STRAYER ACC403 FINAL EXAM PART 1 AND 2

Question

Acc403 final part 1

Question 1

6 out of 6 points

Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance to refer to ________.

A. detection risk

B. audit report risk

C. acceptable audit risk

D. inherent risk

Question 2

6 out of 6 points

If an auditor believes the chance of financial failure is high and there is a corresponding increase in business risk for the auditor, acceptable audit risk would likely:

A. be reduced

B. be increased.

C. remain the same.

D. be calculated using a computerized statistical package.

Question 3

6 out of 6 points

If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information, then that information is, by definition of FASB Statement No. 2:

A. material.

B. insignificant.

C. significant.

D. relevant.

Question 4

6 out of 6 points

When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to as:

A. the materiality range.

B. the error range.

C.tolerable materiality.

D. tolerable misstatement.

Question 5

6 out of 6 points

When the auditor is attempting to determine the extent to which external users rely on a client's financial statements, they may consider several factors except for:

A. client size.

B. concentration of ownership.

C. types and amounts of liabilities.

D. assessment of detection risk.

Question 6

6 out of 6 points

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the:

A. adequacy of the computer system.

B. proper implementation by management.

C. ability of the internal audit staff to maintain it.

D. competency and dependability of the people using it.

Question 7

6 out of 6 points

In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:

A) the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.
B) the class of transaction is where most fraud schemes occur.
C) account balances are less important to the auditor then the changes in the account balances.
D) classes of transactions tests are the most efficient manner to compensate for inherent risk.

Question 8

6 out of 6 points

When considering internal controls, an important point to consider is that:

A) auditors can ignore controls affecting internal management information.
B) auditors are concerned with the client's internal controls over the safeguarding of assets if they affect the financial statements.
C) management is responsible for understanding and testing internal control over financial reporting.

Question 9

6 out of 6 points

Narratives, flowcharts, and internal control questionnaires are three common methods of:

A) testing the internal controls.
B) documenting the auditor's understanding of internal controls.
C) designing the audit manual and procedures.
D) documenting the auditor's understanding of a client's organizational structure.

Question 10

6 out of 6 points

The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk. This lack of knowledge would constitute:

A) a deficiency in operation of internal controls.
B) a deficiency in design of internal controls.
C) a deficiency of management.
D) not constitute a deficiency.

Question 11

6 out of 6 points

Analytical procedures can be very effective in detecting inventory fraud. Which of the following analytical procedures would not be useful in detecting fraud?

A) Gross margin percentage
B) Inventory Turnover
C) Cost of sales percentage
D) Accounts receivable turnover

Question 12

6 out of 6 points

Financial statement manipulation risk is arguably present for all companies' financial statements. However, the risk is elevated for companies that:

A) are heavily regulated.
B) have low amounts of debt.
C) have to make significant judgments for accounting estimates.
D) operate in stable economic environments

Question 13

6 out of 6 points

Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?

A) The board of directors
B) The audit committee
C) Management of the company
D) The financial statement auditors

Question 14

6 out of 6 points

Who is most likely to perpetrate fraudulent financial reporting?

A) Members of the board of directors
B) Production employees
C) Management of the company
D) The internal auditors

Question 15

6 out of 6 points

Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement?

A) senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period

B) senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report

C) senior management emphasizes that job rotation is a worthwhile corporate objective

D) senior management emphasizes that job evaluations are based on performance

Question 16

6 out of 6 points

An example of a physical control is:

A) a hash total.
B) a parallel test.
C) the matching of employee fingerprints to a database before access to the system is allowed.
D) the use of backup generators to prevent data loss during power outages.

Question 17

6 out of 6 points

The audit approach in which the auditor runs his or her own program on a controlled basis to verify the client's data recorded in a machine language is:

A) the test data approach.
B) called auditing around the computer.
C) the generalized audit software approach.
D) the microcomputer-aided auditing approach.

Question 18

6 out of 6 points

Which of the following describes the process of implementing a new system in one part of the organization, while other locations continue to use the current system?

A) Parallel testing
B) Online testing
C) Pilot testing
D) Control testing

Question 19

6 out of 6 points

A ________ total represents the summary total of codes from all records in a batch that do not represent a meaningful total.

