5.

What type of evidence would provide the highest

level of assurance in an attestation engagement?

A. Evidence secured solely from within the entity. b

B. Evidence obtained from independent sources.
C. Evidence obtained indirectly.
D. Evidence obtained from multiple internal inquiries.

10. Which of the following is a management assertion regarding

account balances at the period end?

A. Transactions and events that have been recorded have occurred

and pertain to the entity.
B. Transactions and events have been recorded in the proper c
accounts.
C. The entity holds or controls the rights to assets, and liabilities are
obligations of the entity.
D. Amounts and other data related to the transactions and events have
been recorded appropriately.

11. A practitioner is engaged to express an opinion on

management's assertion that the square footage of a warehouse
offered for sale is 150,000 square feet. The practitioner should
refer to which of the following sources for professional
guidance?
b
A. Statement of Auditing Standards.
B. Statements on Standards for Attestation Engagements.
C. Statements on Standards for Accounting and Review Services.
D. Statements on Standards for Consulting Services.

12. In auditing the long term debt account, an

auditor's procedures most likely would focus
primarily on management's assertion of

b
A. existence.
B. completeness.
C. allocation.
D. rights and obligations.

13. An auditor selected items for test counts from the client's
warehouse during the physical inventory observation. The auditor
then traced these test counts into the detailed inventory listing that
ultimately agreed to the financial statements. This procedure most
likely provided evidence concerning management's assertion of

a
A. completeness.
B. valuation.
C. presentation and disclosure.
D. existence.
E. rights and obligations.
14. An auditor selected items from the client's detailed inventory listing (that
agreed to the financial statements). During the physical inventory
observation, the auditor then found each item selected and counted the
number of units on hand. Assuming that the amount on hand was the same
as the amount in the client's detailed inventory listing, this procedure most
likely would provide evidence concerning management's assertion of
d
A. completeness.
B. valuation.
C. presentation and disclosure.
D. existence.
E. rights and obligations.

15. According to PCAOB Auditing Standard No. 5 (AS 5), the

auditor should identify significant accounts and disclosures and
their relevant assertions. Which of the following financial
statement assertions is not explicitly identified in AS 5?

c
A. Completeness
B. Valuation or Allocation
C. Accuracy
D. Existence or Occurrence
E. All of these are assertions identified in AS 5.

16. When testing the completeness assertion for a

liability account, an auditor ordinarily works from the

A. financial statements to the potentially unrecorded

items. b
B. potentially unrecorded items to the financial
statements.
C. accounting records to the supporting evidence.
D. trial balance to the subsidiary ledger.

17. If an auditor is performing procedures related to the

information that is contained in the client's pension
footnote, he/she is most likely obtain evidence
concerning management's assertion about

d
A. rights and obligations.
B. existence.
C. valuation.
D. presentation and disclosure.

18. Which of the following questions would be inappropriate for

an auditor to ask a client when exhibiting an appropriate level of
professional skepticism while completing an audit procedure
related to the internal control system?

b
A. What can go wrong in this process?
B. Which of your employees is a fraudster?
C. What else is important to know about this process?
D. What happens when a key employees goes on vacation?
19. To be proficient as an auditor, a person must first be able to accomplish
which of these tasks in a decision-making process?

A. Identify audit evidence relevant to the verification of assertions

management makes in its unaudited financial statements and notes.
B. Formulate evidence-gathering procedures (audit plan) designed to obtain
sufficient, competent evidence about assertions management makes in c
financial statements and notes.
C. Recognize the financial assertions made in management's financial
statements and footnotes.
D. Evaluate the evidence produced by the performance of procedures and
decide whether management's assertions conform to generally accepted
accounting principles and reality.

20. Which of the following is an underlying condition that in part

creates the demand by users for reliable information?

A. Economic transactions that are numerous and complex

B. Decisions are time-sensitive e
C. Users separated from accounting records by distance and
time
D. Financial decisions that are important to investors and users
E. All of these

22. What is the term used to identify the risk that the
client's financial statements may be materially false
and misleading?

b
A. Business risk
B. Information risk
C. Client risk
D. Risk assessment

23. Which of the following is not a recommendation

usually made following the completion of an
operational audit?

c
A. Economic and efficient use of resources
B. Effective achievement of business objectives
C. Attesting to the fairness of the financial statements
D. Compliance with company policies

24. In order to be considered as external auditors with

respect to government agencies, GAO auditors must be

A. organizationally independent. a
B. empowered as the accounting and auditing agency by
the U.S. Congress.
C. funded by the federal government.
D. guided by standards similar to GAAS.
25. Which of the following is the essential purpose of the audit
function?

