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Question 1. 1.
The Securities Exchange Commission (SEC) has oversight authority over the
PCAOB. Which of the following is not within the SEC’s oversight
authority?

The SEC approves the PCAOB’s rules

The members of the PCAOB are appointed by the SEC

The SEC approves the PCAOB’s budget

The SEC determines which audit firms will be inspected by the PCAOB

Question 2. 2.
Before the creation of the PCAOB, the auditing standards of the Auditing
Standards Board were used to audit all companies. Which statement best
describes the PCAOB and auditing standards?

In 2003, the PCAOB adopted certain auditing standards of the ASB as interim
standards

In 2003, the PCAOB developed over 100 new auditing standards

In 2003, the PCAOB developed audit standards to audit all companies,
private and public

In 2003, the PCAOB adopted all the standards of the AICPA to save time in
the development of new standards

Question 3. 3.Corresponds
to CLO 1(c)
Which of the following is correct about the PCAOB?

The PCAOB receives its authority from the SEC

Auditing standards issued by the PCAOB must be approved by the SEC

Anyone who wants to purchase stock on a U.S. stock exchange must follow the
rules of the SEC

All audit firms performing audits of public companies are registered with
and agree to comply with the auditing procedures established by the PCAOB

Question 4. 4. Corresponds
to CLO 1(d)
Which of the following is correct about the PCAOB? (Points : 6)

The PCAOB receives its authority from the SEC

Auditing standards issued by the PCAOB must be approved by the U.S.
Congress

Anyone who wants to purchase stock on a U.S. stock exchange must follow the
rules of the SEC

All audit firms performing audits of public companies are registered with
and agree to comply with the auditing standards established by the PCAOB

Question 5. 5.Corresponds
to CLO 2(a)
When management presents the financial statements to the auditor,
management makes several assertions about the financial statements. Which
of the following is not one of these assertions?

residence

valuation and allocation

accuracy

classification

Question 6. 6.Corresponds
to CLO 2(b)
When management presents the financial statements to the auditor,
management makes several assertions about the financial statements. Which
of the following is not one of these assertions?

existence or occurrence

valuation and allocation

accuracy

categorization

Question 7. 7.Corresponds
to CLO 2(c)
Which of the following are assertions about the revenue process?

existence or occurrence – for both classes of transactions and account
balances

completeness – account balances

valuation and allocation – for account balances

rights and obligations – for classes of transactions and account balances

accuracy – for classes of transactions and account balances

both A and C

both B and D

Question 8. 8.Corresponds
to CLO 2(d)
Which of the following are assertions about the revenue process? )

existence or occurrence – for both classes of transactions and account
balances

completeness – for both classes of transactions and account balances

valuation and allocation – for classes of transactions and account balances

rights and obligations – for classes of transactions and account balances

accuracy – for classes of transactions and account balances

both A and B

both C and D

both D and E

Question 9. 9.Corresponds
to CLO 3(a)
In planning the audit, the auditor makes decisions about the size of
misstatements that will be considered material. These decisions allow the
auditor to

determine the nature, timing, and extent of inherent risk assessment
procedures

identify and assess the risk of misstatement

determine the nature, timing, and extent of audit procedures

establish an amount below which misstatements will always be evaluated as
immaterial

C and D

Question 10. 10.Corresponds
to CLO 3(b)
In planning the audit, the auditor makes decisions about the size of
misstatements that will be considered material. These decisions allow the
auditor to

determine the nature, timing, and extent of inherent risk assessment
procedures

identify and assess the risk of material misstatement

determine the nature, timing, and extent of internal control procedures

establish an amount below which misstatements will always be evaluated as
immaterial

Question 11. 11.Corresponds
to CLO 3(c)
In the planning process, the auditor assesses the risk that misstatements
have occurred in the financial statements. The source of misstatements
includes (

inaccuracies in gathering or processing data used to audit the financial
statements

the use of auditing standards that may be unreasonable or inappropriate

differences between the amount or classification of a financial statement
item and what should have been reported under generally accepted auditing
standards

omissions of financial statement explanations

financial statement disclosures that are not in accordance with generally
accepted accounting principles

Question 12. 12.Corresponds
to CLO 3(d)
In the planning process, the auditor assesses the risk that misstatements
have occurred in the financial statements. The source of misstatements
includes ()

the use of auditing standards that the auditor may consider unreasonable or
inappropriate

inaccuracies in gathering or processing data used to audit the financial
statements

differences between the amount or classification of a financial statement
item and what should have been reported under generally accepted accounting
principles

omissions of financial statement explanations

financial statement disclosures that are not in accordance with generally
accepted auditing standards

Question 13. 13.Corresponds
to CLO 4 (a)
Which of the following is a correct statement about internal controls? ()

The internal control function in a company is a process designed by
management and others charged with governance to provide reasonable
assurance that the financial statements are prepared in accordance with the
COSO financial reporting framework.

