Audit (Final)

1-The AICPA's Code of Professional Conduct states that a CPA

should maintain integrity and objectivity. The term "objectivity" in
the Code refers to a CPA's ability to
A Choose independently C Maintain an impartial attitude
between alternate accounting on matters that come under the
principles and auditing CPA's review .
standards.
B Distinguish between D Be unyielding in all matters
accounting practices that are dealing with auditing
acceptable and those that are procedures
not.

2- The AICPA's Code of Professional Conduct requires CPAs to

maintain the confidentiality of client information. This rule would be
violated if a CPA disclose information without a client's consent as
a result of
A Request by a client's largest C Subpoena or summons .
stockholder.
B Peer review. D Complaint filed with the trial
board of the Institute.

3- Which one of the following statements is false?

A Information that a CPA obtains C Confidentiality is broken when
from a client is generally not an auditor is presented with a
privileged. subpoena concerning an audit
client.
B When a CPA firm conducts an D A CPA firm which observes
AICPA-authorized peer review substandard audit
of the quality controls of documentation of another firm
another CPA firm, permission during a peer review can
of the client is not needed to initiate a complaint to the
examine audit documentation AICPA.

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4- In which of the following circumstances would a CPA be ethically
bound to refrain from disclosing any confidential client
information?
A The CPA is issued a summons C An inquiry by a disciplinary
enforceable by a court order body of a state CPA society
which orders the CPA to requests confidential client
present confidential information information.
B The confidential client D A major stockholder of a client
information is made available company seeks accounting
as part of a quality review of information from the CPA after
the CPA's practice by a peer management declined to
review team authorized by the disclose the requested
AICPA information

5-Which of the following few arrangements is not a violation of the

AICPA's Code of Professional Conduct?
A Basing fees as an expert C Basing consulting fees on a
witness on the amount percentage of a bond issue,
awarded to the plaintiff, even even though the CPA performs
though the CPA performs a a review of the client's financial
compilation for client use statements
B Basing fees for a tax service D Basing consulting fees on a
on the amount of the refund percentage of a bond issue,
that the client will receive even though the CPA performs
an audit of the client's financial
statements

6- Which of the following activities is allowed for a CPA firm's

attestation clients?
A Contingent fees fixed by a C Commission for referring a
court review client to an insurance
agency for insurance coverage
B Preparation of tax returns for D Each of the above is allowed
which fees are based upon
client refunds

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7- An examination of part of an organisation's procedures and
methods for the purpose of evaluating efficiency and effectiveness
is what type of audit?
A Operational audit C Compliance audit
B Financial statement audit D Production audit

8- ACPA performs bookkeeping services for client and then

performs an audit of those financial statements. This is an example
of a _____ threat.
A Familiarity C Self-interest
B Self-review D Management participation

9- Interpretations of the rules of conduct

A Are issued as exposure drafts C Are finalized after being
to the profession and others for approved by the FASB.
comments.
B Are enforceable. D Do not apply to members in
business.

10 - When a member observes the profession's technical and

ethical standards and strives to continually improve her
competence and quality of services, she si exercising
A Due care C Integrity
B Independence D Objectivity

11- Due to a shortage of personnel, the client asks a member firm to

assist with the authorization of accounting transactions. This is an
example of which type of threat to compliance with the rules under
the AICPA Code of Professional Conduct?
A Self-interest C Management participation
B Self-review D Undue influence

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12 - An example of an "indirect financial interest in a client" would
be
A Ownership of less than 10% of C An ownership of less than 10%
the client's stock by the of the client's stock by a staff
covered members spouse. member who is not involved in
the audit.
B The covered member’s D All of the above are examples
ownership of a mutual fund of an indirect financial interest
that has an investment in the in a client
client.

13- When determining whether independence si impaired because

of an ownership interest in a client company, materiality will affect,
ownership
A Only for indirect ownership. C In all circumstances.
B Only for direct ownership. D Under no circumstances

14-A direct financial interest (violates independence in which of the

following circumstances?
A When close relatives such as C When close relatives such as
nondependent children, nondependent children,
brothers, and sisters have a brothers, and sisters have any
significant financial interest in financial interest in the client
the client
B When the CPA owns shares in D When close relatives such as a
a mutual fund that has an brother, sister, or in-laws are
ownership interest in the client employed by the client in the
engineering department

