Acc 599 final exam | Accounting homework help

ACC 599 FINAL EXAM. two versions posted

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Question 1
 
The first general standard of the PCAOB requires that an audit be performed by which type of person?
Answer
 
 An auditor with seasoned judgment in varying degrees of supervision and review.
 
 An auditor with appropriate technical training and proficiency.
 
 An auditor with adequate knowledge of the standards of field work and reporting.
 
 An auditor satisfying the independence standards

Question 2
 
Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included?
Answer
 
 Existence.
 
 Valuation.
 
 Completeness.
 
 Rights and Obligations

Question 3
 
Which one of the following attributes is not required of an auditor?
Answer
 
 Independence.
 
 Bias.
 
 Integrity.
 
 Technical competence

Question 4
 
Which one of the following is a reporting standard requirement?
Answer
 
 The auditor will state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.
 
 The auditor will identify in the auditor’s report, those circumstances in which auditing principles have not been consistently observed in the current period in comparison to the preceding period.
 
 The auditor will review adjusting journal entries for accuracy, and if the auditor concludes those entries are not reasonable accurate, the auditor must so state in the auditor’s report.
 
 The auditor will express an unqualified opinion on the financial statements, or will conduct additional audit procedures until such an opinion can be expressed

Question 5
 
When obtaining an understanding of internal controls, what is the independent external auditor primary concerned with?
Answer
 
 Detecting all errors.
 
 Determining the effectiveness of operations.
 
 Determining whether the internal controls can be relied upon.
 
 Determining whether the controls promote efficiency

Question 6
 
Which of the following is an inherent limitation of internal controls?
Answer
 
 Lack of auditor independence.
 
 Collusion.
 
 Separation of duties.
 
 Employee peer review.

Question 7
 
Which of the following is clearly a test of controls?
Answer
 
 Walk-through of the expense cycle from performance of the service to the reporting in the balance sheet.
 
 Examination of a sample of purchase order records for electronic, authenticated, authorization.
 
 Observing the controller’s use of company owned equipment.
 
 Sending a letter to the client’s attorney to determine litigation that is pending between plaintiff and the defendant

Question 8
 
Which of the following is an example of a detective control in an information system?
Answer
 
 Automated reports to management that specifically identify delinquent receivable.
 
 A requirement that salaried employees submit written requests to work overtime.
 
 Assurance from top management that computer centers are kept locked.
 
 The employment of trustworthy people to enter data into the information system

Question 9
 
Which of following is not part of the ethical framework derived from utilitarianism and rights theories?
Answer
 
 Identification of the legal issues.
 
 Determination of affected parties and their rights.
 
 Determination of the most important rights.
 
 Development of alternative courses of action.

Question 10
 
In determining the types of activities, engagements and interactions an auditor should have with a client, what must the CPA and the audit firm do?
Answer
 
 Follow the rules exactly as they are written.
 
 Assess all of their relationships with every client to ensure that independence is intact.
 
 Focus on client satisfaction above all other considerations.
 
 Realize that ethics are only guidelines and a matter of personal judgment

Question 11
 
Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?
Answer
 
 A member must not take on an engagement that is beyond the member’s professional competence.
 
 A member must exercise duties prudently and professionally.
 
 A member must adequately plan and supervise the performance of professional services.
 
 A member firm must not advertise services to competing clients

Question 12
 
Which of the following represents a situation in which auditors may disclose client information to outside parties?
Answer
 
 Bringing working papers to a professional CPA workshop as an example of quality work.
 
 Complying with a validly issued and enforceable subpoena or summons.
 
 Showing the client’s bank statement to a neighbor who is a shareholder to emphasize its cash position.
 
 Explaining to the local television news station why the client is likely to miss payroll in the forthcoming periods.

Question 13
 
The significance of the bill of lading is to provide which of the following?
Answer
 
 The warehouse personnel with the product that must be shipped to customers.
 
 Invoices to customers for proper collection.
 
 A credit application for customer approval.
 
 Evidence of title transfer of goods to customers

Question 14
 
A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?
Answer
 
 Use of prenumbered shipping, invoice and sales documents.
 
 Use of prenumbered statements, inventory lists and credit memos.
 
 Reconciliation of invoices with customer statements.
 
