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ACCT 444 DeVry Week 8 Final Exam
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Question 1.1. (TCO 1)
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of (Points : 5)
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Question 2.2. (TCO 2)
When an auditor submits a document containing audited financial statements to a client, and those financial statements include supplementary information required by GAAP, the auditor may choose any of the following options, except (Points : 5)
express an opinion on the information, if he or she has been engaged to examine such information.
express negative assurance on the information, if review procedures have been appropriately performed.
report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate procedures have been applied.
disclaim an opinion on the information.
Question 3.3. (TCO 2)
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? (Points : 5)
The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures.
Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a concern are inadequately disclosed.
There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements.
The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.
Question 4.4. (TCO 3)
The phrase U.S. generally accepted accounting principles is an accounting term that (Points : 5)
includes broad guidelines of general application but not detailed practices and procedures.
encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time.
provides a measure of conventions, rules, and procedures governed by the AICPA.
is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).
Question 5.5. (TCO 3)
Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the auditor's independence? (Points : 5)
A parent's immaterial investment in a client
A first cousin's loan from a client
A spouse's employment with a client
A sibling's loan to a director of a client
Question 6.6. (TCO 2)
Under U.S. GAAS, in which of the following situations would a group engagement partner least likely make reference to component auditor who audited a subsidiary of the entity? (Points : 5)
The component auditor was retained by the group engagement partner, and the work was performed under the group engagement partner's guidance and control.
The group engagement partner finds it impractical to review the component auditor's work or otherwise be satisfied as to the component auditor's work.
The financial statements audited by the component auditor are material to the consolidated financial statements covered by the group engagement partner's opinion.
The group engagement partner is unable to be satisfied as to the independence and professional reputation of the component auditor.
Question 7.7. (TCO 5)
The use of pre numbered sales invoices is meant to prevent (Points : 5)
the failure to bill or record sales.
duplicate billings and recording of sales.
Both A and B
Neither A nor B
Question 8.8. (TCO 6)
Auditors must make decisions regarding what evidence to gather and how much to accumulate. Which of the following is not a decision that must be made by auditors related to evidence? (Points : 5)
Audit procedure to use
Timing of each audit procedure
Each of the above is a decision that must be made
Question 9.9. (TCO 7)
A measure of the auditor's assessment of the likelihood that there are material misstatements in an account, before considering the effectiveness of the client's internal control, is the (Points : 5)
acceptable audit risk.
Question 10.10. (TCO 8) Which of the following statements is correct concerning the concept of materiality? (Points : 5)
Materiality is determined by references to guidelines established by the AICPA.
Materiality depends only on the dollar amount of an item relative to other items in the financial statements.
Materiality depends on the nature of an item rather than the dollar amount.
Materiality is a matter of professional judgment.
Question 11.11. (TCO 9) Which of the following best illustrates the concept of sampling risk? (Points : 5)
The documents related to the chosen sample may not be available to the auditor for inspection.
An auditor may fail to recognize errors in the documents from the sample.
A randomly chosen sample may not be representative of the population as a whole for the characteristic of interest.
An auditor may select audit procedures that are not appropriate to achieve the specific objective.
Question 12.12. (TCO 10) The audit procedure that is least useful in gathering evidence on significant computer processes is (Points : 5)
generalized audit software.
Question 13.13. (TCO 11) Which of the following is not a condition for a contingent liability to exist? (Points : 5)
There is a potential future payment to an outside party that would result from a current condition.
There is uncertainty about the amount of the future payment.
The outcome of an uncertainty will be resolved by some future event.
The amount of the future payment is reasonably estimable.
Question 14.14. (TCO 5)
A procedure that would most likely be used by an auditor in performing tests of control procedures, that involve segregation of functions and leave no transaction trail, is (Points : 5)
Question 15.15. (TCO 5)
Which of the following audit tests would be regarded as a substantive test of transactions? (Points : 5)
Examine sales returns for approval by an authorized official.
Review the prelisting in the cash receipts book to determine whether cash is prelisted daily.
Reconcile the recorded cash receipts on the prelisting with the cash receipts journal and the bank statement for a one month period.
Account for a sequence of shipping documents, and examine each one to make sure that a duplicate sales invoice is attached.
Question 16.16. (TCO 6)
If planned detection risk is reduced, the amount of evidence the auditor accumulates will (Points : 5)
Question 17.17. (TCO 6)
Which of the following statements is correct regarding the costs involved in obtaining evidence? (Points : 5)
Cost of obtaining evidence is a valid reason for excluding that evidence from the audit.
Physical examination is the most expensive type of audit evidence.
The least expensive type of evidence is analytical procedures.
Each of the above is correct
Question 18.18. (TCO 9)
The tolerable exception rate (TER) has a significant effect on sample size. The relationship of TER to sample size is (Points : 5)
direct (larger TER = larger sample).
inverse (larger TER = smaller sample).
variable (sometimes larger, sometimes smaller).
Question 1. 1. (TCO 2)
An entity has changed its depreciation method for production equipment from a straight line method to units of production method based on hours of utilization. The entity’s auditor concurs with the change although it has a material effect on the comparability of the entity’s financial statements.
From the following opinion types, select and write the opinion type or types that can be used by the auditor. Up to two opinion types can be selected.
In addition, select and write the appropriate report modification options that are required to be made by the auditor. You can select as many options as apply. (Becker, Adopted)
Except for qualified
Report Modification Options
Issue the independent auditor’s report without modification
Modify the introductory paragraph
Modify the auditor’s responsibility paragraph
Omit the auditor’s responsibility paragraph
Modify the opinion paragraph
Add an emphasis-of-matter paragraph preceding the opinion paragraph
Add an emphasis-of-matter paragraph following the opinion paragraph (Points : 35)
Question 2. 2. (TCO 4)
Distinguish between ordinary and gross negligence. (Points : 25)
Question 3. 3. (TCO 2)
Discuss each of the three broad categories (types) of operational audits. (Points : 30)
Question 4. 4. (TCO 3)
Fraud was extensively discussed in this class. There are three conditions that must be present for management fraud to exist. First, identify each of these three conditions. Then, for each condition, identify two risk factors related to the risk of fraudulent financial reporting. (Points : 30)
Question 5. 5. (TCO 7)
Discuss how each of the following influences the persuasiveness of evidence.
2. Independence of provider
3. Effectiveness of client’s internal controls
4. Auditor’s direct knowledge
5. Degree of objectivity (Points : 30)
Question 6. 6. (TCO 3)
Melissa Barry, CPA, is the auditor of Audio Video, Inc. Audio Video has not paid Melissa's audit fee for the past 2 years. Melissa is working on this year's audit of Audio Video.
Determine whether Rule 101 of the AICPA's Code of Professional Conduct, has been violated. Briefly explain why the situation violates or does not violate the code. (Points : 30)
Question 7. 7. (TCO 3)
Assess the impact Enron has had on the auditing and accounting profession. Evaluate the industry's response to date. Were the changes implemented enough to restore investor confidence and the public's opinion of the auditing and accounting profession? (Points : 30)s (Points : 5)
An entity has changed its depreciation method for production equipment from a straight line method to units of production method based on hours of utilization. The entity’s auditor concurs with the change althoug