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1. DEVRY ACCT 555 Midterm
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(TCO F) Which of the following procedures should
an auditor generally perform regarding
subsequent events?
(TCO A) An auditor reads the letter of transmittal
accompanying a county’s comprehensive annual
financial report and identifies a material
inconsistency with the financial statements. The
auditor determines that the financial statements

2. do not require revision. Which of the following
actions should the auditor take?
(TCO F) An auditor’s independence is considered
impaired if the auditor has:
(TCO B) When an independent CPA is associated
with the financial statements of a publicly held
entity but has not audited or reviewed such
statements, the appropriate form of report to be
issued must include a(an):
(TCO F) Which is not a characteristic of the
reliability of evidence?
(TCO C) According to PCAOB standards, the nature
and extent of required planning activities for an
issuer audit are influenced by all of the following
factors, except for:

3. (TCO F) Analytical procedures must be used
during which phase(s) of the audit?
Test of controls OR planning OR completion
(TCO F) In a financial statement audit, inherent
risk is evaluated to help an auditor assess which of
the following?
(TCO F) The primary purpose of performing
analytical procedures in the planning phase of an
audit is to
(TCO G) The most widely used profitability ratio is
(TCO G) Which ratio is best used to assess a
company’s ability to meet its long-term debt
obligations?
(TCO A) Match the following definitions to the
appropriate terms

4. (TCO B) The following is a portion of a qualified
audit report issued for a private company.
To the shareholders of Tamarak Corporation,
We have audited the accompanying balance sheet
of Tamarak Corporation as of October 31, 2009,
and the related statements of income, retained
earnings, and cash flows for the past year. These
financial statements are the responsibility of the
company’s management. Our responsibility is to
express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with
auditing standards generally accepted in the
United States of America. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as
well as evaluating the overall financial statement

5. presentation. We believe that our audit provides a
reasonable basis for our opinion.
The company has included in property and debt in
the accompanying balance sheet certain lease
obligations that, in our opinion, should be
expensed in order to conform with generally
accepted accounting principles. If these lease
obligations were capitalized, property would be
decreased by $4,000,000, long-term debt by
$2,000,000, and retained earnings by $180,000 as
of October 31, 2009, and net income and earnings
per share would be decreased by $180,000 and
$0.62, respectively, for the past year.
Required: Complete the above qualified audit
report by preparing the opinion paragraph. Do not
date or sign the report.
(TCO C) The following situation involves a possible
violation of the AICPA’s code of professional
conduct. For this situation, (1) determine the
applicable rule number from the code, (2) decide
whether or not the code has been violated, and (3)
briefly explain how the situation violates (or does
not violate) the code. Your answer should be set up
something like this:

6. Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Auditor Tex Gato of the CPA firm Smackey and
Smackey, CPAs, enjoyed auditing his favorite
client, Super Pup Dog Food, because the client
would allow him to take home to his dog a variety
of dog food samples that amounted to a year’s
worth of dog food.
(TCO C) The following situation involves a possible
violation of the AICPA’s code of professional
conduct. For this situation, (1) determine the
applicable rule number from the code, (2) decide
whether or not the code has been violated, and (3)
briefly explain how the situation violates (or does
not violate) the code. Your answer should be set up
something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Howard Cunningham & Co., CPAs, designates its
firm as Members of the American Institute of
Certified Public Accountants. All of the partners of
the firm are CPAs. However, one of the partners

7. has recently chosen to allow her membership to
lapse because of personal reasons.
(TCO C) Under the provisions of the Sarbanes-
Oxley Act of 2002 (SOX), the audit committee of a
public company has specific guidelines to which
employees must adhere. Discuss some of the
mandated features of the audit committee of a
public company under SOX
(TCO D) Discuss some of the steps the AICPA and
the accounting profession as a whole can and are
taking to reduce practitioners’ exposure to
lawsuits. You answer should provide at least five
steps
(TCO F) Match nine of the terms (A–K) with the
definitions provided below (1–9).
A – Foot
B – Compute
C – Scan
D – Inquire
E – Count

8. F – Trace
G – Recompute
H – Read
I – Examine
J – Observe
K – Compare
_____ 1: A calculation done by the auditor
independent of the client
_____ 2: Addition of a column of numbers to
determine if the total is the same as the client’s
_____ 3: A comparison of information in two
different locations
_____ 4: A use of the senses to assess certain
activities
_____ 5: Following details of transactions from
original documents to journals
_____ 6: A less detailed examination of a document
or record to determine if there is something
unusual warranting further investigation
_____ 7: Obtaining information from the client in
response to specific questions
_____ 8: A determination of assets on hand at a
given time
_____ 9: An examination of written information to
determine facts pertinent to the audit

9. (TCO G) Discuss the essential activities involved in
the initial planning of an audit.

10. (TCO G) Discuss the essential activities involved in
the initial planning of an audit.