ACCT 412
First Examination
February, 2021
Name _____Diana___Basaraba__
Start Time 4:32 pm
End Time 5:2
1. Examination of internal controls is a service that comes under _______ services, which fall
under _______ services.
a. attestation; audit
b. assurance; attestation
c. acceptable; assurance
d. attestation; assurance
2. Compared to an audit of historical financial statements, a review engagement is _______.
a. less extensive but more expensive
b. more extensive and also more expensive
c. less extensive and also less expensive
d. more extensive but less expensive
3. The set of standards used in preparing the historical financial statements, such as GAAP or
IFRS, is referred to as ________.
a. The applicable financial reporting framework
b. Generally Accepted Auditing Standards (GAAS)
c. material modifications
d. a review of historical financial statements
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4. Which type of entity generally finds a review of historical financial statements to be the most
useful?
a. Large public corporations
b. Small public corporations
c. Large private corporations
d. Small private corporations
5. Independent professional attestation services improve the quality of information. Quality is
best described as an improvement in informational ________.
a. relevance and reliability.
b. financial and nonfinancial qualities
c. historical and prospective qualities
d. internal and external qualities
6. Which two audits does an integrated audit combine?
a. A financial statement audit and a compliance audit
b. A financial statement audit and an audit of the effectiveness of ICFR
c. A compliance audit and an audit of the effectiveness of ICFR
d. A performance audit and an environmental audit
7. What is a compliance audit?
a. an audit to determine whether the entity has conformed with regulations, rules or
processes
b. an assessment of the economy, efficiency and effectiveness of an organization’s
operations
c. an evaluation and improvement of risk management, internal control procedures and
elements of the governance process
d. an assessment of the company’s financial statements
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8. The limitations of an audit are not caused by ________.
a. the nature of financial reporting.
b. the nature of audit procedures.
c. the need for the audit to be conducted within a reasonable period of time at a
reasonable cost.
d. a guarantee that the financial statements are free from error
9. What type of audit is concerned with the economy, efficiency and effectiveness of an
organization’s activities?
a. A compliance audit
b. A financial statement audit
c. An operational audit
d. An integrated audit
10. Those charged with governance are the ________.
a. CEO, CFO, and COO
b. board of directors and management of an entity
c. stockholders
d. auditors
11. Which component of the AICPA’s Code of Professional Conduct expresses the basic tenets of
ethical conduct and provides the framework for the rules that govern the performance of a
member’s professional responsibilities?
a. Principles
b. Rules of Conduct
c. Interpretations
d. General standards
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12. What is a key element that best separates recognized professions from other occupations?
a. Large application fees
b. A commitment to ethical behavior
c. Certifications
d. Specific schooling requirements
13. If a CPA is unable to implement effective safeguards, what should the CPA do?
a.Decline the engagement.
b.Proceed with the professional service.
c. Document the identified threats.
d.Evaluate the significance of the threat.
14. What are the three types of safeguards against threats to a CPA’s compliance with the ethical
rules of the profession?
a. Independence, legal liability, and accounting standards
b. Self-control, internal compass, and future goals
c. Safeguard of regulation, client implemented controls, and CPA firm policies
d. Safeguard of standards, Acts of Congress, certification
15. Interpretation 1.295 indicates that before performing nonattest services, the CPA should
establish and document in writing an understanding with the client regarding ______.
a.any limitations of the engagement, only
b.the objectives of the engagement and the services to be performed, only
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c. the services to be performed, only
d.the objectives of the engagement, the services to be performed, and any limitations of
the engagement
16. As a general rule, professional employees in a CPA firm who are not covered members and
their immediate family members cannot ______.
a.be a trustee, director, or officer of an attest client or of the client’s pension or profit-
sharing trust
b.have a direct investment of more than 1% in an attest client
c. hold a non-key position with an attest client
d.have an indirect investment of more than 5% in an attest client
17. Attest services do not include _______.
a. audits
b. reviews under SSARs
c. examinations, reviews and agreed-upon procedures under SSAE
d. compilation reports of financial statements
18. “Independent in fact” is best defined as _______.
a. addressing potential conflicts of interest that can be observed or factually determined
by others
b. acting with integrity and objectivity
c. acting in a way that is observable under the Rules of Conduct
d. acting with independence and integrity
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19. Which of the following activities is not a prohibited activity that impairs independence?
a. A direct investment in the attest client
b. A joint, closely held investment with an attest client that is material to the covered
member
c. A material indirect investment in the attest client
d. Having a home mortgage from a bank who is an attest client
20. The general standards in the AICPA Code of Professional Conduct do not include _______.
a. professional competence
b. due professional care
c. planning for materiality
d. sufficient relevant data
21. Which of the following would be least likely to help you assess the integrity of management?
a. Interviews with human resources about its long-term disability provider.
b. Interviews about the reputation of the client, its management, directors, and key
stakeholders with the previous auditor.
c. Interviews with management about its attitude to risk exposure.
d. Interviews with the prior auditor about the client’s reasons for switching audit firms, if
the company was previously audited.
