Auditing - Multiple Choice

1. Which of the following statements is correct concerning an auditor’s responsibilities regarding financial statements? a. Making suggestions that are adopted about the form and content of an entity’s financial statements impairs an auditor’s independence. b. An auditor may draft an entity’s financial statements based on information from management’s accounting system. c. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor’s responsibility. d. An auditor’s responsibilities for audited financial statements are not confined to the expression of the auditor’s opinion. 2. One of a CPA firm’s basic objectives is to provide profe... click for more

Auditing - Internal Control – Transaction Cycles

13. For effective internal control, the accounts payable department generally should a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. c. Obliterate the quantity ordered on the receiving department copy of the purchase order. d. Establish the agreement of the vendor’s invoice with the receiving report and purchase order. 14. Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? a. Is an authorized purchase order required before the receiv... click for more

Auditing - Substantive tests and tests for fraud

18 . An unenlightened management can increase the probability of fraud in the company by A) Diversifying authority throughout divisions and subsidiaries in the organization. B) Measuring performance and awarding bonuses based on short-term operating results. C) Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work. D) Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts. 19. Which of the following procedures would an auditor most likely perform to test controls relating to management’s assertion about the completeness of cash receipt... click for more

Auditing - Audit Reporting and Required Communications

32. After the fieldwork is completed, a partner of the CPA firm who has not been involved in the audit performs a second-partner documentation review. This second review usually focuses on A) The fair presentation of the financial statements in conformity with GAAP. B) Irregularities involving the client's management and its employees. C) The materiality of the adjusting entries proposed by the audit staff. D) The communication of internal control deficiencies to the client's audit committee. 33. An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The... click for more

Related Entity Transactions

It is common for an entity to have transactions with related entities—some of which are fully owned, some of which share common ownership, but are not otherwise related, and others where ownership is small but there is control. Required: a. Define related entity transactions and describe the appropriate accounting for related entity transactions. In your answer consider the following: • Parent-subsidiary transactions • Affiliated entity transactions—owned by same owner (not a corporation) • Joint venture transactions • Special purpose entity transactions • Entity transactions with CEO (other than payroll) b. There are two basic approaches to auditing rel... click for more