Question 1

The underlying conditions that create demand by users for reliable information include all of the following,except
A)transactions are numerous and complex.
B)users lack professional skepticism.
C)users are separated from accounting records by distance and time.
D)financial decisions are important to investors and users.
E)decisions are time-sensitive.

Accepted Answer

Users should have professional skepticism to ensure they are obtaining reliable information. Thus, lack of professional skepticism does not create demand for reliable information.

Question 2

The risk an entity will fail to meet its objectives is referred to as
A)business risk.
B)information risk.
C)assurance risk.
D)audit risk.

Accepted Answer

Business risk is the risk that an entity will fail to meet its objectives, which can be due to a variety of internal and external factors.

Question 3

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?
A)Inventory is properly classified as a current asset on the balance sheet.
B)Inventory is properly stated at cost on the balance sheet.
C)Major inventory categories and their valuation bases are adequately disclosed in notes.
D)All of these are ASB presentation and disclosure assertions about inventory.

Accepted Answer

All of these choices are ASB presentation and disclosure assertions about inventory, so none of them are not an assertion.

Question 4

What are the differences between the American Accounting Association and AICPA definitions and objectives of auditing?

Accepted Answer

The answer of What are the differences between the American...

Question 5

What is operational auditing and by whom is it performed?

Accepted Answer

The answer of What is operational auditing and by whom...

Question 6

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of
A)completeness.
B)existence.
C)presentation.
D)valuation.
E)rights and obligations.

Accepted Answer

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items help in assessing the valuation assertion. This is because such inquiries can reveal information about inventory that may not be properly valued on the financial statements due to obsolescence or slow movement, which could affect the inventory's net realizable value.

Question 7

What is information risk? What is business risk?

Accepted Answer

The answer of What is information risk? What is business...

Question 8

The accounting,auditing,and investigating agency of the U.S.Congress,headed by the U.S.Comptroller General is known as
A)the Federal Bureau of Investigation (FBI).
B)the U.S.General Accountability Office (GAO).
C)the Internal Revenue Service (IRS).
D)the United States Legislative Auditors (USLA).

Accepted Answer

The accounting, auditing, and investigating agency of the U.S. Congress, headed by the U.S. Comptroller General, is known as the U.S. General Accountability Office (GAO). The other options listed (FBI, IRS, and USLA) are not responsible for the oversight and auditing of government agencies and programs.

Question 9

An attestation engagement is one in which a CPA is engaged to
A)issue,or does issue,a report on subject matter or an assertion about the subject matter that is the responsibility of another party.
B)provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.
C)testify as an expert witness in accounting,auditing or tax matters,given certain stipulated facts.
D)assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.

Accepted Answer

Attestation engagements involve the CPA issuing a report on subject matter or an assertion about the subject matter that is the responsibility of another party. Option B refers to tax services, Option C refers to expert witness testimony, and Option D refers to compilation engagements.

Question 10

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements.Certification means that the company CEO and CFO must sign a statement indicating
A)they have read the financial statements.
B)they are not aware of any false or misleading statements (or any key omitted disclosures).
C)they believe that the financial statements present an accurate picture of the company's financial condition.
D)All of these.

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements by signing a statement indicating that they have read the financial statements, are not aware of any false or misleading statements (or any key omitted disclosures), and believe that the financial statements present an accurate picture of the company's financial condition. Therefore, all of these choices (A, B, and C) are correct.

Question 11

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as
A)substantial equivalency.
B)quid pro quo.
C)relicensing.
D)re-examination.

Accepted Answer

The correct term for obtaining a certificate and license in another state is substantial equivalency. This allows CPAs to practice in multiple states without having to meet every state's individual requirements for certification and licensing. Quid pro quo refers to a type of exchange, relicensing is not a recognized term in the context of obtaining a CPA license, and re-examination would only be necessary if the CPA failed to meet the requirements for substantial equivalency.

Question 12

In performing an attestation engagement,a CPA typically
A)supplies litigation support services.
B)assesses control risk at a low level.
C)expresses a conclusion on an assertion about some type of subject matter.
D)provides management consulting advice.

Accepted Answer

In an attestation engagement, a CPA expresses a conclusion on an assertion about some type of subject matter. This can include financial statements, internal controls, or other information provided by management. They are not providing litigation support services or management consulting advice, and while control risk may be assessed, it is not the primary focus of the engagement.

Question 13

The probability that the information circulated by a company will be false or misleading is referred to as
A)business risk.
B)information risk.
C)assurance risk.
D)audit risk.

Accepted Answer

The probability that the information circulated by a company will be false or misleading is known as information risk. Business risk refers to the risks associated with the operations, competition, and overall performance of a company, while assurance risk pertains to the risk that an auditor is willing to accept that the financial statements may contain material misstatements. Audit risk is the risk that the auditor may issue an incorrect opinion on the financial statements.

