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Wiley CPA Examination Review Outlines And Study Guides Volume 1 - 2012-2013 39th Edition Patrick R. Delaney, O. Ray Whittington - Solutions

When an examination has been performed on the effectiveness of entity’s internal control over financial reporting and a material weakness has been noted, the practitioner’s report should express an opinion ona. The assertion.b. The subject matter to which the assertion relates.c. Neither of the
When an independent auditor reports on internal control based on criteria established by governmental agencies, the report shoulda. Not include the agency’s name in the report.b. Indicate matters covered by the study and whether the auditor’s study included tests of controls with the procedures
In reporting on an entity’s internal control over financial reporting, a practitioner should include a paragraph that describes thea. Documentary evidence regarding the control environment factors.b. Changes in internal control since the prior report.c. Potential benefits from the
Walk-throughs ordinarily provide evidence that helps the auditor to Evaluate design effectiveness of controls Confirm whether controls have been placed in operationa. Yes Yesb. Yes Noc. No Yesd. No No C.7. Report on Internal Control
Which of the following is not included in a standard unqualified opinion on internal control over financial reporting performed under PCAOB requirements?a. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.b. In our opinion, [company
Which of the following is correct when applying a top-down approach to identify controls to test in an integrated audit?a. For certain assertions, strong entity-level controls may allow the auditor to omit additional testing beyond those controls.b. Starting at the top—controls over specific
In an integrated audit, which must the auditor communicate in writing to management?a. Only material weaknesses.b. Material weaknesses and significant deficiencies.c. Material weaknesses, significant deficiencies and other control deficiencies.d. Material weaknesses, significant deficiencies, other
Which is correct concerning the external auditors’ use of the work of others in an audit of internal control performed for a public company?a. It is not allowed.b. The work of internal auditors may be used, but only when those internal auditors report directly to the audit committee.c. Ordinarily
In which manner are significant deficiencies communicated by the auditors to the audit committee under Public Company Accounting Oversight Board Standard 5?a. The communication may either be orally or in written form.b. The communication must be oral, and not in written form.c. The communication
In an integrated audit, what must the auditor communicate to the audit committee?Known material weaknesses All control deficienciesa. Yes Yesb. Yes Noc. No Yesd. No No
In an integrated audit, which of the following lead(s) to an adverse opinion on internal control?Material weaknesses Significant deficienciesa. Yes Yesb. Yes Noc. No Yesd. No No
An auditor identified a material weakness in December.The client was informed and corrected it shortly after the “as of date” (December 31); the auditor agrees that the correction eliminates the material weakness as of January 31.The appropriate report under a PCAOB Standard 5 audit of internal
Which of the following is most likely to indicate a significant deficiency relating to a client’s antifraud programs?a. A broad scope of internal audit activities.b. A “whistle-blower” program that encourages anonymous submissions.c. Audit committee passivity when conducting oversight
Inability to evaluate internal control due to a circumstance-caused scope limitation relating to a significant account in a Sarbanes-Oxley 404 internal control audit is most likely to result in a(n)a. Adverse opinion.b. Qualified opinion.c. Unqualified opinion with explanatory language.d. All of
Which of the following is most likely to be considered a material weakness in internal control for purposes of an internal control audit of an issuer (public) company?a. An ineffective oversight of financial reporting by the audit committee.b. Restatement of previously issued financial statements
A control deficiency that is more than a significant deficiency is most likely to result in what form of audit opinion relating to internal control?a. Adverse.b. Qualified.c. Unqualified.d. Unqualified with explanatory language.
