ACC 403/ACC403 FINAL EXAM PART I & PART II (SOLUTION 100%) GUARANTEE - 88905

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ACC 403 FINAL EXAM PART 1 Question 1 When taken together, the concepts of risk and materiality in auditing: Answer measure the uncertainty of amounts of a given magnitude. measure uncertainty only. measure magnitude only. measure inherent risk. Question 2 Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files. Answer permit do not allow require strongly encourage Question 3 Auditors are ________ to document the known and likely misstatements in the financial statements under audit. Answer permitted required not allowed strongly encouraged Question 4 ________ misstatements are those where the auditor can determine the amount of the misstatement in the account. Answer Potential Likely Known Projected Question 5 Inherent risk is ________ related to detection risk and ________ related to the amount of audit evidence. Answer directly, inversely directly, directly inversely, inversely inversely, directly Question 6 Management must disclose material weaknesses in internal control in its audit report: Answer whenever the weakness is deemed significant to a single class of transactions. whenever the weakness is significant to overall financial reporting objectives. if the weakness exists at the end of the year. only if the auditor identifies the weakness as significant. Question 7 Which of the following deficiency exists if a necessary control is missing or not properly formulated? Answer Control Significant Design Operating Question 8 An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as: Answer collusion. a material weakness. a control deficiency. a significant deficiency Question 9 Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements? Answer A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting A statement that the external auditors are solely responsible Question 10 Which of the following components of the control environment define the existing lines of responsibility and authority? Answer Organizational structure Management philosophy and operating style Human resource policies and practices Management integrity and ethical values Question 11 Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement? Answer Senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period. Senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report. Senior management emphasizes that job rotation is a worthwhile corporate objective. Senior management emphasizes that job evaluations are based on performance. Question 12 Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings. Answer income smoothing cookie jar reserves cash sales Question 13 Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. This is an example of which of the following? Answer Significant accounting estimates Fictitious revenue recorded Premature revenue recognized Alteration of cutoff documents Question 14 Who is most likely to perpetrate fraudulent financial reporting? Answer Members of the board of directors Production employees Management of the company The internal auditors Question 15 Fraud awareness training should be: Answer broad and all-encompassing. extensive and include details for all functional areas. specifically related to the employee's job responsibility. focused on employees understanding the importance of ethics. Question 16 Controls which are designed to assure that the information processed by the computer is authorized, complete, and accurate are called: Answer input controls. processing controls. output controls. general controls. Question 17 The approach to auditing where the auditor does not test automated controls to reduce assessed control risk is called: Answer the single-stage audit. the test deck approach. auditing around the computer. generalized audit software (GAS). Question 18 A ________ is responsible for controlling the use of computer programs, transaction files and other computer records and documentation and releases them to the operators only when authorized. Answer software engineer chief computer operator librarian data control operator Question 19 A ________ total represents the summary total of codes from all records in a batch that do not represent a meaningful total. Answer record hash output financial Question 20 One of the unique risks of protecting hardware and data is: Answer lack of traditional authorization. the decreased risk of loss or destruction of data files if data is stored in a centralized location. the ease at which the IT system can be installed and maintained. the unauthorized access to the IT system resulting in improper changes in software programs and master files. Question 21 Analytical procedures: Answer involve comparisons of recorded amounts to expectations developed by management. are only performed during the planning stage of the audit. are required to be performed when auditing an account balance. provide substantive evidence Question 22 If tests of controls support the control risk assessment, then ________ in the audit risk model is increased. Answer planned detection risk. planned inherent risk. planned fraud risk. planned assurance risk. Question 23 Tests of controls are directed toward the control's: Answer efficiency. effectiveness. cost and effectiveness. cost benefit ratio. Question 24 Transaction related audit objectives would most likely be performed in which phase of the audit process? Answer Plan and design audit approach Perform audit tests for controls and transactions Perform analytical procedures and tests of balances Complete the audit and issue the audit report Question 25 An increased extent of tests of controls is most likely to occur when: Answer it is a first-year audit. the auditor is doing a "fraud audit." controls are effective and the preliminary control risk assessment is low. controls are ineffective and the preliminary control risk assessment is high. ACC 403 FINAL EXAM PART 2 Question 1 The document that the accounting staff will use as the primary basis for recording sales transactions and updating the customer’s accounts receivable subsidiary ledger is the: Answer sales order. bill of lading. sales journal. sales invoice. Question 2 Which of the following is not one of the five classes of transactions included in the sales and collection cycle? Answer Sales returns and allowances Write-off of uncollectible accounts Bad debt expense Interest Income Question 3 The audit procedure referred to as proof of cash receipts is particularly useful to test: Answer time lags in making deposits. whether all recorded cash receipts have been deposited in the bank. whether there are cash receipts that have not been recorded in the journals. the client's reconciliation between cash receipts and bank deposits Question 4 Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts? Answer company personnel temporary employees in the town where the lockbox is located bank employees company controller Question 5 To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with: Answer the original invoices. an approved master price list. the amounts recorded in the sales journal for that transaction. the amounts posted to the customer's account in the accounts receivable master file. Question 6 Which one of the choices below is most correct regarding a cause of sampling risk? Answer ineffective use of audit procedures testing less than the entire population use of extensive tests of controls the possibility that a properly-selected sample still may not be representative Question 7 If the auditor decides to assess control risk at the moderate level in a private company audit, when in previous years the auditor set control risk at the maximum level, then tests of controls for the current year would be: Answer increased in number. reduced in number. not performed. unchanged from