ACC 599 FINAL EXAM VERSIONS 1 & 2
ACC 599 FINAL EXAM
VERSIONS 1 Question 1 The first general standard of the PCAOB requires that an audit be performed by which type of person? Answer An auditor with seasoned judgment in varying degrees of supervision and review. An auditor with appropriate technical training and proficiency. An auditor with adequate knowledge of the standards of field work and reporting. An auditor satisfying the independence standards Question 2 Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included? Answer Existence. Valuation. Completeness. Rights and Obligations Question 3 Which one of the following attributes is not required of an auditor? Answer Independence. Bias. Integrity. Technical competence Question 4 Which one of the following is a reporting standard requirement? Answer The auditor will state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework. The auditor will identify in the auditor’s report, those circumstances in which auditing principles have not been consistently observed in the current period in comparison to the preceding period. The auditor will review adjusting journal entries for accuracy, and if the auditor concludes those entries are not reasonable accurate, the auditor must so state in the auditor’s report. The auditor will express an unqualified opinion on the financial statements, or will conduct additional audit procedures until such an opinion can be expressed Question 5 When obtaining an understanding of internal controls, what is the independent external auditor primary concerned with? Answer Detecting all errors Determining the effectiveness of operations Determining whether the internal controls can be relied upon Determining whether the controls promote efficiency Question 6 Which of the following is an inherent limitation of internal controls? Answer Lack of auditor independence Collusion Separation of duties Employee peer review Question 7 Which of the following is clearly a test of controls? Answer Walk-through of the expense cycle from performance of the service to the reporting in the balance sheet Examination of a sample of purchase order records for electronic, authenticated, authorization Observing the controller’s use of company owned equipment Sending a letter to the client’s attorney to determine litigation that is pending between plaintiff and the defendant Question 8 Which of the following is an example of a detective control in an information system? Answer Automated reports to management that specifically identify delinquent receivable A requirement that salaried employees submit written requests to work overtime Assurance from top management that computer centers are kept locked The employment of trustworthy people to enter data into the information system Question 9 Which of following is not part of the ethical framework derived from utilitarianism and rights theories? Answer Identification of the legal issues Determination of affected parties and their rights Determination of the most important rights Development of alternative courses of action Question 10 In determining the types of activities, engagements and interactions an auditor should have with a client, what must the CPA and the audit firm do? Answer 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 Question 11 Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct? Answer A member must not take on an engagement that is beyond the member’s professional competence A member must exercise duties prudently and professionally A member must adequately plan and supervise the performance of professional services A member firm must not advertise services to competing clients Question 12 Which of the following represents a situation in which auditors may disclose client information to outside parties? Answer Bringing working papers to a professional CPA workshop as an example of quality work Complying with a validly issued and enforceable subpoena or summons Showing the client’s bank statement to a neighbor who is a shareholder to emphasize its cash position Explaining to the local television news station why the client is likely to miss payroll in the forthcoming periods Question 13 The significance of the bill of lading is to provide which of the following? Answer The warehouse personnel with the product that must be shipped to customers Invoices to customers for proper collection A credit application for customer approval Evidence of title transfer of goods to customers Question 14 A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following? Answer Use of prenumbered shipping, invoice and sales documents Use of prenumbered statements, inventory lists and credit memos Reconciliation of invoices with customer statements Use of pre-authorized price lists Question 15 The relationship between the sales cycle and an inventory system can best be noted in which of the following examples? Answer Credit is established prior to completion of a sales order. Invoices are sent to customers only after shipment is evidenced. Availability of products ordered are verified prior to processing a sale Billing information is added to the database for new customers Question 16 The aged accounts receivable report is utilized by the auditor to accomplish which of the following? Answer Encourage the client to collect on receivables that are long past due. Select the type of confirmations that will be sent to banks. Assess the adequacy of the allowance for doubtful accounts. Identify debits in the receivables balance that should be reclassified to payables Question 17 All of the following are recommended features of a fire protection system for a computer center except Answer clearly marked exits an elaborate water sprinkler system manual fire extinguishers in strategic locations automatic and manual alarms in strategic locations Question 18 Inherent risk Answer exists because all control structures are flawed in some ways is the likelihood that material misstatements exist in the financial statements of the firm is associated with the unique characteristics of the business or industry of the client. is the likelihood that the auditor will not find material misstatements Question 19 The following are examples of commodity assets except Answer network management systems operations systems development server maintenance Question 20 Tests of controls include Answer confirming accounts receivable counting inventory completing questionnaires counting cash Question 21 Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price? Answer Stock splits Arbitrage Dividends Stock options Question 22 Which legislation led to the establishment of the Public Company Accounting Oversight Board? Answer Private Securities