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 memo regarding audit id
...
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 memo 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
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