MaoEn/USCPA_AUD_Data huggingface dataset:
Choice "A" is incorrect. This is an audit procedure that the auditor may perform when testing the completeness assertion. For example, the auditor may observe the client’s year-end physical inventory count.
Choice "B" is incorrect. This is a procedure that the auditor may perform when testing the completeness assertion. It should be noted that this is a directional test that begins with the source documents (opposite of vouching).
Choice "C" is incorrect. This is a procedure that the auditor may perform when testing the completeness assertion. Depending on the transaction cycle being audited, an auditor would consider how certain items may be omitted from the account balance."
Although regression analysis has the same objective as trend analysis, ratio analysis, and nonstatistical predictive modeling, which is to identify the potential for material misstatement, regression analysis has the following advantage over the other methods:
A.
Provides direct and quantitative measures of the precision of expectation.
B.
Provides a very high level of precision for forming an expectation.
C.
May use multiple sources of data, including financial and nonfinancial, in forming an expectation.
D.
Is a simple statistical technique used to form an expectation.,"Choice "A" is correct. Unlike trend analysis, ratio analysis, and nonstatistical predictive modeling, regression analysis provides direct and quantitative measures of the precision of expectation.
Choice "B" is incorrect. The other methods may also provide a high level of precision for forming an expectation.
Choice "C" is incorrect. The other methods may also use multiple sources of data in forming an expectation.
Choice "D" is incorrect. Regression analysis is considered an advanced statistical technique that often requires the use of software."
Which of the following procedures most likely could assist an auditor in identifying related party transactions?
A.
Scanning the accounting records for recurring transactions.
B.
Reviewing confirmations of compensating balance arrangements.
C.
Evaluating the reasonableness of management's accounting estimates.
D.
Performing tests of controls concerning the segregation of duties.,"Choice "B" is correct. Compensating balance arrangements may be maintained by or for related parties.
Choice "A" is incorrect. Related party transactions are more likely to be nonrecurring than recurring.
Choice "C" is incorrect. Evaluating the reasonableness of management's accounting estimates would not provide any evidence of transactions with affiliates, owners, or management.
Choice "D" is incorrect. Performing tests of controls concerning the segregation of duties relates to the allocation of responsibilities among company employees; related party transactions typically relate to transactions with affiliates, owners, or management."
An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the:
A.
Notes to the financial statements fail to disclose the employees' actions.
B.
Employees' actions affect the auditor's ability to rely on management's representations.
C.
Audit evidence that is necessary to prove that the acts of noncompliance with laws and regulations were committed does not exist.
D.
Client receives financial assistance from a federal government agency.,"Choice "B" is correct. When an auditor cannot rely on management's representations, he or she should withdraw from the engagement.
Choice "A" is incorrect. The auditor should evaluate the adequacy of disclosure in the financial statements with respect to the potential effects of an act of noncompliance with laws and regulations . If the auditor concludes that disclosure is inadequate, he or she should express a qualified or adverse opinion, but would not necessarily need to withdraw from the engagement (unless the client refused to accept the modified report).
Choice "C" is incorrect. If there is no evidence that an act of noncompliance with laws and regulations was committed, management may be unable to take remedial action against the related employees. As long as the act of noncompliance with laws and regulations is immaterial and the auditor is satisfied that management's response is appropriate in the circumstances, there would be no reason for the auditor to withdraw.
Choice "D" is incorrect. As long as the client takes appropriate remedial action, the auditor would not need to withdraw from the engagement simply because the client receives federal financial assistance. However, the auditor would be subject to a variety of reporting requirements related to this discovery."
While performing procedures in planning an audit, the auditor's comparison of expectations with recorded amounts yield unusual and unexpected relationships. The auditor should consider the results of the analytical procedures in which of the following?
A.
Determining planning materiality and acceptable error.
B.
Identifying the risks of material misstatement due to fraud.
C.
Identifying acts of noncompliance.
D.
Determining which controls to test.,"Choice "B" is correct. The auditor should consider the results of analytical procedures performed in the planning stage of the audit in identifying the risks of material misstatement due to fraud. This is one of the primary purposes of performing analytical procedures during the planning stage.
Choice "A" is incorrect. Planning materiality is generally not based on the results of analytical procedures. Planning materiality is usually based on factors such as annualized revenue or prior period financial results.
Choice "C" is incorrect. Analytical procedures are not effective in identifying acts of noncompliance with laws and regulations.
Choice "D" is incorrect. The auditor typically decides which controls to test based on the auditor's understanding of the design and implementation of internal control rather than on analytical procedures performed during the planning stage."