Management develops internal controls to prevent or detect misstatements in
the financial statements.

The auditor reviews the internal controls developed by management to assess
whether the internal controls are effective in detecting misstatements.

The auditing standards define internal controls over financial statements
as processes designed by management and others charged with governance to
provide assurance that company responsibilities are met.

Question 14. 14.Corresponds
to CLO 4 (b)
The internal control deficiencies identified in a financial statement
audit may be reported in which of the following ways? (

Significant deficiencies are reported in a management letter.

Material weaknesses are verbally reported to the audit committee.

Deficiencies that fail to reach the level of significant deficiencies or
material weaknesses are reported in a management letter.

Significant deficiencies and material weaknesses may be verbally reported
to both management and the audit committee.

Question 15. 15.A
significant deficiency is: ()

a control deficiency or a combination of control deficiencies that
adversely affects the company’s ability to initiate, authorize, record,
process, or report internal financial data reliably in accordance with an
applicable financial reporting framework

a control deficiency or a combination of control deficiencies that
adversely affects the company’s ability to initiate, authorize, record,
process, or report external financial data reliably in accordance with an
applicable financial reporting framework

a control deficiency or combination of control deficiencies that result in
more than a remote likelihood that a material misstatement in the financial
statements would not be prevented or detected

a control deficiency or combination of control deficiencies that results in
a remote likelihood that a material misstatement in the financial
statements would not be prevented or detected

Question 16. 16.Corresponds
to CLO 4 (d)
The auditor must communicate in writing all significant deficiencies and
material weaknesses to management and the audit committee. The written
communication from the auditor should include:

a definition of a significant deficiency and a material weakness

a statement that the objective of the audit is to report on the financial
statements and to provide assurance on internal controls

a statement that the communication is intended solely for the use of
stockholders, the board of directors, the audit committee, and management

a statement that there is no such thing as absolute assurance

Question 17. 17.Corresponds
to CLO 5 (a)
In the revenue business process, the auditor might perform the following
analytical procedures:

Compare sales revenue, accounts receivable, sales returns and allowance,
bad debt expense, and allowance for uncollectible accounts for the current
year to the prior year. Investigate changes from the auditor’s expectations
that appear to be unreasonable.

Compare sales revenue, accounts payable, sales returns and allowance, bad
debt expense, and allowance for uncollectible accounts for the current year
to the prior year. Investigate changes from the auditor’s expectations that
appear to be unreasonable.

Calculate the accounts receivable turnover ratio and the number of days
outstanding in accounts receivable for the current and prior years.
Investigate a change from the auditor’s expectations if it appears to be
unreasonable.

Calculate the accounts receivable turnover ratio and the number of days
outstanding in accounts payable for the current and prior years.
Investigate a change from the auditor’s expectations if it appears to be
unreasonable.

Consider the number of vendor accounts for the current year and the prior
year and new accounts added and lost in each year.

both A and C

both B and E

Question 18. 18.Corresponds
to CLO 5 (b)
For an auditor to make the decision about whether a change noted in
analytical procedures is unreasonable he needs

knowledge of the client’s industry

knowledge of current political conditions

knowledge of prior economic conditions

an understanding of the client’s competitors

an understanding of the business under audit

both A and E

both B and C

Question 19. 19.Corresponds
to CLO 5 (c)
In sales cut-off testing, the auditor uses the inspection procedure of
vouching and tracing to gather evidence about which assertion(s)?

existence and occurrence

accuracy

valuation or allocation

completeness

presentation and disclosure

both A and B

both A and D

Question 20. 20.Corresponds
to CLO 5 (d)
The auditing standards presume that the auditor will request confirmation
of the accounts receivable balances unless

the balance in accounts receivable is immaterial

the use of confirmations would be effective if the amounts were significant

the auditor can reduce the risk of issuing an audit opinion to an
acceptable low level without confirming accounts receivable

the client believes that confirmations are not necessary

Question 21. 21.Corresponds
to CLO 6 (a)
The auditor’s responsibility for fraud detection is to:

plan the audit so sufficient appropriate evidence is gathered to determine
whether the auditor has reasonable assurance that the financial statements
are free of material misstatement from fraud or error

plan the audit so sufficient appropriate evidence is gathered to determine
whether the financial statements are free of misstatement

plan the audit so sufficient appropriate evidence is gathered to determine
whether the financial statements are free of material misstatement from
fraud or error

plan the audit so sufficient evidence is gathered to determine whether the
financial statements are free of misstatement

