1. Which of the following should not normally be included in the engagement letter for an audit?

A. B. C. D.

A description of the limitations of an audit.. A listing of the clients branch offices selected for testing. A description of the responsibilities of client personnel to provide assistance. An indication of the amount of the audit fee.

2. Which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement?

A. B. C. D.

Analysis of income statement accounts. Analysis of balance sheet accounts. Facts that might bear on the integrity of management. All matters of continuing accounting significance.

3. The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as

A. B. C. D.

Detection risk. Engagement risk. Business risk. Control risk.

4. Which of the following best describes what is meant by the term fraud risk factor?

A. B. C. D.

Factors that, when present, indicate that risk exists. Factors often observed in circumstances where frauds have occurred. Factors that, when present, require modification of planned audit procedures. Weaknesses in internal control identified during an audit.

5. Three conditions generally are present when fraud occurs. Select the one below that is not one of those conditions.

A. B. C. D.

Attitude. Supervisory position. Incentive or pressure. Opportunity.

6. Which of the following is most likely to be an overall response to fraud risks identified in an audit?

A. B. C. D.

Supervise members of the audit team less closely and rely more upon judgment. Use less predictable audit procedures. Use only certified public accountants on the engagement. Place increased emphasis on the audit of objective transactions rather than subjective transactions.

7. The AICPA over time has played an important role in standards setting. Which of the following standards are currently established by the AICPA?

A. B. C. D.

Quality control standards applicable to audits of public companies. Accounting standards applicable to nonpublic companies. Standards for reviews of the interim financial information issued by public companies. Auditing standards applicable to audits of nonpublic companies.

8. Which of the following is not explicitly included in a standard report for a nonpublic company?

A. The CPAs opinion that the financial statements comply with generally accepted accounting principles. B. That generally accepted auditing standards were followed during the audit. C. That internal control of the client was satisfactory. D. An identification of the financial statements audited.

9. An audit provides reasonable assurance of detecting material misstatement due to:

Fraudulent Financial Reporting A. Yes B. Yes C. No D. No

Misappropriation of Assets No Yes No Yes

10. Which of the following is not included in an integrated audit report on the financial statements of a public company?

A. The report indicates that the auditors have also audited the effectiveness of the company's

internal control. B. The report states that the audit was performed in accordance with AICPA standards. C. The report is signed in the name of the CPA firm. D. The report indicates that the financial statements are the responsibility of management.

11. Which of the following organizations can revoke the right of an individual to practice as a CPA?

A. B. C. D.

The American Institute of Certified Public Accountants. The applicable state board of accountancy. The Public Company Accounting Oversight Board. The Securities and Exchange Commission.

12. Which of the following would be least likely to be considered an objective of internal control?

A. B. C. D.

Detecting management fraud. Safeguarding assets. Encouraging adherence to managerial policies. Checking the accuracy and reliability of accounting data.

13. A primary objective of procedures performed to obtain an understanding of internal control is to provide the auditors with:

A. Knowledge necessary to determine the nature, timing, and extent of further audit procedures. B. Audit evidence to use in reducing detection risk. C. A basis for modifying tests of controls. D. An evaluation of the consistency of application of management policies.

14. Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by:

A. Employment of temporary personnel to aid in the separation of duties. B. Direct participation by the owner in key record keeping and control activities of the business. C. Engaging a CPA to perform monthly write-up work. D. Delegation of full, clear-cut responsibility for a separate major transaction cycle to each employee.

15. When the auditors are performing a first-time internal control audit in accordance with the Sarbanes-Oxley Act and PCAOB standards, they must:

A. B. C. D.

Test controls for all significant accounts. Perform a separate assessment of controls over operations. Modify their report for any significant deficiencies identified. Use a bottom-up approach to identify controls to test.

16. As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter?

A. To document in the audit working papers the clients responses to certain verbal inquiries made by the auditors during the engagement. B. To increase the efficiency of the audit by eliminating the need for other audit procedures. C. To provide evidence in those areas dependent upon managements future intentions. D. To remind the client's management of its primary responsibility for the financial statements.