For purposes of an audit of internal control performed under Public Company Accounting Oversight Board requirements, an account is significant if there is more than aa. Reasonably possible likelihood that it could contain immaterial or material misstatements.b. Reasonably possible likelihood that
How large must the actual loss identified by the auditor be for a control deficiency to possibly be considered a material weakness?Immaterial Materiala. Yes Yesb. Yes Noc. No Yesd. No No
Which is most likely to be a question asked of employee personnel during a walk-through in an audit of the internal control of an issuer (public) company?a. Have you ever been asked to override the process?b. Do you believe that you are underpaid?c. What do you do when you find a fraudulent
For an issuer (public) company audit of internal control, walkthroughs provide the auditor with primary evidence to Evaluate the effectiveness of the design of controls Confirm whether controls have been placed in operationa. Yes Yesb. Yes Noc. No Yesd. No No
Consider an issuer (public) company whose purchases are made through the Internet and by telephone. Which of the following is correct?a. These types of purchases represent control objectives for the audit of internal control.b. These purchases are the assertions related to the purchase class of
For purposes of an audit of internal control performed under Public Company Accounting Oversight Board standards, the “as of date” is ordinarilya. The first day of the year.b. The last day of the fiscal period.c. The last day of the auditor’s fieldwork.d. The average date for the entire
A procedure that involves tracing a transaction from its origination through the company’s information systems until it is reflected in the company’s financial report is referred to as a(n)a. Analytical analysis.b. Substantive procedure.c. Test of a control.d. Walk-through.
How do the scope, procedures, and purpose of an examination of internal control compare to those for obtaining an understanding of internal control and assessing control risk as part of an audit?Scope Procedures Purposea. Similar Different Similarb. Different Similar Similarc. Different Different
According to Public Company Accounting Oversight Board Standard 5, what type of transaction involves establishing a loan loss reserve?a. Substantive transaction.b. Routine transaction.c. Nonroutine transaction.d. Estimation transaction.
Assume that a company has a control deficiency regarding the processing of cash receipts. Reconciliation of cash accounts by a competent individual otherwise independent of the cash function might make the likelihood of a significant misstatement due to the control deficiency remote. In this
The minimum likelihood of loss involved in the consideration of a control deficiency isa. Remote.b. More than remote.c. Probable.d. Not explicitly considered.C.4. Evaluating Internal Control
A material weakness is a significant deficiency (or combination of significant deficiencies) that results in a reasonable possibility that a misstatement of at least what amount will not be prevented or detected?a. An amount greater than zero.b. An amount greater than zero, but at least
In an integrated audit, which of the following is defined as a weakness in internal control that is less severe than a material weakness but important enough to warrant attention by those responsible for oversight of the financial reporting function?a. Control deficiency.b. Unusual weakness.c.
Which of the following is an accurate statement about internal control weaknesses?a. Material weaknesses are also control deficiencies.b. Significant deficiencies are also material weaknesses.c. Control deficiencies are also material weaknesses.d. All control deficiencies must be communicated to
Which of the following need not be included in management’s report on internal control under Section 404a of the Sarbanes-Oxley Act of 2002?a. A statement that the company’s auditor has issued an attestation report on management’s assertion.b. Identification of the framework for evaluating
Which of the following is correct concerning the level of assistance auditors may provide in assisting management with its assessment of internal control?a. No assistance of any type may be provided.b. No limitations on assistance exist.c. Only very limited assistance may be provided.d. As less
An engagement to examine internal control will generallya. Require procedures that duplicate those already applied in assessing control risk during a financial statement audit.b. Increase the reliability of the financial statements that have already been audited.c. Be more extensive in scope than
Which of the following best describes a CPA’s engagement to report on an entity’s internal control over financial reporting?a. An attestation engagement to form an opinion on the effectiveness of its internal control.b. An audit engagement to provide negative assurance on the entity’s
The framework most likely to be used by management in its internal control assessment under requirements of the Sarbanes-Oxley Act of 2002 is thea. COSO internal framework.b. COSO enterprise risk management framework.c. FASB 37 internal control definitional framework.d. AICPA internal control
The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States?a. All companies.b. SEC registrants.c. All issuer (public) companies and nonissuer (nonpublic)companies with more than $100,000,000 of net worth.d. All nonissuer companies.
Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain evidence in support of an assessed level of control risk below the maximum?a. Observing an entity’s employee prepare the schedule of past due accounts receivable.b. Sending confirmation
Which of the following is least likely to be evidence the auditor examines to determine whether controls are operating effectively?a. Records documenting usage of computer programs.b. Canceled supporting documents.c. Confirmations of accounts receivable.d. Signatures on authorization forms.
To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques includinga. Inquiry.b. Analytical procedures.c. Calculation.d. Confirmation.
Which of the following is not a step in an auditor’s assessment of control risk?a. Evaluate the effectiveness of internal control with tests of controls.b. Obtain an understanding of the entity’s information system and control environment.c. Perform tests of details of transactions to detect
Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed?a. Confirmations of receivables verifying account balances.b. Letters of representations corroborating inventory pricing.c. Attorneys’ responses to the auditor’s
In assessing control risk, an auditor ordinarily selects from a variety of techniques, includinga. Inquiry and analytical procedures.b. Reperformance and observation.c. Comparison and confirmation.d. Inspection and verification.
After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided thata. It would be efficient to perform tests of controls that would result in a reduction in planned substantive
The objective of tests of details of transactions performed as tests of controls is toa. Monitor the design and use of entity documents such as prenumbered shipping forms.b. Determine whether controls have been implemented.c. Detect material misstatements in the account balances of the financial
An auditor generally tests the segregation of duties related to inventory bya. Personal inquiry and observation.b. Test counts and cutoff procedures.c. Analytical procedures and invoice recomputation.d. Document inspection and reconciliation.
Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable assurance that controls are in use and operating effectively. This assurance is most likely obtained in part bya. Preparing flowcharts.b. Performing substantive tests.c. Analyzing tests of trends and
How frequently must an auditor test operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to rely in the current year?a. Monthly.b. Each audit.c. At least every second audit.d. At least every third audit.
Regardless of the assessed level of control risk, an auditor would perform somea. Tests of controls to determine the effectiveness of internal control policies.b. Analytical procedures to verify the design of internal control.c. Substantive tests to restrict detection risk for significant
Which of the following statements is correct concerning an auditor’s assessment of control risk?a. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity’s internal control.b. Evidence about the operation of internal control in prior
An auditor may compensate for a weakness in internal control by increasing thea. Level of detection risk.b. Extent of tests of controls.c. Preliminary judgment about audit risk.d. Extent of analytical procedures.
An auditor uses the knowledge provided by the understanding of internal control and the assessed level of the risk of material misstatement primarily toa. Determine whether procedures and records concerning the safeguarding of assets are reliable.b. Ascertain whether the opportunities to allow any
When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase thea. Extent of tests of controls.b. Level of detection risk.c. Extent of tests of details.d. Level of inherent risk.
An auditor assesses control risk because ita. Is relevant to the auditor’s understanding of the control environment.b. Provides assurance that the auditor’s materiality levels are appropriate.c. Indicates to the auditor where inherent risk may be the greatest.d. Affects the level of detection
Assessing control risk at a low level most likely would involvea. Performing more extensive substantive tests with larger sample sizes than originally planned.b. Reducing inherent risk for most of the assertions relevant to significant account balances.c. Changing the timing of substantive tests by
After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whethera. It would be efficient to obtain an understanding of the entity’s information system.b. The entity’s controls have been
Control risk should be assessed in terms ofa. Specific controls.b. Types of potential fraud.c. Financial statement assertions.d. Control environment factors.
Which of the following may not be required on a particular audit of a nonissuer (nonpublic) company?a. Risk assessment procedures.b. Tests of controls.c. Substantive procedures.d. Analytical procedures.
