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ACC 492 Final Exam Solution

ACC 492 Final Exam Solution

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ACC 492 Final Exam Solution

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ACC 492 Final Exam Solution

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ACC 492 Final Exam Solution

) The bonding of employees will normally be expected to:

            A.   “weed out” dishonest employees already hired.

            B.   serve as a deterrent to dishonesty.

            C.   guarantee that all employee fraud will be prevented.

            D.   eliminate the need for separation of duties in the cash receipts area.

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

            A.   occurance

            B.   cutoff

            C.   accurancy

            D.   completeness

3) Disclosure objectives include all of the following EXCEPT:

            A.   occurrence and rights and obligations

            B.   classification and understandability

            C.   completeness

            D.   cutoff

4) The extent of the auditor’s inventory test count would LEAST depend on which of the following?

            A.   The nature and composition of the inventory.

            B.   The existence of inventory at multiple locations.

            C.   The effectiveness of controls pertaining to maintenance of perpetual records.

            D.   The care exercised by client employees in taking the inventory.

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

            A.   sampling plan has statistical validity.

            B.   appropriate tests of transactions have been applied.

            C.   results in terms of reliability are reasonable.

            D.   sampling plan has been properly applied.

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

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

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

            C.   randomly select all test items.

            D.   test all high dollar items.

7) Observation of inventories is a required audit procedure whenever:

            A.   inventories are material.

            B.   the auditor considers it to be necessary.

            C.   it is practicable and reasonable.

            D.   inventories are material and it is practicable and reasonable.

8) 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:

            A.   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.

            B.   the volume of purchases, manufacturing, and sales transactions that affects these accounts is generally high, decreasing the opportunities for misstatements to occur.

            C.   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.

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

9) During the observation of the inventory, the auditor has NO responsibility to:

            A.   observe the taking of the inventory by client personnel.

            B.   make inquiries of the client concerning the inventories.

            C.   supervise the taking of the inventory.

            D.   make some test counts of inventory quantities.

10) The specific audit objective that all purchase transactions and cash disbursements are valued using GAAP and correctly journalized, summarized, and posted relates to:

            A.   rights and obligations.

            B.   completeness.

            C.   valuation or allocation.

            D.   existence or occurrence.

11) The specific audit objective that recorded purchases represent goods, services, and productive assets received during the period relates to:

            A.   rights and obligations.

            B.   completeness.

            C.   presentation and disclosure.

            D.   existence or occurrence.

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

            A.   rights and obligations.

            B.   completeness.

            C.   presentation and disclosure.

            D.   existence or occurrence.

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

            A.   existence or occurrence assertion.

            B.   completeness assertion.

            C.   presentation or disclosure assertion.

            D.   rights and obligations assertion.

14) The specific audit objective for the audit of investments, all recorded investments are owned by the reporting entity, relates to the:

            A.   existence or occurrence assertion.

            B.   completeness assertion.

            C.   valuation or allocation assertion.

            D.   rights and obligations assertion.

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

            A.   existence or occurrence assertion.

            B.   completeness assertion.

            C.   valuation or allocation assertion.

            D.   rights and obligations assertion.

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

            A.   rights and obligations assertion.

            B.   completeness assertion.

            C.   presentation or disclosure assertion.

            D.   existence or occurrence assertion.

17) The audit significance of the financial ratio, fixed asset turnover, is:

            A.   this financial ratio provides a reasonableness test of the entity’s proportion of equity that may be compared with prior years’ experience or industry data.

            B.   an unexpected increase or decrease in the depreciation expense as a percent of depreciable assets may indicate an error in calculating depreciation.

            C.   this financial ratio provides a test of the entity’s ability to generate earnings to cover the cost of service debt.

