mid term test

1. 3.In the auditing processSingle choice.
(2 Points)
the types and amounts of evidence remain constant from audit to audit.
the criteria for evaluating information will not vary depending on the informationbeing audited.
the audit report communicates the auditor's findings to users
records are gathered by the auditor to determine whether the audited information isstated in
accordance with SEC standards
4.Recording, classifying, and summarizing economic events in a logical manner for
thepurpose of providing financial information for decision making is
commonlycalledSingle choice.
(2 Points)
finance
auditing.
accounting.
economics
5.When auditing accounting data, auditors focus onSingle choice.
(2 Points)
determining whether recorded information properly reflects the economic events thatoccurred
during the accounting period
determining if fraud has occurred.
determining if taxable income has been calculated correctly
analyzing the financial information to be sure that it complies with governmentrequirements
6.________risk reflects the possibility that the information upon which the
businessdecision was made was inaccurateSingle choice.
(2 Points)
Clienta cceptance
Information
Business
Control
7.The possibility that a business may not be able to repay a bank loan because of
aneconomic downturn is referred to asSingle choice.
(2 Points)
materiality risk.
information risk.
interest rate risk.
business risk.

2. 8.A correct relationship among the auditor, the client, and the external users
isSingle choice.
(2 Points)
management of a public company hires the independent auditor.
the audit committee of a private company hires the independent auditor.
the client provides capital to the external users.
the external users can rely upon the auditor's report to reduce information risk
9.Any service that requires a CPA firm to issue a report about the reliability of
anassertion that is made by another party is a(n)Single choice.
(2 Points)
accounting and bookkeeping service
attestation service
assurance service
tax service.
10.A high, but not absolute, level of assurance is calledSingle choice.
(2 Points)
probable assurance
reasonable assurance.
limited assurance
incomplete assurance
11.An examination of part of an organization's procedures and methods for the
purposeof evaluating efficiency and effectiveness is what type of audit?Single
choice.
(2 Points)
operational audit
compliance audit
financial statement audit
production audit
12.Which of the following is a correct statement regarding the standard
unmodifiedopinion audit report?Single choice.
(2 Points)
The format of the audit report for public and nonpublic entities are identical.
The auditor's responsibility paragraph includes a statement that the auditors areresponsible for
selecting the appropriate accounting principles
The audit report includes the name of the lead partner on the audit.
The scope paragraph includes a statement that the auditor considers internalcontrols when
designing the audit procedures performed

3. 13.Auditing standards require that the audit report must be titled and that the title
mustSingle choice.
(2 Points)
include the word "independent."
indicate if the auditor is a CPA
indicate if the auditor is a proprietorship, partnership, or corporation
indicate the type of audit opinion issued
14.The auditor's responsibility section of the standard unmodified opinion
auditreport states that the audit is designed toSingle choice.
(2 Points)
discover all errors and/or irregularities
discover material errors and/or irregularities
conform to generally accepted accounting principles
obtain reasonable assurance whether the statements are free of material misstatement
15.The audit report date on a standard unmodified opinion audit report
indicatesSingle choice.
(2 Points)
the last day of the fiscal period.
the date on which the financial statements were filed with the Securities andExchange
Commission.
the last date on which users may institute a lawsuit against either the client orthe auditor
the last day of the auditor's responsibility for the review of significant eventsthat occurred after
the date of the financial statements
16.Which of the following is not explicitly stated in the standard unmodifiedopinion
audit report?Single choice.
(2 Points)
The financial statements are the responsibility of management
The audit was conducted in accordance with generally accepted accounting principles
The auditors believe that the audit evidence provides a reasonable basis for theiropinion
An audit includes assessing the accounting estimates used.
17.The standard unmodified opinion audit report for a nonpublic entity mustSingle
choice.
(2 Points)
have a report title that includes the word "CPA."
be addressed to the company's stockholders and creditors
be dated
include an explanatory paragraph

