ACC 490 Final Exam Answers.docx

ACC 490 Final Exam Answers Answer key at the end 1.        An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity’s operating activities in relation to specified objectives is a(n):   a. internal audit.     b. external audit.     c. operational audit.     d. compliance audit.     e. financial statement audit.     2.        When providing audit services, the CPA is expected to be:   a. independent of the client.     b. an advocate for the client.     c. an advocate for the general public.     d. indifferent to the effect of the financial statements and the audit report.     e. able to make managerial decisions for the client.     3.        Which one of the following services is often performed on public companies’ interim financial statements and nonpublic companies’ annual financial statements?   a. examination     b. accounting     c. auditing     d. review     e. consulting     4.        In the standard audit report, the auditor’s opinion on fairness pertains:   a. only to the complete set of financial statements.   b. to individual accounts.   c. to each financial statement taken as a whole.   d. to major components of each financial statement.   e. only to material aspects of each financial statement.   5.        Auditor liability under the 1933 Securities Act extends to the:     a. financial statement date.   b. auditor’s report date.   c. filing date of the registration statement.   d. effective date of the registration statement.   e. due date of the registration statement.           6.        An auditor may be liable to a client for breach of contract under which of the following?     a. Issues a standard audit report when he or she has not made an audit in accordance with GAAS.   b. Does not deliver the audit report by the agreed-upon date.   c. Violates the client’s confidential relationship.   d. All of the above.   e. None of the above.               7.        Which of the following would be an example of a foreseeable party?     a. all creditors   b. stockholders   c. present investors   d. future investors   e. all of the above           8.        Which of the following would not be considered an analytical procedure?     a. calculate the gross profit ratio and compare it to the industry figure   b. compare current year’s operating expenses to prior year’s   c. compare current year’s working capital to prior year’s   d. divide sales commissions by sales and compare the results to the established commission rate   e. compare the per unit price on a sales invoice to the master price list           9.        The subject of the auditing procedure observing is least likely to be:     a. personnel.   b. procedures.   c. processes.   d. inventory taking.   e. physical assets.           10.    An auditor can use computer audit software to do all of the following except:     a. select a sample of accounts receivable for confirmation.   b. reperform a variety of calculations such as totaling the accounts receivable subsidiary ledger or inventory file.   c. perform the calculations and comparisons used in tracing procedures.   d. submit test data to the client’s programs to determine that computer aspects of internal controls are functioning.   e. scan a file to determine that all documents in a series have been accounted for.           11.    The title of a certain working paper is “Proposed Adjusting Entries.”  The use of the word “proposed” indicates that:     a. these are reclassifying entries.   b. the listed adjustments are not considered necessary.   c. the auditor should not adjust the accounting records.   d. the listed adjustments are not considered material.   e. the client disagrees with the adjustments listed.                         12.    The importance of the accept/reject decision for a particular client is reflected in the inclusion of “acceptance and continuation of clients” as:     a. the subject of Statement of Financial Accounting Standards 96.   b. the subject of Statement on Auditing Standards 7.   c. a separate rule in the AICPA Code of Conduct.   d. an explicit part of the General Standards.   e. one of the quality control elements for CPA firms.           13.    When considering whether to accept an engagement, the auditor should consider the implications for accepting the engagement if:     a. management welcomes visits to all locations that the auditor considers material.   b. management does not restrict contacts with customers.   c. the auditor is not engaged after year-end.   d. the predecessor auditor’s workpapers are not available for review.   e. management does not restrict contacts with suppliers.           14.    A typical engagement letter should contain the following comment:  Because of the concept of reasonable assurance and because we will not perform a detailed examination of all transactions, there is a risk that:     a. we will detect only material errors.”   b. we cannot detect such acts that arise from collusion or direct actions on the part of upper management.”   c. material errors, fraud, or other illegal acts, may exist and not be detected by us.”   d. we cannot be relied upon to detect these items.  We will, however, be available for special fraud-audit engagements.”   e. we will probably detect all material irregularities.”           15.    Which of the following best describes the auditor’s responsibilities concerning related parties?     a. investigate those transactions encountered during the audit   b. as related parties are discovered during the course of the audit, their existence should be noted in the working papers   c. obtain a list of all board members and place in the working papers   d. investigate the background of all related parties   e. determine, in the planning stage, the existence of related parties           16.    In planning the audit, the auditor should assess materiality at two levels:     a. the preliminary level and the final level.   b. the company level and the divisional level.   c. the account balance level and the detailed item level.   d. the financial statement level and the account balance level.   e. the account balance level and the transaction level.                 17.    Professional standards recognize that a misstatement that is quantitatively immaterial may be qualitatively material.  In regard to these items, professional standards require the auditor to:     a. plan the audit to search for them.   b. design explicit procedures to detect them.   c. be on the alert for them.   d. report them to the audit committee.   e. report them directly to client management.           18.    In general, as an account balance decreases, the amount of evidence required will:     a. remain the same.   b. increase.   c. decrease.   d. change in an unpredictable fashion.   e. fluctuate randomly.           19.  . Which of the key financial ratios below measures the impact of financing decisions on earnings?     a. Common earnings leverage.   b. Profit margin.   c. Capital structure leverage.   d. Return on common equity.   e. Free cash flow.           20.    The auditor has some control over:     a. the assessed level of inherent risk.   b. the actual level of inherent risk.   c. both the actual level and the assessed levels of inherent risk.   d. neither the actual level nor the assessed level of inherent risk.   e. the projected level of inherent risk.           21.    Which of the following is an example of how an analytical procedure  may be helpful in identifying accounts and assertions that are likely to contain misstatements?     a. An improvement in the current ratio combined with an increase in the quick ratio.   b. An increase in gross sales combined with an increase in earnings per share.   c. Susceptibility of misappropriation.   d. An increase in gross margins combined with an increase in the number of inventory turn days. Answer key