ACCT 4240 - Audit Exam 1(Complete solutions)
Cutoff tests designed to detect purchases made before the end of the year that have been recorded
in the subsequent year provide assurance about management's assertion of correct answers
completeness
The risk an entity will fail to meet its objectives is referred to as correct answers business risk
An auditor selected items from the client's detailed inventory listing (that agreed to the financial
statements). During the physical inventory, the auditor then found each item selected and
counted the number of units on hand. Assuming that the amount on hand was the same amount in
the client's detailed inventory listing, this procedure most likely would provide evidence
concerning management's assertion of correct answers existence
An auditor selected items for test counts from the client's warehouse during the physical
inventory observation. The auditor then traced these test counts into the detailed inventory listing
that ultimately agreed to the financial statements. This procedure most likely provided evidence
concerning management's assertion of correct answers completeness
Which of the following best describes the focus of the following engagements?
Auditing Engagement > Attestation Engagement > Assurance Engagement > Consulting
Services Engagement
a. Any information > Financial statements > Advice and decision support > Financial
information
b. Financial information > Advice and decision support > Financial statements > Any
information
c. Advice and decision support > Any information > Financial information > Financial
statements
d. Financial statements > Financial information > Any information > Advice and decision
support correct answers D
Which of the following is not true with respect to the concept of reasonable assurance? correct
answers Audit teams should evaluate all transactions and components of an account balance or
class of transactions
Which of the following is true with respect to the PCAOB inspection process? correct answers
PCAOB inspection teams review a sample of audit engagements conducted by the firm as well
as the firm's system of quality control
Which of the following is least related to the concept of independence in appearance? correct
answers The auditors' objectivity and ability to act impartial toward the client
What type of evidence would provide the highest level of assurance in an attestation
engagement? correct answers Evidence obtained from independent sources
,A level of performance that would be exercised by reasonable auditors in similar circumstances
is referred to as correct answers due care
Holmes & Smith LLP were engaged to audit the financial statements of Sodolak Reality for the
year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes &
Smith LLP. What effect, if any, will this lawsuit have on the auditors' report? correct answers A
disclaimer of opinion should be issued because the auditors' independence is impaired.
During the year under audit, Forrest Corporation experienced significant losses due to a
pervasive fraud scheme. Because of the lack of documentary evidence and inability to perform
appropriate auditing procedures, the auditors were unable to determine the total amount of the
loss. What type of report should the auditors issue? correct answers Disclaimer or qualified
opinion
Which of the following is a definition of control risk? correct answers The risk that a material
misstatement will not be prevented or detected on a timely basis by the client's internal controls
The standard auditors' report refers to standards of the PCAOB and GAAP in which paragraph?
correct answers Standards of the PCAOB: Scope only
GAAP: Opinion only
Management determined it was probable that a pending litigation claim would result in a
material loss. The loss was disclosed in the footnotes to the financial statements but was not
accrued in the income statement. If the auditors believe an accrual should be made, what type of
report should be issued? correct answers Qualified or adverse opinion based on a departure from
GAAP
In which of the following situations would auditors ordinarily choose between expressing a
qualified opinion or an adverse opinion on the entity's financial statements? correct answers The
financial statements fail to disclose information that is required by generally accepted accounting
principles
The confirmation of a cash balance provides primary evidence regarding which management
assertion? correct answers Existence
An auditor selected items for test counts from a client's inventory listing before observing the
client's physical inventory at the warehouse. The auditor then found the items selected at the
warehouse and counted them. This procedure most likely obtained evidence concerning
management's assertion of correct answers existence or occurence
In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on
management's assertion of correct answers completeness
In testing the existence assertion for an asset, an auditor ordinarily works from correct answers
accounting records to the supporting evidence
, Which of the following matters does an auditor usually include in the engagement letter? correct
answers Arrangements regarding fees and billing
The confirmation of an account payable balance selected from the general ledger provides
primary evidence regarding which management assertion? correct answers existence
Which of the following types of auditors' reports does not require an additional paragraph to
support the opinion? correct answers Unmodified opinion
Which of the following is not included in the auditors' standard report representing an
unmodified opinion? correct answers An indication that all appropriate disclosures have been
made and include in the financial statements
The first step of planning an ADA is correct answers determine the overall purpose and specific
objectives of the ADA
Which of the following is not a typical problem found by auditors when cleansing client data for
the purposes of performing an ADA? correct answers Some fields may not be sorted in
numerical order and require sorting for identification of outliers
When assessing internal auditors' objectivity, an independent auditor should correct answers
consider the policies that prohibit the internal auditors from auditing areas where they were
recently assigned
In testing the existence assertion for an asset, an auditor ordinarily works from the correct
answers accounting records to the supporting evidence
Assurance services correct answers - Real estate demand studies
- Ballot for awards show
- Utility rates applications
- Newspaper circulation audits
- Third-part reimbursement maximization
- Rental property operation review
- Customer satisfaction surveys
- Benchmarking/best practices
- Evaluation of investment management policies
- Information systems security review
- Productivity statistics
- Internal audit strategic review
Attestation Services correct answers - Examinations of financial forecasts and projections
- Compliance with contractual requirements
Audit Services correct answers - Annual financial report to stockholders
- Financial statements submitted to bank loan officer
Cutoff tests designed to detect purchases made before the end of the year that have been recorded
in the subsequent year provide assurance about management's assertion of correct answers
completeness
The risk an entity will fail to meet its objectives is referred to as correct answers business risk
An auditor selected items from the client's detailed inventory listing (that agreed to the financial
statements). During the physical inventory, the auditor then found each item selected and
counted the number of units on hand. Assuming that the amount on hand was the same amount in
the client's detailed inventory listing, this procedure most likely would provide evidence
concerning management's assertion of correct answers existence
An auditor selected items for test counts from the client's warehouse during the physical
inventory observation. The auditor then traced these test counts into the detailed inventory listing
that ultimately agreed to the financial statements. This procedure most likely provided evidence
concerning management's assertion of correct answers completeness
Which of the following best describes the focus of the following engagements?