 Use of pre-authorized price lists

Question 15
 
The relationship between the sales cycle and an inventory system can best be noted in which of the following examples?
Answer
 
 Credit is established prior to completion of a sales order.
 
 Invoices are sent to customers only after shipment is evidenced.
 
 Availability of products ordered are verified prior to processing a sale.
 
 Billing information is added to the database for new customers.

Question 16
 
The aged accounts receivable report is utilized by the auditor to accomplish which of the following?
Answer
 
 Encourage the client to collect on receivables that are long past due.
 
 Select the type of confirmations that will be sent to banks.
 
 Assess the adequacy of the allowance for doubtful accounts.
 
 Identify debits in the receivables balance that should be reclassified to payables.

Question 17
 
All of the following are recommended features of a fire protection system for a computer center except
Answer
 
 clearly marked exits
 
 an elaborate water sprinkler system
 
 manual fire extinguishers in strategic locations
 
 automatic and manual alarms in strategic locations

Question 18
 
Inherent risk
Answer
 
 exists because all control structures are flawed in some ways.
 
 is the likelihood that material misstatements exist in the financial statements of the firm.
 
 is associated with the unique characteristics of the business or industry of the client.
 
 is the likelihood that the auditor will not find material misstatements

Question 19
 
The following are examples of commodity assets except
Answer
 
 network management
 
 systems operations
 
 systems development
 
 server maintenance

Question 20
 
Tests of controls include
Answer
 
 confirming accounts receivable
 
 counting inventory
 
 completing questionnaires
 
 counting cash

Question 21
 
Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?
Answer
 
 Stock splits
 
 Arbitrage
 
 Dividends
 
 Stock options

Question 22
 
Which legislation led to the establishment of the Public Company Accounting Oversight Board?
Answer
 
 Private Securities Litigation Reform Act
 
 Sarbanes-Oxley Act
 
 Gramm-Leach-Bliley Act
 
 Glass-Steagall Act

Question 23
 
_______ is a performance evaluation method that focuses on both financial and nonfinancial
indicators of performance such as customer satisfaction.
Answer
 
 360 degree survey
 
 Critical incidents method
 
 Balance scorecard
 
 Pareto chart

Question 24
 
Which of the following applies to a “cookie jar?”
Answer
 
 Understated accounts payable
 
 Overstated current assets
 
 Overstated reserves
 
 Recording fictitious revenues

Question 25
 
In asset fraud, assets are most often:
Answer
 
 understated.
 
 overstated.
 
 recorded as liabilities.
 
 recorded as revenues.

 

 

VERSION 2

 

 

Which assertion addresses whether the financial statements items are properly classified in the financial statements? Answer

 

[removed]

 

Completeness.

[removed]

 

Existence.

[removed]

 

Valuation.

[removed]

 

Presentation and Disclosure.

 

 

 

The Standards of the PCAOB can be broken up into three categories, i.e., general, fieldwork, and reporting. Which of the following is considered in the fieldwork standards? Answer

 

[removed]

 

Independence.

[removed]

 

GAAP.

[removed]

 

Internal control.

[removed]

 

Disclosure.

 

 

Which of the following is a reason why an auditor needs an understanding of internal controls? Answer

 

[removed]

 

To provide individual comments on internal control non-compliance.

[removed]

 

To become comfortable that the client will pay its audit bills.

[removed]

 

To assess materiality.

[removed]

 

To assess the risk of possible misstatements in the financial statements.

 

 

 

The PCAOB’s AS No. 5 states that internal controls may be preventive or detective.
Which of the following controls is preventive? Answer

 

[removed]

 

Requiring two persons to open mail containing payments.

[removed]

 

Reconciling the accounts receivable subsidiary file with the control account.

[removed]

 

Using batch totals.

[removed]

 

Preparing bank reconciliations.

 

 

 

How can an auditor use inquiry to gain a better understanding of internal controls? Answer

 

[removed]

 

By interviewing key employees to gain further insight into the internal control environment.

[removed]

 

By observing the safeguarding of assets by checking locked doors and safes.

[removed]

 

By tracing a transaction from the boundary of the organization through to the final reporting.

[removed]

 

By documenting thoroughly the internal control through the use of narratives

 

Which one of the following components of the system of internal controls influences the tone for the organization?Answer

[removed]

 

Control risk assessment.

