Gleim’s CPA Test Prep Auditing
GLEIM’S CPA TEST PREP AUDITING COMPLETE 100 QUESTIONS
AND CORRECT DETAILED ANSWERS (VERIFIED ANSWERS)
|ALREADY GRADED A+
Auditing standards require auditors to make certain inquiries of management regarding fraud.
Which of the following inquiries is required?
A. Whether management has ever intentionally violated the securities laws
B. Whether management has any knowledge of fraud that has been perpetrated on or within
the entity
C. Management's attitudes toward regulatory authorities
D. Management's attitude about hiring ethical employees. - ANSWER-B. Whether management
has any knowledge of fraud that has been perpetrated on or within the entity
Which of the following is an example of fraudulent financial reporting?
A. Company management falsifies inventory count tags, thereby overstating ending inventory
and understating cost of sales.
B. An employee diverts customer payments to his personal use, concealing his actions by
debiting an expense account, thus overstating expenses.
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods sold.
D. An employee borrows small tools from the company and neglects to return them; the cost is
reported as a miscellaneous operating expense. - ANSWER-A. Company management falsifies
inventory count tags, thereby overstating ending inventory and understating cost of sales.
Which of the following is correct concerning required auditor communications about fraud?
A. Fraud that involves senior management should be reported directly by the auditor to the
audit committee regardless of the amount involved.
B. Fraud with a material effect on the financial statements should be reported directly by the
auditor to the Securities and Exchange Commission.
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods sold.
1|Page
, Gleim’s CPA Test Prep Auditing
D. An employee borrows small tools from the company and neglects to return them; the cost is
reported as a miscellaneous operating expense. - ANSWER-A. Fraud that involves senior
management should be reported directly by the auditor to the audit committee regardless of
the amount involved.
Which of the following procedures would an auditor most likely rely on to verify management's
assertion of completeness?
A. Reviewing standard bank confirmations for indications of cash manipulations
B. Comparing a sample of shipping documents to related sales invoices
C. Observing a client's distribution of payroll checks
D. Confirming a sample of recorded receivables by direct communication with the debtors -
ANSWER-B. Comparing a sample of shipping documents to related sales invoices
In testing the existence assertion for an asset, an auditor ordinarily works from the
A. Financial statements to the potentially unrecorded items
B. Potentially unrecorded items to the financial statements
C. Accounting records to the supporting documents
D. Supporting documents to the account records - ANSWER-C. Accounting records to the
supporting documents
Which of the following statements concerning audit evidence is correct?
A. To be appropriate, audit evidence should be either persuasive or relevant, but need not be
both.
B. The measure of the reliability of audit evidence lies in the auditor's judgment.
C. The difficulty and expense of obtaining audit evidence concerning an account balance is a
valid basis for omitting the test.
D. A client's general ledger may be sufficient audit evidence to support the financial statements.
- ANSWER-B. The measure of the reliability of audit evidence lies in the auditor's judgment.
2|Page
, Gleim’s CPA Test Prep Auditing
Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries of the client's internal accounting staff.
B. Inspection of prenumbered client purchase orders filed in the vouchers payable department.
C. Observation of procedures performed by the client's personnel on the entity's trial balance.
D. Inspection of bank statements obtained directly from the client's financial institution. -
ANSWER-D. Inspection of bank statements obtained directly from the client's financial
institution.
Which of the following types of audit evidence is the least reliable?
A. Prenumbered purchase order forms prepared by the client.
B. Bank statements obtained from the client.
C. Test counts of inventory performed by the auditor
D. Correspondence from the client's attorney about litigation. - ANSWER-A. Prenumbered
purchase order forms prepared by the client.
Audit evidence can come in different forms with different degrees of reliability. Which of the
following is the most persuasive type of evidence?
A. Bank statements obtained from the client.
B. Computations made by the auditor.
C. Prenumbered client sales invoices.
D. Vendors' invoices included in the client's files. - ANSWER-B. Computations made by the
auditor.
An auditor would be least likely to use confirmations in connection with the examination of
A. Inventory held in a third-party warehouse.
B. Refundable income taxes.
C. Long-term debt.
3|Page
, Gleim’s CPA Test Prep Auditing
D. Stockholders' equity. - ANSWER-B. Refundable income taxes.
The assurance bucket is filled with all of the following types of evidence except
A. Test of controls
B. The audit report
C. Substantive analytical procedures
D. Test of details - ANSWER-B. The audit report
The primary objective of final analytical procedures is to
A. Obtain evidence from details tested to corroborate particular assertions.
B. Identify areas that represent specific risks relevant to the audit.
C. Assist the auditor in assessing the validity of the conclusions reached.
D. Satisfy doubts when questions arise about a client's ability to continue in existence. -
ANSWER-C. Assist the auditor in assessing the validity of the conclusions reached.
The substantive analytical procedure known as trend analysis is best described by
A. The comparison, across time or to a benchmark, of relationships between financial statement
accounts or between an account and nonfinancial data.
B. Development of a model to forma n expectation using financial data, nonfinancial data, or
both to test account balances or changes in account balances between accounting periods.
C. The examination of changes in an account over time.
D. The comparison of common-size financial statements over time. - ANSWER-C. The
examination of changes in an account over time.
