Multiple Choice Questions

| September 29, 2018

Corresponds to CLO 7 (b)The auditor issues a qualified opinion whenthe auditor has sufficient appropriate audit evidence and concludes that the misstatements to the financial statements are material, but not pervasivethe auditor is unable to obtain sufficient appropriate evidence, but the auditor concludes that the possible effects of the misstatement could be both material and pervasivethe auditor is unable to obtain sufficient appropriate evidence, but the auditor concludes that the possible effects of the misstatement could be material, but not pervasivethe auditor has reasonable evidence to determine that the financial statements are not free from material misstatementthe auditor has sufficient evidence to determine that the financial statements are not free from material misstatementboth A and Cboth B and Eboth D and EQuestion 2Corresponds to CLO 2(c)The population for a substantive test of details consists ofall events in the accounts or class of transactionsall material items in the accounts or class of transactionsall material events in the accounts or class of transactionsall items in the accounts at the end of the yearall transactions in the class of transactions for the entire yearboth A and Bboth C and Dboth D and EQuestion 3Corresponds to CLO 9 (d) Which of the following is a defense that an auditor might use to defend himself against client lawsuits?lack of dutynon-negligent connectionlack of damagescontributory negligenceabsence of causal performanceboth A and Dboth B and Eboth C and EQuestion 4Corresponds to CLO 9 (a) Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?responsibilityreliabilityrelevanceproficiencydue careboth A and Eboth B and Cboth D and EQuestion 5Corresponds to CLO 4 (b)Which of the following are management assertions about the accounts in long-term debt and owner’s equity process?existence or occurrence – for both classes of transactions and account balancescompleteness – for classes of transactionsvaluation and allocation – for account balancesrights and obligations – for both classes of transactions and account balancesaccuracy – for account balancesboth A and Cboth C and Eboth D and EQuestion 6Corresponds to CLO 7 (d) When the auditor issues a qualified or adverse opinion, the auditorchanges the description of the auditor’s procedures to state that the auditor believes that the audit evidence the auditor obtained is sufficient and appropriate to provide a basis for the auditor’s modified opinionchanges the description of the auditor’s responsibility to state that the auditor believes that the audit evidence the auditor obtained is sufficient and appropriate to provide a basis for the auditor’s modified opinionchanges only the opinion paragraph and adds a modification paragraphchanges the opinion and introductory paragraphsQuestion 7Corresponds to CLO 7 (d)When the auditor issues an adverse opinion, the auditor should state in the opinion paragraph, thatin the auditor’s opinion, because of the significance of the matter described in the basis for adverse opinion paragraph, the financial statements are not presented fairly in accordance with the applicable reporting frameworkbecause of the significance of the matter described in the basis for adverse opinion paragraph, the auditor has not been able to obtain sufficient appropriate evidence to provide a basis for an audit opinion, and accordingly, the auditor does not express an opinion on the financial statementsexcept for the effects of the matter described in the basis for modification paragraph, the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting frameworkthe financial statements are presented fairly, in all material respects, in accordance with the applicable reporting frameworkQuestion 8 Corresponds to CLO 1(d) When controls “work”the auditor increases the amount of substantive testingthe auditor reduces the amount of substantive testingthe auditor increases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statementsthe auditor decreases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statementsthe auditor reduces the amount of substantive testing over what would have been done if the control had not been effective in preventing or detecting misstatements in the financial statementsQuestion 9Corresponds to CLO 4 (d)The auditor uses substantive tests of transactions in the long-term debt and owner’s equity business process totest the reliability of transactions during the yeartest the reliability of balances at the end of the yeartest the recording of balances at the end of the yeartest the recording of transactions during the yearQuestion 10Corresponds to CLO 5 (d)From the auditor’s point of view, the problem with related party transactions is thatrelated party transactions may not have oversight in accordance with the applicable reporting frameworkrelated party transactions may not have been classified in accordance with the applicable reporting frameworkrelated party transactions may not have been occurred in accordance with the applicable reporting frameworkrelated party transactions may not have been recorded in accordance with the applicable reporting frameworkQuestion 11Corresponds to CLO 5 (c)The requirements for Type I and Type II subsequent events areType I events are disclosed in the financial statementsType II events are disclosed in the financial statementsneither Type I nor Type II events are recorded in the financial statementsType II events are recorded in the financial statementsType I events are recorded in the financial statementsboth A and Bboth B and Eboth C and DQuestion 12Corresponds to CLO 5 (c)Normally, the auditor’s work does not extend into the following year. However, the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events