Which of the following is ordinarily considered to be a
fraud risk factor?
Detailed Answer
(a) Last minute material adjustments is a situation that
has been found to be associated with fraudulent financial reporting.
2
Which of the following statements best describes the primary
purpose of Statements on Auditing Standards?
Detailed Answer
(c) The Statements on Auditing Standards are authoritative
statements that are enforced through the AICPA
Code of Professional Conduct.
3
Which of the following should an auditor obtain from the
predecessor auditor prior to accepting an audit engagement?
Detailed Answer
(d) Prior to accepting the engagement, the successor
auditor should obtain information to assist in deciding whether
to accept the engagement, including facts that might bear on the
integrity of management. All of the other items might be obtained
but need not be obtained prior to acceptance.
4
One reason that an auditor only obtains reasonable, and
not absolute, assurance that financial statements are free from
material misstatement is
Detailed Answer
(b) Employee collusion is a limitation of internal control.
It may render internal control ineffective.
5
The auditors of a nonissuer (nonpublic) company must
perform a test of the operating effectiveness of a significant
control
Detailed Answer
(c) Internal control must be tested when substantive
procedures alone will not provide sufficient evidence.
6
The independent auditor selects several transactions in
each functional area and traces them through the entire system,
paying special attention to evidence about whether or not the
controls are in operation. This is an example of a(n)
Detailed Answer
(b) This describes a test of control using audit sampling.
7
In obtaining an understanding of a manufacturing entity’s
internal control over inventory balances, an auditor most likely
would
Detailed Answer
(a) To obtain an understanding of internal control, the
auditor would review the company’s documentation of policies
and procedures. Items (b), (c), and (d) are substantive tests of
balances or transactions.
8
Which of the following statements best describes the ethical
standard of the profession pertaining to advertising and
solicitation?
Detailed Answer
(c) The AICPA Code of Professional Conduct allows
advertising providing it is not false, misleading or deceptive.
9
Which is least likely to be a question asked of client personnel
during a walk-through in an audit of the internal control
of an issuer (public) company?
Detailed Answer
(b) “Who is most likely to commit fraud among your
coworkers?†is a confrontational question that is not likely to get
a meaningful response.
10
An abnormal fluctuation in gross profit that might suggest
the need for extended audit procedures for sales and inventories
would most likely be identified in the planning phase of the
audit by the use of
Detailed Answer
(d) Analytical procedures involve the use of comparisons
of financial and nonfinancial information to identify fluctuations
that increase risk or may need investigation.