A) record
B) hash
C) output
D) financial

Question 20

6 out of 6 points

The continued integration of IT in accounting systems can impact a company by:

A) increasing the costs of handling a large amount of data.
B) increasing the number of manual controls needed.
C) giving management higher-quality information more quickly than a manual system, thus helping management in their decision making process.
D) decreasing the segregation of duties.

Question 21

6 out of 6 points

Which of the following audit tests is usually the least costly to perform?

A) Analytical procedures
B) Tests of controls
C) Tests of balances
D) Substantive tests of transactions

Question 22

6 out of 6 points

The purpose of tests of controls is to provide reasonable assurance that the:

A) accounting treatment of transactions and balances is valid and proper.
B) internal control procedures are functioning as intended.
C) entity has complied with GAAP disclosure requirements.
D) entity has complied with requirements of quality control.

Question 23

6 out of 6 points

Many auditors perform extensive analytical procedures on audits because:

A) they are required by GAAS.
B) they pinpoint errors in accounts.
C) they indicate areas of potential risk and misstatement.
D) they are required for tests of controls.

Question 24

6 out of 6 points

A system walkthrough is primarily used to help the auditor:

A) test the ending account balances.
B) test the details of transactions.
C) determine whether internal controls are in place.
D) determine whether the audit engagement should be accepted.

Question 25

6 out of 6 points

Analytical procedures:

A) involve comparisons of recorded amounts to expectations developed by management.
B) are only performed during the planning stage of the audit.
C) are required to be performed when auditing an account balance.
D) provide substantive evidence.

Part 2

Question 1

6 out of 6 points

Before goods are shipped on account, a properly authorized person must:

A) prepare the sales invoice.
B) approve the journal entry.
C) approve the customer's credit.
D) verify that the unit price is accurate.

Question 2

6 out of 6 points

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

A) Determination of correct delivery address
B) Credit approval
C) Matching of shipping document with sales invoice
D) Receipt of sales order from the customer

Question 3

6 out of 6 points

The document that requires adjustments to the customers subsidiary ledger account is the:

A) bill of lading.
B) sales invoice.
C) credit memo.
D) monthly statement.

Question 4

6 out of 6 points

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

A) sales order.
B) bill of lading.
C) sales invoice.
D) customer order.

Question 5

0 out of 6 points

What event initiates a transaction in the sales and collection cycle?

A) Receipt of cash
B) Delivery of product to a customer
C) Identification of a new customer
D) Customer request for goods

Question 6

6 out of 6 points

Auditors often use the ________ to determine the estimated population exception rate.

A) current year's audit results
B) tolerable exception rate
C) preceeding year's audit results
D) estimated computed by management

Question 7

6 out of 6 points

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use:

A) audit sampling.
B) representative sampling.
C) poor judgment.
D) estimation sampling

Question 8

6 out of 6 points

Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices Rodgers should use:

A) stratified sampling.
B) classical sampling.
C) proportional sampling.
D) attributes sampling

Question 9

6 out of 6 points

Which of the following would have the least impact in determining sample size?

A) Acceptable risk of overreliance
B) Risk of assessing control risk too low
C) Tolerable exception rate
D) Population size

Question 10

6 out of 6 points

Which of the following occurrences would be least likely to warrant further audit attention for the auditor?

A) Deviations from client's established control procedures
B) Deviations from client's budgeted values
C) Monetary misstatements in populations of transaction data
D) Monetary misstatements in populations of account balance details

Question 11

6 out of 6 points

The most effective audit evidence gathered for accounts receivable is the:

A) detail tie-in of the records.
B) analysis of the allowance for doubtful accounts.
C) confirmation of accounts receivable.
D) examination of sales invoices

Question 12

6 out of 6 points

Which of the following most likely would be detected by a review of a client's sales cutoff?

A) Excessive sales discounts
B) Unrecorded sales for the year
C) Unauthorized goods returned for credit
D) Lapping of year-end accounts receivable

Question 13

6 out of 6 points

Analytical procedures:

A) are only done during the planning of the audit and when performing detailed tests.
B) performed during the detailed testing phase are done before tests of details of balances.
C) performed during the detailed testing phase are done before the balance sheet date.
D) are performed only on accounts receivable, not on the entire sales and collection cycle

Question 14

6 out of 6 points

When do most companies record sales returns and allowances?