requiredisclosure in the financial records for the year under auditadjustment to the financial statements under auditdisclosure in the prior financial statementsadjustment to the financial records for the year under auditdisclosure in the financial statements under auditboth A and Bboth B and Eboth C and DQuestion 13Corresponds to CLO 5 (b)When a contingent liability exists, the likelihood for loss can be evaluated as probable, reasonably possible, or remote. A remote loss isa loss where the chance of occurrence is slighta loss that is likely to occura loss where the chance of occurrence is moderatefalls between the chance of occurrence is slight and a loss is likely to occurQuestion 14Corresponds to CLO 8 (d) The auditor must evaluate whether the financial statements are consistent with the requirements of the applicable financial reporting framework for which of the following items?the financial statements adequately disclose the significant accounting policies usedthe accounting policies selected are consistent with management’s policiesthe accounting estimates made by management are reasonablethe information presented in the accounting records is relevant, reliable, comparable, and understandablethe financial forecasts made by management are accurateboth A and Cboth C and Eboth D and EQuestion 15Corresponds to CLO 6 (c)Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?net liability positionspositive operating cash flowsability to pay creditors on due dateschange from cash-on-delivery to credit transactions with suppliersloss of key management without replacementboth A and Eboth B and Cboth D and EQuestion 16Corresponds to CLO 6 (d)The auditing standards have listed several circumstances that might cause quantitatively immaterial misstatements to be judged material. These includemisstatements that change income into a lossthe effect of the misstatement on loan covenants, contractual agreements and regulatory provisionsthe existence of statutory or regulatory reporting requirements that might have an impact on materiality levelsmisstatements that have the effect of increasing management’s compensationthe effect of misclassifying income between operating and nonrecurringboth A and Bboth C and Dboth D and EQuestion 17Corresponds to CLO 1 (b)When an auditor uses sampling for tests of controls to gather evidence, he or she applies which of the following internal control procedures to the sample?reperformancerecalculationconfirmationreconciliationsphysical controls that limit access to assetsQuestion 18 Corresponds to CLO 9 (c) The auditor faces legal liability from which of the following sources?audit clientssecond party liability under common lawcivil liability under the federal banking lawscriminal liabilitycivil liability under state securities lawsboth A and Dboth B and Eboth C and DQuestion 19Corresponds to CLO 8 (c) The report on the effectiveness of internal control over financial reporting for companies filing reports with the SEC in the U.S. must include which of the following elements?a statement that management is responsible for maintaining effective internal control over financial reporting and for assessing the effectiveness of the internal controla statement that the auditor is responsible for expressing an opinion on the effectiveness of internal control over financial reporting based on management’s representationsa statement that the audit was conducted in accordance with the standards of the American Institute of Certified Public Accountantsa statement that the standards of the PCAOB require that the auditor plan and perform the audit to obtain reasonable assurance about the effectiveness of internal controls over the financial reporting processa statement that the auditor certifies the audit provides a reasonable basis for his opinionboth A and Dboth B and Cboth D and EQuestion 20Corresponds to CLO 1(d) Which of the following internal control procedures are tested by sampling?segregation of dutiesauthorization proceduresdocumented transaction trailsindependent recalculationsphysical controls that limit access to assetsboth A and Cboth B and Cboth D and EQuestion 21Corresponds to CLO 4 (c)In the long-term debt and owner’s equity process, the auditor might perform which of the following analytical proceduresCompare the balances in the following accounts for the current year to the prior year: long-term debt, interest expense, capital stock, additional paid in capital, and retained earningsCalculate the debt to equity ratio for the current year and prior yearsCalculate the current ratio for the current year and prior yearsCompare the transactions in the following accounts for the current year to the prior year: long-term debt, interest expense, capital stock, additional paid in capital, and retained earningsCompare the balances in the following accounts for the current year to the prior year: long-term debt, accrued interest expense, accounts payable, capital stock, paid in capital, and retained earningsboth A and Bboth C and Eboth D and EQuestion 22Corresponds to CLO 1(a)A random sample for tests of controls is a samplethat is representative of the populationlarge enough to reduce sampling error to an acceptable levelthat includes a monetary amount in the item selectedthat will be subject to the internal control system of the clientwhere every item in the population has an equal chance of selectionboth A and Cboth A and Eboth B and DQuestion 23Corresponds to CLO 2(b)Which of the following is a statistical audit sampling technique that the auditor may decide to use?judgmental samplinghaphazard samplingmonetary unit samplingclassical variables samplingnon random number samplingboth A and Cboth B and Eboth C and DQuestion 24Corresponds to CLO 5 (a)If the auditor does not assess a risk of material