A. Detection of fraud
B. Examination of individual transactions to certify as to their c
validity
C. Determination of whether the client's financial statement
assertions are fairly state
D. Assurance of the consistent application of correct accounting
procedures

26. The audit objective that all the transactions and

accounts presented in the financial statements
represent real assets, liabilities, revenues, and expenses
is related most closely to which of the PCAOB
assertions?
a
A. Existence or occurrence
B. Rights and obligations
C. Completeness
D Presentation and disclosure

27. The audit objective that all transactions are recorded

in the proper period is related most closely to which of
the Audit Standards Board (ASB) transaction assertions?

c
A. Occurrence
B. Completeness
C. Cutoff
D. Accuracy

28. The audit objective that all transactions are recorded

in the proper account is related most closely to which
one of the ASB transaction assertions?

d
A. Occurrence
B. Completeness
C. Accuracy
D. Classification

29. The audit objective that all balances include

items owned by the client is related most closely to
which one of the ASB balance assertions?

b
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation
30. The audit objective that all balances include all items
that should be recorded in that account is related most
closely to which one of the ASB balance assertions?

c
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation

31. The audit objective that footnotes in the financial statements

should be clear and expressed such that the information is easily
conveyed to the readers of the financial statements is related
most closely with which of the ASB presentation and disclosure
assertions?
d
A. Occurrence
B. Rights and obligations
C. Comprehensibility
D. Understandability

32. The engineering department at Omni Company built a piece of

equipment in the company's own shop for use in the company's
operations. The auditor reviewed all work orders that were capitalized
as part of the equipment costs. Which of the following is the ASB
transaction assertion most closely related to the auditor's testing?
d
A. Occurrence
B. Completeness
C. Accuracy
D. Classification

33. The engineering department at Omni Company built a piece of

equipment in the company's own shop for use in the company's operations.
When looking at the ending balance for the fixed asset account the auditor
examined all work orders, purchased materials, labor cost reports, and
applied overhead that were capitalized as part of the equipment costs.
Which of the following is the ASB balance assertion most closely related to
the auditor's testing?
d
A. Existence
B. Completeness
C. Rights and obligations
D. Valuation

34. Which of the following best describes the primary role and
responsibility of independent external auditor?

A. Produce a company's annual financial statements and notes.

B. Express an opinion on the
fairness of a company's annual financial statements and footnotes.
b
C. Provide business consulting advice to audit clients.
D. Obtain an understanding of the client's internal control structure
and give management a report about control problems and
deficiencies.
35. Which of the following best describes the main reason
independent auditors report on management's financial statements?

A. Management fraud may exist and it is likely to be detected by

b
independent auditors.
B. The management that prepares the statements and the persons who
use the statements may have conflicting interests.
C. Misstated account balances may be corrected as the result of the
independent audit work.
D. The management that prepares the statements may have a poorly
designed system of internal control.

36. The auditor's judgment concerning the overall fairness of the

presentation of financial position, results of operations, and cash flows
is applied within the framework of

A. quality control.
B. generally accepted auditing standards, which include the concept of
c
materiality.
C. the auditor's evaluation of the audited company's internal control.
D. the applicable financial reporting framework (i.e., GAAP in the
United States).

36. The auditor's judgment concerning the overall fairness of the

presentation of financial position, results of operations, and cash flows
is applied within the framework of

A. quality control.
B. generally accepted auditing standards, which include the concept of
d
materiality.
C. the auditor's evaluation of the audited company's internal control.
D. the applicable financial reporting framework (i.e., GAAP in the
United States).

38. Because of the risk of material misstatement, an audit

of financial statements in accordance with generally
accepted auditing standards should be planned and
performed with an attitude of

c
A. objective judgment.
B. independent integrity.
C. professional skepticism.
D. impartial conservatism.

39. Which of the following best describes assurance services?

A. Independent professional services that report on the client's

financial statements
B. Independent professional services that improve the quality of b
information for decision makers
C. Independent professional services that report on specific
written management assertions
D. Independent professional services that improve the
operations of the client
41. Which of the following is not an ASB assertion about
inventory related to presentation and disclosure?

A. Inventory is properly classified as a current asset on the

balance sheet. d
B. Inventory is properly stated at cost on the balance sheet.
C. Major inventory categories and their valuation bases are
adequately disclosed in notes.
D. All of these are ASB presentation and disclosure assertions
about inventory.

42. In performing an attestation engagement, a CPA

typically

A. supplies litigation support services. c

B. assesses control risk at a low level.
C. expresses a conclusion on an assertion about
some type of subject matter.
D. provides management consulting advice.

