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AC492 Final Examination Answers

AC492 Final Examination Answers

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AC492 Final Examination Answers

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AC492 Final Examination Answers

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AC492 Final Examination Answers

1.     The specific audit objective that all purchases and cash disbursements made during the period were recorded relates to:

existence or occurrence.

presentation and disclosure.

rights and obligations.

completeness.

2.     The use of the computer to compare production hours to direct labor hours on daily production reports relates to the:

rights and obligations assertion.

completeness assertion.

existence or occurrence assertion.

valuation or allocation assertion.

3.     During the count of cash on hand, it is NOT necessary for the auditor to:

insist on the presence of the custodian of the cash throughout the count.

insist on the presence of an internal auditor throughout the count.

obtain a signed receipt from the custodian on return of the funds.

control both cash and non-cash negotiable instruments held by the client.

4.     By definition, subsequent events occur between:

the report date and the date the report is issued.

the interim and balance sheet date.

the balance sheet date and the report date.

the balance sheet date and the date the report is issued.

5.     The expenditure cycle would include:

payroll transactions.

payments by check.

the purchase of another entity’s stocks.

the purchase of treasury stock.

6.     The specific account balance audit objective, plant assets and related expenses are properly identified and classified in the financial statements, relates to the:

presentation or disclosure assertion.

existence or occurrence assertion.

rights and obligations assertion.

completeness assertion.

7.     The specific account balance audit objective, the entity owns or has rights to all recorded plant assets at the balance sheet date, relates to the:

rights and obligations assertion.

existence or occurrence assertion.

completeness assertion.

valuation or allocation assertion.

8.     When inventories are material and the auditor does not observe the inventory at or near the year-end, professional standards require the auditor to:

disclaim an opinion on the financial statements.

observe some physical counts of the inventory.

thoroughly test the accounting records.

resign from the engagement.

9.     All sales, cash receipts, and sales adjustments are accurately valued using GAPP and correctly journalized, summarized, and posted. These actions are transaction objectives for:

completeness

accurancy

cutoff

occurance

10.  Section 18 liability is relatively narrow in scope because it relates only to a false or misleading statement in documents “filed” with the:

AICPA

SEC

IRS

FASB

11.  Which of the following functions is NOT part of the production cycle?

acquisition of raw materials

maintaining the correctness of inventory balances

processing goods in production

determining and recording manufacturing costs

12.  The specific audit objective for the audit of investments, investment balances are properly identified and classified in the financial statements, relates to the:

presentation or disclosure assertion.

rights and obligations assertion.

completeness assertion.

existence or occurrence assertion.

13.  The specific audit objective that the entity is liable for the payables resulting from the recorded purchase transactions relates to:

rights and obligations.

completeness.

presentation and disclosure.

existence or occurrence.

14.  The specific audit objective for the audit of investments, investment revenues, and realized and unrealized gains and losses, are reported at proper amounts, relates to the:

rights and obligations assertion.

completeness assertion.

valuation or allocation assertion.

existence or occurrence assertion.

15.  The control of all funds during the count of cash on hand is meant primarily to prevent:

unauthorized disbursements.

transfers by the client.

any chance of double counting.

client personnel from viewing the count procedure.

16.  The standard bank confirmation, developed jointly by the AICPA, the American Bankers Association, and the Bank Administration Institute, requests information about all of the following EXCEPT:

secondary endorsements.

deposit balances.

loan balances.

loan interest rates.

17.  Which of the following is NOT a tort?

negligence

gross negligence

fraud

breach of contract

18.  Which of the following accounts in a merchandising company is affected by both the revenue cycle and another cycle?

accounts receivable

sales returns and allowances

inventory

sales

19.  Whether the entity maintains effective controls to provide reasonable assurance that private customer information obtained as a result of e-commerce is protected from uses not related to the entity’s business defines:

risk assessment.

information protection.

performance measurement.

transaction integrity.

20.  Which one of the following is NOT true of the Principles in the AICPA’s Code of Professional Conduct?

They provide a framework for the Rules.