In obtaining an understanding of an entity’s internal control, an auditor is required to obtain knowledge about the Operating effectiveness of controls Design of controlsa. Yes Yesb. No Yesc. Yes Nod. No No B.2. Assess the Risk of Material Misstatement and Design Further Audit Procedures
Which of the following statements regarding auditor documentation of the client’s internal control is correct?a. Documentation must include flowcharts.b. Documentation must include procedural write-ups.c. No documentation is necessary although it is desirable.d. No one particular form of
A primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor witha. Knowledge necessary to assess the risks of material misstatements.b. Evidence to use in assessing inherent risk.c. A basis for modifying tests of controls.d. An evaluation of
During the consideration of internal control in a financial statement audit, an auditor is not obligated toa. Search for significant deficiencies in the operation of the internal control.b. Understand the internal control and the information system.c. Determine whether the control activities
Decision tables differ from program flowcharts in that decision tables emphasizea. Ease of manageability for complex programs.b. Logical relationships among conditions and actions.c. Cost benefit factors justifying the program.d. The sequence in which operations are performed.
When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance of controls rather than their form becausea. The controls may be operating effectively but may not be documented.b. Management may establish appropriate controls but not enforce
An auditor should obtain sufficient knowledge of an entity’s information system to understand thea. Safeguards used to limit access to computer facilities.b. Process used to prepare significant accounting estimates.c. Controls used to assure proper authorization of transactions.d. Controls used
In obtaining an understanding of an entity’s internal control relevant to audit planning, an auditor is required to obtain knowledge about thea. Design of the controls pertaining to internal control components.b. Effectiveness of controls that have been implemented.c. Consistency with which
In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is required toa. Document the auditor’s understanding of the entity’s internal control.b. Search for significant deficiencies in the operation of internal control.c. Perform tests of
Which statement is correct concerning the relevance of various types of controls to a financial audit?a. An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is taken.b. Controls over the reliability of financial reporting are ordinarily most directly
Which of the following procedures most likely would provide an auditor with evidence about whether an entity’s internal control activities are suitably designed to prevent or detect material misstatements?a. Reperforming the activities for a sample of transactions.b. Performing analytical
An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise.When vendors’ invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee
Which of the following is a provision of the Foreign Corrupt Practices Act?a. It is a criminal offense for an auditor to fail to detect and report a bribe paid by an American business entity to a foreign official for the purpose of obtaining business.b. The auditor’s detection of illegal acts
Which of the following is not a component of an entity’s internal control?a. Control risk.b. Control activities.c. Monitoring.d. Control environment.A.3. Related Topics
Which of the following factors are included in an entity’s control environment?Audit committee Integrity and ethical values Organizationala. Yes Yes Nob. Yes No Yesc. No Yes Yesd. Yes Yes Yes
Management philosophy and operating style most likely would have a significant influence on an entity’s control environment whena. The internal auditor reports directly to management.b. Management is dominated by one individual.c. Accurate management job descriptions delineate specific duties.d.
The overall attitude and awareness of an entity’s board of directors concerning the importance of internal control usually is reflected in itsa. Computer-based controls.b. System of segregation of duties.c. Control environment.d. Safeguards over access to assets.
An entity’s ongoing monitoring activities often includea. Periodic audits by the audit committee.b. Reviewing the purchasing function.c. The audit of the annual financial statements.d. Control risk assessment in conjunction with quarterly reviews.
Proper segregation of functional responsibilities calls for separation of the functions ofa. Authorization, execution, and payment.b. Authorization, recording, and custody.c. Custody, execution, and reporting.d. Authorization, payment, and recording.A.2. Major Components of Internal Control
When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes thata. Internal control may be ineffective due to mistakes in judgment and personal carelessness.b. Adequate safeguards over access to assets and records should permit an entity to
Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control?a. Incompatible duties.b. Management override.c. Mistakes in judgment.d. Collusion among employees.
Which of the following sets of standards does the Public Company Accounting Oversight Board not have the authority to establish for audits of public companies?a. Auditing standards.b. Quality control standards.c. Accounting standards.d. Independence standards.