22. The main purpose of an engagement letter is to _______.
a. present the conclusion of the audit
b. advertise the additional services that the CPA firm provides
c. avoid any misunderstandings between the auditor and the client
d. request any and all information that the CPA firm might need to complete the audit
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23. The new auditor should communicate with the previous auditor in order to _______.
a. get the previous auditor’s workpapers
b. get all the passwords and logins to the client software
c. gain an understanding about the reasons for the change of auditors
d. serve them with an official change of auditor notice
24. Which of the following is performed during the risk assessment phase?
a. Risk and materiality assessment
b. Detailed tests of controls
c. Substantive testing of transactions and accounts
d. Drawing conclusions based upon the evidence gathered
25. Which overview defines audit strategy?
a. Evaluation of results of the detailed testing in light of the auditor’s understanding of the
client and forming an opinion on the fair presentation of the client’s financial
statements.
b. Gaining an understanding of the client, including identifying risk factors.
c. Performing tests of controls and detailed substantive testing of transactions and
accounts.
d. The determination of the amount of time to spend testing the client’s internal controls
and conducting detailed testing of transactions and account balances.
26. Which of the following is an amount set by the auditor that is used to make decisions about
the extent of audit procedures for a particular class of transaction, account balance, or
disclosure?
a. Planning materiality
b. Performance materiality
c. Overall materiality
d. Qualitative materiality
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27. Information is considered qualitatively material if it _______.
a. affects a user’s decision-making process for a reason other than its magnitude
b. exceeds the dollar magnitude of an auditor’s planning materiality assessment
c. can be presented as a percentage of net income
d. includes liquidity ratios of interest to bond holders
28. If new information comes to light that would cause the auditor to establish a different level
of planning materiality, then the auditor _______.
a. issue a qualified opinion as part of the audit report
b. should examine the information and make adjustments to materiality as needed
c. follow the auditing standards that recommend an appropriate percentage of total assets
as a benchmark for planning materiality for all companies
d. have management of the company select the appropriate benchmark for planning
materiality
29. Holding everything else constant, as the auditor’s evaluation of materiality_______, the
auditor is looking to obtain a more precise conclusion about the financial statements. The
_______precision of the audit will cause the auditor to perform more extensive audit
procedures.
a. decreases, increased
b. increases, decreased
c. increases, increased
d. decreases, decreased
30. At the assertion level, the risk of material misstatement refers to risks that affect classes of
________.
a. account balances, only
b. transactions and disclosures, only
c. disclosures, only
d. transactions, account balances, and disclosures
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31. What is audit risk?
a. The risk that a client’s internal controls will not prevent or detect a material
misstatement on a timely basis
b. The risk that is explicit or implied and made by management regarding the recognition,
measurement, presentation and disclosure of items included in the financial statements
and notes
c. The risk that an auditor expresses an inappropriate audit opinion when financial
statements are materially misstated
d. The assessed risk of material misstatement that, in the auditor’s judgment, requires
special audit consideration
32. Which of the following statements is true?
a. Inherent risk assessment is affected by internal factors but not external factors.
b. Inherent risk is the susceptibility of an assertion to material misstatement before
consideration of any related controls.
c. It is possible to eliminate audit risk.
d. During the risk assessment phase, auditors will perform audit procedures to identify
transactions and accounts where the risk of material misstatement is lowest.
33. During which phase or phases of the audit do auditors adopt the attitude of professional
skepticism?
a. risk response phase
b. reporting phase
c. risk assessment phase
d. all phases of the audit
34. In the context of fraudulent financial reporting, which would most likely represent a risk
factor?
a. Low employee turnover at senior management levels
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b. High degree of competition in the particular industry
c. The structure of the company includes subsidiary companies
d. Revenue expectations from management have increased slightly from the prior year
35. Analytical procedures are conducted during the risk assessment phase of the audit to
________.
a. highlight normal fluctuations in accounts
b. aid in the elimination of risk
c. identify accounts at risk of material misstatement
d. complete the audit work
36. Generally speaking, the existence of related party transactions ________.
a. increases inherent risk and should be investigated further
b. decreases inherent risk and should be investigated further
c. is illegal and should be reported to the Securities and Exchange Commission
d. is not worth of further investigation
37. Corporate governance may be best thought of as _________.
a. the people, systems, and processes within companies used to ensure that companies
are well-managed
b. the level of control exerted by senior management
c. a subsidiary entity that is controlled by a parent company
d. Corporate donations to political parties and non-profit entities
38. Which of the following is not a fraud risk factor?
a. An incentive or pressure to commit fraud
b. An opportunity to commit fraud.
c. Rationalization to justify fraudulent actions
d. Amount of ethics training provided by the firm
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39. What is a primary procedure auditors use in the fraud risk assessment process?
a. Documentation
b. Accuracy checking
c. brainstorming
d. Flowcharting
40. What ultimately determines the specific audit procedures necessary to provide independent
auditors with a reasonable basis for expression of an opinion?
a. The time budget
b. The auditor’s judgment
c. Quality control standards
d. The auditors’ working papers
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