LSUS MBA 701 EXAM 1 EXAM REVIEW STUDY
NOTES
◉ Which of the following best describes the fundamental,
underlying reason for why there is demand for an independent
auditor to report on financial statements?
a. A misstatement of account balances may exist and it is the
independent auditor's responsibility to ensure that financial
statements are not misstated.
b. Different interests may exist between the company preparing the
statements and the parties using the statements.
c. A management fraud may exist and it is more likely to be detected
by auditors if they are independent.
d. A poorly designed internal control system may be in place..
Answer: b. Different interests may exist between the company
preparing the statements and the parties using the statements.
◉ Which of the following statements best describes why the
profession of certified public accountants has deemed it essential to
promulgate a code of conduct and to establish a mechanism for
enforcing observance of the code?
,a. A prerequisite to success is the establishment of an ethical code
that stresses primarily the professional's responsibility to clients
and colleagues.
b. An essential means of self-protection for the profession is the
establishment of flexible ethical standards by the profession.
c. A requirement of most state laws calls for the profession to
establish a code of conduct.
d. Ethical standards are established so that users of accounting
services know what to expect, the professionals know what
behaviors are acceptable, and overseers can take disciplinary action
when appropriate..
Answer: d. Ethical standards are established so that users of
accounting services know what to expect, the professionals know
what behaviors are acceptable, and overseers can take disciplinary
action when appropriate.
◉ Which of the following would best be described as an assurance
service?
a. preparing a report representing a client's position during an IRS
audit
b. assisting a company in identifying potential sources of capital for
potential acquisitions
c. working with a company to develop a more efficient method of
processing financial transactions
,d. offering an opinion concerning the validity of statements made on
an entity's website relating to its online privacy policies.
Answer: d. offering an opinion concerning the validity of statements
made on an entity's website relating to its online privacy policies
◉ With respect to ethics, the rights-based approach:
a. suggests that an individual's actions should not violate the rights
of any individual.
b. is primarily concerned with equity and impartiality.
c. suggests that auditors should always verify ownership of a client's
material tangible assets.
d. recognizes that decisions involve trade-offs between costs and
benefits..
Answer: a. suggests that an individual's actions should not violate
the rights of any individual.
◉ Hawkins requested permission to communicate with the
predecessor auditor and review certain portions of the predecessor
auditor's working papers. The prospective client's refusal to permit
this will bear directly on Hawkins' decision concerning the:
A) adequacy of the preplanned audit program.
B) ability to establish consistency in application of accounting
principles between years.
, C) apparent scope limitation.
D) integrity of management..
Answer: D) integrity of management.
Explanation: It is normally a management responsibility to provide
the contact between the two auditors, if management is trying to
prevent the communication between the two auditors, it shows that
they may trying to hide something, and that could trigger the
concern of management integrity.
◉ An auditor inspects a document for proper authorization of a
transaction and verifies a transaction amount that is stated within
the document. The auditor has performed a(n)
A) test of details.
B) substantive analytical procedure.
C) test of controls.
D) dual-purpose test.
Answer: D) dual-purpose test
Explanation: auditor perform both test of controls and test of details
for the transaction with numbers and authorization.
◉ Tolerable misstatement (also referred to as performance
materiality) is:
NOTES
◉ Which of the following best describes the fundamental,
underlying reason for why there is demand for an independent
auditor to report on financial statements?
a. A misstatement of account balances may exist and it is the
independent auditor's responsibility to ensure that financial
statements are not misstated.
b. Different interests may exist between the company preparing the
statements and the parties using the statements.
c. A management fraud may exist and it is more likely to be detected
by auditors if they are independent.
d. A poorly designed internal control system may be in place..
Answer: b. Different interests may exist between the company
preparing the statements and the parties using the statements.
◉ Which of the following statements best describes why the
profession of certified public accountants has deemed it essential to
promulgate a code of conduct and to establish a mechanism for
enforcing observance of the code?
,a. A prerequisite to success is the establishment of an ethical code
that stresses primarily the professional's responsibility to clients
and colleagues.
b. An essential means of self-protection for the profession is the
establishment of flexible ethical standards by the profession.
c. A requirement of most state laws calls for the profession to
establish a code of conduct.
d. Ethical standards are established so that users of accounting
services know what to expect, the professionals know what
behaviors are acceptable, and overseers can take disciplinary action
when appropriate..
Answer: d. Ethical standards are established so that users of
accounting services know what to expect, the professionals know
what behaviors are acceptable, and overseers can take disciplinary
action when appropriate.
◉ Which of the following would best be described as an assurance
service?
a. preparing a report representing a client's position during an IRS
audit
b. assisting a company in identifying potential sources of capital for
potential acquisitions
c. working with a company to develop a more efficient method of
processing financial transactions
,d. offering an opinion concerning the validity of statements made on
an entity's website relating to its online privacy policies.
Answer: d. offering an opinion concerning the validity of statements
made on an entity's website relating to its online privacy policies
◉ With respect to ethics, the rights-based approach:
a. suggests that an individual's actions should not violate the rights
of any individual.
b. is primarily concerned with equity and impartiality.
c. suggests that auditors should always verify ownership of a client's
material tangible assets.
d. recognizes that decisions involve trade-offs between costs and
benefits..
Answer: a. suggests that an individual's actions should not violate
the rights of any individual.
◉ Hawkins requested permission to communicate with the
predecessor auditor and review certain portions of the predecessor
auditor's working papers. The prospective client's refusal to permit
this will bear directly on Hawkins' decision concerning the:
A) adequacy of the preplanned audit program.
B) ability to establish consistency in application of accounting
principles between years.
, C) apparent scope limitation.
D) integrity of management..
Answer: D) integrity of management.
Explanation: It is normally a management responsibility to provide
the contact between the two auditors, if management is trying to
prevent the communication between the two auditors, it shows that
they may trying to hide something, and that could trigger the
concern of management integrity.
◉ An auditor inspects a document for proper authorization of a
transaction and verifies a transaction amount that is stated within
the document. The auditor has performed a(n)
A) test of details.
B) substantive analytical procedure.
C) test of controls.
D) dual-purpose test.
Answer: D) dual-purpose test
Explanation: auditor perform both test of controls and test of details
for the transaction with numbers and authorization.
◉ Tolerable misstatement (also referred to as performance
materiality) is:
