Strayer ACC403/ACC 403 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 establishing its quality 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