[removed]

 

Control environment.

[removed]

 

Information and communication.

[removed]

 

Monitoring.

 

 

 

Which of the following is not part of the control environment?Answer

[removed]

 

Management philosophy and operating style.

[removed]

 

Methods of assigning authority and responsibility.

[removed]

 

Personnel policies and practices.

[removed]

 

Control activities.

 

 

 

A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients? Answer

 

[removed]

 

To discuss information relating to inadequate disclosure in an audit report.

[removed]

 

To comply with a validly issued and enforceable subpoena or summons.

[removed]

 

To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority.

[removed]

 

To explain to members of the press whether a client is likely to miss payroll in the forthcoming periods.

 

 

 

In determining auditor independence, the SEC considers which of the following as an independence impairment? Answer

 

[removed]

 

An auditor performs the accounting work and then audits it.

[removed]

 

An auditor has no conflicting interest with the client.

[removed]

 

An auditor does not act as an advocate for the audit client.

[removed]

 

An auditor does not act as an employee of the audit client.

 


Which of following is not required by Rule 201? Answer

 

[removed]

 

Professional competency.

[removed]

 

Integrity and objectivity.

[removed]

 

Planning and supervision.

[removed]

 

Gathering sufficient relevant data.

 

 

 Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately? Answer

 

[removed]

 

Sales are recorded at the invoice price expected to be collected from customers.

[removed]

 

Sales orders have sequential numbering.

[removed]

 

Recorded sales transactions are evidenced by valid invoices and shipping documents.

[removed]

 

Credits to customer accounts are classified as liabilities.

 

 

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?Answer

[removed]

 

Shipping documents and tracing them to the sales journal.

[removed]

 

Accounts receivable and tracing them to cash receipts.

[removed]

 

Recorded sales transactions and tracing them to the general ledger.

[removed]

 

Inventory records and tracing them to the shipping documents.

 

 

 

What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate? Answer

 

[removed]

 

Accounts receivable aging schedule.

[removed]

 

Copies of checks received from customers.

[removed]

 

Confirmations returned without exception.

[removed]

 

Stock prices of customer companies.

 

Which of the following processes are included in the revenue cycle? Answer

 

[removed]

 

Shipping products to customers.

[removed]

 

Sending disbursements to suppliers.

[removed]

 

Issuance of capital stock.

[removed]

 

Preparation of a time card.

 

The fundamental difference between internal and external auditing is thatAnswer

[removed]

 

internal auditors represent the interests of the organization and external auditors represent outsiders

[removed]

 

internal auditors perform IT audits and external auditors perform financial statement audits

[removed]

 

internal auditors focus on financial statement audits and external auditors focus on operational audits and financial statement audits

[removed]

 

external auditors assist internal auditors but internal auditors cannot assist external auditors

 

 

When planning the audit, information is gathered by all of the following methods exceptAnswer

[removed]

 

completing questionnaires

[removed]

 

interviewing management

[removed]

 

observing activities

[removed]

 

confirming accounts receivable

 

 

Which is the most critical segregation of duties in the centralized computer services function?Answer

[removed]

 

systems development from data processing

[removed]

 

data operations from data librarian

[removed]

 

data preparation from data control

[removed]

 

data control from data librarian

The least important item to store off-site in case of an emergency isAnswer

[removed]

 

backups of systems software

[removed]

 

backups of application software

[removed]

 

documentation and blank forms

[removed]

 

results of the latest test of the disaster recovery program

 

Understanding a company’s relationships with financial institutions and bondholders is important because:Answer

[removed]

 

it can indicate the extent to which the company is leveraged.

[removed]

 

it can reveal whether significant short selling of the company’s stock has occurred.

[removed]

 

it can uncover the fraudulent transactions from special purpose entities.

[removed]

 

it may help in raising additional funds from the financial institutions.

