Ch 13-21 3

A nonpublic client has provided required supplementary information with its audited financial statements. The auditor's proper reporting responsibility includes: A) An emphasis of matter paragraph should be added to the audit report. B) A separate report should be issued on the required supplementary information. C) An adverse opinion on the required supplementary information. D) The required supplementary information should not be referred to.

Consider a company whose sales are initiated by customers either through the Internet, or in a retail store. Which of the following is correct? A) These types of sales represent two major classes of transactions within the sales process. B) These types of sales represent two sales processes within a major evaluation processing cycle. C) These sales represent a sales assertion on completeness. D) These events represent nonroutine transactions that must be investigated in detail.

In which of the following circumstances would an auditor of financial statements be most likely to express an adverse opinion? A) The statements are not in conformity with FASB requirements regarding the capitalization of leases. B) Information comes to the auditor's attention that raises substantial doubt about the entity's ability to continue in existence. C) The chief executive officer refuses the auditor access to minutes of board of directors' meetings. D) Tests of controls show that the entity's internal control is so poor that it can not be relied upon.

A comprehensive examination of an operating unit or a complete organization to evaluate its systems, controls, and performance, as measured by management's objectives is called a(an): A) Compilation. B) Consultation. C) Operational Audit. D) "Yellow Book" audit.

In evaluating whether there is a sufficiently low probability of material misstatement in the financial statements, the auditors accumulate: A) Likely misstatements in the financial statements. B) Known misstatements in the financial statements. C) Known, projected and other estimated misstatements in the financial statements. D) Known, projected and potential misstatements in the financial statements.

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs: A) Tests of controls and extensive tests of property and equipment balances at the end of the year. B) Analytical procedures for current year property and equipment transactions. C) Tests of controls and limited tests of current year property and equipment transactions. D) Analytical procedures for property and equipment balances at the end of the year.

An approach that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting all misstatements existing in the balance sheet at the end of the current year, irrespective of whether the misstatements occurred in the current or previous years is referred to as the: A) Evaluation materiality approach. B) Iron curtain approach. C) Projected misstatement approach. D) Rollover approach.

To minimize the opportunities for fraud, unclaimed cash payroll should be: A) Deposited in a safe deposit box. B) Held by the payroll custodian. C) Deposited in a special bank account. D) Held by the controller.

Costs paid with federal assistance that appear to be in violation of a law or regulation are known as: A) Questioned costs. B) Noncompliance costs. C) Improper costs. D) Illegal costs.

A legal aid society provides free legal aid to low-income individuals with funds passed-through the state welfare department from the U.S. Department of Health and Human Services. In this situation, which organization is the primary recipient of the funds? A) The state welfare department. B) The Department of Health and Human Services. C) The legal aid society. D) The individual receiving the aid.

The operational auditors' preliminary conclusions about potential problem areas are summarized as: A) The definition of purpose. B) The audit program. C) The preliminary survey. D) The audit report.

Which of the following best describes the auditors' approach to the audit of the ending balance of property, plant and equipment for a continuing nonpublic client? A) Direct audit of the ending balance. B) Agreement of the beginning balance to prior year's working papers and audit of significant changes in the accounts. C) Audit of changes in the accounts since inception of the company. D) Audit of selected purchases and retirements for the last few years.

In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the: A) Extent of the control risk. B) Extent of property abandoned during the year. C) Adequacy of replacement funds. D) Reasonableness of the depreciation.

If, after issuing an audit report, the auditors find that they have failed to perform certain significant audit procedures they should first: A) Attempt to determine whether their report is still being relied upon by third parties. B) Notify regulatory agencies. C) Notify legal counsel. D) Wait until the beginning of the next year's audit to determine whether misstatements have occurred.

Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000. The likely misstatement in this situation is: A) $0 B) $30,000 C) $40,000 D) $50,000