4. 18.The management's responsibility section of the standard unmodified opinion
auditreport for a nonpublic company states that the financial statements areSingle
choice.
(2 Points)
the responsibility of the auditor
the responsibility of management
the joint responsibility of management and the auditor
none of the above
19.What category of audit report will be issued if the auditor concludes that
thefinancial statements are not fairly presented and the misstatement
ismaterial?Single choice.
(2 Points)
disclaimer
qualified
standardunmodified opinion
adverse
20.Examples of unmodified opinions which contain modified wording (without
adding anexplanatory paragraph) includeSingle choice.
(2 Points)
the use of other auditors.
the lack of consistent application of generally accepted accounting principles
substantial doubt about the audited company (or the entity) continuing as a going concern
lack of consistent application of GAAP.
21.As a result of management's refusal to permit the auditor to physically
examineinventory, the auditor must depart from the unmodified opinion audit
report becauseSingle choice.
(2 Points)
the financial statements have not been prepared in accordance with GAAP
the scope of the audit has been restricted by circumstances beyond either theclient's or auditor's
control
the financial statements have not been audited in accordance with GAAS.
the scope of the audit has been restricted.
22.An adverse opinion is issued when the auditor believesSingle choice.
(2 Points)
some parts of the financial statements are materially misstated or misleading.
the financial statements would be found to be materially misstated if aninvestigation were
performed
the auditor is not independent

5. the overall financial statements are so materially misstated that they do notpresent fairly the
financial position or results of operations and cash flowsin conformity with GAAP
23.In which situation would the auditor be choosing between "except for"qualified
opinion and an adverse opinion?Single choice.
(2 Points)
The auditor lacks independence
A client-imposed scope limitation
A circumstance-imposed scope limitation
Lack of full disclosure within the footnotes
24.When the auditor determines that the financial statements are fairly stated,
butthere is a nonindependent relationship between the auditor and the client,
theauditor should issueSingle choice.
(2 Points)
an adverse opinion
a disclaimer of opinion
either a qualified opinion or an adverse opinion
either a qualified opinion or an unqualified opinion with modified wording
25.If the phrase "except for" is present in the opinion paragraph of theaudit report,
the auditor has issued a(n)Single choice.
(2 Points)
adverse opinion
disclaimer of opinion
unqualified opinion
qualified opinion
26.When analyzing the various types of opinions that the auditor can issue,Single
choice.
(2 Points)
an adverse opinion must contain the phrase "except for" in the opinionparagraph.
an adverse opinion can only be issued when there is a lack of knowledge by theauditor
a disclaimer of opinion can be issued for material or immaterial misstatements.
a qualified opinion report can be used only when the auditor concludes that theoverall financial
statements are fairly stated
27.In which of the following circumstances would an auditor most likely express
anadverse opinion?Single choice.
(2 Points)
The CEO refuses to let the auditor have access to the board of director meetingminutes
The financial statements are not in conformity with the FASB statement on losscontingencies.

6. Information comes to the auditor's attention that raises substantial doubt about theability for the
client to continue as a going concern
Tests of controls show that the internal control structure is so poor that theauditor has to assess
control risk at the maximum
28.The objective of an audit of the financial statements is an expression of
anopinion onSingle choice.
(2 Points)
the fairness of the financial statements in all material respects
the accuracy of the financial statements
the accuracy of the annual report
the accuracy of the balance sheet and income statement
29.Which of the following statements is the most correct regarding errors and
fraud?Single choice.
(2 Points)
An error is unintentional, whereas fraud is intentional
Frauds occur more often than errors in financial statements
Errors are always fraud and frauds are always errors
Auditor shave more responsibility for finding fraud than errors
30.Fraudulent financial reporting is most likely to be committed by whom?Single
choice.
(2 Points)
line employees of the company
outside members of the company's board of directors
company management
the company's auditors
31.The concept of reasonable assurance indicates that the auditor isSingle choice.
(2 Points)
not a guarantor of the correctness of the financial statements.
not responsible for the fairness of the financial statements.
responsible only for issuing an opinion on the financial statements
responsible for finding all misstatements
32.When an auditor knows that an illegal act has occurred, she mustSingle choice.
(2 Points)
report it to the proper governmental authorities.
consider the effects on the financial statements, including the adequacy of disclosure
withdraw from the engagement

7. issue an adverse opinion.
33.An audit must be performed with an attitude of professional
skepticism.Professional skepticism consists of two primary components: a
questioning mindandSingle choice.
(2 Points)
the assumption that upper-level management is dishonest
a critical assessment of the audit evidence.
the assumption that all employees are motivated by greed
verification of all critical information by independent third parties
34.Why does the auditor divide the financial statements into smaller
segments?Single choice.
(2 Points)
A)Using the cycle approach makes the audit more manageable.
B)Most accounts have few relationships with others and so it is more efficient tobreak the financial
statements into smaller pieces.
C)The cycle approach is used because auditing standards require it.
D)All of the above are correct.
35.The most important general ledger account included in and affecting
severalcycles is theSingle choice.
(2 Points)
A)cash account.
B)inventory account.
C)income tax expense and liability accounts.
D)retained earnings account.
36.Auditors have found that generally the most efficient and effective way
toconduct audits is toSingle choice.
(2 Points)
A)obtain complete assurance about the correctness of each class of transactionsaffecting the
account.
B)obtain some combination of assurance for each class of transactions and for theending balance
in the related accounts.
C)obtain assurance about the ending balance of the account only.
D)verify each entry that was made into an account.
37.The term audit objective refers to all of the following except forSingle choice.
(2 Points)
A)transaction-related audit objectives.
B)presentation and disclosure-related audit objectives.

