The document contains a series of exam questions and answers related to ACC 544, focusing on accounting principles, audit risk, and professional conduct according to the AICPA. It covers various concepts such as the ethical guidelines for auditors, independence issues, and audit procedures. Additionally, it addresses topics like internal control assessments, revenue cycles, and GAAP inventory cost recognition.

1. ACC 544 Final Exam
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ACC 544 Final Exam Answers
1) Which is NOT one of the AICPA’s Code of Professional Conduct principl
es?
A. The public interest
B. Integrity
C. Quality control

2. D. Scope and nature of services
2) The ethical philosophy that considers the consequences of similar persons actin
g under similar circumstances is called
A. utilitarian principle.
B. imperative principle.
C. categorical imperative.
D. generalization argument.
3) The fundamental issues in independence require that the auditor avoid
A.
financial connections with the client and financial connections with the client
’s competitors.
B. acting as management and representing the shareholder’s interests.
C.
responsibility for the client’s internal control and subordinating judgm
ent concerning audit issues.
D. financial connections with the firm and acting as management.
4) Auditors have greater liability under the Securities Act of 1933. Which is the reas
on that this greater liability exists?
A. The auditor is liable for treble damages under the Securities Act of 1933.
B.
The plaintiff does not have to prove that the financial statements were misst
ated.

3. C.
The plaintiff does not have to prove that they relied on the financial statemen
ts.
D. The plaintiff does not have to prove that there were damages.
5) The legal doctrine that states that a successful plaintiff may recover the full amo
unt of damages from any defendant that
has the ability to pay is called
A. joint and several liabilities.
B. proportionate liability.
C. complete liability.
D. total liability.
6) The SEC regulation that governs disclosures in annual reports other than financi
al statements is the
A. Securities Act of 1933.
B. Securities Exchange Act of 1934.
C. Regulation S-X.
D. Regulation S-K.
7) Inspection of tangible assets provides evidence for which assertion?
A. Existence and occurrence
B. Completeness
C. Rights and obligations

4. D. Presentation and disclosure
8) The risk that the auditor may provide an inappropriate opinion based on their rev
iew of materially misstated
to as
A. audit risk.
B. detection risk.
C. information risk.
D. business risk.
9) Auditors perform the steps in which order?
A.
Determine audit risk; assess control risk; determine detection risk; and set m
ateriality.
B.
Set materiality; determine audit risk; assess control risk; and determine dete
ction risk.
C.
Set materiality; assess control risk; determine detection risk; and determine
audit risk.
D.
Determine audit risk; set materiality; assess control risk; and determine dete
ction risk.
10) An internal control questionnaire (ICQ) contains the question: “Does a s
ingle individual receive and list ca
to sales and general ledgers?” What action must an auditor take if the man
ager of accounting responds yes to the

5. A.
No action is required because yes responses on an ICQ indicate the presen
ce of good control.
B.
Statistically sample the response along with all other yes responses to verify
their accuracy.
C. Treat it as a potential control weakness and perform appropriate testing.
D. Include it with other reportable findings in the next audit report.
11) In addition to gaining an understanding of the internal controls, an external audi
tor, at minimum, is expect
A.
evaluate the internal auditors’ work as an important part of the accou
nting system element of the inter
B.
observe client employees to determine the extent of their compliance with q
uality control standards.
C.
trace a few transactions through the control process to obtain evidence that t
he controls have been pla
D.
study organization charts to obtain an understanding of the informal lines of
communication.
12) Which method provides the auditor with the best visual grasp of a system and a
means for analyzing complex o
A. A flowcharting approach
B. A matrix approach

6. C. A questionnaire approach
D. A detailed narrative approach
13) Which of the accounts is NOT included in the revenue and collection cycle?
A. Cash in bank
B. Raw materials
C. Accounts receivable
D. Bad debt expense
14) The most reliable evidence comes from
A. a positive confirmation.
B. a blank confirmation.
C. a negative confirmation.
D. examining a sales invoice.
15) Custody is transferred from the warehouse to the shipping department upon au
thorization of the
A. shipping order.
B. purchase order.
C. customer order.
D. invoice.
16) An enlightened management may decrease the probability of fraud in the comp
any best by

7. A. restricting authority for profit objective determination to top management.
B. stressing negative observations on their work to increase performance.
C. measuring performance and awarding bonuses on the basis of short-
term operating results.
D.
establishing work teams that share responsibilities, performance, and bonus
es based on collective effor
17) A proof of cash is normally used
A. for all engagements.
B. when control risk for cash is low.
C. to test the transactions process when controls over cash are weak.
D. when lapping is suspected.
18) Which is an appropriate audit program step for the review of canceled checks f
or authorized signatures?
A. Compare the check date with the first cancellation date.
B.
Examine a representative sample of signed checks, and determine that the
signatures are authorized in t
C.
Determine that all checks are to be signed by an individual authorized by the
board.
D. Confirm the signatures from a sample of checks directly with the bank.
19) The production authorization starts with a
A. purchase order.

8. B. sales forecast.
C. production plan.
D. bill of materials.
20) Which is NOT recognized by GAAP as appropriate for determining inventory co
st?
A. FIFO
B. Weighted average
C. LIFO
D. Standard costs
21) Inventory must be recorded when
A. the company has title to it.
B. the related revenue is recognized.
C. it is received.
D. it is shipped from the vendor.
22) Canceling invoices with a paid stamp after payment is a control that relates to
which assertion?
A. Existence or occurrence
B. Rights and obligations
C. Completeness
D. Valuation or allocations

9. 23) Which is NOT a step in the search for unrecorded liabilities?
A. Examine the open purchase order file.
B. Examine the unmatched receiving reports.
C.
Examine disbursements for the period immediately before the end of the per
iod.
D. All of these are steps in the search.
24) Which control question relates to the existence and occurrence objective in pur
chasing and accounts payable?
A.
Are the purchase order forms prenumbered and is the numerical sequence c
hecked for missing documents?
B.
Does the chart of accounts and accounting manual provide instructions for cl
assifying debit entries?
C. Does the accounting department check invoices for mathematical accuracy?
D. Are receiving reports prepared for each item received?
25) Which audit objective is related to the assertion that all transactions and accou
nts must be included in the
A. Existence or occurrence
B. Presentation and disclosure
C. Rights and obligations
D. Completeness

10. 26) Which best describes the main reason independent auditors report on manage
ment’s financial statements?
A.
A management fraud may exist, and it is likely to be detected by independen
t auditors.
B.
The management that prepares the statements may have a poorly designed
system of internal control.
C.
The management that prepares the statements and the persons who use th
e statements may have conflicting
D.
Misstated account balances may be corrected as the result of the independe
nt audit work.
27) The audit objective that all footnotes have been included in the financial statem
ents is related most closel
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