They express the basic tenets of ethical conduct.

They are expressions of ideals of professional conduct.

They are set forth as enforceable standards.

21.  The two main sections of the AICPA’s Code of Professional Conduct are:

Principles and Rules of Conduct.

Interpretations of the Rules of Conduct and Ethics Rulings.

Principles and Ethics Rulings.

Rules of Conduct and Interpretations of the Rules of Conduct.

22.  The Principle of Integrity in the AICPA’s Code of Professional Conduct would be violated in cases of:

subordination of judgment.

unintentional distortion of facts.

inadvertent error.

genuine differences in opinion.

23.  The audit objective, “The accounts receivable balance represents gross claims on customers and agrees with the sum of the accounts receivable subsidiary ledger” is derived from the assertion of:

existence or occurrence.

valuation or allocation.

rights and obligations.

completeness.

24.  The specific audit objective for the audit of investments, all investments are included in the balance sheet investment accounts, relates to the:

rights and obligations assertion.

completeness assertion.

valuation or allocation assertion.

existence or occurrence assertion.

25.  In performing an attest engagement, a CPA performs all of the following EXCEPT:

gathers evidence to support the assertions.

relies on management statements.

objectively assesses the communications of the individual making the assertions.

objectively assesses the measurements of assertions.

26.  The auditor’s strategy in performing test counts during the inventory observation is to:

concentrate tests on high dollar items and take a representative sample of other items.

test all high dollar items.

concentrate tests in areas where employees seem to be disregarding the inventory instructions.

randomly select all test items.

27.  Which one of the following is an investing activity?

acquiring debt

issuing bonds

capital leases

selling land

28.  Whether the system is protected against unauthorized physical and logical access defines:

system availability.

system verifiability.

system security.

system integrity.

29.  When an investigation of the discovery of facts existing at the report date confirms the existence of the fact and the auditor believes the information is important to those relying or likely to rely on the financial statements, the auditor should immediately:

resign from the engagement.

take steps to prevent future reliance on the audit report.

notify the SEC or other regulatory agency.

notify the audit committee.

30.  The auditor’s special report on financial statements prepared on an OCBOA should contain all of the following EXCEPT:

an introductory paragraph.

a scope paragraph.

an exclusion paragraph.

an explanatory paragraph.

31.  Which of the following is NOT among the characteristics of the procedures performed in completing the audit?

They are optional since they have only an indirect impact on the opinion to be expressed.

They are performed after the balance sheet date.

They involve many subjective judgments by the auditor.

They are usually performed by audit managers or other senior members of the audit team who have extensive audit experience with the client.

32.  Which of the following is NOT among the specific auditing procedures the auditor performs to obtain additional audit evidence?

reading minutes of meetings

making subsequent events review

reviewing evidence concerning litigation, claims, and assessments

obtaining client representation letter

33.  Gross negligence can best be defined as:

criminal fraud.

misrepresentation.

failure to exercise due care.

failure to exercise even slight care.

34.  Whether the system processing is complete, accurate, timely, and authorized defines:

system security.

system integrity.

system maintainability.

system availability.

35.  When statistical sampling methods are used by the client in determining inventories, professional standards require that the auditor ascertain the following EXCEPT that the:

sampling plan has statistical validity.

appropriate tests of transactions have been applied.

sampling plan has been properly applied.

results in terms of reliability are reasonable.

36.  With a manufacturer, wholesaler, or retailer, however, inherent risk for inventory may be assessed at or near the maximum level for all of the following reasons EXCEPT:

inventories are vulnerable to spoilage, obsolescence, and other factors such as general economic conditions that may affect demand and salability, and thus the proper valuation of the inventories.

the wide diversity of inventory items may present special problems in determining their quality and market value.

inventories are often stored at multiple sites, adding to the difficulties associated with maintaining physical controls over theft and damages, and properly accounting for goods in transit between sites.

Source: AC492 Final Examination Answers