Audit Final Exam Questions with 100% Correct Answers 2022/2023

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Audit Final Exam Questions with 100% Correct Answers 2022/2023 Which of the following is not important documentation for substantive procedures for capital stock and equity transactions? -Ans-A mem... o regarding audit ideas generated during the brainstorming session regarding potential frauds applicable to the capital stock and equity transactions. An example of a Type I subsequent event would be a significant lawsuit that is initiated relating to an incident that occurred after the balance sheet date. -Ans-False An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury stock. This determination is most likely tied to which of the following management assertions? -Ans-Completeness When an auditor issues an adverse opinion, which of the following should be included in the opinion paragraph? -Ans-A reference to a separate paragraph that describes the reason for the adverse opinion. Significant changes in the competitive market and a decrease in the competitiveness of the client's products are potential indicators of going conern problems -Ans-True Once the auditor has obtained an understanding of the inherent and fraud risks of material misstatement associated with debt obligations and stockholders' equity transactions, the auditor needs to understand the controls that the client has designed and implemented to address those risks. -Ans-True Management's refusal to sign the management reputation letter is considered a scope limitation sufficient to preclude the issuance of an unqualified opinion. -Ans-True Auditing standards require the auditor to identity and assess the risks of material misstatement due to fraud at the financial statement level only. -Ans-False Which of the following is a tool that is best used by the audit team to determine if the client has included all disclosures? -Ans-Checklists Which of the following is not a purpose of the management representation letter? -Ans-It implies that the auditor is responsible for the design of the internal controls The auditor will modify the audit report on ICFR effectiveness when management's annual certification pursuant to Section 302 of the SOX is misstated -Ans-True A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion -Ans-FalseThe auditor may test a manufacturing client's cost system to substantiate the valuation of inventory -Ans-True In the audit of consolidated financial statements under U.S. auditing standards when more than one CPA firm is involved and the principal audit firm chooses to mention the other firm, the wording of which paragraph is modified? -Ans-Introductory Paragraph: Yes; Scope Paragraph: Yes; Opinion Paragraph: Yes Some auditors may be reluctant to issue a going-conern audit opinion because it may hasten the failure of the client company. -Ans-True Which of the following is not a technique that auditors can use when performing preliminary analytical procedures related to long-lived assets? -Ans-All the above are techniques that auditors can use. A starting point for substantive tests of details on debt obligations is to have the client provide a cash flow statement. -Ans-False Which of the following are not included in a fixed-asset ledger? -Ans-List of all the assets, Estimated useful life and salvage value The audit committee is typically independent of the board of directors. -Ans-False The most difficult decisions about which opinion to issue are generally centered around decisions based on the materiality level and pervasiveness of GAAP violations, the significance of scope limitations, and the likelihood of the entity being a going conern. - Ans-True. Which of the following controls is not a typical control that affects multiple assertions for long-lived assets? -Ans-Reviewing insurance policies for adequate replacement coverage of assets. The auditor is only concerned about the aggregate internal control deficiencies when determining the appropriate opinion on internal control over financial reporting (ICFR). - Ans-False Which of the following is an example of the type of analytics that an auditor would use for inventory? -Ans-Inventory turnover for the previous five years. When a subsequent event evidence about conditions that did not exist at the balance sheet date, what is the best course of action for the auditor to follow? -Ans-Ensure that any necessary footnote disclosures be included with the statements. Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations? -Ans-Auditors are not required to consider the applicable legal and regulatory frameworks that apply to the entity. Which relationship might suggest a heightened risk of fraud in the acquisition and payment cycle? -Ans-Unexpected increases in the number of suppliers. Brown, Inc. obtained a patent for its product five years ago and should expense the entire amount of the unamortized balance if the product is no longer sold. -Ans-True Under international auditing standards, when the audit client has engaged other audit firms to audit remote locations around the country, the principal auditor must mention the other audit firms in the audit report. -Ans-False For both debt accounts and stockholders' equity accounts, the boxes of evidence would typically be filled only with evidence obtained through substantive procedures. -AnsTrue For intangible assets, controls should be designed to do which of the following? -Ans-All of the above. Which