ACC 460 ACC460 Final EXAM MCQ`s Correct Answers 100%

1. ACC 460 Final Exam
ANSWERS ARE HERE 
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 management’s accounting estimates.
C. proper application of valuation principles, such as cost, net reliable value, market value, and
present value.
D. reasonableness of management’s 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.

2. 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 item’s materiality
A. may be found in FASB pronouncements.
B. is the auditor’s 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
auditor’s 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.

3. 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
company’s 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 management’s position
B. Mutual caution and suspicion
C. Mutual trust and respect

4. 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.

5. 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 management’s 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
management’s financial statement assertions.
D. the same as the categories of management’s financial statement assertions.

6. 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.

7. 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 client’s auditability. Which of the following factors would be least
likely to cause concern about an entity’s 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

8. 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.

9. 25) Which of the following is NOT one of the fundamental concepts in the COSO report’s 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 entity’s 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

10. 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 auditor’s responsibility to communicate with
respect to a public company’s 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.

11. 31) Which of the following is NOT a characteristic of management's philosophy and operating style?
A. Conscientiousness and conservatism in developing accounting estimates
B. Approach to taking and monitoring business risks
C. Its attitudes and actions toward financial reporting
D. Monitoring policies for developing and modifying accounting systems
32) An effective accounting system should identify and record only the valid transaction of the entity
that occurred in the current period, which relates to the
A. valuation or allocation assertion.
B. rights and obligations assertion.
C. existence or occurrence assertion.
D. presentation and disclosure assertion.
33) Management’s risk assessment should include the following special consideration of risks that may
arise from changed circumstances EXCEPT
A. new technology.
B. new personnel.
C. domestic operations.
D. rapid growth.

12. 34) In performing tests of details of balances, the auditor would obtain the bank statement directly
from the bank, prepare the bank reconciliation, and verify all reconciling items and mathematical
accuracy if detection risk was
A. moderate.
B. very high.
C. very low.
D. high.
35) When evaluating the planned level of substantive tests for each significant financial statement
assertion, the auditor will consider the evidence obtained from all of the following EXCEPT
A. assessing detection risk.
B. procedures to understand the business and industry, and related completed analytical
procedures.
C. assessing inherent risk.
D. evidence of effectiveness of computer control procedures and related follow-up.
E. evidence about the effectiveness of internal controls gained while obtaining an understanding
of internal controls.
36) Who is responsible for establishing the process and controls for preparing accounting estimates?
A. Management
B. The independent auditor
C. The audit committee

13. D. The internal auditor
37) Probability-proportional-to-size (PPS) sampling should NOT be used when
A. book values for sampling units are not available.
B. the number of units in the population is unknown at the start of sampling.
C. transactions and balances are tested for overstatement.
D. the variability of the population is unknown.
38) PPS sampling should NOT be used when
A. testing investment securities.
B. few or no misstatements are expected.
C. there are some zero-balance items in the population.
D. any misstatements are expected to be overstatements.
39) PPS sampling would most likely NOT be cost-effective in
A. independently estimating the value of a certain class of transactions.
B. estimating the amount of dollar error caused by deviations from a particular control.
C. testing investment securities for overstatements.
D. confirming accounts receivable when unapplied credits to customer accounts are
insignificant.

14. Copyright © 2010 University of Phoenix PWWXASAP004
40) Which of the following is NOT a hardware and systems software control?
A. Read after write
B. Dual read
C. Data dictionary or directory
D. Echo check
41) Public Company Accounting Oversight Board (PCAOB) standards require the auditor to
evaluate the effectiveness of the audit committee as part of understanding the control
environment and monitoring. Which of the following is NOT a factor the auditor should consider
in making this evaluation?
A. The independence of the audit committee from management
B. The clarity with which the audit committee’s responsibilities are articulated
C. Compensation practices with respect to members of the audit committee
D. The audit committee’s responsiveness to issues raised by the auditor
42) Which of the following is NOT recognized as a type of general controls?
A. Organization and operation
B. Data and procedural
C. Access
D. Processing