ACCT 4503 Midterm Questions With Complete Solutions
According to the SEC, an auditor is not independent of its issuer
audit client in which of the following situations? Correct
Answers The auditor has an investment in an entity that has the
ability to exercise significant influence over the audit client.
After testing a client's internal control activities, an auditor
discovers a number of significant deficiencies in the operation of
a client's internal controls. Under these circumstances, the
auditor most likely would Correct Answers Increase the
assessment of control risk and increase the extent of substantive
tests.
All of the following are audit quality control requirements
contained in the Sarbanes-Oxley Act of 2002 except Correct
Answers The audit report must be submitted to the Public
Company Accounting Oversight Board prior to issuance.
An audit of the financial statements of Camden Corporation is
being conducted by an external auditor. The external auditor is
expected to Correct Answers Express an opinion as to the
fairness of Camden's financial statements.
An auditor assesses the risks of material misstatement because
they Correct Answers Affect the level of detection risk that the
auditor may accept.
An auditor has determined a materiality threshold of $100,000
for a client. The auditor has accumulated audit evidence that
supports an allowance for credit losses in the range of $1.5
, million to $1.8 million. The client recorded $800,000 as the
allowance for credit losses and declines to record any additional
allowance. What proposed adjustment will the auditor include in
the summary of unadjusted differences? Correct Answers Debit
credit loss expense $700,000; credit allowance for credit losses
$700,000.
An auditor observes the mailing of monthly statements to a
client's customers and reviews evidence of follow-up on errors
reported by the customers. This test of controls most likely is
performed to support management's financial statement
assertion(s) of Correct Answers Classification and
Understandability- No
Existence- Yes
An auditor's independence is most likely considered impaired if
the auditor has Correct Answers A joint, closely held business
investment with the client that is material to the auditor's net
worth.
An initial public offering of TWD's stock is planned for late
Year 7. Correct Answers Increase
As the acceptable level of detection risk decreases, an auditor
may change the Correct Answers Nature of substantive
procedures from a less effective to a more effective procedure.
Audit plans should be designed so that Correct Answers The
audit evidence gathered supports the auditor's conclusions.
According to the SEC, an auditor is not independent of its issuer
audit client in which of the following situations? Correct
Answers The auditor has an investment in an entity that has the
ability to exercise significant influence over the audit client.
After testing a client's internal control activities, an auditor
discovers a number of significant deficiencies in the operation of
a client's internal controls. Under these circumstances, the
auditor most likely would Correct Answers Increase the
assessment of control risk and increase the extent of substantive
tests.
All of the following are audit quality control requirements
contained in the Sarbanes-Oxley Act of 2002 except Correct
Answers The audit report must be submitted to the Public
Company Accounting Oversight Board prior to issuance.
An audit of the financial statements of Camden Corporation is
being conducted by an external auditor. The external auditor is
expected to Correct Answers Express an opinion as to the
fairness of Camden's financial statements.
An auditor assesses the risks of material misstatement because
they Correct Answers Affect the level of detection risk that the
auditor may accept.
An auditor has determined a materiality threshold of $100,000
for a client. The auditor has accumulated audit evidence that
supports an allowance for credit losses in the range of $1.5
, million to $1.8 million. The client recorded $800,000 as the
allowance for credit losses and declines to record any additional
allowance. What proposed adjustment will the auditor include in
the summary of unadjusted differences? Correct Answers Debit
credit loss expense $700,000; credit allowance for credit losses
$700,000.
An auditor observes the mailing of monthly statements to a
client's customers and reviews evidence of follow-up on errors
reported by the customers. This test of controls most likely is
performed to support management's financial statement
assertion(s) of Correct Answers Classification and
Understandability- No
Existence- Yes
An auditor's independence is most likely considered impaired if
the auditor has Correct Answers A joint, closely held business
investment with the client that is material to the auditor's net
worth.
An initial public offering of TWD's stock is planned for late
Year 7. Correct Answers Increase
As the acceptable level of detection risk decreases, an auditor
may change the Correct Answers Nature of substantive
procedures from a less effective to a more effective procedure.
Audit plans should be designed so that Correct Answers The
audit evidence gathered supports the auditor's conclusions.