A) During the month in which the sale occurs
B) During the accounting period in which the return occurs
C) Whenever the customer contacts the company regarding the credit
D) During the month after the sale occurs

Question 15

6 out of 6 points

Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection?

A) Accuracy
B) Completeness
C) Rights
D) Detail tie-in

Question 16

6 out of 6 points

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:

A) the upper bound.
B) the tolerable risk.
C) the acceptable risk of incorrect acceptance.
D) the lower bound.

Question 17

6 out of 6 points

The client's trial balance has a balance of $410,000 for merchandise inventory. As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance. You compute a 95% confidence interval of $395,000 to $425,000. You could therefore:

A) reject the trial balance amount.
B) accept the trial balance amount.
C) increase the sample size to assure more precision.
D) use alternative audit procedures to satisfy yourself as to the correct balance.

Question 18

6 out of 6 points

One of the steps involved in planning the sample for the tests of details of balances is to:

A) select the sample.
B) perform the audit procedures.
C) define a misstatement.
D) analyze the misstatements.

Question 19

6 out of 6 points

When the sample selection is done using probability proportional to size sample selection (PPS):

A) the actual number of units selected for testing may be more than the computed sample size.
B) the auditor must use systematic selection, rather than random selection of dollars.
C) population items with a zero recorded balance have no chance of being selected.
D) negative balances must be treated as positive balances.

Question 20

6 out of 6 points

When defining the population and the sampling unit for tests of details of balances:

A) the population is defined as all of the transactions in the journal for the period.
B) the sampling unit must be the same for all balance sheet accounts.
C) if sampling for completeness, the sampling unit will be customers with zero balances.
D) if sampling for completeness, the sampling unit will be the items making up the recorded

Question 21

6 out of 6 points

From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?

A. Observation of physical inventory counts.
B. Written inventory representations from management.
C. Confirmation of inventories in a public warehouse.
D. auditor's recomputation of inventory extensions.

Question 22

6 out of 6 points

Comparing the physical counts with the perpetual inventory master files satisfies the balance-related audit objective of:

A) classification.
B) observation.
C) completeness.
D) accuracy.

Question 23

6 out of 6 points

Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to:

A) observation and confirmation.
B) observation and inquiry.
C) inquiry and reconciliation.
D) observation and reconciliation.

Question 24

6 out of 6 points

Boxes or other containers holding inventory should also be opened during test counts to determine the ________ of the inventory.

A) classification
B) detail tie-in
C) existence
D) realizable value

Question 25

6 out of 6 points

The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:

A) acquisition and payments cycle.
B) payroll and personnel cycle.
C) inventory and warehousing cycle.
D) sales and collection cycle.

Question 26

6 out of 6 points

The auditor's primary concern relative to presentation and disclosure-related objectives is:

A) accuracy.
B) existence.
C) completeness.
D) occurrence

Question 27

6 out of 6 points

Which of the following subsequent events is most likely to result in an adjustment to a company's financial statements?

A) Merger or acquisition activities
B) Bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance
C) Issuance of common stock
D) An uninsured loss of inventories due to a fire

Question 28

6 out of 6 points

When communicating with the audit committee and management:

A) only material fraud and illegal acts are required by auditing standards to be communicated.
B) all internal control deficiencies are required by auditing standards to be communicated.
C) the communications should be made in a timely manner to allow those charged with governance to take appropriate actions.
D) all communications with the audit committee and management must be in writing.

Question 29

6 out of 6 points

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the:

A) management letter.
B) letter of inquiry.
C) letters testamentary.
D) management letter of representation.

Question 30

6 out of 6 points

While there is no professional requirement to do so on audit engagements, CPAs frequently issue a formal "management" letter to clients. The primary purpose of this letter is to provide:

A) evidence indicating whether the auditor is reasonably certain that internal accounting control is operating as prescribed.
B) a permanent record of the internal accounting control work performed by the auditor during the course of the engagement.
C) a written record of discussions between auditor and client concerning the auditor's observations and suggestions for improvements.
D) a summary of the auditor's observations that resulted from the auditor's special study of internal control.

 

 

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