ACCOUNTING FINAL EXAM

| October 3, 2018

Question1
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Which
ASB balance assertion is of the most importance to auditors for long-term
liabilities?
Select
one:
a.
Existence
b.
Rights & Obligations
c.
Valuation
d.
Completeness
Question2
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Which
of the following management assertions for long-term liabilities is related to
the ASB balance assertion of completeness?
Select
one:
a.
All material long-term liabilities are recorded.
b.
Disclosures of maturities for the next five years are accurate and adequate.
c.
Terms, conditions, and restrictions relating to noncurrent debt are adequately
disclosed.
d.
New long-term liabilities and debt extinguishments are properly authorized.
Question3
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In
the audit of notes payable, an auditor testing the ASB balance assertion of
accuracy and valuation most likely would
Select
one:
a.
Select a sample of notes payable and vouch cash receipt to the bank statement.
b.
Read directors’ and finance committee’s minutes for authorization of financing
transactions.
c.
Select a sample of paid notes and trace interest expense to the general ledger
account.
d.
Select a sample of paid notes and recalculate interest expense for the period
under audit.
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During
an audit of an entity’s stockholders’ equity accounts, the auditor determines
whether there are restrictions on retained earnings resulting from loans,
agreements, or state law. This audit procedure most likely is intended to
verify the ASB presentation and disclosure assertion of
Select
one:
a.
Completeness
b.
Understandability
c.
Occurrence.
d.
Rights and Obligations.
Question5
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In
confirming with an outside agent, such as a financial institution, that the
agent is holding investment securities in the client’s name, an auditor most
likely gathers evidence in support of ASB balance assertion of existence and
Select
one:
a.
Rights & obligations
b.
Completeness
c.
Valuation
d.
Accuracy
Question6
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The
focus of controls in the finance and investment cycle is on
Select
one:
a.
Physical security of assets.
b.
Prenumbered documents
c.
Computer controls over transactions.
d.
Proper authorizations and competent personnel.
Question7
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Keeping
track of securities owners for payment of interest or dividends is usually done
by the company’s
Select
one:
a.
Transfer Agent
b.
Register
c.
Broker
d.
Treasurer
Question8
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Records
of stock and bond certificates are usually maintained by the company’s
Select
one:
a.
Treasurer
b.
Transfer Agent
c.
Chief Financial Officer
d.
Register
Question9
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A
related party is a person or entity that
Select
one:
a.
Is a member of the company’s management.
b.
Does business with the company.
c.
Has a family tie to a management member.
d.
Can exert significant influence over or be influenced by the company.
Question10
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To
whom should written representations be addressed?
a.
Auditors
b.
Board of directors
c.
Client
d.
Stockholders
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If
auditors are appointed on January 3, 2012, the date of the financial statements
is December 31, 2012, the date of the auditors’ report is February 7, 2013 and
the audit report release date is March 3, 2013, what is the appropriate date of
the written representations?
a.
January 3, 2012
b.
December 31, 2012
c.
February 7, 2013
d.
March 3, 2013
Question12
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Orange
Corporation was audited for the year ended December 31. The audit was completed
on January 25; prior to the release of the report, auditors learned of a
two-for-one stock split on February 1. If dual dating is used, what are the proper
dates for the auditors’ reports?
a.
December 31 and January 25
b.
January 25 and February 1
c.
January 25 and February 15
d.
February 1 and February 25
Question13
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Interim
testing normally occurs between what two dates?
Select
one:
a.
Date of the financial statements and audit report release date.
b.
End of the year under audit and date of the auditors’ report.
c.
Beginning of the year under audit and audit report release date.
d.
Beginning of the year under audit and date of the financial statements.
Question14
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Which
party should request a letter regarding litigation, claims, and assessments
from the client’s attorney?
Select
one:
a.
Attorney
b.
Securities and Exchange Commission or other regulatory body.
c.
Client
d.
Auditors
Question15
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Which
of the following reporting options is available if the client refuses to
provide written representations to auditors?
Select
one:
a.
Qualified opinion or disclaimer of opinion.
b.
Qualified or adverse opinion
c.
Unqualified or qualified opinion
d.
Disclaimer of opinion or adverse opinion
Question16
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Why
is it the client’s decision to record adjustments to the
financial statements?
Select
one:
a.
Auditors often do not have sufficient client-specific expertise to record
adjustments to the financial statements
b.
Having auditors adjust the financial statements would impair independence with
respect to the client.
c.
The financial statements are the responsibility of the client’s management.
d.
The client will ultimately suffer any losses related to misstated financial
statements
Question17
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Subsequent
events occur between which two dates?
Select
one:
a.
Date of the auditors’ report and audit report release date.
b.
Date of the financial statements and audit report release date.
c.
Date of the financial statements and date of the auditors’ report.
d.
Audit report release date and beginning of subsequent year’s audit.
Question18
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Which
of the following conditions or set of circumstances would not ordinarily
raise questions about the entity’s ability to continue as a going concern:
Select
one:
a.
Negative cash flow from operations for each of the last three years.
b.
Failure to meet forecasted earnings per share.
c.
Legal proceedings that may have a significant negative impact on the entity.
d.
Default on a loan due in the previous year.
Question19
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Long
and Short, CPAs, were auditing Island Corporation for the year ended December
31, 2012. On January 11, 2013, a major customer of Island Corporation declared
bankruptcy as the result of an uninsured loss due to a major fire in its
warehouse on January 8, 2013. As a result, a material accounts receivable from
the customer was determined to be uncollectible. Long and Short, CPAs, would expect
the client to
Select
one:
a.
Treat the loss as a subsequent event and provide a footnote about the loss in
the 2012 financial statements
b.
Treat the loss as a subsequent event and adjust the 2012 financial statements
to record the loss on uncollectible accounts
c.
File a lawsuit against the customer in hopes of collecting some of the money
owed to the client
d.
Record the loss on uncollectible accounts as a routine transaction in the year
2013
Question20
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The
_____________________________ paragraph of the auditors’ report on the entity’s
financial statements indicates that an audit has been conducted and identifies
the financial statements the auditors examined.
Introductory