15 -Julie and Lisa are sisters. Julie si aCPA auditing the company
where Lisa works. Julie's independence is impaired if
A Lisa is the controller C Lisa owns 2% of the company
B Lisa is the marketing manager D All of the above

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16-An auditor's independence is considered impaired if the auditor
has
A An immaterial, indirect financial C An outstanding $8,000 balance
interest in a client on a credit card issued by a
client
B An automobile loan from a D A joint, closely held business
client bank, collateralized by investment with the client that
the automobile is material to the auditor’s net
worth

17- Which of the following loans would be prohibited between a

CPA firm or its members and an audit client?
A Unpaid credit card balances C Loans fully collateralized by
not exceeding $10,000 in total cash deposits at the same
financial institution
B New home mortgage loans D Automobile loan

18- Which of the following instances would impair a CPA's

independence when they have been retained as the auditor?
I. A charitable organisation where the CPA serves as treasurer
Il. A municipality where the CPA owns $250,000 of the $25 milion
outstanding bonds of the municipality
III. A Company that the CPA's investment club owns a 10%
investment interest
A I and II C I and III

B II and III D I,II,and III

19- The auditor's responsibility section of the standard unmodified

opinion audit report states that the auditsi designed to
A Discover all errors and/or C Obtain reasonable assurance
irregularities. whether the statements are
free of material misstatement.
B Conform to generally accepted D Discover material errors and/or
accounting principles irregularities

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20- Auditors usually make the materiality judgement by referring to
a standard checklist.
A True B False

21- If the scope restriction imposed by the client si os material that

the overall fairness of the financial statements si ni question, the
auditor should issue a(n)
A Standard unmodified opinion C Modified/ qualified
B Disclaimer of opinion D Adverse opinion

22- For departures from GAAP or scope restrictions, the auditor

must decide fi the potential effect on the financial statements is
A Immaterial C Material
B Highly material D Any of the above

23- After the auditor determines whether any conditions exist which
require a departure from a standard unmodified opinion audit
report, the next step in the decision process is to
A Write the report C Decide the materiality for each
condition
B Discuss the report with D Decide the appropriate type of
management report for the condition

24- When there is a justified departure from/GAAP which is

considered materia), the auditor should issue a(n)
A Standard unmodified opinion C Disclaimer of opinion
B Unmodified opinion with an D Adverse opinion
explanatory paragraph

25- When a qualified opinion is issued, an explanatory paragraph is

added immediately after the opinion paragraph to explain the
nature of hte qualification, that affects the opinion
A True B False

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26- A lack of independence will override any other scope limitations
and requires a disclaimer of opinion.
A True B False

27- Financial statement users are typically more concerned with an

unmodified report with explanatory paragraphs than they are with a
disclaimer of opinion.
A True B False

28- After the balance sheet date but prior to issuance of the
auditor's report the auditor learns that the client's facility in a
foreign country has been expropriated. Management refuses to
disclose this information in a financial statement footnote or
present pro- forma data as to the effect of the event. The auditor
should
A Add a footnote to the financial C Disclaim an opinion due to the
statements. client imposed scope limitation
B Provide the information in the D Issue an unqualified opinion
report and modify the opinion but provide the information in
the auditor report

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29- Subsequent to the close of ABC company fiscal year ending
December 31, 2021, a major debtor has declared bankruptcy due to
a series of events.The Receivable is significantly material in
relation to the financial statements, and recovery is doubtful. The
debtor had confirmed the full amount due to ABC company at the
balance sheet date. Because the account was confirmed at the
balance sheet date, ABC refuses to disclose any information in
relation to this subsequent event. The CPA believes that all other
accounts were stated fairly at the balance sheet date. In addition,
ABC changed their method of inventory valuation from FIFO to
LIFO. This change was disclosed in Note X to the financial
statements. Accordingly, what type of opinion should be
expressed?
A Unqualified with an explanatory C Qualified due to a GAAP
paragraph departure
B Qualified due to a scope D A combination of B and C
limitation

30- When dealing with materiality and scope limitation conditions,

A A unqualified opinion may still C It is easier to evaluate the
be issued depending on the materiality of potential
materiality of the scope misstatements resulting from a
limitation scope limitation than for failure
to follow GAAP
B A disclaimer of opinion must be D Scope limitation imposed by
issued the client are always
considered material

