ACC/460 Final Exam ANSWERS ARE HERE

Quality and inexpensive:

1) Determining whether amounts are in conformity with generally accepted accounting principles addresses the proper measurement of assets, liabilities, revenues, and expenses, which includes all of the following EXCEPT the A. consistency in applying accounting principles. B. reasonableness of managements accounting estimates. C. proper application of valuation principles, such as cost, net reliable value, market value, and present value. D. reasonableness of managements accounting policies. 2) The completeness assertion would be violated if A. unbilled shipments occurred during the period. B. fictitious sales transactions were included in accounts receivable. C. the allowance for doubtful accounts was understated. D. disclosure in the statements of pledged receivables was inadequate. 3) The concept of materiality is defined by the Financial Accounting Standards Board (FASB) in terms of the judgment of the A. FASB members. B. auditor. C. preparer. D. users. 4) Section 11 of the Securities Act of 1933 uses the term material fact to limit the amount of information required. Under the Act, the standard used to determine an items materiality A. may be found in FASB pronouncements. B. is the auditors professional judgment. C. has been established by the SEC as a percent of net income or of total assets. D. is the average prudent investor. 5) Anyone identified to the auditor by name prior to the audit who is the principal recipient of the auditors report is a A. primary beneficiary. B. third party.

C. foreseen beneficiary. D. foreseeable party. 6) Individuals or entities the auditor knew or should have known and would rely on the audit report in making business and investment decisions are A. primary beneficiaries. B. foreseeable parties. C. foreseen beneficiaries. D. third parties. 7) Statements on auditing standards (SAS) are interpretations of what? A. Generally accepted accounting policies B. Generally accepted auditing services C. Generally accepted accounting principles D. Generally accepted auditing standards 8) What level of assurance does the reader of a private company financial statement receive on the companys system of internal controls? A. Negative B. None C. Reasonable D. Positive 9) Which of the following best describes the relationship that should exist between the external auditor and the management of the client company? A. Advocacy of managements position B. Mutual caution and suspicion C. Mutual trust and respect D. Adversarial relationship 10) Statement on Quality Control Standards No. 2 identifies certain quality control elements that should be considered when performing which types of services? A. Accounting, tax, and review services B. Auditing, accounting, and tax services C. Auditing, tax, and review services D. Auditing, accounting, and review services 11) Internal auditors are primarily involved with A. compliance audits and operational audits. B. financial statement audits. C. operational audits. D. compliance audits. 12) When providing audit services, the certified public accountant (CPA) is expected to be

A. an advocate for the general public. B. indifferent to the effect of the financial statements and the audit report. C. an advocate for the client. D. independent of the client. 13) With respect to audit objectives, the term validity relates to which of the assertions below? A. Valuation or allocation B. Presentation and disclosure C. Completeness D. Existence and occurrence 14) The five management assertions outlined in generally accepted auditing standards include all of the following EXCEPT A. existence and occurrence. B. presentation and disclosure. C. materiality. D. rights and obligations. 15) Specific audit objectives are normally A. derived from the categories of managements financial statement assertions. B. developed for each item in the financial statements. C. developed for each item in the financial statements and derived from the categories of managements financial statement assertions. D. the same as the categories of managements financial statement assertions. 16) The assessment of inherent risk requires considering matters that have a pervasive effect on assertions for all or many accounts and matters that may pertain only to assertions for specific accounts. Which of the following is an example of a specific account matter? A. Sensitivity of operating results to economic factors B. Complexity of calculations C. Profitability of the entity relative to the industry D. Going concern problems, such as a lack of sufficient working capital 17) The risk that the auditor will NOT detect a material misstatement that exists in an assertion is A. inherent risk. B. audit risk. C. detection risk. D. control risk. 18) The susceptibility of an assertion to a material misstatement, assuming there are no controls, is A. analytical procedures risk. B. control risk. C. inherent risk.

D. audit risk. 19) Auditor changes result from a variety of factors EXCEPT A. satisfaction with a firm. B. mergers between corporations with different independent auditors. C. a desire to reduce the audit fee. D. mergers between CPA firms. 20) The third phase of the audit involves performing audit tests. The primary purpose of this step is to obtain evidence about the A. effectiveness of the internal control structure. B. effectiveness of management. C. effectiveness of the internal control structure and fairness of the financial statements. D. integrity of management. 21) Before accepting an engagement, the auditor should evaluate whether other conditions exist that raise questions as to the prospective clients auditability. Which of the following factors would be least likely to cause concern about an entitys auditability? A. Disregard of responsibility to maintain adequate internal controls B. Lack of audit trail C. Important evidence available only in electronic form D. Related party transactions 22) When setting the level of materiality on a particular engagement, the auditor must consider A. neither the unique circumstances pertaining to the entity nor the users information needs. B. the users information needs. C. both the unique circumstances pertaining to the entity and the users information needs. D. the unique circumstances pertaining to the entity. 23) In making preliminary judgments about materiality, the auditor initially determines the aggregate level of materiality for each statement. For planning purposes, the auditor should use the A. average of these levels. B. level he or she judges to be the more reliable. C. smallest aggregate level. D. levels separately. 24) In a normal audit, the relationship between the level of materiality used to plan the engagement and the level of materiality used to evaluate evidence is that A. the former is higher than the latter. B. the former may be higher or lower than the latter. C. the former is lower than the latter. D. they must be identical.

25) Which of the following is NOT one of the fundamental concepts in the COSO reports definition of internal control? A. Internal control is a guarantee. B. Internal control is affected by people. C. Internal control may be expected to provide only reasonable assurance, not absolute assurance, to an entitys management and board. D. Internal control is a process. 26) Which of the following is an INCORRECT quotation from the second field work standard? A. to be obtained to... B. of the internal control structure is... C. determine the nature, timing, and extent of compliance tests... D. A sufficient understanding... 27) The Committee of Sponsoring Organizations (COSO) report identified five interrelated components of internal control. Since then, a sixth category has been identified, which is A. information and communication. B. risk assessment. C. antifraud programs and controls. D. monitoring. 28) The nature of tests of controls relates to the type of evidence obtained. Which of the following is NOT an example of a type of evidence relevant to tests of controls? A. Observation of application of the control B. Inquiries of entity personnel C. Reperformance of the application of the control by entity personnel D. Inspecting documents 29) Which of the following tests of controls would be most effective in testing controls designed to prevent checks from being issued or recorded for the wrong amount? A. Computer-assisted audit techniques, such as test data to test computer application control B. Observing bank reconciliations C. Observing documents being marked or cancelled as paid D. Observing segregation of duties 30) Which of the following statements is TRUE about an auditors responsibility to communicate with respect to a public companys internal controls? A. Auditors are required to communicate all significant deficiencies in internal control to the audit committee, but not necessarily to management. B. The auditor will issue an adverse report on the effectiveness of internal controls if a material weakness in internal controls over financial reporting exists. C. The difference between a material weakness and a significant deficiency is inconsequential. D. Auditors are required to communicate all significant deficiencies in internal control to management, but not necessarily to the audit committee.