prior planned settings Question 8 Correspondence is established between the random number table and the population by: Answer identifying each item in the population with a unique number. deciding the number of digits to use in the random number table and their association with the population numbering system. defining which digits the auditor uses in a column and the method of reading the table. selecting a random starting point on the table. Question 9 The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the: Answer finite correction factor. tolerable exception rate. acceptable risk of assessing control risk too low. estimated population exception rate. Question 10 The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the: Answer acceptable exception rate. estimated population exception rate. sample exception rate. tolerable exception rate Question 11 Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which would normally include: Answer Test-footing the total column and the columns depicting the aging Comparing the total of the aged trial balance with the general ledger accounts receivable account Yes Yes Test-footing the total column and the columns depicting the aging Comparing the total of the aged trial balance with the general ledger accounts receivable account No No Test-footing the total column and the columns depicting the aging Comparing the total of the aged trial balance with the general ledger accounts receivable account Yes No Test-footing the total column and the columns depicting the aging Comparing the total of the aged trial balance with the general ledger accounts receivable account No Yes Question 12 A type of positive confirmation known as a blank confirmation: Answer requests the recipient to fill in the amount of the balance. is considered less reliable than the regular positive confirmation. generates as high a response rate as the regular positive confirmation form. is used when the auditor is confirming several small balances. Question 13 A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the: Answer customer list. aged trial balance. accounts receivable ledger. schedule of accounts receivable Question 14 Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a: Answer representation letter. negative confirmation. bank confirmation. positive confirmation Question 15 The net realizable value of accounts receivable is equal to: Answer gross accounts receivable less allowance for uncollectible accounts. gross accounts receivable less bad debt expense. gross accounts receivable less returns and allowances. gross accounts receivable less sales discounts. Question 16 Which of the following is not a type of statistical method that provides results in dollar terms? Answer Variables sampling Attributes sampling Monetary-unit sampling Sampling with probability proportional to size Question 17 Which of the following does not have to be considered in determining the initial sample size of a test of details? Answer tolerable misstatement acceptable risk of incorrect rejection estimate of misstatements in the population acceptable audit risk Question 18 When errors are found in a sample, auditors in practice generally make the assumption: Answer of a 100% assumption for all errors. that the population errors are larger than the sample errors. that the population errors are smaller than the sample errors. that the actual sample errors are representative of the population errors Question 19 The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is: Answer the upper bound. the tolerable risk. the acceptable risk of incorrect acceptance. the lower bound. Question 20 The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is: Answer inverse. direct. proportional. indeterminate Question 21 There must be a periodic physical count by the client of the inventory items on hand: Answer only if the client uses the LIFO method. only if the client uses a lower-of-cost-or-market method. regardless of the client's inventory valuation method. only if the client uses either the LIFO or FIFO method. Question 22 Master files, worksheets, and reports that accumulate material, labor, and overhead as the costs are incurred are: Answer accounting systems. storeroom documents. cost accounting records. finished goods inventory records Question 23 The main difference between job order and process costing systems is that: Answer one accumulates costs by materials issued and the other by labor incurred. one accumulates costs by individual jobs and the other by particular processes. one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process. one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence Question 24 Inventory is a complex area to audit for all but which of the following reasons? Answer Inventory is often in different locations. There are several acceptable valuation methods and some entities use different methods for different types of inventory. Inventory is often the largest account in working capital. Inventory valuation includes few estimates Question 25 ________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred. Answer Just-in-time production systems Job order cost systems Process cost systems Manufacturing systems Question 26 Refusal by a client to prepare and sign the representation letter would require the auditor to issue a: Answer qualified opinion or a disclaimer. adverse opinion or a disclaimer. qualified or an adverse opinion. unqualified opinion with an explanatory paragraph. Question 27 Inquiries of management regarding the possibility of unrecorded contingencies will be useful in uncovering: Answer Management's intentional failure to disclose existing contingencies. When management does not comprehend accounting disclosure requirements. Yes Yes Management's intentional failure to disclose existing contingencies. When management does not comprehend accounting disclosure requirements. No No Management's intentional failure to disclose existing contingencies. When management does not comprehend accounting disclosure requirements. Yes No Management's intentional failure to disclose existing contingencies. When management does not comprehend accounting disclosure requirements. No Yes Question 28 An auditor has the responsibility to actively search for subsequent events that occur subsequent to the: Answer balance sheet date. date of the auditor's report. balance sheet date, but prior to the audit report. date of the management representation letter Question 29 Auditors often integrate procedures for presentation and disclosure objectives with: Answer Tests for planning objectives Tests for balance-related objectives Yes Yes Tests for planning objectives Tests for balance-related objectives No No Tests for planning objectives Tests for balance-related objectives Yes No Tests for planning objectives Tests for balance-related objectives No Yes Question 30 Which type of subsequent event requires consideration by management and evaluation by the auditor? Answer Subsequent events that have a direct effect on the financial statements and require adjustment. Subsequent events that have no direct effect on the financial statements but for which disclosure is considered. Yes Yes Subsequent events that have a direct effect on the financial statements and require adjustment. Subsequent events that have no direct effect on the financial statements but for which disclosure is considered. No No Subsequent events that have a direct effect on the financial statements and require adjustment. Subsequent events that have no direct effect on the financial statements but for which disclosure is considered. Yes No Subsequent events that have a direct effect on the financial statements and require adjustment. Subsequent events that have no direct effect on the financial statements but for which disclosure is considered. No Yes
Solution Description

