Deck 17: Auditing and Evaluating the Ais

Question 1

Which of the following organizations is most likely to be subject to a compliance audit?

A)Yellow Pages Company
B)City of Los Angeles
C)Microsoft
D)All of the above are likely to be subject to a compliance audit.

Answer 1

B

Question 2

An investigative auditor wanted to assess employees' motivation for committing fraud. Which of the following tools will be most beneficial to the auditor in that task?

A)Expectancy theory
B)Capability maturity model
C)Document analysis
D)Management audit

Answer 2

A

Question 3

All of the following terms are associated with financial audit opinions except:

A)Unqualified.
B)Adverse.
C)Truthful.
D)Disclaimer.

Answer 3

C

Question 4

The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

A)An adverse opinion in a financial statement audit is evidence that an investigative audit is needed.
B)Expectancy theory can be useful in many types of audits.
C)Both A and B are true.
D)Neither A nor B is true.

Question 5

The terms "adverse" and "disclaimer" are most closely associated with which generally accepted auditing standard?

A)Reporting
B)Opinion
C)Disclosure
D)Some other standard

Question 6

Tim is the lead auditor on an engagement with WRT Corporation. Before starting the audit, Tim planned and reviewed the schedule with his audit team. Which of the following generally accepted audit standards did Tim uphold by planning?

A)Independence
B)Professional care
C)Supervision
D)Disclosure

Question 7

A government accountant suspects someone within the government is embezzling cash. Which of the following statements is most true?

A)The government would not pass a compliance audit.
B)An investigative audit will confirm the accountant's suspicion.
C)Both A and B are true.
D)Neither A nor B is true.

Question 8

A ___ determines whether the various forms of information technology in an accounting information system are producing expected results.

A)Financial audit
B)Compliance audit
C)Systems audit
D)Forensic audit

Question 9

The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

A)Every audit involves some form of information technology.
B)Most audits involve some form of human judgment.
C)Both A and B are true.
D)Neither A nor B is true.

Question 10

The generic model of business process management discussed in the text is likely to be most useful in which type of audit?

A)Operational
B)Financial
C)Management
D)Investigative

Question 11

In ___, auditors examine a company's rules and procedures for conducting business.

A)A financial audit
B)An operational audit
C)A compliance audit
D)A systems audit

Question 12

Which of the following generally accepted auditing standards suggests that an auditor should not have a financial interest in an audit client?

A)Professional care
B)Disclosure
C)Independence
D)Some other standard

Question 13

A clear understanding of the steps in the accounting cycle is likely to be useful in:

A)Financial audits.
B)Investigative audits.
C)Both A and B.
D)Neither A nor B.

Question 14

An auditor is concerned that her company's purchasing process is not functioning as efficiently as possible. Which type of audit will best address her concern?

A)Financial
B)Operational
C)Management
D)Purchasing

Question 15

The AICPA's generally accepted auditing standards are divided into three groups. Which of the following is a standard in the "reporting" group?

A)Training
B)Supervision
C)Evidence
D)Disclosure

Question 16

Which type of audit is a "basket" of the other types?

A)Financial
B)Operational
C)International
D)Management

Question 17

The COSO enterprise risk management framework can be useful in:

A)Systems audits.
B)Investigative audits.
C)Both A and B.
D)Neither A nor B.

Question 18

The AICPA's generally accepted auditing standards are divided into three groups. In which group would you find "internal control?"

A)General
B)Field work
C)Reporting
D)None of the above

Question 19

The AICPA's generally accepted auditing standards are divided into three groups. All of the following are standards in the "general" group except:

A)Training
B)Independence
C)Professional care
D)Internal control

Question 20

Which of the following violates the generally accepted auditing standard indicated?

A)Opinion: Auditors issued an adverse opinion on financial statements.
B)Consistency: An auditor explained inconsistencies between a client's application of GAAP over the last two years.
C)Evidence: An auditor used last year's opinion as the only evidence for the current year's opinion.
D)All of the above violate the standards indicated.

Question 21

The third generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A)General
B)Field work
C)Reporting
D)Environmental

Question 22

The third generic step in a financial statement audit could benefit from:

A)Interviews.
B)Flowcharts.
C)Both A and B.
D)Neither A nor B.

Question 23

Verifying the frequency of bank reconciliations and reconciling the latest bank statement are examples of actions an auditor might take in which generic steps of the financial statement audit process?

A)First and second
B)Second and third
C)Third and fourth
D)Second and fourth

Question 24

A systems flowchart could be helpful in fulfilling which generally accepted auditing standards?