            D.   an unexpected increase in this financial ratio may indicate the failure to record or capitalize depreciable assets.

18) The substantive test of calculating fixed asset turnover is categorized under:

            A.   initial procedures.

            B.   analytical procedures.

            C.   tests of details of balances.

            D.   tests of details of transactions.

19) In confirming bank deposits, the auditor need NOT:

            A.   send two copies of the standard confirmation to the bank.

            B.   send requests for accounts with zero balances at the end of the year.

            C.   personally mail the requests.

            D.   have the bank return the original to the client.

20) 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:

            A.   loan interest rates.

            B.   loan balances.

            C.   deposit balances.

            D.   secondary endorsements.

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

            A.   any chance of double counting.

            B.   unauthorized disbursements.

            C.   transfers by the client.

            D.   client personnel from viewing the count procedure.

22) 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:

            A.   information protection.

            B.   risk assessment.

            C.   transaction integrity.

            D.   performance measurement.

23) Best practices in approaching risk management include the following steps EXCEPT:

            A.   calculate revenue losses from risks.

            B.   analyze and assess risks.

            C.   identify risks.

            D.   design strategies for managing risk.

24) In performing an attest engagement, a CPA performs all of the following EXCEPT:

            A.   gathers evidence to support the assertions.

            B.   objectively assesses the measurements of assertions.

            C.   relies on management statements.

            D.   objectively assesses the communications of the individual making the assertions.

25) Which of the following is NOT among the characteristics of the procedures performed in completing the audit?

            A.   They involve many subjective judgments by the auditor.

            B.   They are performed after the balance sheet date.

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

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

26) The auditor relies on the client representation letter to:

            A.   document the continuing materiality of client representations.

            B.   guarantee the absence of management fraud.

            C.   confirm written representations given to the auditor.

            D.   reduce the possibility of misunderstanding concerning management’s representations.

27) In performing an attest engagement, a CPA performs all of the following EXCEPT:

            A.   gathers evidence to support the assertions.

            B.   objectively assesses the measurements of assertions.

            C.   relies on management statements.

            D.   objectively assesses the communications of the individual making the assertions.

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

            A.   reading minutes of meetings

            B.   reviewing evidence concerning litigation, claims, and assessments

            C.   making subsequent events review

            D.   obtaining client representation letter

29) In regard to identifying and evaluating subsequent events, AU 560.12 specifies that the auditor inquires of management having responsibility for financial and accounting matters as to all of the following EXCEPT:

            A.   any significant changes in capital stock, long-term debt, or working capital to the date of inquiry.

            B.   the minutes of meetings of directors, stockholders, and other appropriate committees.

            C.   any substantial contingent liabilities or commitments existing at the balance sheet date or date of inquiry.

            D.   the current status of items previously accounted for on the basis of tentative, preliminary, or inconclusive data.

30) 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:

            A.   notify the SEC or other regulatory agency.

            B.   notify the audit committee.

            C.   take steps to prevent future reliance on the audit report.

            D.   resign from the engagement.

31) The two main sections of the AICPA’s Code of Professional Conduct are:

            A.   Rules of Conduct and Interpretations of the Rules of Conduct.

            B.   Principles and Ethics Rulings.

            C.   Principles and Rules of Conduct.

            D.   Interpretations of the Rules of Conduct and Ethics Rulings.

32) In general, except when explicitly stated otherwise, the Rules of Conduct in the AICPA’s Code of Professional Conduct are applicable to:

            A.   all professional services.

            B.   all members and all professional services.

            C.   all members.

            D.   all members in public practice.

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

            A.   They are set forth as enforceable standards.

            B.   They are expressions of ideals of professional conduct.

            C.   They provide a framework for the Rules.

            D.   They express the basic tenets of ethical conduct.

34) Gross negligence can best be defined as:

            A.   misrepresentation.

            B.   criminal fraud.

            C.   failure to exercise due care.

            D.   failure to exercise even slight care.

35) Anyone identified to the auditor by name prior to the audit who is to be the principal recipient of the auditor’s report is a

            A.   foreseen beneficiary.

            B.   foreseeable party.

            C.   third party.

            D.   primary beneficiary.

36) The Fund of Funds case illustrated that auditors could be found liable for failure to report wrong-doings discovered:

            A.   on any type of engagement for a particular client.

            B.   even on engagements for other clients.

            C.   only on audit engagements for a particular client.

            D.   only on special fraud audits conducted under separate contract.

Source: ACC 492 Final Exam Solution