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When
a scope limitation exists and the auditors have not been able to obtain
sufficient appropriate evidence on a particular account balance or disclosure,
the auditors must choose between a(n) _____________________________ opinion and
a(n) _____________________________ of opinion on the entity’s financial
statements.
qualified,
disclaimer of

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When
the auditors lack independence, a(n) ______________________________________
opinion is issued on the fairness of the entity’s financial statements.
disclaimer
of opinion
Question23
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The
scope paragraph of the standard report on the entity’s financial statements
does not include the statement
Select
one:
a.
“An audit also includes assessing the accounting principles used and
significant estimates made by management….”
b.
“Those standards require that we plan and perform the audit to obtain
reasonable assurance….”
c.
“In conformity with accounting principles generally accepted in the United
States of America….”
d.
“We believe that our audits provide a reasonable basis for an
opinion.”
Question24
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If
financial statements contain a material but nonpervasive departure from
generally accepted accounting principles, the auditors should render a(n)
Select
one:
a.
Disclaimer of opinion
b.
Adverse opinion with reference to departure.
c.
Qualified opinion with reference to departure.
d.
Adverse opinion with scope limitation reference.
Question25
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Auditors
will issue an adverse opinion when
Select
one:
a.
A qualified opinion cannot be rendered because the auditors lack independence.
b.
A severe scope limitation has been imposed by the entity.
c.
A violation of generally accepted accounting principles is sufficiently
material and pervasive that a qualified opinion is not justified.
d.
The entity’s ability to continue as a going concern is subject to substantial
doubt.
Question26
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When
auditors render an adverse opinion on the entity’s financial statements, the
Select
one:
a.
Auditors do not possess all necessary evidence.
b.
Departures do not need to be explained in the auditors’ report.
c.
Introductory and scope paragraph should not be modified.
d.
Auditors require less evidence to support the opinion.
Question27
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You
are an auditor on an engagement. You observe your client take a physical count
of their inventory. What is the primarily purpose of this audit procedure?
Select
one:
a.
Assist the client in taking test counts of year-end inventory.
b.
Determine whether inventory contains obsolete goods.
c.
Verify independently the physical counts obtained by the client.
d.
Test and observe the client’s physical count of inventory.
Question28
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You
are an auditor on an engagement. You select an inventory item on your client’s
warehouse floor, test count it, and trace the count to the final inventory
compilation. You are most likely testing the PCAOB assertion of __________
Select
one:
a.
Completeness
b.
Rights and Obligations
c.
Valuation
d.
Existence
Question29
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You
are an auditor on an engagement.
You
select a product maintained in the finished goods warehouse. You count the
product and compare this amount with the amount to the finished goods perpetual
inventory subsidiary account. Which ASB balance assertion are you most likely
testing?
Select
one:
a.
Existence
b.
Rights and Obligations
c.
Completeness
d.
Valuation
Question30
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Susan
is an auditor on an engagement.
Susan
would most likely make inquiries of production and sales personnel concerning
possible obsolete or slow-moving inventory to support management’s financial
statement (PCAOB) assertion of ______
Select
one:
a.
Existence or occurrence
b.
Rights and obligations
c.
Valuation or allocation
d.
Presentation and disclosure
Question31
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Susan
is an auditor on an engagement. Her client is a manufacture.
To
determine her client’s planned timing of production of a product, she will
review the ________
Select
one:
a.
Sales forecast
b.
Production plan
c.
Purchases journal
d.
Inventory reports
Question32
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You
are an auditor on an engagement.
The
risk that your own procedures will lead to the decision that material
misstatements do not exist in the financial statements when in fact such
misstatements do exist is _______ risk
a. Audit
risk
b. Inherent
risk
c.
Control risk
d.
Detection risk

Question33
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The
Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing
which of the following services to an audit client?
Select
one:
a.
All of these services are prohibited.
b.
Valuation services.
c.
Internal audit services.
d.
Bookkeeping services.
Question34
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The
Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from
Select
one:
a.
Auditing the firm’s own work on an audit client.
b.
Providing tax consulting to an audit client without audit committee approval.
c.
All of these activities are prohibited
d.
Acting in a managerial decision-making role for an audit client.
Question35
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The
likelihood that material misstatements may have entered the accounting system
and not been detected and corrected by the client’s internal control is
referred to as
Select
one:
a.
Risk of material misstatement.
b.
Inherent risk.
c.
Control risk.
d.
Detection risk.

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