A)Internal control
B)Evidence
C)Both A and B
D)Neither A nor B

Question 25

Consider the statements below as you answer the next question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which statements relate to the third generic step in a financial statement audit?

A)TNL and DKM
B)TNL and CPQ
C)DKM and CPQ
D)TNL, DKM and CPQ

Question 26

A company's business processes were at the managed level of the capability maturity model in 2011 and at the optimized level of the capability maturity model in 2012. Which of the following statements is most true?

A)Based on the generally accepted auditing standard of consistency, the auditors must disclose the change.
B)The auditors must issue an unqualified opinion since the organization's processes are not chaotic.
C)Both A and B are true.
D)Neither A nor B is true.

Question 27

Which of the following generic steps in a financial statement audit should occur last?

A)Issue the audit report.
B)Perform compliance testing.
C)Review the internal control system.
D)Evaluate management's credentials.

Question 28

Consider the statements below as you answer the next question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which corporation is most likely to receive an unqualified opinion on its financial statements?

A)TNL
B)DKM
C)Either CPQ or OBP
D)Cannot be determined from the information given

Question 29

Internal controls:

A)Have four broad purposes.
B)Are key elements of the third step in a financial statement audit.
C)Both A and B.
D)Neither A nor B.

Question 30

Consider the statements below as you answer the next question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which corporation will require the least amount of compliance testing?

A)CPQ
B)OBP
C)Either TNL or DKM
D)Cannot be determined from the information given

Question 31

In the first generic step of financial statement audits, the auditor should assess:

A)The internal control system.
B)Management's integrity.
C)Both A and B.
D)Neither A nor B.

Question 32

Which of the following upholds at least one generally accepted auditing field work standard?

A)Using the COSO framework to evaluate internal controls.
B)Allowing members of an audit team to choose their supervisor independently.
C)Both A and B.
D)Neither A nor B.

Question 33

Consider the statements below as you answer the next question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which statements relate to the second generic step in a financial statement audit?

A)TNL and OBP
B)TNL and CPQ
C)OBP and CPQ
D)TNL, OBP and CPQ

Question 34

In which generic step of a financial statement audit is the auditor most likely to verify the frequency of bank reconciliations?

A)First
B)Second
C)Third
D)Fifth

Question 35

Following the model presented in the text, the second generic step in a financial statement audit is:

A)Assess management's integrity.
B)Evaluate management's credentials.
C)Review the internal control system.
D)Uphold generally accepted auditing standards.

Question 36

Joe was a recent graduate of Big State University's accounting program. He was assigned to an audit team managed by Pam, a licensed CPA. Based on those two statements alone, which of the following is most true?

A)At least one of the "general" GAAS is upheld.
B)At least one of the "field work" GAAS is upheld.
C)Both A and B are true.
D)Neither A nor B is true.

Question 37

An inexperienced auditor verified the computation of depreciation on a machine, but did not actually see the machine. The auditor's actions led to a weakness in the ___ generic step of a financial statement audit.

A)Second
B)Third
C)Fourth
D)Fifth

Question 38

Critical thinking is important in:

A)The design of accounting information systems.
B)The implementation of accounting information systems.
C)Auditing.
D)All of the above.

Question 39

The last generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A)General
B)Field work
C)Reporting
D)Documentation

Question 40

Pam is a licensed CPA; her husband, Greg, is a major shareholder in a corporation audited by Pam's firm. If Pam is involved in the audit of that firm:

A)She will likely be in violation of at least one of the "general" GAAS.
B)She will likely be in violation of at least one of the "field work" GAAS.
C)She will likely be in violation of at least one of the "reporting" GAAS.
D)Its stock price will change due to the related party transaction.

Question 41

Consider the independent statements below. Organize them in three groups based on the AICPA's generally accepted auditing standards; also indicate the name of each group based on the standards.1) Bradley completed a continuing education program on auditing mortgage companies.2) Cameron completed a risk / control matrix as part of an audit.3) Elijah determined that a client's financial statements were fairly presented in accordance with GAAP.4) Elizabeth noted that footnotes to the financial statements needed some improvement.5) Jessica reviewed the background and experience of auditors in her firm as part of developing an audit team.6) Luke refused to accept an audit engagement because his friend was CEO of the company.7) Milton e-mailed an audit client's vendors to help determine the client's accounts payable balances.8) Owen, the manager of an audit team, reviewed the work of inexperienced auditors closely.9) Ryan prepared a disclaimer of opinion on an audit client's financial statements.10) Sandra explained a change between the applications of GAAP in two successive years.