ACC 403 FINAL EXAM PART 1

Question 1

When taken together, the concepts of risk and materiality in auditing:
Answer
measure the uncertainty of amounts of a given magnitude.
measure uncertainty only.
measure magnitude only.
measure inherent risk.
Question 2
Auditing standards ________ that the basis used to determine the preliminary judgment about materiality be documented in the audit files.
Answer
permit
do not allow
require
strongly encourage
Question 3
Auditors are ________ to document the known and likely misstatements in the financial statements under audit.
Answer
permitted
required
not allowed
strongly encouraged
Question 4
________ misstatements are those where the auditor can determine the amount of the misstatement in the account.
Answer
Potential
Likely
Known
Projected
Question 5
Inherent risk is ________ related to detection risk and ________ related to the amount of audit evidence.
Answer
directly, inversely
directly, directly
inversely, inversely
inversely, directly
Question 6
Management must disclose material weaknesses in internal control in its audit report:
Answer
whenever the weakness is deemed significant to a single class of transactions.
whenever the weakness is significant to overall financial reporting objectives.
if the weakness exists at the end of the year.
only if the auditor identifies the weakness as significant.
Question 7
Which of the following deficiency exists if a necessary control is missing or not properly formulated?
Answer
Control
Significant
Design
Operating
Question 8
An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:
Answer
collusion.
a material weakness.
a control deficiency.
a significant deficiency
Question 9
Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements?
Answer
A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
A statement that the external auditors are solely responsible
Question 10
Which of the following components of the control environment define the existing lines of responsibility and authority?
Answer
Organizational structure
Management philosophy and operating style
Human resource policies and practices
Management integrity and ethical values
Question 11
Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement?
Answer
Senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period.
Senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report.
Senior management emphasizes that job rotation is a worthwhile corporate objective.
Senior management emphasizes that job evaluations are based on performance.
Question 12
Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.
Answer
income smoothing
cook

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