Accounting 405 Exam Questions And Answers (Verified And Updated)

Accounting 405 Exam Questions And Answers (Verified And Updated) Which of the following best describes the purpose of control activities? - answerthe policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives In performing tests concerning the granting of stock options, an auditor should: - answerTrace the authorization for the transaction to a vote of the board of directors. An auditor who wished to test for the existence or occurrence of inventory would most likely select a sample of inventory items from the perpetual records and - answervouch additions to receiving reports. If acceptable audit risk is low, and inherent risk and control risk are both low, then planned detection risk should be high. - answerTrue In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for - answerCompleteness Report on the need for the states to consider reporting requirements for chemical use data. - answeroperational audit; governmental auditor Once the auditor detects a control deficiency, which of the following steps must he or she take first? - answerEvaluate the severity of the deficiency on the auditor's control risk assessment for that assertion. Which of the following actions should a CPA firm take to comply with the AICPA's quality control standards? - answerEstablish policies to ensure that the audit work meets applicable professional standards Which of the following circumstances would most likely cause an audit team to perform extended procedures? - answerThe client made several large adjustments at or near year end Periodic sales total compared to same period accounts receivable postings - answerUse the same sales dollar batch totals for comparison to separate total of accounts receivable subsidiary postings, if available. Recorded investments represent investments actually owned at the balance-sheet date. - answerRights and Obligations Obtain positive confirmations as of the balance sheet date of investments held by independent custodians An audit team would most likely verify the interest earned on bond investments by - answerRecomputing the interest earned on the basis of face amount, interest rate, and period held. While performing their audit, the audit team uncovers fraud that is likely to have an immaterial affect on the financial statements taken as whole. In this case the auditors should: - answerdisclose the fraud to the appropriate level of management or to the audit committee. For the following audit procedure, identify the management assertion most usefully audited by using each procedure. - answerExistence or Occurrence Valuation Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next: - answerDetermine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. Ask the accounts payable clerk about procedures for verifying prices, quantities and extensions on vendors' invoices. - answerInjury Valuation or Accuracy Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgment; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned. - answerHuman Resources Which of the following substantive procedures would auditors be unlikely perform to obtain evidence about the occurrence of subsequent events? - answerRecompute a sample of large- dollar transactions occurring after the date of the financial statements for arithmetic accuracy. Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted. Confirm bank accounts established after the date of the financial statements. The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards. - answerFalse Control: Is there a timekeeping department (function) independent of the payroll department? - answerPreventive Control Before a cash disbursement can be processed, a voucher package must be submitted to the accounts payable department. - answerControl activities In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified? - answerTest the computation of standard overhead rates. For each of the following instances of noncompliance, explain why they are either: Direct-effect (D) or indirect-effect (I) noncompliance. - answerIndirect-effect Which of the following statements relating to the competence of evidential matter is always true? - answerEvidence must be both reliable and relevant to be considered appropriate. Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations? - answerThe client requests alternative procedures be performed instead. In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion? - answerConditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed. The primary purpose for obtaining an understanding of a nonpublic audit client's internal control is to - answerDetermine the nature, timing, and extent of further audit tests to be performed. After considering management's plans, an auditor concludes that there is substantial doubt about a client's ability to continue as a going concern for a reasonable period of time. The auditor's responsibility includes - answerconsidering the adequacy of disclosure about the client's possible inability to continue as a going concern. Scan the accounts receivable file at year-end for indications of material receivables at both fixed and variable prices. Determine whether any adjustments for interest revenue and or transportation fee reimbursement are needed. Would the audit procedure described above be effective in detecting potentially unrecorded liabilities? - answerNo 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 destroys the invoices and the related vouchers. In gathering evidence