Auditing Engagement > Attestation Engagement > Assurance Engagement > Consulting
Services Engagement
a. Any information > Financial statements > Advice and decision support > Financial
information
b. Financial information > Advice and decision support > Financial statements > Any
information
c. Advice and decision support > Any information > Financial information > Financial
statements
d. Financial statements > Financial information > Any information > Advice and decision
support correct answers D
Which of the following is not true with respect to the concept of reasonable assurance? correct
answers Audit teams should evaluate all transactions and components of an account balance or
class of transactions
Which of the following is true with respect to the PCAOB inspection process? correct answers
PCAOB inspection teams review a sample of audit engagements conducted by the firm as well
as the firm's system of quality control
Which of the following is least related to the concept of independence in appearance? correct
answers The auditors' objectivity and ability to act impartial toward the client
What type of evidence would provide the highest level of assurance in an attestation
engagement? correct answers Evidence obtained from independent sources
,A level of performance that would be exercised by reasonable auditors in similar circumstances
is referred to as correct answers due care
Holmes & Smith LLP were engaged to audit the financial statements of Sodolak Reality for the
year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes &
Smith LLP. What effect, if any, will this lawsuit have on the auditors' report? correct answers A
disclaimer of opinion should be issued because the auditors' independence is impaired.
During the year under audit, Forrest Corporation experienced significant losses due to a
pervasive fraud scheme. Because of the lack of documentary evidence and inability to perform
appropriate auditing procedures, the auditors were unable to determine the total amount of the
loss. What type of report should the auditors issue? correct answers Disclaimer or qualified
opinion
Which of the following is a definition of control risk? correct answers The risk that a material
misstatement will not be prevented or detected on a timely basis by the client's internal controls
The standard auditors' report refers to standards of the PCAOB and GAAP in which paragraph?
correct answers Standards of the PCAOB: Scope only
GAAP: Opinion only
Management determined it was probable that a pending litigation claim would result in a
material loss. The loss was disclosed in the footnotes to the financial statements but was not
accrued in the income statement. If the auditors believe an accrual should be made, what type of
report should be issued? correct answers Qualified or adverse opinion based on a departure from
GAAP
In which of the following situations would auditors ordinarily choose between expressing a
qualified opinion or an adverse opinion on the entity's financial statements? correct answers The
financial statements fail to disclose information that is required by generally accepted accounting
principles
The confirmation of a cash balance provides primary evidence regarding which management
assertion? correct answers Existence
An auditor selected items for test counts from a client's inventory listing before observing the
client's physical inventory at the warehouse. The auditor then found the items selected at the
warehouse and counted them. This procedure most likely obtained evidence concerning
management's assertion of correct answers existence or occurence
In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on
management's assertion of correct answers completeness
In testing the existence assertion for an asset, an auditor ordinarily works from correct answers
accounting records to the supporting evidence
, Which of the following matters does an auditor usually include in the engagement letter? correct
answers Arrangements regarding fees and billing
The confirmation of an account payable balance selected from the general ledger provides
primary evidence regarding which management assertion? correct answers existence
Which of the following types of auditors' reports does not require an additional paragraph to
support the opinion? correct answers Unmodified opinion
Which of the following is not included in the auditors' standard report representing an
unmodified opinion? correct answers An indication that all appropriate disclosures have been
made and include in the financial statements
The first step of planning an ADA is correct answers determine the overall purpose and specific
objectives of the ADA
Which of the following is not a typical problem found by auditors when cleansing client data for
the purposes of performing an ADA? correct answers Some fields may not be sorted in
numerical order and require sorting for identification of outliers
When assessing internal auditors' objectivity, an independent auditor should correct answers
consider the policies that prohibit the internal auditors from auditing areas where they were
recently assigned
In testing the existence assertion for an asset, an auditor ordinarily works from the correct
answers accounting records to the supporting evidence
Assurance services correct answers - Real estate demand studies
- Ballot for awards show
- Utility rates applications
- Newspaper circulation audits
- Third-part reimbursement maximization
- Rental property operation review
- Customer satisfaction surveys
- Benchmarking/best practices
- Evaluation of investment management policies
- Information systems security review
- Productivity statistics
- Internal audit strategic review
Attestation Services correct answers - Examinations of financial forecasts and projections
- Compliance with contractual requirements
Audit Services correct answers - Annual financial report to stockholders
- Financial statements submitted to bank loan officer
