STRAYER ACC403/ STRAYER ACC403 FINAL EXAM PART 1 & 2

 

Question

Instructions     This final exam consists of 25 multiple choice questions and covers the material in Chapters 9 through 13. There are five questions from each chapter.

Question 1

6 out of 6 points

The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.

a) directly

b) indirectly

c) not

d) inversely

Question 2

6 out of 6 points

An auditor who audits a business cycle that has low inherent risk should:

a) increase the amount of audit evidence gathered.

b) assign more experienced staff to that area.

c) increase the performance materiality level for the area.

d) expand planning procedures

Question 3

6 out of 6 points

When allocating performance materiality:

a) it is easy to predict in advance which accounts are most likely to be misstated.
b) only overstatements need to be considered.
c) professional judgment is critical.
d) the sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.

Question 4

6 out of 6 points

Why do auditors establish a preliminary judgment about materiality?

a) To determine the appropriate level of audit experience required for the work.

b) So that the client can know what records to make available to the auditor.

c) To plan the appropriate audit evidence to accumulate and develop an overall audit strategy.

d) To finalize the assessment of control risk.

Question 5

6 out of 6 points

Auditors are ________ to document the known and likely misstatements in the financial statements under audit.

a) permitted

b) required

c) not allowed

d) strongly encouraged

Question 6

6 out of 6 points

Two key concepts that underlie management's design and implementation of internal control are:

a) costs and materiality.

b) absolute assurance and costs.

c)  inherent limitations and reasonable assurance.

d) collusion and materiality.

Question 7

6 out of 6 points

The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on:

a) the company's board of directors.
b) the audit committee of the board of directors.
c) management.
d) the CFO and the independent auditors.

Question 8

6 out of 6 points

Reasonable assurance allows for:

a) low likelihood that material misstatements will not be prevented or detected by internal controls.

b) no likelihood that material misstatements will not be prevented or detected by internal control.

c) moderate likelihood that material misstatements will not be prevented or detected by internal control.

d) high likelihood that material misstatements will not be prevented or detected by internal control.

Question 9

6 out of 6 points

Which of the following deal with ongoing or periodic assessment of the quality of internal control by management?

a) Quality monitoring activities
b) Monitoring activities
c) Oversight activities
d) Management activities

Question 10

6 out of 6 points

The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

a) to prevent fraudulent financial statements from being issued to the public.

b) to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.

c) to report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements.

d) to efficiently conduct the Audit of Financial Statements · 

Question 11

6 out of 6 points

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial reporting?

a) Significant accounting estimates involving subjective judgments.

b) Excessive pressure for management to meet debt repayment requirements.

c)  Management’s practice of making overly aggressive forecasts.

d) High turnover of accounting, internal audit, and information technology staff

 Question 12

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 13

6 out of 6 points

In the fraud triangle, fraudulent financial reporting and misappropriation of assets:

a) share little in common.

b) share most of the same risk factors.

c) share the same three conditions.

d) share most of the same conditions.

 Question 14

6 out of 6 points

Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. This is an example of which of the following?

a) Significant accounting estimates

b) Fictitious revenue recorded

c) Premature revenue recognized

d) Alteration of cutoff documents

Question 15

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 16

6 out of 6 points

The auditor's objective in determining whether the client's automated controls can correctly handle valid and invalid transactions as they arise is accomplished through the:

a) test data approach.

b) generalized audit software approach.

c) microcomputer-aided auditing approach.

d) generally accepted auditing standards

Question 17

6 out of 6 points

When the client changes the computer software:

a) no additional testing is needed by the auditor.

b) and application controls are effective, the auditor can easily identify when software changes are made.

c) and general controls are effective, the auditor can easily identify when software changes are made.

d) application and general controls can no longer by relied upon by the auditor

Question 18

6 out of 6 points

Controls that are designed for each software application and are intended to help a company satisfy the transaction-related audit objectives are:

a) user controls.
b) general controls.
c) audit controls.
d) application controls.

Question 19

6 out of 6 points

General controls may include firewalls which are used to protect from:

a) erroneous internal handling of data.

b) insufficient documentation of transactions.

c) illogical programming commands.

d) unauthorized external users

Question 20

6 out of 6 points

Old and new systems operating simultaneously in all locations is a test approach known as:

a) pilot testing.

b) horizontal testing.

c) integrative testing.

d) parallel testing.

Question 21

6 out of 6 points

Which of the following procedures would most likely be performed in response to the auditor's assessment of the risk of monetary misstatements in the financial statements?

a) Ratio analysis
b) Tests of controls
c) Tests of details of balances
d) Risk assessment procedures

Question 22

6 out of 6 points

When the auditor has completed the tests of details of balances and enters phase 4 of the audit process, she must still perform audit procedures for which of the following?

a) Contingent liabilities and employee compensation

b) Contingent liabilities and subsequent events

c) Subsequent events and contractual commitments

d) Subsequent events and unrecorded liabilities

Question 23

6 out of 6 points

A procedure designed to test for monetary misstatements directly affecting the correctness of financial statement balances is a:

a) test of controls.

b) substantive test.

c) test of attributes.

d) monetary-unit sampling test.

Question 24

6 out of 6 points

An increased extent of tests of controls is most likely to occur when:

a) it is a first-year audit.

b) the auditor is doing a “fraud audit.”

c) controls are effective and the preliminary control risk assessment is low.

d) controls are ineffective and the preliminary control risk assessment is high.