The scope of an audit is not restricted when an attorney's response to an auditor as a result of a client's letter of audit inquiry limits the response to:
A.
The probable outcome of asserted claims and pending or threatened litigation.
B.
The attorney's opinion of the entity's historical experience in recent similar litigation.
C.
Matters to which the attorney has given substantive attention in the form of legal representation.
D.
An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity.,"Choice "C" is correct. The scope of an audit is not restricted when an attorney's response is limited to matters to which the attorney has given substantive attention in the form of legal representation. The attorney may also limit his or her response to matters that are considered individually or collectively to be material.
Choices "D", "B", and "A" are incorrect. The scope of an audit may be restricted when an attorney's response is limited to:
An evaluation of the likelihood of an unfavorable outcome of the matter disclosed by the entity. (The attorney's response should also address the nature of the claim, the progress to date, and the intended response.)
The attorney's opinion of the entity's historical experience in recent similar litigation. (The attorney's response should address the current situation, which may not parallel historical experience).
The probable outcome of asserted claims and pending or threatened litigation. (The attorney's response should also address the nature of the claim, the progress to date, and the intended response, as well as unasserted claims)."
Which of the following procedures most likely would assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?
A.
Inquire about the existence of related party transactions.
B.
Confirm inventories at locations outside the entity.
C.
Determine whether accounting estimates deviate from historical patterns.
D.
Review the lawyer's letter for information about litigation.,"Choice "D" is correct. The auditor should inquire of management concerning pending or threatened litigation, and should obtain a letter from the client's lawyer to corroborate this information. Included in this letter is either an identification of the omission of any pending or threatened litigation, claims, and assessments, or a statement that the list of such matters (as provided by management) is complete.
Choice "A" is incorrect. Accounting estimates generally are not associated with the existence of related party transactions.
Choice "B" is incorrect. Accounting estimates generally are not associated with the existence of inventories at locations outside the entity.
Choice "C" is incorrect. Evaluating deviations from historical patterns assists an auditor in determining if a recorded estimate is reasonable, but it does not provide assurance that management has identified all material accounting estimates."
Which of the following definitions best describes a business cycle?
A.
Activity that alternates periods of growth and decline in an economy's GDP.
B.
Activity where GDP declines, inflation moderates, and unemployment increases.
C.
Activity marked by a relatively high level of GDP, full employment, and inflation.
D.
Activity where the decline in the economy's real gross domestic product (GDP) persists for at least a half-year.,"Choice "A" is correct. Business cycles represent the rise and fall of economic activity relative to long-term growth trends. As economic activity is frequently measured using a country's gross domestic product (GDP), business cycles show GDP rising and falling over time.
Choice "B" is incorrect. This describes a contractionary phase, which is a component of a business cycle, but it does not represent the best description of a business cycle.
Choice "C" is incorrect. This describes the expansionary phase, which is a component of a business cycle, but it does not represent the best description of a business cycle.
Choice "D" is incorrect. At least two consecutive quarters (half of the year) of GDP declines are indicative of a recession."
In addition to making management inquiries, an auditor should perform the following procedures to identify client contingencies with the exception of:
A.
Discussing sales contracts with the sales manager.
B.
Reviewing the status of long-term leases.
C.
Reviewing derivative transactions reflected on the quarter-end balance sheet.
D.
Obtaining a client representation letter.,"Choice "C" is correct. A client is expected to report material contingencies in the footnotes as they have not yet happened and are not reflected in the actual financial statements. Derivatives that are actually reflected on the client’s balance sheet at quarter end are not contingencies (the amount is provided and there is no possible or probable outcome). As a result, reviewing any type of transaction that is already recorded on the balance sheet will not identify a contingency.
Choice "A" is incorrect. By discussing the sales contracts with the sales manager, the auditor may identify contingencies pertaining to the client’s future revenue recognition.
Choice "B" is incorrect. The auditor should review the status of long-term leases to identify possible future contingencies related to these leases.
Choice "D" is incorrect. The auditor should obtain a client representation letter which would identify client contingencies."
An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that:
A.
Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early in the subsequent year.
B.
The annual provision for credit loss expense was inadequate because of worsening economic conditions.
C.
Unrealized gains from increases in the value of available-for-sale debt securities were recorded in the income account for trading securities.
D.
Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.,"Choice "C" is correct. Unrealized gains on available-for-sale debt securities should properly be recorded in other comprehensive income. If such gains were erroneously recorded in the income account for trading securities, this might be discovered through comparison of the current year and prior year revenues and expenses (assuming the error occurred only in the current year, and not in the prior year).
