Audit Exam 1 Review ACTUAL Exam
Questions and CORRECT Answers
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 agreed to the financial statements. This procedure most likely provided evidence concerning
management's assertion of:
Rights and obligations.
Completeness.
Existence.
Incorrect
Valuation. - CORRECT ANSWER - Completeness
When auditing the accounts receivable account on the Balance Sheet, an auditor's procedures
most likely would focus primarily on management's assertion of:
Existence.
Completeness.
Presentation and disclosure.
Rights and obligations. - CORRECT ANSWER - Existence.
In auditing the accrued liabilities account on the Balance Sheet, an auditor's procedures most
likely would focus primarily on management's assertion of:
Existence or occurrence.
Completeness.
Presentation and disclosure.
Valuation or allocation. - CORRECT ANSWER - Completeness.
Cutoff tests designed to detect valid sales that occurred before the end of the year but have been
recorded in the subsequent year would provide assurance about management's assertion of:
Presentation and Disclosure.
,Completeness.
Rights and Obligations.
Existence. - CORRECT ANSWER - Completeness
The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from:
Acting in a managerial decision-making role for an audit client.
Auditing the firm's own work on an audit client.
Providing tax consulting to an audit client without audit committee approval.
All of the choices. - CORRECT ANSWER - All of the choices
When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed
assets are not overstated, she wants to obtain evidence as to management's assertion regarding:
Completeness.
Existence.
Valuation and allocation.
Rights and obligations. - CORRECT ANSWER - Existence
When auditing merchandise inventory at year-end, the auditor performs audit procedures to
obtain evidence that no goods held on consignment are included in the client's ending inventory
balance. This audit procedure provides assurance about which management assertion?
Completeness.
Existence.
Valuation and allocation.
Rights and obligations. - CORRECT ANSWER - Rights and obligations.
The risk to investors that a company's financial statements may be materially misleading is
called:
Client acceptance risk.
, Information risk.
Moral hazard.
Business risk. - CORRECT ANSWER - Information risk.
Bankers who are processing loan applications from companies seeking large loans will probably
ask for financial statements audited by an independent CPA because:
Financial statements are too complex for the bankers to analyze themselves.
They are too far away from company headquarters to perform accounting and auditing
themselves.
The consequences of making a bad loan are very undesirable.
They generally see a potential conflict of interest between company managers who want to get
loans and the bank's needs for reliable financial statements. - CORRECT ANSWER -
They generally see a potential conflict of interest between company managers who want to get
loans and the bank's needs for reliable financial statements.
In an attestation engagement, a CPA practitioner is engaged to:
Compile a company's financial forecast based on management's assumptions without expressing
any form of assurance.
Prepare a written report containing a conclusion about the reliability of a management assertion.
Prepare a tax return using information the CPA has not audited or reviewed.
Give expert testimony in court on particular facts in a corporate income tax controversy. -
CORRECT ANSWER - Prepare a written report containing a conclusion about the
reliability of a management assertion.
Which of the following would be considered an assurance engagement?
Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded
in the past.
Giving an opinion on the conformity of the financial statements of a university with generally
accepted accounting principles.
Questions and CORRECT Answers
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 agreed to the financial statements. This procedure most likely provided evidence concerning
management's assertion of:
Rights and obligations.
Completeness.
Existence.
Incorrect
Valuation. - CORRECT ANSWER - Completeness
When auditing the accounts receivable account on the Balance Sheet, an auditor's procedures
most likely would focus primarily on management's assertion of:
Existence.
Completeness.
Presentation and disclosure.
Rights and obligations. - CORRECT ANSWER - Existence.
In auditing the accrued liabilities account on the Balance Sheet, an auditor's procedures most
likely would focus primarily on management's assertion of:
Existence or occurrence.
Completeness.
Presentation and disclosure.
Valuation or allocation. - CORRECT ANSWER - Completeness.
Cutoff tests designed to detect valid sales that occurred before the end of the year but have been
recorded in the subsequent year would provide assurance about management's assertion of:
Presentation and Disclosure.
,Completeness.
Rights and Obligations.
Existence. - CORRECT ANSWER - Completeness
The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from:
Acting in a managerial decision-making role for an audit client.
Auditing the firm's own work on an audit client.
Providing tax consulting to an audit client without audit committee approval.
All of the choices. - CORRECT ANSWER - All of the choices
When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed
assets are not overstated, she wants to obtain evidence as to management's assertion regarding:
Completeness.
Existence.
Valuation and allocation.
Rights and obligations. - CORRECT ANSWER - Existence
When auditing merchandise inventory at year-end, the auditor performs audit procedures to
obtain evidence that no goods held on consignment are included in the client's ending inventory
balance. This audit procedure provides assurance about which management assertion?
Completeness.
Existence.
Valuation and allocation.
Rights and obligations. - CORRECT ANSWER - Rights and obligations.
The risk to investors that a company's financial statements may be materially misleading is
called:
Client acceptance risk.
, Information risk.
Moral hazard.
Business risk. - CORRECT ANSWER - Information risk.
Bankers who are processing loan applications from companies seeking large loans will probably
ask for financial statements audited by an independent CPA because:
Financial statements are too complex for the bankers to analyze themselves.
They are too far away from company headquarters to perform accounting and auditing
themselves.
The consequences of making a bad loan are very undesirable.
They generally see a potential conflict of interest between company managers who want to get
loans and the bank's needs for reliable financial statements. - CORRECT ANSWER -
They generally see a potential conflict of interest between company managers who want to get
loans and the bank's needs for reliable financial statements.
In an attestation engagement, a CPA practitioner is engaged to:
Compile a company's financial forecast based on management's assumptions without expressing
any form of assurance.
Prepare a written report containing a conclusion about the reliability of a management assertion.
Prepare a tax return using information the CPA has not audited or reviewed.
Give expert testimony in court on particular facts in a corporate income tax controversy. -
CORRECT ANSWER - Prepare a written report containing a conclusion about the
reliability of a management assertion.
Which of the following would be considered an assurance engagement?
Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded
in the past.
Giving an opinion on the conformity of the financial statements of a university with generally
accepted accounting principles.