Question 25

6 out of 6 points

Which of the following further audit procedures are used to determine whether all six transaction-related audit objectives have been achieved for each class of transactions?

a) Tests of controls

b) Risk assessment procedures

c) Substantive tests of transactions

d) Preliminary analytical procedures

Final exam part 2

Question 1

6 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 2

6 out of 6 points

The audit procedure referred to as proof of cash receipts is particularly useful to test:

a) time lags in making deposits.

b) whether all recorded cash receipts have been deposited in the bank.

c) whether there are cash receipts that have not been recorded in the journals.

d) the client's reconciliation between cash receipts and bank deposits

Question 3

6 out of 6 points

The document that accompanies the customer's payment is the:

a) credit memo.
b) remittance advice.
c) vendor invoice.
d) monthly statement.

Question 4

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 5

6 out of 6 points

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the:

a) bill of lading.
b) sales invoice.
c) picking ticket.
d) vendor invoice.

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

The acceptable risk of overreliance:       

a) is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are

b) is less of a concern to the auditors than the risk of underlines

c) represents the auditor’s measure of sampling risk

d) is determined by statistical formula, and not by professional judgment

Question 8

6 out of 6 points

When the computed upper exception rate is greater than the tolerable exception rate, it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify?

a) Reduce the tolerable exception rate so as to accept the sample results.

b) Expand the sample size and perform more tests.

c) Revise the assessed control risk.

d) Write a letter to management which outlines the control deficiencies.

Question 9

6 out of 6 points

In systematic sample selection, the population size is divided by the number of sample items desired in order to determine the:

a) sampling interval.
b) tolerable exception rate.
c) computed upper exceptions rate.
d) mean.

Question 10

6 out of 6 points

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?

a) Review sales transactions for large and unreasonable amounts.
b) Observe whether the duties of the accounts receivable clerk are separate from handling cash.
c) Examine a sample of duplicate sales invoices for credit approval by the credit manager.
d) Review the aged schedule of accounts receivable to determine if receivables from officers are included.

Question 11

6 out of 6 points

Which of the following is likely to be determined first when performing tests of details for accounts receivable?

a) Recorded accounts receivable exist.

b) Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger.

c) Accounts receivable are owned.    

d) Existing accounts receivable are included.

Question 12

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 13

6 out of 6 points

When designing tests of details of balances, an important point to remember is:

a) auditors emphasize income statement accounts.

b) the audit procedures selected depends heavily on whether planned evidence for a given  objective is low, medium, or high.

c) if accounts receivable are overstated, then sales will be understated.

d) sales cutoff is the most important test of details of accounts receivable

Question 14

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 15

6 out of 6 points

A type of positive confirmation known as a blank confirmation:

a) requests the recipient to fill in the amount of the balance.

b) is considered less reliable than the regular positive confirmation.

c) generates as high a response rate as the regular positive confirmation form.

d) is used when the auditor is confirming several small balances.

Question 16

6 out of 6 points

The final step in the evaluation of the audit results is the decision to:

a) accept the population as fairly stated or to require further action.

b) determine sampling error and calculate the estimated total population error.

c) project the point estimate.

d) determine the error in each sample

Question 17

6 out of 6 points

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance:

a) is reduced.

b) is increased.

c) is not changed.

d) may be reduced or increased depending upon other circumstances

Question 18

6 out of 6 points

If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be:

a) increased.
b) reduced.
c) unaffected.
d) modified.

Question 19

6 out of 6 points

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will:

a) decrease.
b) increase.
c) vary based on characteristics of the population.
d) be unaffected.

Question 20

6 out of 6 points

In estimating the population misstatement, the first step in projecting from the sample to the population is to:

a) make a point estimate.
b) revise the upper error bound.
c) calculate the precision interval.
d) determine the population mean.

Question 21

6 out of 6 points

A useful starting point for becoming familiar with the client's inventory is for the auditor to:

a) read the AICPA's Industry Audit Guide.
b) review accounting theory covering special inventory problems.
c) read the client's accounting manual.
d) tour the client's facility.

Question 22

6 out of 6 points

A well-designed computerized system of perpetual inventory master files includes information about the:

a) units of inventory purchased, sold, and on hand.
b) unit costs of inventory purchased, sold, and on hand.
c) units of raw materials, work-in-process, and finished goods.
d) units and unit costs of inventory purchased, sold, and on hand.

Question 23

6 out of 6 points

To assure proper segregation of duties, who should maintain the perpetual inventory master files?

a) Production personnel
b) Inventory storeroom personnel
c) Inventory receiving personnel
d) Accounting department personnel

Question 24

6 out of 6 points

Handling the receipt of ordered goods is a part of the ________ cycle.

a) purchasing
b) acquisition and payment
c) inventory
d) inventory and warehousing

Question 25

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 26

6 out of 6 points

The auditor is responsible for communicating significant internal control deficiencies to the audit committee, or those charged with governance. This communication:

a) may be oral or written.
b) must be oral.
c) must be written.
d) must be oral via direct communication.

Question 27

6 out of 6 points

With which of the following client personnel would it generally not be appropriate to inquire about commitments or contingent liabilities?

a) Controller.

b) President.

c) Accounts receivable clerk.

d) Vice president of sales.

Question 28

6 out of 6 points

Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?

a) Auditors

b) Legal counsel

c) Management

d) Management and the auditors

Question 29

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 30

6 out of 6 points

The letter of representation obtained from an audit client should be:

a) dated as of the end of the period under audit.

b) dated as of the audit report date.

c) dated as of any date decided upon by the client and auditor.

d) dated as of the issuance of the financial statement

 

 

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Answer:

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