AUDIT FINAL EXAM – COMPLETE 250 QUESTIONS WITH CORRECT
ANSWERS | FINANCIAL AUDITING & ASSURANCE COURSE REVIEW
COVERING THE MOST TESTED QUESTIONS
THE AUDIT FINAL EXAM EVALUATES STUDENTS’ ABILITY TO APPLY AUDITING
STANDARDS AND CONCEPTS TO REALISTIC SCENARIOS INVOLVING CLIENT RISK,
INTERNAL CONTROLS, EVIDENCE COLLECTION, AND REPORT FORMULATION.
THIS RESOURCE IS CRUCIAL FOR MASTERING COURSE OBJECTIVES AND
PREPARING FOR PROFESSIONAL CERTIFICATION EXAMS LIKE THE CPA.
The auditor's inventory observation test counts are traced to the client's inventory
listing to test for which of the following financial statement assertions?
A.Rights and obligations.
B.Allocation and valuation.
C.Completeness.
D.Understandability of presentation and
classification. - CORRECT ANSWER-c
1. An auditor most likely would make inquiries of production and sales personnel concerning
possible obsolete or slow-moving inventory to support management's financial statement assertion
of
:A.Valuation and allocation.
B.Rights and obligations.
C.Existence.
D.Understandability of presentation and classification. - CORRECT ANSWER-a
1. Tests designed to detect purchases made before the end of the year that have been recorded in
the subsequent year most likely would provide assurance about management's assertion regarding:
A.Presentation and classification.
B.Accuracy.
C.Cutoff.
D.Obligations. - CORRECT ANSWER-c
,1. Which of the following events occurring after the issuance of the auditor's report most likely
would cause the auditor to make further inquiries about the previously issued financial statements?
A.A subsidiary that accounts for 30% of the entity's consolidated net revenue is sold.
B.New information regarding significant unrecorded transactions from the year under audit is
discovered.
C.Litigation that had been disclosed in the financial statements is resolved.
D.The auditor discovers that the entity intends to present comparative financial statements in
subsequent years. - CORRECT ANSWER-b
Subsequent to the issuance of the audit report for the final year of a three-year contract, a fact is
discovered that may have affected the final year's report. Which of the following actions is the
auditor required to take?
A.The auditor is not required to do anything because once the auditor has reported on audited
financial statements, the auditor has no responsibility to carry out any retrospective review of the
workpapers or show the effect of any newly discovered facts on them.
B.The auditor is required to determine whether the information is reliable and whether the facts
existed at the date of the report.
C.The auditor is required to reissue the auditor's report and to reference discovery of the fact.
D.The auditor is not required to do anything because the auditor was discharged for reasons other
than professional misconduct after the audited financial statements were issued. - CORRECT
ANSWER-b
To determine whether accounts payable are complete, an auditor performs a test to verify that all
merchandise received is recorded. The population of documents for this test consists of all:
A.Vendor's invoices.
B.Canceled checks.
C.Receiving reports.
D.Purchase orders. - CORRECT ANSWER-c
Which of the following events occurring after the issuance of an auditor's report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
A.A lawsuit is resolved that is explained in a separate paragraph of the prior-year's auditor's report.
B.New information is discovered concerning undisclosed related party transactions of the prior year.
C.A technological development occurs that affects the entity's ability to continue as a going concern.
,D.The entity sells a subsidiary that accounts for 35% of the entity's consolidated sales. - CORRECT
ANSWER-b
1. During an audit, the auditor sent the client's attorney a letter of inquiry for any pending litigation
or unasserted claims. The attorney returned the letter, indicating that the attorney would not
respond to the inquiry. Under these circumstances the auditor most likely would:
A.Obtain information concerning contingency guarantees from bank confirmations
B.Place increased reliance on information obtained from management
C.Consider the impact of a scope limitation
D.Increase tests of controls concerning the related liability account - CORRECT ANSWER-c
1. Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any
physical inventories. These inventories account for 40% of the entity's assets, and this issue also
impacts the auditor's ability to audit the cost of goods sold, impacting both the income statement
and the statement of stockholder's equity. Alternative auditing procedures cannot be applied due to
the nature of the entity's records. Under these circumstances, the auditor should express a(an):
A.Unmodified opinion with an emphasis-of-matter paragraph.
B.Qualified opinion.
C.Adverse opinion.
