Acct 208 Exam 2

AUDITING ACCT 208/718

FALL 2017

EXAMINATION #2

NOVEMBER 20, 2017

The test consists of multiple choice questions; please circle your answer. The test is due in class on November 27, 2017. If you are unable to attend class on that date, you can submit your test to the information below.

Contact information is as follows:

Karl G. Fassnacht

610-862-2418

kfassnacht@cbiz.com

Fax 610-862-2500

NAME___________________________

GRADE_____________

1. Which of the following is not one of the three primary objectives of effective internal    

     control?

1. Reliability of financial reporting
2. Efficiency and effectiveness of operations
3. Compliance with laws and regulations
4. Assurance of elimination of business risk

2. Two key concepts that underlie management’s design and implementation of internal

    control are:

1. Costs and materiality
2. Absolute assurance and costs
3. Inherent limitations and reasonable assurance
4. None of the above

3. Which of the following activities would be least likely to strengthen a company’s        

    internal control?

1. Separating accounting from other financial operations
2. Maintaining insurance for fire and theft
3. Fixing responsibility for the performance of employee duties
4. Carefully selecting and training employees

4. Internal controls can never be regarded as completely effective. Even if company

    personnel could design an ideal system, its effectiveness depends on:

1. Adequacy of the computer system
2. Proper implementation by management
3. Ability of the internal staff to maintain it
4. Competency and dependability of the people using it

5. After considering a client’s internal controls, an auditor has concluded that it is well

    designed and is functioning as intended. Under these circumstances the auditor

    would most likely:

1. Perform tests of controls to the extent outlined in the audit program
2. Determine the control procedures that should prevent or detect errors and irregularities
3. Not increase the extent of predetermined substantive tests
4. Determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles

6. Which of the following best defines fraud in a financial auditing context?

1. Fraud is an unintentional misstatement of the financial statements
2. Fraud is an intentional misstatement of the financial statements
3. Fraud is either an intentional or unintentional misstatement of the financial statements
4. None of the above correctly defines fraud

7. ________ involves deliberate actions by management to meet earnings objectives.

1. Expenditure management
2. Earnings management
3. Top-line management
4. Management-by-objective

8. Which of the following issues is not normally part of the brainstorming session

    required by SAS 99?

1. How management could perpetrate and conceal fraud
2. How assets could be misappropriated
3. Where the entity’s financial statements are susceptible to material misstatements due to fraud
4. Each of the above is normally included in a brainstorming session

9. Which of the following IT duties should be separated from the others?

1. Systems development
2. Operations
3. Data control
4. All of the above should be separated

10. Collectively, procedure performed to obtain an understanding of the entity and its

      environment, including internal controls, represent the auditor’s:

1. Audit strategy
2. Tests of controls
3. Risk assessment procedures
4. Tests of transactions

11. For efficiency, tests of controls are frequently done at the same time as:

1. Analytical procedures
2. Compliance tests
3. Tests of transactions
4. Tests of detail of balances

12. If no material differences are found using analytical procedures and the auditor

     concludes that material misstatements are not likely to have occurred:

1. Other tests may be reduced
2. It will be necessary to increase the test of balances
3. It will not be necessary to perform tests of balances
4. It will be necessary to increase the tests of transactions

13. After finishing the review phase of the study and evaluation of internal control, the

     auditor should perform tests of controls on:

1. Those controls that the auditor wants and plans to rely on
2. Those controls in which material weaknesses were identified
3. Those controls that have a material effect on the financial statement balances
4. A random sample of the controls that were reviewed

14. What critical event must take place before goods can be shipped?

1. Determination of the correct delivery address
2. Credit approval
3. Receipt of cash
4. Receipt of sales order from the customer                                                          

15. A listing of amounts owed by customers which shows how long each invoice has been due is called:

1. Accounts receivable subsidiary ledger
2. Monthly statement
3. Remittance advice
4. Aged accounts receivable trial balance                                                      

16. After the auditor has identified the key internal controls and deficiencies and assessed

    control risk for a private company, it is appropriate to decide whether:

1. Substantive tests will be reduced sufficiently to justify costs of performing tests of

controls

    b.   Substantive tests will be increased sufficiently to justify costs of performing tests

          of controls

    c.   Tests of controls will be increased sufficiently to justify costs of performing

          substantive tests

    d.   Tests of controls will be reduced sufficiently to justify costs of performing

     substantive tests

17. Which of the following procedures would ordinarily be best expected to find

 unrecorded sales?

1. Compare shipping documents with sales invoices
2. Apply gross profit rates to inventory disposed of during the period
3. Trace payments received subsequent to the balance sheet date
4. Send accounts receivable confirmation requests

18. The two primary classes of transactions in the revenue cycle are:

1. Sales and sales discounts
2. Sales and cash receipts
3. Sales and sales returns
4. Sales and accounts receivable

19. Which of the following types of receivables would not deserve the special attention

     of the auditor?

1. Accounts receivable with credit balances
2. Accounts that have been outstanding for a long time
3. Receivables from affiliated companies
4. Each of the above would receive special attention

20. Cutoff misstatements occur when:

     a. The auditor mistakenly requests the bank for year-end statements instead of

          subsequent period statements including the first two weeks after the

          balance sheet date