Litigation Reform Act Sarbanes-Oxley Act Gramm-Leach-Bliley Act Glass-Steagall Act Question 23 _______ is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction. Answer 360 degree survey Critical incidents method Balance scorecard Pareto chart Question 24 Which of the following applies to a “cookie jar?” Answer Understated accounts payable Overstated current assets Overstated reserves Recording fictitious revenues Question 25 In asset fraud, assets are most often: Answer understated overstated recorded as liabilities recorded as revenues ? VERSION 2 Question 1 Which assertion addresses whether the financial statements items are properly classified in the financial statements? Answer Completeness Existence Valuation Presentation and Disclosure Question 2 The Standards of the PCAOB can be broken up into three categories, i.e., general, fieldwork, and reporting. Which of the following is considered in the fieldwork standards? Answer Independence GAAP Internal control Disclosure Question 3 Which of the following is a reason why an auditor needs an understanding of internal controls? Answer To provide individual comments on internal control non-compliance To become comfortable that the client will pay its audit bills To assess materiality. To assess the risk of possible misstatements in the financial statements. Question 4 The PCAOB’s AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive? Answer Requiring two persons to open mail containing payments. Reconciling the accounts receivable subsidiary file with the control account. Using batch totals. Preparing bank reconciliations. Question 5 How can an auditor use inquiry to gain a better understanding of internal controls? Answer By interviewing key employees to gain further insight into the internal control environment By observing the safeguarding of assets by checking locked doors and safes By tracing a transaction from the boundary of the organization through to the final reporting By documenting thoroughly the internal control through the use of narratives Question 6 Which one of the following components of the system of internal controls influences the tone for the organization? Answer Control risk assessment Control environment Information and communication Monitoring Question 7 Which of the following is not part of the control environment? Answer Management philosophy and operating style Methods of assigning authority and responsibility Personnel policies and practices Control activities Question 8 A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients? Answer To discuss information relating to inadequate disclosure in an audit report To comply with a validly issued and enforceable subpoena or summons To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority To explain to members of the press whether a client is likely to miss payroll in the forthcoming periods Question 9 In determining auditor independence, the SEC considers which of the following as an independence impairment? Answer An auditor performs the accounting work and then audits it. An auditor has no conflicting interest with the client An auditor does not act as an advocate for the audit client An auditor does not act as an employee of the audit client Question 10 Which of following is not required by Rule 201? Answer Professional competency Integrity and objectivity Planning and supervision Gathering sufficient relevant data Question 11 Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately? Answer 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 Question 12 Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following? Answer Shipping documents and tracing them to the sales journal Accounts receivable and tracing them to cash receipts Recorded sales transactions and tracing them to the general ledger Inventory records and tracing them to the shipping documents Question 13 What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate? Answer Accounts receivable aging schedule Copies of checks received from customers Confirmations returned without exception Stock prices of customer companies Question 14 Which of the following processes are included in the revenue cycle? Answer Shipping products to customers Sending disbursements to suppliers Issuance of capital stock Preparation of a time card Question 15 The fundamental difference between internal and external auditing is that Answer internal auditors represent the interests of the organization and external auditors represent outsiders internal auditors perform IT audits and external auditors perform financial statement audits internal auditors focus on financial statement audits and external auditors focus on operational audits and financial statement audits external auditors assist internal auditors but internal auditors cannot assist external auditors Question 16 When planning the audit, information is gathered by all of the following methods except Answer completing questionnaires interviewing management observing activities confirming accounts receivable Question 17 Which is the most critical segregation of duties in the centralized computer services function? Answer systems development from data processing data operations from data librarian data preparation from data control data control from data librarian Question 18 The least important item to store off-site in case of an emergency is Answer backups of systems software backups of application software documentation and blank forms results of the latest test of the disaster recovery program Question 19 Understanding a company’s relationships with financial institutions and bondholders is important because: Answer it can indicate the extent to which the company is leveraged it can reveal whether significant short selling of the company’s stock has occurred it can uncover the fraudulent transactions from special purpose entities it may help in raising additional funds from the financial institutions Question 20 ______ refers to the ability to anticipate a fraud perpetrator’s likely method of concealing a fraud. Answer Zero-order reasoning Deductive reasoning Strategic reasoning Low-order reasoning Question 21 While generally accepted accounting principles do allow flexibility, standards of _________, ________, and ________ must always prevail in the financial statements. Answer subjectivity; integrity; validation objectivity; integrity; judgement recording; reporting; accounting quality; excellence; and judgement Question 22 Recognizing unearned revenue as earned revenue is an example of which type of fraud? Answer Liability understatement Revenue understatement Cost of goods sold understatement Assets overstatement
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