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QUESTION

STRAYER ACC403 MIDTERM EXAM 2015 (PART 1 & PART 2)

Midterm Exam Part 1

Question 1

The most common way for users to obtain reliable information is to:

Answer

have an internal audit.

have an independent audit.

verify all information individually.

verify the information with management.

Question 2

Which of the following is not a SysTrust Services principle as defined by the AICPA?

Answer

Online privacy

Availability

Processing integrity

Operational integrity

Question 3

One objective of an operational audit is to:

Answer

determine whether the financial statements fairly present the entity’s operations.

determine if the auditee is in compliance with GAAP.

make recommendations for improving performance.

report on the entity’s relative success in attaining profit maximization.

Question 4

An accountant:

Answer

must possess expertise in the accumulation of audit evidence.

must decide the number and types of items to test.

must have an understanding of the principles and rules that provide the basis for preparing the accounting information.

must be a CPA.

Question 5

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):

Answer

accounting and bookkeeping service.

attestation service.

assurance service.

tax service.

Question 6

The three requirements for becoming a CPA include all but which of the following?

Answer

Uniform CPA examination requirement

Educational requirements

Character requirements

Experience requirement

Question 7

Which of the following is an element of the CPA’s quality control system that should be considered in     control policies and procedures?

Answer

Considering audit risk and materiality

Using statistical sampling techniques

Assigning personnel to engagements

Complying with laws and regulations

Question 8

Which of the following statements best describes the primary purpose of Statements on Auditing Standards?

Answer

They are guides intended to set forth auditing procedures that are applicable to a variety of situations.

They are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion.

They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment.

They are interpretations that are intended to clarify the meaning of “generally accepted auditing standards.”

Question 9

Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit?

Answer

Possess appropriate competence and capabilities

Comply with ethical requirements

Plan work and supervise assistants

Maintain professional skepticism and exercise professional judgment

5 points

Question 10

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with:

Answer

technical training that assures proficiency as a valuation expert.

professional education that is required in order to perform with due professional care.

knowledge required to fulfill assigned responsibilities.

knowledge required to perform a peer review.

Question 11

Statements on Standards for Accounting and Review Services are issued by the:

Answer

Accounting and Review Services Committee.

Professional Ethics Executive Committee.

Securities and Exchange Commission.

Financial Accounting Standards Board.

Question 12

The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to:

Answer

provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities.

monitor the risk factors concerning misstatements that arise from the misappropriation of assets.

document objective criteria for the CPA firm’s peer review.

minimize the likelihood of associating with a client whose management may lack integrity.

Question 13

Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a:

Answer

disclaimer of opinion in all cases.

qualification of both scope and opinion in all cases.

disclaimer of opinion whenever materiality is in question.

qualification of both scope and opinion whenever materiality is in question.

Question 14

If the phrase “except for” is present in the opinion paragraph of the audit report, the auditor has issued a(n):

Answer

adverse opinion.

disclaimer of opinion.

unqualified opinion.

qualified opinion.

Question 15

Auditing standards for public companies are established by the:

Answer

SEC.

FASB.

PCAOB.

IRS.

Question 16

A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:

Answer

included in the scope paragraph.

included in the opinion paragraph.

included in a separate paragraph in the report.

included in the introductory paragraph.

Question 17

When there is uncertainty about a company’s ability to continue as a going concern, the auditor’s concern is the possibility that the client may not be able to continue its operations or meet its obligations for a “reasonable period of time.” For this purpose, a reasonable period of time is considered not to exceed:

Answer

six months from the date of the financial statements.

one year from the date of the financial statements.

six months from the date of the audit report.

one year from the date of the audit report.

Question 18

If most or all users’ decisions that are based on the financial statements are likely to be significantly affected, the materiality level is:

Answer

unrestricted.

material.

pervasive.

risky.

Question 19

Of the four parts of the AICPA’s Code of Professional Conduct, which part is enforceable?

Answer

Ethical Rulings

Rules of Conduct

Principles

Interpretations

Question 20

A CPA firm may charge a contingent fee for:

Answer

an audit.

consulting services for a client for which they do not perform any attestation services.

the preparation of an original tax return for a client for which they do not perform any attestation services.

the preparation of an amended tax return

Question 21

________ means that a person acts according to conscience, regardless of the situation.

Answer

Caring

Fairness

Integrity

Respect

Question 22

Freedom from ________ means the absence of relationships that might interfere with objectivity or integrity.

Answer

independence.

acts discreditable.

impartiality.

conflicts of interest.

Question 24

Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead?

Answer

At least one of the partners must be a member of the AICPA.

All partners must be members of the AICPA.

The partners whose names appear in the firm name must be members of the AICPA.

A majority of the partners must be members of the AICPA.

Question 25

The AICPA’s Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term “objectivity” in the Code refers to a CPA’s ability to:

Answer

choose independently between alternate accounting principles and auditing standards.

distinguish between accounting practices that are acceptable and those that are not.

be unyielding in all matters dealing with auditing procedures.

maintain an impartial attitude on matters that come under the CPA’s review.

