 2002 and
$4.5 million remained on the books thereafter. In 2008, Simco's production
machinery was assessed for impairment as a long-lived asset because of
obsolescence issues. What relationship will the auditors most likely make
between the facts stated above? (Points: 4)
BlizzardCraft erroneously treated the
acquisition of Simco as a purchase transaction when it should have been a
pooling of interests.
Simco should not have amortized
goodwill previous to 2002.
Simco's goodwill should have been
written off when purchased by BlizzardCraft in a one-time transaction.
The goodwill related to Simco may have
been impaired during 2008.
64. All
of the following represent a related entity to an organization except (Points:
4)
the president's son.
an affiliate with common ownership.
customers.
primary owners.
65. All
of the following represent equity issuance requiring prominent accounting,
presentation and disclosure treatment, except (Points: 4)
stock with beneficial conversion
features.
Warrants issued to a consultant for
services performed.
Preferred stock that is cumulative and
par value is $0.50 per share.
Dividends have not been paid on common
stock since inception.
66. The
auditor will examine proceeds and trace them to recorded amounts of the par
value of common stock to determine that (Points: 4)
shares exist and have valid stock
certificates.
proceeds have been properly distributed
between common stock and additional paid-in capital.
dividends have been issued in
accordance with the stock indenture agreement as approved by the board.
shareholders actually have the rights
to shares issued by the company in exchange for subscribed funds.
67.
Which of the following is a tool that is best used by the audit team to
determine if the client has included all disclosures? (Points: 4)
Management representation letter.
GAAS.
Inquiry of the CFO.
Checklists.
68. The
auditor is responsible for evaluating the likelihood of a client continuing as
a going concern for a reasonable period of time. A reasonable period of time is
(Points: 4)
one year from the audit report date.
one year from the last day of field
work.
one year from the balance sheet date.
two years from the balance sheet date.
69. Rock
School, Inc. has a matter of material litigation that is threatened, but that
has not gone to trial. The auditor's consideration of such a matter will most
likely include all of the following except (Points: 4)
sending a letter to the client's
attorneys for more information
discussions of the matter with the client and the client's insurance
adjuster.
confirmation with the harmed party
regarding the amount that will be claimed.
assessment of proper accrual or
disclosure by the client in accordance with SFAS No. 5.
70. When
the financial statements contain a material departure from GAAP that the
auditor believes is justified, justification (Points: 4)
should appear in a footnote.
should appear in a paragraph added
before the scope paragraph.
should appear in the opening paragraph.
should appear in a paragraph added
before the opinion paragraph.
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