31- When the client fails to include information that is necessary for
the fair presentation of financial statements in the body of the
statements or ni the footnotes,
A It is the auditor’s responsibility C The qualification is put in an
to present the information in added paragraph preceding
the audit report the opinion
B The auditor should issue a D All of the above
qualified or an adverse opinion

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32- It is typically more difficult to evaluate the materiality of
potential misstatements resulting from a scope limitation than for
failure to follow GAAP.
A True B False

33- As misstatements become more pervasive, the likelihood of

issuing a disclaimer rather than a qualified opinion incréases.
A True B False

34- Management has recorded prepaid insurance as an asset in the

previous year. This year, to reduce record-keeping costs, it
expenses insurance. If the amount is immaterial to the financial
statements,
A A disclaimer opinion is issued C A standard unmodified opinion
audit report is issued
B A qualified opinion is issued D No audit report can be issued

35- Which of the following is a correct statement regarding

materiality?
A There are well-defined C Misstatements must be
guidelines that enable auditors compared with some
to determine if something is benchmark before a decision
material can be made about the
materiality level of the failure of
a company to follow GAAP
B Pervasiveness is not D To evaluate overall materiality,
considered when comparing the auditor does not combine
potential misstatements with a all unadjusted misstatements
base or ben9

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36- When a client fails to follow GAAP, the audit report can be
unmodified, qualified,or adverse depending on the materiality. What
factors affect materiality that an auditor should consider?
A All the above are factors an C The dollar amount in
auditor should consider comparison to a base
regarding materiality
B If the misstatement can be D The nature of the item
measured

37- The dollar amount of some misstatements cannot be accurately

measured. For example, if the client were unwilling to disclose an
existing lawsuit, the auditor must estimate the likely effect on
A Net income C Users of the financial
statements
B The auditor’s exposure to D Management's future decisions
lawsuit

38- When comparing misstatements with a measurement base, the

auditor must consider the pervasiveness of the misstatement. Of
the following examples, the most pervasive misstatement is a(n)
A Understatement of inventory C Understatement of retained
earnings caused by a
miscalculation of dividends
payable
B Misclassification of notes D Misclassification of salary
payable as a long-term liability expense as a selling expense
when it should be current

39- An auditor should issue a qualified opinion with an explanatory

paragraph whenever there is a material uncertainty affecting the
financial statements.
A True B False

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40- Client imposed restrictions on the audit always require a
disclaimer of opinion.
A True B False

41- When an auditor discovers a highly material GAAP violation in

the financial statements and the client refuses to correct it, the
auditor should issue a disclaimer of opinion.
A True B False

42- Whenever an auditor issues a qualified report, he or she must

use the term "except for " in the opinion paragraph.
A True B False

43- When there is a lack of consistent application of GAAP due to a

new accounting pronouncement,no explanatory paragraph is
required.
A True B False

44- The unmodified opinion audit report with emphasis-of-matter

paragraph does not meet the criteria of a complete audit with
satisfactory results.
A True B False

45- When an auditor relies upon a different CPA firm to perform part
of the audit and chooses to issue a shared opinion, only the
auditor's responsibility paragraph should be modified.
A True B False

46- Changes in reporting entities, such as the inclusion of an

additional company in combined financial statements, affect
comparability but not consistency, and therefore do not require an
explanatory paragraph in the audit report.
A True B False

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47- Changes in an estimate, such as a change in the estimated
useful life of an asset for depreciation purposes, affect consistency
but not comparability , and therefore require an explanatory
paragraph in the audit report.
A True B False

48- After An auditor will issue a disclaimer when he concludes that

the financial statements are not fairly presented.
A True B False

49- What category of audit report will be issued if the auditor

concludes that the financial statements are not fairly presented?
A Disclaimer C Adverse
B Qualified D Standard unmodified opinion

50- Which of the following can be used as a criteria for evaluating

information being audited?
A International Financial C Generally Accepted
Reporting Standards (IFRS) Accounting Principles (GAAP)
B Internal Revenue Code (IRC) D All of the above

51- Which of the following best describes why an independent

auditor is asked to express an opinion on the fair presentation of
financial statements?
A It is difficult to prepare financial C It is management's
statements that fairly present a responsibility to seek available
company's financial position, independent aid in the
operations, and cash flows appraisal of the financial
without the expertise of an information shown in its
independent auditor financial statements
B The opinion of an independent D It is a customary courtesy that
party is needed because a all stockholders of a company
company may not be objective receive an independent report
with respect to its own financial on management's stewardship