misstatement related to a potential contingent liability,he is required to contact the external counsel for the audit client and request additional informationhe is required to contact the internal counsel for the audit clienthe is not required to contact the external counsel for the audit clienthe is not required to contact the internal counsel for the audit client and request additional informationQuestion 25Corresponds to CLO 9 a) Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?reliabilitythe public interestrelevanceproficiencydue careboth A and Dboth B and Eboth C and EQuestion 26Corresponds to CLO 6 (a)If the management representation letter is not obtained,issue the audit report and request that management send the letter as soon as possibleissue the report with an adverse opinionissue the report with an “except for” opinionthe audit evidence should not be considered completeQuestion 27Corresponds to CLO 2(c)The auditor must define the sampling unit in a way that isconsistent with the assertion being testedconsistent with the account balance being testedconsistent with the transaction being testedconsistent with the population being testedQuestion 28Corresponds to CLO 5 (a)The auditor is provided with the evidence needed to determine whether the contingent liability should be recorded, disclosed or ignored fromattorneys hired by the auditorattorneys hired by the claimantprofessional judgmentattorneys hired by the clientQuestion 29Corresponds to CLO 1(a)Auditing sampling is:the selection of a sample of items from a population so that the auditor expects the sample and evaluation to be representative of the population.the selection and evaluation of a sample of items from an account so that the auditor expects the sample to be representative of the account.the selection and evaluation of a sample of items from a population so that the auditor expects the sample to be representative of the population.the selection and observation of a sample of items from a population so that the auditor expects the sample to be representative of the population.Question 30Corresponds to CLO 3(b)Which of the following are management assertions about the accounts in cash and investment process?existence or occurrence – for classes of transactionscompleteness – for both classes of transactions and account balancesvaluation and allocation – for both classes of transactions and account balancesrights and obligations – for both classes of transactions and account balancesaccuracy – for both classes of transactions and account balancesQuestion 31Corresponds to CLO 3(c)Management asserts thatthe company has the right to the income of cash and investmentsall balances related to the investment account have been accurately recordedall cash and investment transactions that should be presented in the financial statements are includedtransactions related to the investment process have been recordedthe investment accounts are valued correctly according to the rules of the applicable financial reporting framework at year-endboth A and Bboth C and Eboth D and EQuestion 32Corresponds to CLO 8 (a) The auditor must evaluate whether the financial statements are consistent with the requirements of the applicable financial reporting framework and must also considerthe overall presentation, structure, and content of the financial statementsthe accounting policies selected are consistent with management’s policiesthe accounting estimates made by management are predictablewhether the financial statements, including the footnotes, represent the underlying transactions in a manner that achieves fair presentationthe financial forecasts made by management are accurateboth A and Dboth B and Cboth D and EQuestion 33Corresponds to CLO 8 (c) The report on the effectiveness of internal control over financial reporting for companies filing reports with the SEC in the U.S. must include which of the following elements?a statement that management is responsible for maintaining effective internal control over financial reporting and the auditor is responsible for assessing the effectiveness of the internal controla statement that the auditor is responsible for expressing an opinion on the effectiveness of internal control over financial reporting based on management’s representationsa statement that the audit was conducted in accordance with the standards of the Public Companies Accounting Oversight Board (United States)a statement that the standards of the AICPA require that the auditor plan and perform the audit to obtain reasonable assurance about the effectiveness of internal controls over the financial reporting processa statement that the auditor believes the audit provides a reasonable basis for his opinionboth A and Bboth C and Eboth D and EQuestion 34Corresponds to CLO 2(a)Sampling methods for substantive samples includeskip random samplingorganized samplingsimple non random samplingsystematic random samplinghaphazard samplingboth A and Cboth B and Cboth D and EQuestion 35Corresponds to CLO 3(c) Management asserts thatthe company has the right to the assets of cash and investmentsall balances related to the investment account have been accurately recordedall cash and investment transactions that should be presented in the financial statements are relevanttransactions related to the investment process have been properly classifiedthe investment accounts are reliable according to the rules of the applicable financial reporting framework at year-endboth A and Dboth B and Cboth D and EQuestion 36Corresponds to CLO 2(a)Sampling methods for substantive samples includeskip random samplingorganized samplingsimple random samplingsystematic non random samplinghaphazard samplingboth A and Bboth C and Eboth D and E

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