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Acct591 unit 3 quiz part 1

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Score for this quiz: 90 out of 100
Submitted Mar 23 at 9:43am
This attempt took 33 minutes.
Question 1
10 / 10 pts
CPA-02693
Which of the following evidence provides the greatest assurance of reliability?
Correct!
Bank statement.
Bank reconciliation.
Cash receipts journal.
Cash disbursements journal.
Choice "A" is correct. External evidence is more reliable than internal evidence. A bank
statement is external evidence.
Choices "B", "C", and "D" are incorrect. Bank reconciliations, the cash receipts journal,
and the cash disbursements journal are all internal evidence, which is not as reliable as
external evidence.
Question 2
10 / 10 pts
CPA-02585
An auditor established a $60,000 tolerable misstatement for an asset with an account
balance of $1,000,000. The auditor selected a sample of every twentieth item from the
population that represented the asset account balance and discovered overstatements
of $3,700 and understatements of $200. Under these circumstances, the auditor most
likely would conclude that:
Correct!
There is an unacceptably high risk that the actual misstatements in the population
exceed the tolerable misstatement because the total projected misstatement is more
than the tolerable misstatement.
There is an unacceptably high risk that the tolerable misstatement exceeds the sum of
actual overstatements and understatements.
The asset account is fairly stated because the total projected misstatement is less than
the tolerable misstatement.
The asset account is fairly stated because the tolerable misstatement exceeds the net
of projected actual overstatements and understatements.
Choice "1" is correct. Selection of every twentieth item results in a sample that is 5%
(1/20 = .05) of the population. The sample results indicate a net overstatement of
$3,500 (= $3,700 − $200), which is then projected to the total population as
$70,000 (= $3,500 / .05). (Alternatively, 3,500 × 20 = 70,000). Since the projected
misstatement of $70,000 exceeds the tolerable misstatement of $60,000, there is an
unacceptably high risk that the actual misstatement in the population will exceed the
tolerable misstatement.
Choice "2" is incorrect. Tolerable misstatement is compared to the projected
misstatement, not to the actual error in the sample.
Choices "3" and "4" are incorrect. The asset account is not fairly stated because the
projected misstatement exceeds the tolerable misstatement.
Question 3
10 / 10 pts
CPA-05514
Which of the following statements is correct regarding the auditor's consideration of the
possibility of noncompliance with laws and regulations by clients?
The auditor is responsible for preventing noncompliance with laws and regulations and
is expected to detect noncompliance with all laws and regulations.
The auditor's training, experience, and understanding of the client should be used to
provide a basis for the determination as to whether acts of noncompliance with laws and
regulations have occurred.
Correct!
If specific information concerning an act of noncompliance with laws and regulations
comes to the auditor's attention, the auditor should apply audit procedures specifically
directed to ascertaining whether such an act has occurred.
If an act of noncompliance with laws and regulations has occurred, the auditor should
express a qualified opinion or an adverse opinion on the financial statements taken as a
whole.
Choice "C" is correct. If specific information concerning a possible act of noncompliance
with laws and regulations comes to the auditor's attention, the auditor should apply
additional audit procedures to determine whether an act of noncompliance with laws
and regulations has in fact occurred. Professional skepticism throughout the audit is
important in this context, given the extent of laws and regulations that affect the client.
Choice "A" is incorrect. The auditor has a responsibility to plan and perform the audit to
obtain reasonable assurance that the financial statements are free
of material misstatement. The auditor is not responsible for preventing noncompliance
and may not be able to detect noncompliance in many situations due to the inherent
limitations of an audit. For example, noncompliance may involve conduct by
management designed to conceal it.
Choice "B" is incorrect. The auditor's training, experience, and understanding of the
client may not be sufficient to provide a basis for the determination as to whether acts of
noncompliance with laws and regulations (especially indirect effect acts) have occurred.
Additional procedures may likely be required.
Choice "D" is incorrect. If an act of noncompliance with laws and regulations has
occurred, but the act has been properly accounted for and/or disclosed, there would be
no need to express a qualified opinion or an adverse opinion.
Question 4
10 / 10 pts
CPA-02353
Which of the following procedures would an auditor most likely perform in auditing the
statement of cash flows?
Compare the amounts included in the statement of cash flows to similar amounts in the
prior year's statement of cash flows.
Reconcile the cutoff bank statements to verify the accuracy of the year-end bank
balances.
Vouch all bank transfers for the last week of the year and first week of the subsequent
year.
Correct!
Reconcile the amounts included in the statement of cash flows to the other financial
statements' balances and amounts.
Choice "D" is correct. To audit the statement of cash flows, the auditor reconciles the
amounts on the statement to amounts on other financial statements.
Choice "A" is incorrect. Comparison of amounts on the cash flow statement with those
of the previous period is an analytical procedure that is not commonly used to audit the
statement of cash flows, since sources and uses of cash in the current year are not
necessarily predictable based on sources and uses from the prior year.
Choice "B" is incorrect. Reconciling the cutoff bank statement is a procedure used to
audit the cash balance, rather than the statement of cash flows.
Choice "C" is incorrect. Vouching all bank transfers is a procedure used to audit the
cash balance, rather than the statement of cash flows.
Question 5
10 / 10 pts
CPA-05880
Which of the following documents are examples of audit evidence generated by the
client?
Customer purchase orders and bank statements.
Correct!
Shipping documents and receiving reports.
Vendor invoices and packing slips.
Bills of lading and accounts receivable confirmations.
Choice "B" is correct. Shipping documents and receiving reports are internallygenerated evidence, since they are created by the client rather than received from
independent sources outside the enterprise.
Choice "A" is incorrect. Customer purchase orders and bank statements are both
external evidence, since they are received from independent sources outside the
enterprise.
Choice "C" is incorrect. Vendor invoices and packing slips are both external evidence,
since they are received from independent sources outside the enterprise.
Choice "D" is incorrect. Bills of lading and accounts receivable confirmations are both
external evidence, since they are received from independent sources outside the
enterprise.
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