Question 22. 22.Corresponds
to CLO 6 (b)
Three conditions are present in a company when fraud occurs. They are )

revenge, opportunity, and rationalization

pressure, revenge, and rationalization

pressure, opportunity, and rationalization

pressure, opportunity, and revenge

Question 23. 23.Corresponds
to CLO 6(c)
The condition, opportunity to commit fraud, is present when)

An individual believes that he is underpaid

An individual believes that the company has plenty of money

An individual believes that the company does not deal with customers fairly

An individual believes that internal controls can be overridden

Question 24. 24.Corresponds
to CLO 6 (d)
Management can override controls by )

suggesting fictitious journal entries (particularly at year end)

inappropriately changing assumptions and methods used to estimate account
balances

omitting, advancing, or delaying modification of events that occurred
during the reporting period

failing to disclose facts that could affect the amounts recorded in the
financial statements

engaging in complex transactions designed to represent the financial
condition of the company

both A and C

both B and D

both C and E

Question 25. 25.Corresponds
to CLO 7 (a)
Substantive audit tests for the acquisition and expenditure process are

inspection of computer logs

internal controls

questioning

inquiry

recalculation of the assessed risk

Question 26. 26.Corresponds
to CLO 7 (b)
In the acquisition and expenditure process, the auditor might perform the
following analytical procedures

Compare accounts payable, accrued liabilities, cost of goods sold, and the
balance in all the expense accounts for the current year to the prior year.
Investigate changes from the auditor’s expectations that appear to be
unreasonable.

Calculate the vendor margin percentage for the current and prior years.
Investigate any changes from the auditor’s expectations that appear to be
unreasonable.

Consider the number of vendor accounts for the current year and the prior
year and the new vendors added or lost in each year.

Compare accounts payable, accrued liabilities, cost of goods available for
sale, and the balance in all the expense accounts for the current year to
the prior year. Investigate changes from the auditor’s expectations that
appear to be unreasonable.

Calculate the merchandize inventory percentage for the current and prior
years. Investigate any changes from the auditor’s expectations that appear
to be unreasonable.

both A and C

both B and D

Question 27. 27.The
auditor uses substantive tests of transactions to gather evidence for

balance sheet transactions in a business process

income statement transactions in a business process

income statement accounts in a business process

policies and procedures in a business process

Question 28. 28.Corresponds
to CLO 7 (d)
An effective way to identify liabilities that were unrecorded at year-end
is)

reviewing liabilities recorded after year-end

reviewing journal entries after year-end

reviewing account closings after year-end

reviewing the bills paid after year-end

Question 29. 29.Corresponds
to CLO 8 (a)
In the inventory process, the auditor might perform the following analytical
procedures

Compare inventory balances by category – raw material, work-in-process, and
finished goods – for the current year with the prior year.

Compare inventory purchases by category – raw material, work-in-process,
and finished goods – for the current year with the prior year.

Compute material margin with the current year with the prior year.
Investigate any unexpected changes in the ratio.

Compute cost of goods sold with the current year with the prior year.
Investigate any unexpected changes in the ratio.

Compute inventory turnover. Compare the current year’s turnover to the
prior year. Investigate any differences.

both A and C

both B and D

both A and E

Question 30. 30.Corresponds
to CLO 8 (b)
IT technology related to inventory can be very useful in maintaining
accurate records for inventory balances if

the internal controls for the technology are effectively designed to
prevent or detect misstatements of purchases

the internal controls for the technology are effectively designed to
prevent or detect misstatements in the financial statements

the internal controls for the technology are effectively designed to
prevent or detect misstatements of inventory

the internal controls for the technology are effectively designed to
prevent or detect misstatements of costs of goods sold

Question 31. 31.Corresponds
to CLO 8 (c)
The transactions audited in the inventory process include

determining the correct quality of the inventory

internal controls relevant to transactions

pricing the inventory according to accounting standards

internal controls relevant to balances

valuing the year-end inventory transactions

Question 32. 32.Corresponds
to CLO 8 (d)
Substantive audit procedures in the inventory process are

inspection of records, documents, or tangible assets

monitoring

inquiry

risk assessment

reviewing policies and procedures

both A and C

both B and D

both D and E

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