ACTG 677 MIDTERM 2025/26 EXAM
QUESTIONS WITH COMPLETE SOLUTIONS.
1 of 95
a
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An accountant has been engaged to compile pro forma financial statements.
During the accountant's acceptance procedures, it is discovered that the
accountant is not independent with respect to the company. What action
should the accountant take with regard to the compilation?
A) The accountant should discuss the lack of independence with legal counsel to
determine whether it is appropriate to accept the engagement
B)The accountant should withdraw from the engagement
,C) The accountant should disclose the lack of independence in the accountant's
compilation report
D)The accountant should compile the pro forma financial statements but
should not provide a compilation report
Which of the following sample planning factors would influence the sample size
for a substantive test of details for a specific account?
a) Neither expected amount of misstatements nor measure of
tolerable misstatement
b) Measure of tolerable misstatement but not expected amount of misstatements
c) Expected amount of misstatements but not measure of tolerable misstatement
d) Both expected amount of misstatements and measure of
tolerable misstatement
Which of the following statements about audit sampling risks is correct for a
nonissuer?
a) Sampling risk includes the possibility of selecting audit procedures that
are not appropriate to achieve the specific objective
b) Nonsampling risk can arise because an auditor failed to recognize
misstatements
c) Nonsampling risk arises from the possibility that, when a substantive test is
restricted to a sample, conclusions might be different than if the auditor has
tested each item in the population.
d) Sampling risk is derived from the uncertainty in applying audit procedures
to specific risks
, Which of the following is required documentation in an audit, in
accordance with generally accepted auditing standards?
A) An audit program setting forth in detail the procedures necessary to
accomplish the engagement's objectives
b) A letter signed by the client acknowledging responsibility for preparing
requested audit scheduled by specific due dates
C) An internal control questionnaire identifying policies and procedures
that assure specific objectives will be achieved
D)A flowchart or narrative of the accounting system describing
the recording and classification of transactions for financial
reporting
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2 of 95
Definition
B
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Which of the following is an example of a validity check?
A) The computer ensures that a numerical amount in a record does not
exceed some predetermined amount
B)After data for a transaction are entered, the computer sends certain data
back to the terminal for comparison with data originally sent
C) As the computer corrects errors and data are successfully resubmitted to
the system, the causes of the errors are printed out
D)The computer flags any transmission for which the control field value did
not match that of an existing file record
, When an auditor tests a computerized accounting system, which of the following
is true of the test data approach?
A) Test data must consist of all possible valid and invalid conditions
B) Several transactions of each type must be tested
C) Test data are processed by the client's computer programs under the
auditor's control
D)The program tested is different from the program used throughout the year
by the client
Which of the following is required of an accountant in reviewing a
company's financial statements under Statements on Standards for
Accounting and Review Services (SSARS)?
A) Observe client's physical inventory
B) Obtain knowledge of the client's industry
C) Assess the operating effectiveness of the entity's internal control
over financial reporting
D) Send bank confirmations
Which of the following of statements is correct regarding a review of a nonpublic
entity's financial statements in accordance with Statements on Standards for
Accounting and Review Services (SSARS)?
A) The accountant must be independent to issue the review report
B)The accountant is required to assess the risk of fraud
C) It is not necessary for the accountant to obtain a management
representation letter
D) An opinion is expressed in the review report
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3 of 95
Definition
c
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QUESTIONS WITH COMPLETE SOLUTIONS.
1 of 95
a
Give this one a try later!
An accountant has been engaged to compile pro forma financial statements.
During the accountant's acceptance procedures, it is discovered that the
accountant is not independent with respect to the company. What action
should the accountant take with regard to the compilation?
A) The accountant should discuss the lack of independence with legal counsel to
determine whether it is appropriate to accept the engagement
B)The accountant should withdraw from the engagement
,C) The accountant should disclose the lack of independence in the accountant's
compilation report
D)The accountant should compile the pro forma financial statements but
should not provide a compilation report
Which of the following sample planning factors would influence the sample size
for a substantive test of details for a specific account?
a) Neither expected amount of misstatements nor measure of
tolerable misstatement
b) Measure of tolerable misstatement but not expected amount of misstatements
c) Expected amount of misstatements but not measure of tolerable misstatement
d) Both expected amount of misstatements and measure of
tolerable misstatement
Which of the following statements about audit sampling risks is correct for a
nonissuer?
a) Sampling risk includes the possibility of selecting audit procedures that
are not appropriate to achieve the specific objective
b) Nonsampling risk can arise because an auditor failed to recognize
misstatements
c) Nonsampling risk arises from the possibility that, when a substantive test is
restricted to a sample, conclusions might be different than if the auditor has
tested each item in the population.
d) Sampling risk is derived from the uncertainty in applying audit procedures
to specific risks
, Which of the following is required documentation in an audit, in
accordance with generally accepted auditing standards?
A) An audit program setting forth in detail the procedures necessary to
accomplish the engagement's objectives
b) A letter signed by the client acknowledging responsibility for preparing
requested audit scheduled by specific due dates
C) An internal control questionnaire identifying policies and procedures
that assure specific objectives will be achieved
D)A flowchart or narrative of the accounting system describing
the recording and classification of transactions for financial
reporting
Don't know?
2 of 95
Definition
B
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Which of the following is an example of a validity check?
A) The computer ensures that a numerical amount in a record does not
exceed some predetermined amount
B)After data for a transaction are entered, the computer sends certain data
back to the terminal for comparison with data originally sent
C) As the computer corrects errors and data are successfully resubmitted to
the system, the causes of the errors are printed out
D)The computer flags any transmission for which the control field value did
not match that of an existing file record
, When an auditor tests a computerized accounting system, which of the following
is true of the test data approach?
A) Test data must consist of all possible valid and invalid conditions
B) Several transactions of each type must be tested
C) Test data are processed by the client's computer programs under the
auditor's control
D)The program tested is different from the program used throughout the year
by the client
Which of the following is required of an accountant in reviewing a
company's financial statements under Statements on Standards for
Accounting and Review Services (SSARS)?
A) Observe client's physical inventory
B) Obtain knowledge of the client's industry
C) Assess the operating effectiveness of the entity's internal control
over financial reporting
D) Send bank confirmations
Which of the following of statements is correct regarding a review of a nonpublic
entity's financial statements in accordance with Statements on Standards for
Accounting and Review Services (SSARS)?
A) The accountant must be independent to issue the review report
B)The accountant is required to assess the risk of fraud
C) It is not necessary for the accountant to obtain a management
representation letter
D) An opinion is expressed in the review report
Don't know?
3 of 95
Definition
c
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