Economic Theory Flashcards

Which of the following best describes the independent auditors' approach to obtaining satisfaction concerning depreciation expense in the income statement? A) Verify the mathematical accuracy of the amounts charged to income as a result of depreciation expense. B) Determine the method for computing depreciation expense and ascertain that is in accordance with generally accepted accounting principles. C) Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts. D) Establish the basis for depreciable assets and verify the depreciation expense.

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to: A) Extend auditing procedures. B) Accept responsibility for year-end adjusting entries. C) Permit inclusion of a note captioned: event (unaudited) subsequent to the date of the auditor's report. D) Assume responsibility for resolving all events subsequent to the issuance of the auditor's report.

Which of the following circumstances generally results in the issuance of a report that includes an opinion that is other than unmodified? A) The auditor is unable to obtain sufficient appropriate audit evidence. B) The group auditors for the engagement are relying on the work of component auditors. C) The financial statements are affected by a change in accounting principle due to a new FASB pronouncement. D) The auditors have decided to emphasize the fact that the company has engaged in material amounts of related party transactions.

According to the IIA's Standards, an internal auditor's working papers should be reviewed by the: A) Management of the department being audited. B) Management of the internal auditing department. C) Audit committee of the board of directors. D) Management of the organization's security division.

When an auditor of financial statements has substantial doubt about an entity's ability to continue as a going concern, the auditor most likely would express a qualified opinion if: A) The effects of the adverse financial conditions are likely to be negative. B) Information about the entity's ability to continue as a going concern is not disclosed in the financial statements. C) Management has no plans to reduce or delay future expenditures. D) Negative trends and recurring operating losses appear to be irreversible.

Which of the following is most likely to be considered a material weakness in internal control? A) An ineffective control environment. B) Restatement of previously issued financial statements due to a change in accounting principles. C) Inadequate controls over non-systematic transactions. D) Weaknesses in risk assessment.

In the course of the audit of financial statements for the purpose of expressing an opinion thereon, the auditors will normally prepare a schedule of unadjusted differences for which the auditors did not propose adjustment when they were identified. What is the primary purpose served by this schedule? A) To point out to the responsible client officials the errors made by various company personnel. B) To summarize the adjustments that must be made before the company can prepare and submit its federal tax return. C) To identify the potential financial statement effects of misstatement or disputed items that were considered immaterial when discovered. D) To summarize the misstatements made by the company so that corrections can be made after the audited financial statements are released.

Which of the following procedures would an auditor most likely perform while evaluating audit findings at the conclusion of an audit? A) Obtain assurance from the entity's attorney that all material litigation has been disclosed in the financial statements. B) Verify the clerical accuracy of the entity's proof of cash and its bank cutoff statement. C) Determine whether reportable conditions have been corrected. D) Develop an estimate of the total likely misstatement in the financial statements.

Which of the following is not a procedure that is designed to provide evidence about the existence of loss contingencies? A) Obtaining a lawyers' letter. B) Confirming accounts payable. C) Reviewing the minutes of board of directors' meetings. D) Review correspondence with banks.

After performing all necessary procedures the predecessor auditors reissue a prior-period report on financial statements at the request of the client without revising the original wording. The predecessor auditors should: A) Delete the date of the report. B) Dual-date the report. C) Use the reissue date. D) Use the date of the previous report.

Internal auditing is considered to be part of an organization's: A) Accounting system. B) Control activities. C) Monitoring. D) External controls.

An audit firm has been engaged to report on whether a material weakness that previously resulted in an adverse opinion on internal control has been remediated. Which of the following statements is correct? A) A significant scope limitation on the auditor's procedures results in a qualified opinion or an adverse opinion. B) If there has been an auditor change, the successor auditor may issue such a report. C) If while performing the engagement another material weakness is identified, it will result in an adverse opinion relating to the current engagement to report upon the other material weakness. D) The engagement may only take place at year-end during the next year's audit of internal control.

Auditors should perform audit procedures relating to subsequent events? A) Through year end. B) Through issuance of the audit report. C) Through the date of the audit report. D) For a reasonable period after year end.

Which of the following is not a test primarily used to test property, plant and equipment accounts for overstatement? A) Investigation of reductions in insurance coverage. B) Review of property tax bills. C) Examination of retirement work orders prepared during the year. D) Vouching retirements of plant and equipment.

In violation of company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Lowell's financial statements would most likely detect this when: A) Discussing capitalization policies with Lowell's controller. B) Examining maintenance expense accounts. C) Observing, during the physical inventory observation, that the warehouse had been painted. D) Examining the construction work orders supporting items capitalized during the year.