D.Disclaimer of opinion. - CORRECT ANSWER-d
An auditor most likely would issue a disclaimer of opinion due to:
A.Management's refusal to furnish a client representation letter.
B.An inconsistent application of a generally accepted accounting principle.
C.A material departure from a generally accepted accounting principle.
D.Inadequate disclosure of material information. - CORRECT ANSWER-a
Management refuses to allow an auditor to observe inventory. Inventory accounts for 60% of the
entity's assets. Alternative auditing procedures cannot be applied. Based on this information, the
auditor should:
A.Issue an unmodified opinion with an emphasis-of-matter paragraph.
B.Issue a disclaimer of opinion or withdraw from the engagement.
C.Issue a qualified or adverse opinion.
D.Issue an unmodified with an other-matter paragraph. - CORRECT ANSWER-b
, To provide assurance that each voucher is submitted and paid only once, an auditor most likely
would examine a sample of paid vouchers and determine whether each voucher is:
A.Prenumbered and accounted for.
B.Supported by a vendor's invoice and purchase order.
C.Returned to the vouchers payable department.
D.Stamped "paid" by the check signer. - CORRECT ANSWER-D.
When forming an opinion on the financial statements, the auditor is least likely to evaluate whether:
A.Accounting estimates made by management are reasonable.
B.Earnings forecasts by investors are met.
C.Financial statements provide adequate disclosures to enable intended users to understand the
effect of material events and transactions.
D.The terminology used in the financial statements is appropriate. - CORRECT ANSWER-b
An auditor concluded that no excessive costs for idle plant were charged to inventory. This
conclusion most likely related to the auditor's objective to obtain evidence about the financial
statement assertions regarding inventory, including:
A.Valuation and allocation.
B.Existence.
C.Completeness.
D.Rights and obligations. - CORRECT ANSWER-a
After issuing an auditor's report, an auditor has no obligation to make continuing inquiries
concerning audited financial statements unless:
A.A final resolution is made of a contingent liability that had been disclosed in the financial
statements.
B.An event occurs just after the auditor's report was issued that affects the entity's ability to
continue as a going concern.
C.Information about a material transaction that occurred just after the auditor's report was issued is
deemed to be reliable.
D.Information that existed at the report date and may affect the report comes to the auditor's
attention. - CORRECT ANSWER-d
ANSWERS | FINANCIAL AUDITING & ASSURANCE COURSE REVIEW
COVERING THE MOST TESTED QUESTIONS
THE AUDIT FINAL EXAM EVALUATES STUDENTS’ ABILITY TO APPLY AUDITING
STANDARDS AND CONCEPTS TO REALISTIC SCENARIOS INVOLVING CLIENT RISK,
INTERNAL CONTROLS, EVIDENCE COLLECTION, AND REPORT FORMULATION.
THIS RESOURCE IS CRUCIAL FOR MASTERING COURSE OBJECTIVES AND
PREPARING FOR PROFESSIONAL CERTIFICATION EXAMS LIKE THE CPA.
The auditor's inventory observation test counts are traced to the client's inventory
listing to test for which of the following financial statement assertions?
A.Rights and obligations.
B.Allocation and valuation.
C.Completeness.
D.Understandability of presentation and
classification. - CORRECT ANSWER-c
1. An auditor most likely would make inquiries of production and sales personnel concerning
possible obsolete or slow-moving inventory to support management's financial statement assertion
of
:A.Valuation and allocation.
B.Rights and obligations.
C.Existence.
D.Understandability of presentation and classification. - CORRECT ANSWER-a
1. Tests designed to detect purchases made before the end of the year that have been recorded in
the subsequent year most likely would provide assurance about management's assertion regarding:
A.Presentation and classification.
B.Accuracy.
C.Cutoff.
D.Obligations. - CORRECT ANSWER-c
,1. Which of the following events occurring after the issuance of the auditor's report most likely
would cause the auditor to make further inquiries about the previously issued financial statements?
A.A subsidiary that accounts for 30% of the entity's consolidated net revenue is sold.
B.New information regarding significant unrecorded transactions from the year under audit is
discovered.
C.Litigation that had been disclosed in the financial statements is resolved.
D.The auditor discovers that the entity intends to present comparative financial statements in
subsequent years. - CORRECT ANSWER-b
Subsequent to the issuance of the audit report for the final year of a three-year contract, a fact is
discovered that may have affected the final year's report. Which of the following actions is the
auditor required to take?