8. C)balance-related audit objectives.
D)cycle-related audit objectives.
38.If a short-term note payable is included in the accounts payable balance on
thefinancial statement, there is a violation of theSingle choice.
(2 Points)
A)completeness assertion
B)existence assertion.
C)cutoff assertion
D)classification assertion
39.Which of the following assertions is described as "this assertionaddresses
whether all transactions that should be included in the financialstatements are in
fact included"?Single choice.
(2 Points)
A)occurrence
B)completeness
C)rights and obligations
D)existence
40.________ deals with potential overstatement and ________ deals
withunderstatements (unrecorded transactions).Single choice.
(2 Points)
A)Occurrence; completeness
B)Completeness; occurrence
C)Accuracy; classification
D)Classification; accuracy
41.In testing for cutoff, the objective is to determineSingle choice.
(2 Points)
A)whether all of the current period's transactions are recorded
B)whether transactions are recorded in the correct accounting period.
C)the proper cutoff between capitalizing and expensing expenditures.
D)the proper cutoff between disclosing items in footnotes or in account balances.
42.The classification balance-related audit objectiveSingle choice.
(2 Points)
A)involves determining if items included on a client's listing are included inthe correct general
leger accounts.
B)is the counterpart to the management assertion of completeness.
C)involves determining if items included on a client's listing are disclosedproperly in the financial
statements.

9. D)involves tying in the account balances to the general ledger
43.Calculating the gross margin for the current audit year as a percent of salesand
comparing it with previous years is what type of evidence?Single choice.
(2 Points)
A)physical examination
B)analytical procedures
C)observation
D)inquiry
44.When the auditor uses supporting evidence for amounts posted to
accountbalances with documentary evidence, that process is calledSingle choice.
(2 Points)
A)inquiry
B)confirmation.
C)vouching.
D)physical examination.
45. When theauditor uses tracing as an audit procedure for tests of transactions,
she isprimarily concerned with which audit objective?Single choice.
(2 Points)
A) occurrence
B) completeness
C) cutoff
D) classification
46.Auditors may decide to replace tests of details with analytical procedures
whenpossible because theSingle choice.
(2 Points)
A)analytical procedures are more reliable.
B)analytical procedures are considerably less expensive.
C)analytical procedures are more persuasive.
D)tests of details are more difficult to interpret.
47.A measure of how willing the auditor is to accept that the financial
statementsmay be materially misstated after the audit is completed and an
unqualifiedopinion has been issued is theSingle choice.
(2 Points)
A)inherent risk.
B)acceptable audit risk.
C)statistical risk.

10. D)financial risk.
48._______is the risk that the financial statements contain a material misstatement
dueto fraud or error prior to the audit.Single choice.
(2 Points)
A)Inherent risk
B)Client business risk
C)Acceptable audit risk
D)Risk of material misstatement
49.The auditor uses knowledge gained from the understanding of the
client'sbusiness and industry to assessSingle choice.
(2 Points)
A)client business risk.
B)control risk.
C)inherent risk.
D)audit risk.
50.The purpose of an engagement letter is toSingle choice.
(2 Points)
A)document the CPA firm's responsibility to external users of the auditedfinancial statements.
B)document the terms of the engagement.
C)notify the audit staff of an upcoming engagement so that personnel schedulingcan be facilitated.
D)emphasize management's responsibility for approving the audit program.
51.When developing the overall strategy for the audit, the auditor willSingle choice.
(2 Points)
A)decide whether to accept a new client.
B)determine if any audit specialists will be required.
C)identify why the auditor needs an audit.
D)obtain an engagement letter.
52.Which of the following best describes the corporate minutes of an entity?Single
choice.
(2 Points)
A)official record of the meetings of the board of directors and the stockholders
B)unofficial record of the meeting of the board of directors
C)official record of management meeting with investors and creditors of thecompany
D)unofficial record of the board of directors meetings