17. Which of the following statements best describes why auditors investigate related party transactions?

A. All related party transactions must be eliminated as a step in preparing consolidated financial statements. B. Related party transactions are a form of management fraud. C. Related party transactions generally are illegal acts. D. The substance of related party transactions may differ from their form.

18. Of the following, which is the least reliable type of audit evidence?

A. B. C. D.

Correspondence between the auditors and suppliers. Canceled checks returned in the year-end bank statement directly to the client. Confirmations mailed by outsiders to the auditors. Copies of sales invoices inspected by the auditors.

19. A primary purpose of the audit working papers is to:

A. Aid the auditors by providing a list of required procedures. B. Support the underlying concepts included in the preparation of the basic financial statements. C. Provide a point of reference for future audit engagements.

D. Support the auditors' opinion.

20. In using the work of a specialist, the auditors referred to the specialists findings in their report. This would be an appropriate reporting practice if the:

A. Client understands the auditors' corroborative use of the specialists findings in relation to the representations in the financial statements. B. Auditors, as a result of the specialist's findings, decide to indicate a division of responsibility with the specialist. C. Auditors, as a result of the specialists findings, give a qualified opinion on the financial statements. D. Client is not familiar with the professional certification, personal reputation, or particular competence of the specialist.

21. Which of the following is not a covered member for an attest engagement under Rule 101 of the AICPA Code of Professional Conduct?

A. B. C. D.

A partner in the national office of the firm that performs marketing services. A manager who is in charge of providing tax services to the attest client. A partner in the office of the partner in charge of the attest engagement. An individual assigned to the attest engagement.

22. Which of the following is not prohibited by the AICPA Code of Professional Conduct?

A. B. C. D.

Acceptance of a contingent fee for a review of financial statements. Advertising in newspapers. Engaging in discriminatory employment practices. Payment of commission to obtain an audit client.

23. In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee?

A. A fee is based on the fee charged by the clients former auditors. B. A fee is based on whether or not the public accounting firms audit report leads to the approval of the clients application for bank financing. C. A fee is to be established at a later date by the Bankruptcy Court. D. A fee is based upon the nature of the engagement rather than upon the actual time spent on the engagement.

24. A public accounting firm would least likely be considered in violation of the AICPA independence rules in which of the following instances?

A. An attest client owes the firm fees for this and last years annual engagements. B. A partners checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services. C. A covered members dependent son owns stock in an attest client. D. A manager of the firm donates services as vice president of a charitable organization that is an audit client of the firm.

25. The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by:

A. B. C. D.

A CPA-shareholder of the client corporation. An investigative body of a state CPA society. The trial board of the AICPA. An AICPA quality review body.

26. Which of the following nonattest services may be performed by the auditors of a public company?

A. B. C. D.

Internal audit outsourcing. Preparation of the companys tax return. Tax planning for all company officers. Bookkeeping services.

27. Bill Adams, CPA, accepted the audit engagement of Kelly Company. During the audit, Adams became aware of his lack of competence required for the engagement. What should Adams do?

A. B. C. D.

Suggest that Kelly Company engage another CPA to perform the audit. Disclaim an opinion. Issue an adverse opinion. Rely on the competence of client personnel.

28. Rule 202Compliance with Standards requires CPAs to adhere to all of the following applicable standards, except:

A. B. C. D.

Statements on Standards for Attestation Engagements. Statements on Standards for Consulting Services. Statements on Auditing Standards. Statements on Responsibilities for Assurance services.

29. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board?

A. B. C. D.

Establish auditing standards for audits of public companies. Sanction registered audit firms. Establish independence standards for auditors of public companies. Review financial reports filed with the SEC.

30. What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company?

A. B. C. D.

To determine the nature, timing, and extent of audit testing. To make recommendations to the client regarding improvements in internal control. To train new auditors on accounting and control systems. To identify opportunities for fraud within the clients operations.