Question 42

The chapter identified seven types of audits you are likely to encounter in your career. Identify and discuss two similarities and two differences between investigative audits and financial audits.

Question 43

Revise each statement below so that it more clearly upholds the indicated AICPA generally accepted auditing standard.1) Training: Alexis completed an online course on professional etiquette.2) Evidence: Allison checked the employment references of an audit client's CEO as part of evaluating the CEO's credentials.3) Opinion: Ann used her own words to express an opinion on the truth of an audit client's financial statements.4) Independence: Blaine accepted an audit engagement with a firm owned by his mother-in-law.5) Professional care: Brent randomly selected auditors in his firm as part of developing an audit team.6) Internal control: Crystal used expectancy theory to assess internal control as part of an audit.7) Supervision: Lindsay, the manager of an audit team, scrutinized the work of all auditors on her team equally, regardless of their experience or the tasks they were completing.8) Consistency: Louis explained a change between the applications of GAAP in 2008 and 2011.9) Disclosure: Nicole personally prepared the footnotes for an audit client's financial statements to ensure all disclosures were properly done.10) GAAP: Ralph determined that a client's financial statements were truthfully and accurately presented in accordance with the AICPA's generally accepted auditing standards.

Question 44

List five kinds of audits you are likely to encounter in your professional career.

Question 45

The chapter described five generic steps in a financial statement audit; it also discussed six other types of audits you may encounter in your professional career. Consider the operational audit. Based on its broad purpose and objectives, explain how you would modify the five generic financial statement audit steps for the audit type you choose.

Question 46

In your own words, explain the AICPA's ten generally accepted auditing standards.

Question 47

The principles of normalization can be useful in:

A)Designing an accounting information system.
B)
C)Both A and B.
D)Neither A nor B.

Question 48

As a processing tool in the AIS, general ledger software can be useful in:

A)A management audit.
B)n investigative audit.
C)Both A and B.
D)Neither A nor B.

Question 49

Consider the statements presented below. Choose those that would happen as part of a financial statement audit, then put them in the proper order based on the steps presented in the text.
A. Check access to sensitive information and other assets.
B. Consult GAO standards.
C. Convert financial statements to XBRL.
D. Evaluate the organization's control environment.
E. Interview the CFO as a corroborative witness.
F. Make recommendations for improving business processes.
G. Prepare an unqualified opinion.
H. Review management's resumes.
I. Translate financial statements from German to English.j. Verify the existence of inventory and plant assets.

Question 50

Information technology skills can link auditing to accounting information systems. Which of the following tasks can be completed using only information technology?

A)All five generic steps of a financial statement audit.
B)All ten steps in the accounting cycle.
C)Both A and B.
D)Neither A nor B.

Question 51

As a tool for understanding human behavior, expectancy theory can be useful in:

A)Accounting information systems.
B)Auditing.
C)Both A and B.
D)Neither A nor B.

Question 52

How does the FASB Conceptual Framework link accounting information systems with auditing?

A)Auditors must discuss whether the outputs of the AIS fulfill each of the qualitative characteristics in detail.
B)Auditors express an opinion on some of the outputs of the AIS; those outputs contain the elements of financial statements from the conceptual framework.
C)The purpose of accounting as stated in the conceptual framework is the same as the purpose of an AIS and the purpose of auditing.
D)The conceptual framework does not link AIS with auditing.

Question 53

The text identified four areas that link AIS with auditing: critical thinking, internal control, business processes and information technology. Consider topics you have studied this term other than those four; choose one, and explain how it connects AIS with auditing.

Question 54

A systems flowchart:

A)Can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit.
B)Can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit.
C)Both A and B.
D)Neither A nor B.

Question 55

Consider the audit descriptions and types paired below. Indicate with an X in the appropriate column whether the audit described is paired with the appropriate type.

Question 56

As an input to the accounting information system, a properly completed sales invoice can help an auditor with which of the following financial statement assertions?

A)Existence or occurrence
B)Completeness
C)Both A and B
D)Neither A nor B

Question 57

Understanding business processes can link auditing to accounting information systems. Which of the following can facilitate an understanding of business processes?

A)Flowcharts
B)The capability maturity model
C)Both A and B
D)Neither A nor B

Question 58

Which of the following link accounting information systems with auditing?

A)Business processes
B)Information technology skills
C)Both A and B
D)Neither A nor B

Question 59

The generic steps associated with business process management can be useful in:

A)Strengthening internal controls in an accounting information system.
B)An operational audit.
C)Both A and B.
D)Neither A nor B.