 

 

______ refers to the ability to anticipate a fraud perpetrator’s likely method of concealing a fraud. Answer

 

[removed]

 

Zero-order reasoning

[removed]

 

Deductive reasoning

[removed]

 

Strategic reasoning

[removed]

 

Low-order reasoning

 

 

While generally accepted accounting principles do allow flexibility, standards of _________, ________, and ________ must always prevail in the financial statements.Answer

[removed]

 

subjectivity; integrity; validation

[removed]

 

objectivity; integrity; judgement

[removed]

 

recording; reporting; accounting

[removed]

 

quality; excellence; and judgement

 

 

 

 

 

Recognizing unearned revenue as earned revenue is an example of which type of fraud?Answer

[removed]

 

Liability understatement

[removed]

 

Revenue understatement

[removed]

 

Cost of goods sold understatement

[removed]

 

Assets overstatement

 

 

 

 

 

The proper supervision of audit assistants is a requirement found in which section of the Generally Accepted Auditing Standards? 
A. General Standards.
B. Standards of Fieldwork.
C. Standards of Reporting.
D. Standards of Quality Control.

 

Rather than keeping the ten standards, what did the AICPA develop?

 

Answer

 

Seven Standards.

 

Seven Concepts.

 

Seven Fundamental Principles.

 

Seven Governing Principles

 

Which of the following services does the PCAOB require auditors of public companies to perform? 
A. A financial statement audit and an attest audit.
B. A financial statement audit and an assurance audit.
C. A financial statement audit and agreed upon procedures.
D. A financial statement audit and an examination of the effectiveness of internal controls.

 

The PCAOB’s AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive?

 

Answer

 

Requiring two persons to open mail containing payments.

 

Reconciling the accounts receivable subsidiary file with the control account.

 

Using batch totals.

 

Preparing bank reconciliations.

 

 

 

Which of the following documents will an auditor use to demonstrate an understanding of internal control?

 

Answer

 

 Checklists, disclosures and procedures.

 

 the audit report, internal control opinions and confirmations.

 

Workpapers, engagement letters and management representation letters.

 

Questionnaires, narratives and flowcharts.

 

 

 

An audit firm is considered independent even if it performs which of the following services for a publicly traded audit client?

 

Answer Serving as a member of the client’s board of directors.

 

Determining which accounting policies will be adopted by the client.

 

 Accounting information system design and implementation.

 

Tax return preparation as approved by the board of directors.

 

Which of the following represents a situation in which an auditor is independent of the client? 

 

A. The auditor is paid by the client organization rather than the SEC.
B. The auditor takes a personal loan from the president of the company.
C. The auditor’s dependent son holds 25 shares of the client’s common stock.
D. The auditor has not received payment for the previous audit services.

 

 

 

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following? 
A. Trend analysis.
B. Ratio analysis.
C. Reasonableness testing.
D. Non-statistical sampling.

 

 

 

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product? 
A. The cash is realized on the sale of the product.
B. A price is discussed based upon the customer’s resale of the product.
C. The customer is given the option to return the product at any time.
D. The product is adequately delivered to the customer.

 

 

 

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks? 
A. Examining sales contracts and inquiry of management.
B. Confirming sales with customers.
C. Discussing the transactions with qualified members of the Financial Accounting Standards Board.
D. Comparing shipping documents with invoices.

 

All of the following tests of controls will provide evidence about the physical security of the computer center except

 

a.

review of fire marshal records

b.

review of the test of the backup power supply

c.

verification of the second site backup location

d.

observation of procedures surrounding visitor access to the computer center

 

 

 

 

 

A cold site backup approach is also known as

 

a.

internally provided backup

b.

recovery operations center

c.

empty shell

d.

mutual aid pact

 

 

 

The following are examples of specific assets except

 

 

 

a.            application maintenance

 

b.            data warehousing

 

c.             highly skilled employees

 

d.            server maintenance

 

 

 

According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), who is the most common perpetrator of financial statement fraud? 
A. Chief Executive Officer
B. Chief Financial Officer
C. Chief Operating Officer
D. Finance Controller

 

 

 

Inadequate disclosure occurs when: 
A. a company attempts to overstate assets to make their financial position look better.
B. management makes statements that are wrong in its annual report or any other media.
C. assets are not written down to their appropriate values because insufficient depreciation is recorded.
D. a company understates its liabilities and overstates its revenues and net income.

 

When accounts receivable are overstated, revenues are overstated. Similarly, when inventory is overstated, cost of goods sold is usually _________. 
A. overstated
B. unchanged
C. inadequate
D. understated

 

 

 

 

 

 

 

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