Keiser ACG4651 final exam

Question 1

Which of the following groups are not considered a
specialist by AICPA Professional Standards?

Appraisers.

Internal auditors.

Engineers.

Geologists.
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Question 2

Which of the following is not a safeguard that is ordinarily
considered in evaluating threats to auditor independence?

Safeguards created by the Audit Committee Reference Group.

Safeguards created by the profession, legislation, or
regulation.

Safeguards implemented by the attest client.

Safeguards implemented by the CPA firm.
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Question 3

The risk that information is misstated is referred to as:

Information risk.

Inherent risk.

Relative risk.

Business risk.
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Question 4

A set of criteria used to determine measurement,
recognition, representation, and disclosure of all material items appearing in
the financial statements is referred to as a(n)

Financial reporting framework.

Public Company Accounting Oversight Board Criteria.

Quality control presentation standard.

Special purpose audit standard.
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Question 5

A situation in which the design or operation of a control
does not allow management or employees, in the normal course of performing
their assigned functions, to prevent or detect material misstatements on a
timely basis is referred to as a:

Control deficiency.

Material weakness.

Reportable condition.

Significant deficiency.
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Question 6

The risk of a material misstatement occurring in an account,
assuming an absence of internal control, is referred to as:

Account risk.

Control risk.

Detection risk.

Inherent risk.
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Question 7

Based on the previous information, which of the following
preliminary conclusions can the auditor use as a basis for further
investigations?

Sales per store are directly related to the size of the
store.

Sale clerks are less productive in larger size stores.

Gross margin is directly related to the size of the store.

Average square feet of store correlates with the number of
stores in the district.
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Question 8

The auditors who become aware of an internal control
significant deficiency are required to communicate this to the:

Client’s legal counsel.

Compensation committee.

Audit committee.

Internal auditors.
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Question 9

Under which common law approach are auditors most likely to
be held liable for ordinary negligence to a “reasonably foreseeable”
third party?

Due Diligence Approach.

Ultramares Approach.

Restatement of Torts Approach.

Rosenblum Approach.
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Question 10

In which type of court case is proving “due
diligence” essential to the auditors’ defense?

Court cases brought under the Securities Exchange Act of
1934.

Court cases brought by clients under common law.

Court cases brought by third parties under common law.

Court cases brought under the Securities Act of 1933.
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Question 11

During financial statement audits, auditors seek to restrict
which type of risk?

Control risk.

Detection risk.

Inherent risk.

Account risk.
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Question 12

Which of the following would be least likely to be
considered an audit planning procedure?

Use an engagement letter.

Develop the overall audit strategy.

Perform the risk assessment.

Develop the audit plan.
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Question 13

Primary responsibility for the financial statements lies
with:
Auditors Management
A. Yes Yes
B. Yes No
C. No Yes
D. No No

Option A

Option B

Option C

Option D
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Question 14

Which of the following is true about the auditors’
consideration of internal control in a financial statement audit?

The auditors must assess control risk at a level lower than
the maximum.

The auditors must prepare a flowchart description of
internal control for their working papers.

The auditors must obtain an understanding of the steps in
processing major types of transactions.

The auditors must perform tests of controls.
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Question 15

The purpose of using generalized computer programs is to
test and analyze a client’s computer:

Systems.

Equipment.

Records.

Processing logic.
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Question 16

Which of the following is an example of general computer
control?

Input validation checks.

Control total.

Operations manual.

Generalized audit software.
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Question 17

In testing accounts receivable, an auditor sends out
positive confirmation requests to 100 randomly selected customers. A customer
returns the confirmation indicating that the balance is correct when, in fact,
the balance is overstated. This is an example of:

Projected misstatement.

Sampling error.

Standard error.

Nonsampling error.
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Question 18

Which of the following statistical selection techniques is
least desirable for use by an auditor?

Systematic selection.

Stratified selection.

Block selection.

Sequential selection.
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Question 19

Which of the following statements is correct about the
sample size in statistical sampling when testing internal controls?

The auditor should consider the tolerable rate of deviation
from the controls being tested in determining sample size.

As the likely rate of deviation decreases, the auditor
should increase the planned sample size.

The allowable risk of assessing control risk too low has no
effect on the planned sample size.

Of all the factors to be considered, the population size has
the greatest effect on the sample size.
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Question 20

The 10,000 accounts receivable of DEF Company have a total
book value of $120,000. A CPA has selected and audited a sample of 100 accounts
with a total book value of $1,000 and an audited value of $1,200. Using the difference estimation technique,
estimated total audited value of the population is:

$100,000.

$120,000.

$140,000.

$144,000.
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Question 21

Which of the following would the auditors consider to be a
weakness in an IT system?

Operators have access to terminals.

Programmers are allowed access to the file library.

Reprocessing of exceptions detected by the computer is
handled by a data control group.

More than one employee is present when the computer facility
is in use.
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Question 22

Which of the following is generally not true about
statistical sampling as compared to nonstatistical sampling?

Statistical samples are more representative of the
population.

Statistical sample plans involve additional costs of
evaluation.

Statistical sampling allows a more objective evaluation of
sample results.

Statistical sampling may assist the auditors in designing
more efficient samples.
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Question 23

Parallel simulation programs used by the auditors for
testing programs:

Must simulate all functions of the production
computer-application system.

Cannot be developed with the aid of generalized audit
software.

Can use live data or test data.

Is generally restricted to data base environments.
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Question 24

Which of the following is a password security problem?

Users are assigned passwords when accounts are created, but
do not change them.

Users have accounts on several systems with different
passwords.

Users copy their passwords on note paper, which is kept in
their wallets.

Users select passwords that are not listed in any online
dictionary.
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Question 25

Many people confuse the responsibilities of the independent
auditors and the client’s management with respect to audited financial
statements.a. Describe management’s responsibility regarding audited financial
statements.b. Describe the independent auditors’ responsibility regarding
audited financial statements.c. Evaluate the following statement: “If the
auditors disagree with management regarding an accounting principle used in the
financial statements, the auditors should express their views in the notes to
the financial statements.”

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Question 26

Section 11 of the Securities Act of 1933, and Section 10 of
the Securities Exchange Act of 1934 make a CPA potentially liable to a
purchaser of registered securities. For items a through f, place a checkmark
(?) under the column if the plaintiff must prove its existence:
Plaintiff must provide Section
11 (1933 Securities Act) Section
10 (1934 Securities Exchange Act)
a. Financial
statements were misleading
b. CPA did
not perform with due diligence.
c. Plaintiff
relied upon the financial statements.

d. CPA acted
with scienter.
e. Plaintiff
suffered a loss.
f. Plaintiff
was the primary beneficiary of the audit.

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Question 27

Audit sampling is used in conjunction with many audit tests,
and may be performed on a statistical or nonstatistical basis. a. Define the
term audit sampling. b. List and explain two advantages of the use of
statistical sampling as compared to nonstatistical sampling.

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Question 28

Auditors are now faced with examining clients that have
database systems. a. Describe a database system, including its major advantage.
b. Identify policies and procedures that may be established to provide control
over that aspect of a database system.