Midterm Exam Part 2

Question 1

The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the:

Answer

prudent person concept

common law doctrine.

constructive care concept

vigilant person concept.

Question 2

A broad interpretation of the rights of third-party beneficiaries holds that users that the auditor should have been able to foresee as being likely users of financial statements have the same rights as those with privity of contract. This is known as the concept of:

Answer

foreseen users.

foreseeable users.

expected users.

four-party contracts.

Question 3

If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of:

Answer

contract fraud.

breach of contract.

constructive fraud.

criminal neglect.

5 points

Question 4

The preferred defense in third party suits is:

Answer

lack of duty to perform.

Non-negligent performance.

absence of causal connection.

client fraud.

Question 5

Which of the following auditor’s defenses usually means nonreliance on the financial statements by the user?

Answer

Lack of duty

Nonnegligent performance

Absence of causal connections

Contributory negligence

Question 6

Laws that have been passed by the U.S. Congress and other governmental units are:

Answer

statutory laws.

judicial laws.

federal laws.

common laws.

Question 7

Which of the following would most likely be deemed a direct-effect illegal act?

Answer

Violation of federal employment laws

Violation of federal environmental regulations

Violation of federal income tax laws

Violation of civil rights laws

Question 8

Management assertions are:

Answer

directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS.

stated in the footnotes to the financial statements.

explicitly expressed representations about the financial statements.

provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

Question 9

In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:

Answer

GAAP.

the Sarbanes-Oxley Act.

the Securities Exchange Act of 1934.

GAAS.

Question 10

In testing for cutoff, the objective is to determine:

Answer

whether all of the current period’s transactions are recorded.

whether transactions are recorded in the correct accounting period.

the proper cutoff between capitalizing and expensing expenditures.

the proper cutoff between disclosing items in footnotes or in account balances.

Question 11

The objective of an audit of the financial statements is an expression of an opinion on:

Answer

the fairness of the financial statements in all material respects.

the accuracy of the financial statements.

the accuracy of the annual report.

the accuracy of the balance sheet and income statement.

Question 12

“The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered.” This is an example of:

Answer

unprofessional behavior.

an attitude of professional skepticism.

due diligence.

a rule in the AICPA’s Code of Professional Conduct.

Question 13

An example of a document the auditor receives from the client, but which was prepared by someone outside the client’s organization, is a:

Answer

confirmation.

sales invoice.

vendor invoice.

bank reconciliation.

Question 14

Audit evidence has two primary qualities for the auditor; relevance and reliability. Given the choices below, which provides the auditor with the most reliable audit evidence?

Answer

General ledger account balances

Confirmation of accounts receivable balance received from a customer

Internal memo explaining the issuance of a credit memo

Copy of month-end adjusting entries

Question 15

When practical and reasonable, U.S. auditing standards require the confirmation of:

Answer

individual transactions between organizations, such as sales transactions.

accounts receivable.

fixed asset additions.

payroll expenses.

Question 16

The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must:

Answer

be well documented and cross-referenced in the audit documents.

be based on sources that are external to company.

provide evidence that prove or disprove an audit objective/assertion.

be persuasive enough to enable the auditor to issue an audit report.

Question 17

Which of the following statements regarding the relevance of evidence is correct?

Answer

To be relevant, evidence must pertain to the audit objective of the evidence.

To be relevant, evidence must be persuasive.

To be relevant, evidence must relate to multiple audit objectives.

To be relevant, evidence must be derived from a system including effective internal controls.

Question 18

Which of the following generally provides the most reliable evidence?

Answer

Confirmations

Recalculation

Reperformance

Observations

Question 19

When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called:

Answer

inquiry.

vouching.

physical examination.

Question 20

The preliminary audit strategy:

Answer

is set before the auditor understands the client’s reasons for the audit.

guides the development of the audit plan.

is determined after the engagement staffing is set.

is the detailed steps to be followed for the substantive audit tests.

Question 21

The two major factors affecting acceptable audit risk are:

Answer

inherent risk and the intended uses of the financial statements.

control risk and the intended uses of the financial statements.

the likely statement users and the intended uses of the statements.

the audit firm and the intended uses of the statements

Question 22

Business risk:

Answer

is the risk after considering the effectiveness of top management controls.

is the risk that the client’s internal controls will fail.

can include a new technology which threatens to erode a company’s competitive advantage.

cannot be mitigated by management.

Question 23

Written communication that the auditor will provide reasonable assurance for the detection of fraud is found in:

Answer

engagement letter.

representation letter.

responsibility letter.

client letter.

Question 24

Which of the following normally signs the engagement letter for an audit of a private company?

Answer

Management

Board of directors representative

Audit committee representative

Corporate treasurer

Question 25

If an auditor is requested to perform nonaudit services for a public company audit client, who is responsible for agreeing to those services with the audit firm?

Answer

The client’s management

The client’s chief executive officer

The client’s chief financial officer

The client’s audit committee

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    Acc403 Strayer Midterm Exam 2015 Part 1 & 2 Question.docx

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