of the following results in a situation where an auditor has the least amount of difficulty in determining stock valuation? -Ans-When stock is issued for cash When the auditor is not independent with respect to a client, what must the auditor do? - Ans-Not accept an audit engagement The acquisition and payment cycle includes processes for identifying products or services to be acquired, purchasing goods and services, receiving the goods, approving payments and paying for goods and services received. -Ans-True If unusual or unexpected relationships related to long-lived assets are identified during preliminary analytical procedures, the planned audit procedures (Tests of controls, substantive procedures) would be adjusted to address the risk of material misstatement. -Ans-True Which one of the following factors is not an inherent risk associated with long-lived assets? -Ans-Lack of physical controls over the long-lived assets Which of the following is not an inherent risk typically associated with the existence of dividends? -Ans-Dividends are not properly amortized The acquisition and payment process consists of each of the following phases except which of the following? -Ans-Application of cash receipts According to the AICPA, the auditor needs to form an opinion on the financial statements based on an evaluation of the audit evidence obtained. This is stated inwhich AICPA principle governing an audit conducted in accordance with GAAS? -AnsPrinciple 1 Which of the following is not true regarding appropriate tests of controls? -Ans-The client's audit committee selects controls that are important to the auditor's conclusion about whether the organization's controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts as of the client's year end. Which of the following is not a common transaction affecting the stockholders' equity? - Ans-Bond Amortization Which of the following long-lived assets present the most difficult in determining its cost? -Ans-Patent Approval of items for payment usually involves a three-way match among the vendor invoices, the purchase order, and the receiving report. -Ans-True Which of the following is not a standard procedure that the auditor normally should follow in the observation of inventory at year-end? -Ans-Review disclosure of inventory valuation When a purchasing agent benefits personally by accepting payment from a vendor, the purchasing agent is guilty of which of the following? -Ans-Receiving kickbacks. Which of the following parties has the responsibility for designing and maintaining policies and procedures to identity, evaluate, and account for contingencies? -AnsManagement Which of the following statements about bonds is false? -Ans-They account for many of the organization's transactions Typically, when determining the appropriate audit procedure to perform for debt accounts, the auditor will usually decide to test debt obligations, including interest, using only substantive procedures. -Ans-True Which of the following is not a purpose of the management representation letter? -Ans-It implies that the auditor is responsible for the design of the internal controls. Which of the following would meet the need for additional control procedures when using computer-generated purchase orders? -Ans-Establishment of a maximum quantity limits that can be ordered within a given time period. When auditing expense accounts, which of the following would the auditor be least likely to subject to a detailed test of transactions? -Ans-Utilities expensesWhich of the following is not an example of fraud in the acquisition and payment cycle? -Ans-Excess inventory because of a production slowdown. Why should the client's legal expenses be examined? -Ans-To determine if there is any litigation pending or threatened. Accounting for inventories is a major consideration for many companies because of its significance to which of the following financial statements? -Ans-Income statement and Balance sheet Which of the following is an example of a reasonableness test? -Ans-Estimate the account balance and determine whether that amount is close to what the client recorded. Which of the following is not a reason why inventory is a complex accounting and auditing area? -Ans-Low volume of activity Which of the following procedures will usually be performed by the auditor to actively determine obsolete inventory? -Ans-Analysis of inventory turnover and sales reports. Assume that the audit team notes the client has made a significant change in its product line which requires the new equipment be purchased. Which of the following would be of greatest concern to the auditor? -Ans-Impaired value of old equipment Which of the following controls is not a typical control that affects multiple assertions for long-lived assets? -Ans-Unlimited physical access to assets. Which of the following expense accounts is associated with intangible assets with a definite life? -Ans-Amortization expense When performing preliminary analytical procedures related to long-lived assets, which of the following should the auditor compare the unaudited financial statements with? -AnsPast results and industry trends Audit procedures should be proportional to which of the following? -Ans-The assessed risks Which of the following expense accounts is associated with natural resources? -AnsDepletion expense The tour of the manufacturing plant may best assist [Show More]

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