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ACC 555 Midterm Exam Solution

ACC 555 Midterm Exam Solution

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ACC 555 Midterm Exam Solution

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ACC 555 Midterm Exam Solution

1. Question: (TCO F) The objective of the ordinary audit of financial statements is the expression of an opinion on

2. Question: (TCO F) Which of the following statements is most correct regarding errors and fraud?

3. Question: (TCO F) If the auditor believes that the financial statements are not fairly stated or is unable to reach an conclusion because of insufficient evidence, the auditor:

4. Question: (TCO F) Auditors accumulate evidence to:

5. Question: (TCO F) Which of the following forms of evidence is most reliable?

6. Question: (TCO F) Analytical procedures are required during which phase(s) of the audit?

Test of Controls; Planning; Completion

7. Question: (TCO F) To be considered reliable evidence, confirmations must be controlled by:

8. Question: (TCO F) When the auditor has reason to believe an illegal act has occurred without any corrective action being taken, the auditor should:

9. Question: (TCO F) Traditionally, confirmations are used to verify:

10. Question: (TCO G) Which of the following is correct with respect to the use of analytical procedures?

11. Question: (TCO G) Which is a liquidity activity ratio?

1. Question: (TCO A) Match the following definitions to the terms.

____ Public Company Accounting Oversight Board Auditing Standards

____ Generally Accepted Auditing Standards

____ Statements on Auditing Standards

a. Pronouncements providing specific guidance on auditing matters for all entities except public companies

b. The standards used for public company audits

c. Standards used by non-public companies and for interim audits for public companies as initially adopted by the PCAOB

2. Question: (TCO B) The following is a portion of a qualified audit report issued for a private company:

Independent Auditor’s Report

To the shareholders of Tamarak Corporation,

We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009, and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000 and $0.62, respectively, for the past year.

Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date or sign the report.

3. Question: (TCO C) The following situation involves a possible violation of the AICPA’s Code of Professional Conduct. For each situation, (1) determine the applicable rule number from the Code, (2) decide whether or not the Code has been violated, and (3) briefly explain how the situation violates (or does not violate) the Code.

Your answer should be set up something like this:

Rule # __________ Violation? Yes or No


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