Question 1

Auditors check the accuracy of accrual and deferral calculations around _______-end and look at earnings trends to assess whether the reported income is in line with similar prior year periods.

Accepted Answer

The answer of Auditors check the accuracy of accrual and...

Question 2

Net operating cycle measures how many days, on average, it takes a company to ________ (choose three options).

Accepted Answer

The answer of Net operating cycle measures how many days,...

Question 3

Which three of the following reasons could increase inherent risk? (choose three options)

Accepted Answer

A) Offering warranties on products could increase inherent risk as it creates potential liability for the client if the warranties are not fulfilled.
B) Decentralized operations could increase inherent risk as it could lead to inconsistencies in internal controls and difficulty in assessing the overall financial health of the organization.
C) Complex and unique transactions could increase inherent risk as they are more difficult to understand and assess for potential misstatement.
D) Taking advantage of discounts offered by suppliers does not increase inherent risk as long as the transactions are properly recorded and disclosed.

Question 4

If auditors believe their client is under pressure to smooth its income and not report any unexpected increases, which of the following risks are likely with regard to current income? (choose two options)

Accepted Answer

The answer of If auditors believe their client is under...

Question 5

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data.They range from simple comparisons to the use of complex models involving many relationships and elements of data.They involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by auditors.
Describe the broad purposes of analytical procedures and identify the sources of information from which an auditor develops expectations.

Accepted Answer

The answer of Analytical procedures consist of evaluations of financial...

Question 6

If a client experienced all of the following events during the fiscal year, what effect would the auditor expect to see on the inventory turnover ratio?
(A) Items shipped on consignment during the last month of the year were recorded as sales.
(B) A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.
(C) Year-end purchases of inventory were understated by incorrectly excluding items received before the year end.

Accepted Answer

The answer of If a client experienced all of the...

Question 7

Can an auditor place complete reliance on internal control to the exclusion of other audit procedures?

Accepted Answer

The answer of Can an auditor place complete reliance on...

Question 8

It important for auditors to identify significant risks, as well as any controls that mitigate those risks during the _____ (choose two options).

Accepted Answer

Auditors need to identify significant risks and evaluate the effectiveness of controls that mitigate those risks during the risk assessment and control risk assessment phases. This helps the auditor to plan the nature, timing, and extent of audit procedures, and to form an opinion on the financial statements. The reporting and conclusion phases come after the auditor has gathered sufficient evidence to support their opinion.

Question 9

For public companies, Section 301 of the Sarbanes-Oxley Act has specific requirements for the composition and duties of the ________.

Accepted Answer

The answer of For public companies, Section 301 of the...

Question 10

If auditors believe the client is under pressure to report strong results, which of the following risks exist with regard to the current year's income? (choose two options)

Accepted Answer

The answer of If auditors believe the client is under...

Question 11

Which of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?
- Interviewing internal auditors about their reporting responsibilities.
- Reviewing accounting records for recurring transactions occurring near year-end.
- Inspecting communications with the client's legal counsel regarding recorded contingent liabilities.
- Scanning the minutes for significant transactions with members of the board of directors.

Accepted Answer

The answer of Which of the following engagement planning procedures...

Question 12

Which two of the following KPIs are common to most clients? (choose two options)

Accepted Answer

Return on assets and return on stockholder's equity are both common KPIs used by clients to measure the overall profitability and financial health of their company. Inventory turnover and risk-weighted assets may be more specific to certain industries or businesses.

Question 13

Which of the following describes the executive directors on the board? They are _____ (choose two options).

Accepted Answer

Executive directors are part of the company's management team and are employed by the company. They may hold a senior leadership position, such as CEO or CFO, and play a crucial role in decision-making and strategy development for the company.

Question 14

If the current year accounts receivable is larger than last year but the allowance for doubtful accounts is the same, what account needs to be audited carefully and why?

Accepted Answer

The answer of If the current year accounts receivable is...

Question 15

Which three of the following are related parties of a company? (choose three options)

Accepted Answer

A) An affiliate is a related party because it is a company that is controlled by, controls, or is under common control with the reporting company.
B) The principal owner is a related party because they have a significant financial interest in the reporting company.
C) The manager is a related party because they are a key management personnel of the reporting company.
D) The government is not necessarily a related party unless it has significant control or influence over the reporting company.

Question 16

Which three of the following are risks associated with IT? (choose three options)

Accepted Answer

Unauthorized access to software, errors in programs, and loss of data are all common risks associated with IT. Multiple backups can actually mitigate the risks of data loss, but it is not a risk in itself.

Question 17

Sustainable cash flow from operations - capital expenditures = ________.

Accepted Answer

The answer of Sustainable cash flow from operations - capital...

Question 18

If current year fixed assets are larger and current depreciation expense is the same as last year, what account should be reviewed by the auditor and why?

Accepted Answer

The answer of If current year fixed assets are larger...

Question 19

Companies that agree to debt covenants with lenders when taking on loans often make promises to ________ (choose three options).

Accepted Answer

Debt covenants are agreements made between borrowers and lenders to ensure that the borrower complies with certain terms and conditions. These terms may include maintaining specified profitability, liquidity, or other financial ratios, seeking the lender's permission before taking on new borrowings, and seeking the lender's permission before acquiring other companies. While maintaining high technological standards may be important for certain types of businesses, it is not typically a requirement in debt covenants.

Question 20

How well current assets cover current liabilities is indicated by the ________ratio.

Accepted Answer

The answer of How well current assets cover current liabilities...

Quiz 4: Risk Assessment Part Iiunderstanding the Client