Question 14

Auditors are auditing the warehouse of Huge Lots Corporation.The auditors performed the audit procedures listed 1-5.For each audit procedure select the ASB balance assertion that is most likely being tested.
A.Existence
B.Rights and obligations
C.Completeness
D.Accuracy
E.Valuation
1.The auditors walked through the warehouse looking for obsolete inventory.
2.The auditors compared invoices received from suppliers with the cost of inventory listed in the inventory accounts.
3.The auditors reviewed purchase orders to determine if any inventory was on consignment.
4.The auditors reviewed vendor invoices to determine if freight costs,taxes,tariffs or other costs had been included in inventory costs.
5.The auditors selected items from the inventory and reviewed inventory records to ensure these items were included in those records.

Accepted Answer

The answer of Auditors are auditing the warehouse of Huge...

Question 15

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of
A)presentation.
B)completeness.
C)rights.
D)existence.

Accepted Answer

Cutoff tests are designed to ensure that transactions are recorded in the appropriate accounting period. In this case, the cutoff tests are specifically targeted at identifying credit sales that should have been recorded in the current year but were recorded in the subsequent year. Therefore, the primary assertion being tested is completeness, to ensure that all sales are recorded in the appropriate accounting period.

Question 16

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of
A)completeness.
B)existence.
C)presentation.
D)valuation.
E)rights and obligations.

Accepted Answer

Inquiries about possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of valuation. This is because such inquiries help to identify inventory items that may have lost their value or are not selling as expected, which could imply that their value needs to be reduced on the balance sheet.

Question 17

Which of the PCAOB assertions (A-E)are best verified by the following audit procedures (1-4)?
A.Existence or occurrence
B.Rights and obligations
C.Valuation or allocation
D.Completeness
E.Presentation and disclosure
1.Confirming inventory held on consignment by the client with independent third party.2.Consulting the Wall Street Journal for year-end prices of securities held by the client.3.Physically examine all major property and equipment additions.4.Review the aged trial balance for significant past due accounts.

Accepted Answer

The answer of Which of the PCAOB assertions (A-E)are best...

Question 18

The study of business operations for the purpose of making recommendations about the efficient use of resources,effective achievement of business objectives,and compliance with company policies is referred to as
A)environmental auditing.
B)financial auditing.
C)compliance auditing.
D)operational auditing.

Accepted Answer

Operational auditing involves analyzing and evaluating business operations in order to identify opportunities for improving efficiency, achieving objectives, and ensuring compliance with policies. This type of auditing goes beyond financial statements to examine all aspects of a company's operations, including processes, procedures, and controls. Therefore, operational auditing is the most relevant option for the described study of business operations.

Question 19

The four basic requirements for becoming a CPA in most states are
A)education,the CPA Examination,experience,and substantial equivalency.
B)the CPA Examination,experience,continuing professional education,and a state certificate.
C)continuing professional education,the CPA Examination,experience,and an AICPA certificate.
D)education,the CPA Examination,experience,and a state certificate.

Accepted Answer

The four basic requirements for becoming a CPA in most states are education, the CPA Examination, experience, and a state certificate. Choice A is incorrect because "substantial equivalency" is not a requirement for becoming a CPA; it is a provision used for CPAs licensed in one state who wish to practice in another state without having to obtain a new license. Choice B is incorrect because continuing professional education is not a requirement for becoming a CPA, although it is a requirement for maintaining licensure in most states. Choice C is incorrect because an AICPA certificate is not a requirement for becoming a CPA.

Question 20

ABC Company had a major sale to XYZ Company.This sale accounted for 20% of the revenue of ABC Company.The auditors performed the audit procedures listed 1-3.For each audit procedure select the ASB transaction assertion that is most likely being tested.
A.Occurrence
B.Completeness
C.Cutoff
D.Accuracy
E.Classification
1.The auditor reviewed the shipping documents to check the date that product was shipped to XYZ Company.
2.The auditor reviewed the shipping documents to ensure that all product included in the sales revenue to XYZ had been shipped.
3.The auditor reviewed the invoice sent to XYZ Company to ensure that XYZ had been properly billed.

Accepted Answer

The answer of ABC Company had a major sale to...

Quiz 1: Auditing and Assurance Services

The underlying conditions that create demand by users for reliable information include all of the following,except

The risk an entity will fail to meet its objectives is referred to as

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?

What are the differences between the American Accounting Association and AICPA definitions and objectives of auditing?

What is operational auditing and by whom is it performed?

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of

What is information risk? What is business risk?

The accounting,auditing,and investigating agency of the U.S.Congress,headed by the U.S.Comptroller General is known as

An attestation engagement is one in which a CPA is engaged to

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements.Certification means that the company CEO and CFO must sign a statement indicating

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as

In performing an attestation engagement,a CPA typically

The probability that the information circulated by a company will be false or misleading is referred to as

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of

The study of business operations for the purpose of making recommendations about the efficient use of resources,effective achievement of business objectives,and compliance with company policies is referred to as

The four basic requirements for becoming a CPA in most states are