A.The auditor is not required to do anything because once the auditor has reported on audited
financial statements, the auditor has no responsibility to carry out any retrospective review of the
workpapers or show the effect of any newly discovered facts on them.
B.The auditor is required to determine whether the information is reliable and whether the facts
existed at the date of the report.
C.The auditor is required to reissue the auditor's report and to reference discovery of the fact.
D.The auditor is not required to do anything because the auditor was discharged for reasons other
than professional misconduct after the audited financial statements were issued. - CORRECT
ANSWER-b
To determine whether accounts payable are complete, an auditor performs a test to verify that all
merchandise received is recorded. The population of documents for this test consists of all:
A.Vendor's invoices.
B.Canceled checks.
C.Receiving reports.
D.Purchase orders. - CORRECT ANSWER-c
Which of the following events occurring after the issuance of an auditor's report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
A.A lawsuit is resolved that is explained in a separate paragraph of the prior-year's auditor's report.
B.New information is discovered concerning undisclosed related party transactions of the prior year.
C.A technological development occurs that affects the entity's ability to continue as a going concern.
,D.The entity sells a subsidiary that accounts for 35% of the entity's consolidated sales. - CORRECT
ANSWER-b
1. During an audit, the auditor sent the client's attorney a letter of inquiry for any pending litigation
or unasserted claims. The attorney returned the letter, indicating that the attorney would not
respond to the inquiry. Under these circumstances the auditor most likely would:
A.Obtain information concerning contingency guarantees from bank confirmations
B.Place increased reliance on information obtained from management
C.Consider the impact of a scope limitation
D.Increase tests of controls concerning the related liability account - CORRECT ANSWER-c
1. Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any
physical inventories. These inventories account for 40% of the entity's assets, and this issue also
impacts the auditor's ability to audit the cost of goods sold, impacting both the income statement
and the statement of stockholder's equity. Alternative auditing procedures cannot be applied due to
the nature of the entity's records. Under these circumstances, the auditor should express a(an):
A.Unmodified opinion with an emphasis-of-matter paragraph.
B.Qualified opinion.
C.Adverse opinion.
D.Disclaimer of opinion. - CORRECT ANSWER-d
An auditor most likely would issue a disclaimer of opinion due to:
A.Management's refusal to furnish a client representation letter.
B.An inconsistent application of a generally accepted accounting principle.
C.A material departure from a generally accepted accounting principle.
D.Inadequate disclosure of material information. - CORRECT ANSWER-a
Management refuses to allow an auditor to observe inventory. Inventory accounts for 60% of the
entity's assets. Alternative auditing procedures cannot be applied. Based on this information, the
auditor should:
A.Issue an unmodified opinion with an emphasis-of-matter paragraph.
B.Issue a disclaimer of opinion or withdraw from the engagement.
C.Issue a qualified or adverse opinion.
D.Issue an unmodified with an other-matter paragraph. - CORRECT ANSWER-b
, To provide assurance that each voucher is submitted and paid only once, an auditor most likely
would examine a sample of paid vouchers and determine whether each voucher is:
A.Prenumbered and accounted for.
B.Supported by a vendor's invoice and purchase order.
C.Returned to the vouchers payable department.
D.Stamped "paid" by the check signer. - CORRECT ANSWER-D.
When forming an opinion on the financial statements, the auditor is least likely to evaluate whether:
A.Accounting estimates made by management are reasonable.
B.Earnings forecasts by investors are met.
C.Financial statements provide adequate disclosures to enable intended users to understand the
effect of material events and transactions.
D.The terminology used in the financial statements is appropriate. - CORRECT ANSWER-b
An auditor concluded that no excessive costs for idle plant were charged to inventory. This
conclusion most likely related to the auditor's objective to obtain evidence about the financial
statement assertions regarding inventory, including:
A.Valuation and allocation.
B.Existence.
C.Completeness.
D.Rights and obligations. - CORRECT ANSWER-a
After issuing an auditor's report, an auditor has no obligation to make continuing inquiries
concerning audited financial statements unless:
A.A final resolution is made of a contingent liability that had been disclosed in the financial
statements.
B.An event occurs just after the auditor's report was issued that affects the entity's ability to
continue as a going concern.
C.Information about a material transaction that occurred just after the auditor's report was issued is
deemed to be reliable.
D.Information that existed at the report date and may affect the report comes to the auditor's
attention. - CORRECT ANSWER-d