Which of the following is correct concerning PCAOB guidance that uses the term “should”?a. The auditor must fulfill the responsibilities.b. The auditor must comply with requirements unless s/he demonstrates that alternative actions were sufficient to achieve the objectives of the standard.c.
One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards.Reasonable assurance of achieving this basic objective is provided througha. A system of quality control.b. A system of peer review.c. Continuing professional education.d. Compliance
Quality control for a CPA firm, as referred to in Statements on Quality Control Standards, applies toa. Auditing services only.b. Auditing and management advisory services.c. Auditing and tax services.d. Auditing and accounting and review services.
Which of the following is not an element of quality control?a. Acceptance and continuance of client relationships and specific engagements.b. Human resources.c. Internal control.d. Monitoring.
A CPA firm may communicate its quality control policies and procedures to its personnel in which manner(s):Orally Writtena. No Nob. No Yesc. Yes Nod. Yes Yes
The nature and extent of a CPA firm’s quality control policies and procedures depend on The CPA firm’s size The nature of the CPA firm’s practice Cost-benefit considerationsa. Yes Yes Yesb. Yes Yes Noc. Yes No Yesd. No Yes Yes
An examination of a financial forecast is a professional service that involvesa. Compiling or assembling a financial forecast that is based on management’s assumptions.b. Limiting the distribution of the accountant’s report to management and the board of directors.c. Assuming responsibility to
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s procedures should enable the
In an audit of a nonissuer (nonpublic) company, the auditors identify significant risks. These risks oftena. Involve routine, high-volume transactions.b. Do not require special audit attention.c. Involve items with lower levels of inherent risk.d. Involve judgmental matters.E. Quality Control
Which of the following is least likely to be considered a risk assessment procedure?a. Analytical procedures.b. Confirmation of ending accounts receivable.c. Inspection of documents.d. Observation of the performance of certain accounting procedures.
Which of the following are considered further audit procedures that may be designed after assessing the risks of material misstatement?Substantive tests of details Risk assessment proceduresa. Yes Yesb. Yes Noc. No Yesd. No No
While assessing the risks of material misstatement auditors identify risks, relate risk to what could go wrong, consider the magnitude of risks anda. Assess the risk of misstatements due to illegal acts.b. Consider the complexity of the transactions involved.c. Consider the likelihood that the
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether thea. Auditor’s system of quality control has been maintained at a high level.b. Results are consistent with the conclusions to be presented in the auditor’s
The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistantsa. That immaterial fraud is not to be reported to the client’s audit committee.b. How the results of various auditing procedures performed by the assistants should be evaluated.c. What
Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?a. Turnover of personnel in the accounting department.b. Objectivity of audit committee members.c. Square footage of selling space.d.
The objective of performing analytical procedures in planning an audit is to identify the existence ofa. Unusual transactions and events.b. Illegal acts that went undetected because of internal control weaknesses.c. Related-party transactions.d. Recorded transactions that were not properly
Analytical procedures used in planning an audit should focus ona. Reducing the scope of tests of controls and substantive tests.b. Providing assurance that potential material misstatements will be identified.c. Enhancing the auditor’s understanding of the client’s business.d. Assessing the
Which of the following procedures would an auditor most likely perform in planning a financial statement audit?a. Inquiring of the client’s legal counsel concerning pending litigation.b. Comparing the financial statements to anticipated results.c. Examining computer generated exception reports to
A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s Engagement letter Working papersa. Yes Yesb. Yes Noc. No Yesd. No No
In auditing the financial statements of Star Corp., Land discovered information leading Land to believe that Star’s prior year’s financial statements, which were audited by Tell, require substantial revisions. Under these circumstances, Land shoulda. Notify Star’s audit committee and
Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor’s working paper analyses relating to Contingencies Balance sheet accountsa. Yes Yesb. Yes Noc. No Yesd. No No

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