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Question
The existence of a related party transaction may be indicated when another entity
A. Sells real estate to the corporation at a price that is comparable to its appraised value.
B. Absorbs expenses of the corporation under audit.
C. Borrows from the corporation at a rate of interest which equals the current market rate.
D. Lends to the corporation at a rate of interest which equals the current market rate.
Answer
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Related questions
Q:
For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?
A. Withdrawals from Federal Bank of more than $5 million must include a manager's signature.
B. At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.
C. Federal Bank has just started establishing trusts for its customers and it has only set up ten such trusts. Before making an investment for a trust, bank employees must verify that the investment is in accordance with stated investment policies.
D. On an annual basis, Federal Bank management performs credit checks on its loan customers before determining the value of loans it will not be able to collect on.
Q:
S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?
A. S&H must still assume that management has assessed the effectiveness of internal control.
B. Depending on other factors in the audit, S&H can still issue an unqualified opinion.
C. S&H should consider this situation a limitation on the scope of the audit.
D. Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.
Q:
During consideration of internal control in a financial statement audit of a nonpublic company, an auditor is not obligated to
A. Search for significant deficiencies in the operation of internal control.
B. Understand the internal control environment and the information system.
C. Determine whether the controls relevant to audit planning have been placed in operation.
D. Perform procedures to understand the design of internal control.
Q:
Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?
A. Grandfather-father-son record retention.
B. Input and output validation routines.
C. Systems documentation.
D. Check digit verification.
Q:
If auditors conduct substantive procedures as of 10/31 for an entity with a 12/31 year-end
A. Additional tests are seldom conducted for the remaining period.
B. Additional control tests are required in the remaining period.
C. The entity's controls likely are ineffective.
D. Additional tests likely will be performed in the remaining period.
Q:
Walkthroughs usually involve all of the following audit procedures except:
A. Reperformance.
B. Inquiry.
C. Observation.
D. Inspection.
Q:
In an audit of financial statements of a private company in accordance with generally accepted auditing standards, an auditor is required to
A. Identify specific internal control activities relevant to management's financial statement assertions.
B. Perform tests of controls to evaluate the effectiveness of the entity's accounting system.
C. Determine whether procedures are suitably designed to prevent or detect material misstatements.
D. Document the auditor's understanding of the entity's internal control.
Q:
In obtaining an understanding of an entity's internal control in a financial statement audit of a nonpublic company, an auditor is not obligated to
A. Determine whether the control activities have been placed in operation.
B. Perform procedures to understand the design of the internal control policies.
C. Document the understanding of the entity's internal control components.
D. Search for significant deficiencies in the operation of the internal control.
Q:
It is important for the CPA to consider the competence of the entity's employees because their competence bears directly and importantly upon the
A. Cost/benefit relationship of the system of internal control.
B. Achievement of the objectives of the system of internal control.
C. Comparison of recorded accountability with assets.
D. Timing of the tests to be performed.
Q:
A substantive strategy differs from a reliance strategy in that a substantive strategy includes
A. Increased implementation of detailed tests of transactions and balances.
B. Extra tests of controls.
C. Increased emphasis on verbal representations from management.
D. Setting control risk at a minimum level.
Q:
An IT specialist is least likely to be necessary when
A. Data are shared extensively among systems.
B. The entity participates heavily in electronic commerce.
C. The system has not changed from the prior year.
D. Significant audit evidence is in electronic form.
Q:
The control environment component of internal control includes all of the following except:
A. Management's operating style.
B. Access to computer programs.
C. Organizational structure.
D. Human resource policies and practices.
Q:
A field test is a
A. Test to ensure that a numerical value in a field does not exceed some predetermined value.
B. Check to ensure that the value in a field falls within an allowable range of values.
C. Check to ensure that the data in a field have the proper arithmetic sign.
D. Check on a field to ensure that it contains either all numeric or all alphabetic characters.
Q:
A limit test is a
A. Test to ensure that a numerical value does not exceed some predetermined value.
B. Check to ensure that the value in a field falls within an allowable range of values.
C. Check to ensure that the data in a field have the proper arithmetic sign.
D. Check on a field to ensure that it contains either all numeric or alphabetic characters.
Q:
An entity's control activities include all of the following except:
A. Performance reviews.
B. Information processing.
C. External auditor's tests of controls.
D. Segregation of duties.
Q:
The basic concept of internal control that recognizes the cost of internal control should not exceed the benefits expected to be derived is known as
A. Reasonable assurance.
B. Management responsibility.
C. Limited liability.
D. Management by exception.
Q:
A primary purpose of internal controls is to
A. Form a basis for evaluating employees.
B. Monitor production quality.
C. Avoid clerical errors.
D. Meet objectives of maintaining reliable documents and records and accurate financial reporting.
Q:
The principles underlying an audit conducted in accordance with generally accepted auditing standards are grouped into four categories. The second category is that of "personal responsibility of the auditor." Generally explain what is intended by this principle.
Q:
Who bears ultimate responsibility for the financial statements?
A. Management of the organization, equally with the external auditor that audits the statements.
B. Management and the shareholders of the organization.
C. The external auditor that audits the statements.
D. Management of the organization.
Q:
What is the general character of the work conducted in performing a forensic audit for a company?
A. Providing assurance that the financial statements are not materially misstated.
B. Detecting or deterring fraudulent activity.
C. Offering an opinion on the reliability of the specific assertions made by management.
D. Identifying the causes of an entity's financial difficulties.
Q:
Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, and
A. Monetary stimulus.
B. Evaluation.
C. Accuracy.
D. Compliance.
Q:
A typical objective of an operational audit is for the auditor to
A. Determine whether the financial statements present fairly the entity's operations.
B. Evaluate the feasibility of attaining the entity's operational objectives.
C. Make recommendations for improving performance.
D. Report on the entity's relative success in attaining profit maximization.
Q:
An "in-charge" auditor typically holds the rank of
A. Associate.
B. Senior.
C. Manager.
D. Partner.
Q:
The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of
A. The stock exchange officials.
B. The independent auditor.
C. The company's management.
D. The Securities and Exchange Commission.
Q:
The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and
A. Independence with respect to the financial statements and supplementary disclosures.
B. Exercising professional care as judged by peer reviewers.
C. Proficiency as an auditor, which likely has been acquired from previous experience.
D. Objectivity as an auditor as verified by proper supervision.
Q:
The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which include principles underlying an audit conducted in accordance with generally accepted auditing standards.
Q:
The audit committee generally includes senior executives of the organization.
Q:
Why must an auditor assess materiality?
Q:
Define "information asymmetry" and discuss it in the context of the financial markets. Include in your discussion how information asymmetry is reduced.
Q:
Explain the relationship between audit, attest and assurance services.