43. An attestation engagement is one in which a CPA is engaged to

A. issue, or does issue, a report on subject matter or an assertion

about the subject matter that is the responsibility of another party.
B. provide tax advice or prepare a tax return based on financial
information the CPA has not audited or reviewed. a
C. testify as an expert witness in accounting, auditing or tax matters,
given certain stipulated facts.
D. assemble prospective financial statements based on the
assumptions of the entity's management without expressing any
assurance.

44. The underlying conditions that create demand by users for

reliable information include all of the following, except

A. transactions are numerous and complex.

B. users lack professional skepticism. b
C. users are separated from accounting records by distance and
time.
D. financial decisions are important to investors and users.
E. decisions are time-sensitive.

46. Inquiries of warehouse personnel concerning

possible obsolete or slow moving inventory items
provide assurance about the PCAOB assertion of

A. completeness. d
B. existence.
C. presentation.
D. valuation.
E. rights and obligations.
47. Inquiries of warehouse personnel concerning
possible obsolete or slow moving inventory items
provide assurance about the ASB balance assertion of

A. completeness. d
B. existence.
C. presentation.
D. valuation.
E. rights and obligations.

48. The probability that the information circulated by

a company will be false or misleading is referred to
as

b
A. business risk.
B. information risk.
C. assurance risk.
D. audit risk.

49. The Sarbanes-Oxley Act of 2002 requires that the key company
officials certify the financial statements. Certification means that the
company CEO and CFO must sign a statement indicating

A. they have read the financial statements.

B. they are not aware of any false or misleading statements (or any key
d
omitted disclosures).
C. they believe that the financial statements present an accurate
picture of the company's financial condition.
D. All of these.

50. The process of a CPA obtaining a certificate and

license in a state other than the state in which the CPA's
certificate was originally obtained is referred to as

a
A. substantial equivalency.
B. quid pro quo.
C. relicensing.
D. re-examination.

52. The four basic requirements for becoming a CPA in most states are

A. education, the CPA Examination, experience, and substantial

equivalency.
B. the CPA Examination, experience, continuing professional d
education, and a state certificate.
C. continuing professional education, the CPA Examination,
experience, and an AICPA certificate.
D. education, the CPA Examination, experience, and a state certificate.
54. The accounting, auditing, and investigating
agency of the U.S. Congress, headed by the U.S.
Comptroller General is known as

b
A. the Federal Bureau of Investigation (FBI).
B. the U.S. General Accountability Office (GAO).
C. the Internal Revenue Service (IRS).
D. the United States Legislative Auditors (USLA).

The audit objective that all transactions and

accounts that should be presented in the financial
statements are in fact included is related to which of
the PCAOB assertions?
b
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation

The audit objective that all transactions and

accounts that should be presented in the financial
statements are in fact included is related to which of
the PCAOB assertions?
c
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation

An auditor has substantial doubt about the entity's ability to continue

as a going concern for a reasonable period of time because of
negative cash flows and working capital deficiencies. Under these
circumstances, the auditor would be most concerned about the

A. control environment factors that affect the organizational

d
structure.
B. correlation of detection risk and inherent risk.
C. effectiveness of the entity's internal control activities.
D. possible effects on the entity's financial statements.

An auditor traces the serial numbers on equipment

to a nonissuer's sub-ledger. Which of the following
management assertions is supported by this test?

b
A. Valuation and allocation.
B. Completeness.
C. Rights and obligations.
D. Presentation and disclosure.
The confirmation of an account payable balance
selected from the general ledger provides primary
evidence regarding which management assertion?

d
A. Completeness
B. Valuation
C. Allocation
D. Existence

During an audit of an entity's stockholders' equity accounts, the

auditor determines whether there are restrictions on retained
earnings resulting from loans, agreements or state law. This audit
procedure most likely is intended to verify management's
assertion of
d
A. existence or occurrence.
B. completeness.
C. valuation or allocation.
D. presentation and disclosure.

Which of the following management assertions is an auditor

most likely testing if the audit objective states that all inventory
on hand is reflected in the ending inventory balance?

d
A. The entity has rights to the inventory.
B. Inventory is properly valued.
C. Inventory is properly presented in the financial statements.
D. Inventory is complete.

Which of the following types of audit evidence provides the

least assurance of reliability?

A. Receivable confirmations received from the client's customers. b

B. Prenumbered receiving reports completed by the client's
employees.
C. Prior months' bank statements obtained from the client.
D. Municipal property tax bills prepared in the client's name.