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 statements of the affairs of the business

52- Assume you are the partner in charge of the 2021 audit of XYZ
Corporation, a private company. The audit report has not yet been
prepared. Indicate the appropriate action to be taken if XYZ
Corporation carries its property, plant, and equipment accounts at
current market values. Current market values exceed historical cost
by a highly material amount, and the effects are pervasive
throughout the financial statements.
A Issue an adverse opinion C Issue a qualified opinion audit
report
B Issue an unmodified opinion D Issue an unqualified opinion
with an explanatory paragraph but provide the information in
the auditor report

53- XYZ management refuses to allow you to observe, romake, any

counts of inventory. The recorded book value of inventory si highly
material.
A Issue an adverse opinion C Issue a qualified opinion audit
report
B Issue an unmodified opinion D Disclaimer an opinion
with an explanatory paragraph

54- Assume you are the partner in charge of the 2021 audit of XYZ
Corporation, a private company. The audit report has not yet been
prepared. Indicate the appropriate action to be taken if Ten days
after the balance sheet date, one of XYZs' buildings was destroyed
by fire. XYZ refuses to disclose this information in a footnote to the
financial statements, but you believe disclosure is required to
conform with GAAP. The amount of the uninsured loss was
material, but not highly material.
A Issue an adverse opinion C Issue a qualified opinion audit
report
B Issue an unmodified opinion D Disclaimer an opinion
with an explanatory paragraph

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55- Which one of the following is not considered when choosing to
use CAATs in auditing:
A The IT knowledge, expertise C Cost benefit analysis
and experience of the audit
team
B Effectiveness and efficiency D Time constraints

56- Utility software includes programmes available in system

programmes for performing debugging or analysis of various
aspects of usage/access. These programmes are generally not
designed for audit purposes but can be used for performing
specific tests.
A True B False

57- CAATs can be categorised ni many forms, which of the

following is not considered as CAATs:
A Generalized audit software C Specific purpose audit software
B Specialized audit software D Utility software

58- Effectiveness and efficiency of audit procedures may be

improved through the use of CAATs. Which of the following
auditing procedures CAATs are not intended to do:
A Tests of details of transactions C Sampling programs to extract
and balances data for audit testing
B Analytical procedures D Choosing audit report type

59- The main disadvantage of auditing through computer is the

high costs sometimes involved and the need for extensive
technical expertise when systems are complex.
A True B False

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60- 'Hands-on testing' is the term used to describe the situation
where the programmer tests out, on the computer, programmes
which he is writing and developing.
A True B False

61- Interpretations to the Rules of Conduct permit a CPA firm to do

both bookkeeping and auditing for the same private company client
if three criteria are met. Which of the following is not one of those
criteria?
A The client must accept full C The client is required to file an
responsibility for the financial annual report, including
statements audited financial statements,
with the Securities and
Exchange Commission
B The CPA must not assume the D The CPA must follow
role of employee or of manager applicable auditing standards

62- Which of the following circumstances impairs an auditor's

independence?
I. Litigation by a client against an audit firm claiming a deficiency in
the previous audit
Il. Litigation by a client against an audit firm related to tax services
III. Litigation by an audit firm against a client claiming management
fraud or deceit
A I and II C I and III
B I,II, and III D II and III

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63- Under the rules and interpretations of the AICPA Code,
A A CPA can be a client C Staff auditors should always
advocate during an audit, but defer to the judgement of their
not while performing tax or immediate supervisor
management services
B A conflict of interest is a D Even if a conflict of interest is
relationship that might interfere disclosed to the member's
with objectivity or integrity client or employer, it is still
considered a violation of the
rules of conduct

64- Several months after an unqualified audit report was issued, hte
auditor discovers the financial statements were materially
misstated. The client's CEO agrees that there are misstatements,
but refuses to correct them. She claims that "confidentiality"
prevents the CPA from informing anyone. Which of the following
statements is correct?
A The CEO is incorrect, and the C The CEO is correct, but to be
auditor has an obligation to ethically correct, the auditor
issue a revised audit report should violate the
even if the CEO will not correct confidentiality rule and disclose
the financial statements the error
B The CEO is correct and the D The CEO is incorrect, but since
auditor must maintain the audit report has been
confidentiality issued, it is too late to correct
the report

65- A public company may obtain internal audit services from their
financial statement auditor if it is approved by the company's audit
committee.
A True B False

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