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ACC 373




Each question is worth 5 points unless otherwise indicated. Please use

answer sheet for your answers. We will not grade this booklet.
1. Users of a public companys financial statements demand independent audits
A. Users demand assurance that fraud does not exist.
B. Management may not be objective in reporting.
C. Users expect auditors to correct management errors.
D. Management relies on the auditor to improve internal control.
2. The AICPA Code of Professional Conduct does not include enforceable
Conduct Rules on which of the following?
A. Independence and integrity and objectivity.
B. Professional competence and due professional care.
C. Accounting principles.
D. Responsibilities to colleagues.
3. Which of the following most completely describes how independence has
been defined by the CPA profession?
A. Performing an audit form the viewpoint of the public.
B. Avoiding the appearance of significant interests in the affairs of an
audit client.
C. Possessing the ability to act with integrity and objectivity and give that
D. Accepting responsibility to act professionally in accordance with a
professional code of ethics.
4. Which of the following professional services is considered an attest
A. A consulting service engagement to provide computer processing
advice to a client.
B. An engagement to report on compliance with statutory requirements.
C. An income tax engagement to prepare federal and state tax returns.
D. The compilation of financial statements from a clients accounting
5. Because of the risk of material misstatement due to fraud (fraud risk), an
audit of financial statements in accordance with auditing standards should be
planned an d performed with an attitude of
A. Objective judgment.
B. Independent integrity.
C. Professional skepticism.
D. Impartial conservatism.

6. Which of the following statements concerning illegal acts by clients is true?

A. An auditors responsibility for material misstatements caused by illegal
acts that have a direct and material effect on the financial statements
is the same as that for errors and fraud.
B. An audit in accordance with auditing standards normally includes audit
procedures specifically designed to detect illegal acts that have an
indirect but material effect o the financial statements
C. An auditor considers illegal acts from the perspective of the reliability
of managements representations rather than their relation o audit
objectives derived from financial statement assertions.
D. An auditor has no responsibility to detect illegal acts by clients that
have an indirect effect on the financial statements.
7. In an audit of financial statements, an auditors primary consideration
regarding a control is whether it
A. Reflects managements philosophy and operating style.
B. Affects managements financial statement assertions.
C. Provides adequate safeguards over access to assets
D. Enhances managements decision-making processes.
8. Control activities constitute one of the five components of internal control.
Control activities do not encompass
A. Performance reviews.
B. Reconciliations of accounts.
C. Physical controls
D. Internal auditing function.
9. An auditor tests an entitys policy of obtaining credit approval before shipping
goods to customers in support of managements financial statement
assertion of
A. Completeness.
B. Valuation.
C. Existence or occurrence.
D. Rights and obligations.
10.Tests designed to detect credit sales made before the end of the year that
have been recorded in the subsequent year provide assurance about
managements assertion of
A. Classification.
B. Rights and obligations.
C. Cutoff.
D. Existence or occurrence.
11.Which of the following best describes the concept of audit risk?
A. The risk of the auditor being sued because of association with an audit
B. The risk that the auditor will provide an unqualified opinion on
materially misstated financial statements.
C. The overall risk that a material misstatement exists in the financial
D. The risk that auditors use audit procedures that are inappropriate.

12.Given the following scenarios, please indicate how the company would handle
the risk in each situation. Each answer can only be used once (12 points)
a. Reduction
b. Sharing or insuring
c. Acceptance
d. Avoidance
The company is In N Out Burger and the following situations are presented:
1. C___ The FDA (Federal Department of Agriculture) has issued
new standards related to the processing of cattle on farms on
the United States; at this time we do not know if these standards
will improve the quality of the meat or not improve the quality of
the meat processed.
2. D_____ Recent studies indicate a controversy related to meat
that is frozen and then thawed too quickly.
3. B_____ Because of the health regulations, In N Out must wash
the floors during business hours if something is spilled; someone
may slip and fall when the floors are not completely dry.
4. A_____ The preparation of French fries may vary among store
13.According to the Sarbanes-Oxley Legislation, public accounting firms can no
longer perform internal audit or bookkeeping services.
A. True
B. False
14.Independence is compromised when an auditor goes to dinner with their
client at the end of an audit engagement.
A. True
B. False
15.If the risk of material misstatement is high, the auditor should not perform
any inquiry on the audit because is this is not a very effective procedure.
A. True
B. False
16.Partners on public company audits must rotate every A years, and; you must
maintain records for your public company audits for B years. A. 5 B. 7
17.List the parties involved in an assurance service (9 points)
18.What is the purpose for companies to have corporate governance? PROVIDE
19.List and explain the components of the audit risk model. (10 points)