The current file of the auditor's working papers should generally include
A. A flowchart of the accounting system
B. Organization charts
4|Page
GLEIM’S CPA TEST PREP AUDITING COMPLETE 100 QUESTIONS
AND CORRECT DETAILED ANSWERS (VERIFIED ANSWERS)
|ALREADY GRADED A+
Auditing standards require auditors to make certain inquiries of management regarding fraud.
Which of the following inquiries is required?
A. Whether management has ever intentionally violated the securities laws
B. Whether management has any knowledge of fraud that has been perpetrated on or within
the entity
C. Management's attitudes toward regulatory authorities
D. Management's attitude about hiring ethical employees. - ANSWER-B. Whether management
has any knowledge of fraud that has been perpetrated on or within the entity
Which of the following is an example of fraudulent financial reporting?
A. Company management falsifies inventory count tags, thereby overstating ending inventory
and understating cost of sales.
B. An employee diverts customer payments to his personal use, concealing his actions by
debiting an expense account, thus overstating expenses.
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods sold.
D. An employee borrows small tools from the company and neglects to return them; the cost is
reported as a miscellaneous operating expense. - ANSWER-A. Company management falsifies
inventory count tags, thereby overstating ending inventory and understating cost of sales.
Which of the following is correct concerning required auditor communications about fraud?
A. Fraud that involves senior management should be reported directly by the auditor to the
audit committee regardless of the amount involved.
B. Fraud with a material effect on the financial statements should be reported directly by the
auditor to the Securities and Exchange Commission.
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods sold.
1|Page
, Gleim’s CPA Test Prep Auditing
D. An employee borrows small tools from the company and neglects to return them; the cost is
reported as a miscellaneous operating expense. - ANSWER-A. Fraud that involves senior
management should be reported directly by the auditor to the audit committee regardless of
the amount involved.
Which of the following procedures would an auditor most likely rely on to verify management's
assertion of completeness?
A. Reviewing standard bank confirmations for indications of cash manipulations
B. Comparing a sample of shipping documents to related sales invoices
C. Observing a client's distribution of payroll checks
D. Confirming a sample of recorded receivables by direct communication with the debtors -
ANSWER-B. Comparing a sample of shipping documents to related sales invoices
In testing the existence assertion for an asset, an auditor ordinarily works from the
A. Financial statements to the potentially unrecorded items
B. Potentially unrecorded items to the financial statements
C. Accounting records to the supporting documents
D. Supporting documents to the account records - ANSWER-C. Accounting records to the
supporting documents
Which of the following statements concerning audit evidence is correct?
A. To be appropriate, audit evidence should be either persuasive or relevant, but need not be
both.
B. The measure of the reliability of audit evidence lies in the auditor's judgment.
C. The difficulty and expense of obtaining audit evidence concerning an account balance is a
valid basis for omitting the test.
D. A client's general ledger may be sufficient audit evidence to support the financial statements.
- ANSWER-B. The measure of the reliability of audit evidence lies in the auditor's judgment.
2|Page
, Gleim’s CPA Test Prep Auditing
Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries of the client's internal accounting staff.
B. Inspection of prenumbered client purchase orders filed in the vouchers payable department.
C. Observation of procedures performed by the client's personnel on the entity's trial balance.
D. Inspection of bank statements obtained directly from the client's financial institution. -
ANSWER-D. Inspection of bank statements obtained directly from the client's financial
institution.
Which of the following types of audit evidence is the least reliable?
A. Prenumbered purchase order forms prepared by the client.
B. Bank statements obtained from the client.
C. Test counts of inventory performed by the auditor
D. Correspondence from the client's attorney about litigation. - ANSWER-A. Prenumbered
purchase order forms prepared by the client.
Audit evidence can come in different forms with different degrees of reliability. Which of the
following is the most persuasive type of evidence?
A. Bank statements obtained from the client.
B. Computations made by the auditor.
C. Prenumbered client sales invoices.
D. Vendors' invoices included in the client's files. - ANSWER-B. Computations made by the
auditor.
An auditor would be least likely to use confirmations in connection with the examination of
A. Inventory held in a third-party warehouse.
B. Refundable income taxes.
C. Long-term debt.
3|Page
, Gleim’s CPA Test Prep Auditing
D. Stockholders' equity. - ANSWER-B. Refundable income taxes.
The assurance bucket is filled with all of the following types of evidence except
A. Test of controls
B. The audit report
C. Substantive analytical procedures
D. Test of details - ANSWER-B. The audit report
The primary objective of final analytical procedures is to
A. Obtain evidence from details tested to corroborate particular assertions.
B. Identify areas that represent specific risks relevant to the audit.
C. Assist the auditor in assessing the validity of the conclusions reached.
D. Satisfy doubts when questions arise about a client's ability to continue in existence. -
ANSWER-C. Assist the auditor in assessing the validity of the conclusions reached.
The substantive analytical procedure known as trend analysis is best described by
A. The comparison, across time or to a benchmark, of relationships between financial statement
accounts or between an account and nonfinancial data.
B. Development of a model to forma n expectation using financial data, nonfinancial data, or
both to test account balances or changes in account balances between accounting periods.
C. The examination of changes in an account over time.
D. The comparison of common-size financial statements over time. - ANSWER-C. The
examination of changes in an account over time.
The current file of the auditor's working papers should generally include
A. A flowchart of the accounting system
B. Organization charts
4|Page