Choice "A" is incorrect. If payroll taxes were properly accrued and recorded, there is unlikely to be a significant change in revenues and expenses for the current year as compared to the prior year. Payables would not be part of the comparison of revenues and expenses.
Choice "B" is incorrect. In times of worsening economic conditions, one would expect the annual provision for credit losses to increase. Since this answer option indicates that the provision was inadequate, it would appear that the client did not increase the provision appropriately. Investigating changes in revenues and expenses would not be likely to identify this error, since failing to increase the provision would likely result in there being little change between the two years.
Choice "D" is incorrect. An increase in property tax rates should cause a corresponding increase in accrued property tax expense; however, the question indicates that the appropriate increase was not recorded in the current year. Investigating changes in revenues and expenses would not be likely to identify this error, since failing to increase the expense would likely result in there being little change between the two years."
Which of the following tests of details most likely would help an auditor determine whether revenues have been misstated?
A.
Testing for unrecorded discounts given to customers
B.
Testing for inventory purchases that were recorded after the end of the accounting period
C.
Testing for equipment depreciation expenses that were not recorded
D.
Testing for liabilities that were recorded in the financial records of unconsolidated, related entities,"Choice "A" is correct. Testing for unrecorded discounts given to customers is related to testing revenue recognition. Discounts provided to customers will reduce the amount of revenue, so if these discounts are not recorded, revenues could be overstated.
Choice "B" is incorrect. Testing for inventory purchases that were recorded after the end of the accounting period focuses on cut-off testing related to inventory and cost of goods sold, not revenues.
Choice "C" is incorrect. Testing for equipment depreciation expenses that were not recorded focuses on ensuring that depreciation expenses are properly recorded in the financial statements, not revenues.
Choice "D" is incorrect. Testing for liabilities recorded in the financial records of unconsolidated, related entities would pertain to testing liabilities, not revenues."
Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?
A.
The auditor's allowable risk of assessing control risk is too low.
B.
The amount of accounts receivable write-offs in the prior year.
C.
Preliminary judgments about materiality levels.
D.
The size of the intercompany receivable balance.,"Choice "C" is correct. When planning a sample for a test of subsequent cash receipts, the auditor should consider preliminary judgments about materiality levels.
Choice "A" is incorrect. The auditor's allowable risk of assessing control risk too low relates to tests of controls and is not a consideration in planning for a sample for a test of subsequent cash receipts. A test of subsequent cash receipts is a substantive test of details.
Choice "B" is incorrect. The amount of accounts receivable write-offs in the prior year is not a consideration in planning for a sample for a test of subsequent cash receipts. A test of subsequent cash receipts is performed to assess the valuation of customer/trade accounts receivable.
Choice "D" is incorrect. The size of the intercompany accounts receivable balance is not a consideration in planning a sample for a test of subsequent cash receipts. Intercompany accounts receivable are eliminated upon consolidation and do not impact the valuation of accounts receivable."
Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable?
A.
Reviewing the debtor's purchase records to test the historical value of the collateral.
B.
Obtaining a current value appraisal of the collateral.
C.
Performing a site visit to physically inspect the collateral.
D.
Sending a positive confirmation letter to the debtor to confirm the loan balance.,"Choice "B" is correct. Obtaining a current value appraisal of the collateral is the most appropriate audit procedure to test the valuation of the collateral of a delinquent loan receivable.
Choice "A" is incorrect. The auditor is concerned with the current market value of the collateral, not the historical value of the collateral.
Choice "C" is incorrect. Performing a site visit to physically inspect the collateral provides evidence that the collateral exists but does not provide information on the actual value of asset.
Choice "D" is incorrect. Sending a positive confirmation letter to the debtor to confirm the loan balance does not provide evidence of valuation because the customer may confirm the balance owed despite an inability to pay."
During the course of an audit, the auditor performs an assessment of risks at the assertion level and financial statement level. Which of the following is an accurate statement regarding either of these identified risks?
A.
Assertion level risk only pertains to risks identified with specific transactions and account balances.
B.
Financial statement level risk would include a client improperly disclosing its derivatives activity for the reporting period.
C.
Identified financial statement level risks could also have a potential impact on many of the client’s relevant assertions.
D.
When assessing risk of material misstatement at the assertion level, the auditor should only focus on whether the controls in place are designed appropriately to prevent, detect, and correct any material misstatements from the identified risk.,"Choice "C" is correct. This represents an accurate statement. Although financial statement risks have a direct impact on the financial statements taken as whole, they could affect many relevant assertions as well.
Choice "A" is incorrect. Although assertion level risks include risks identified for specific transactions and account balances, they also include risks for disclosures at the relevant assertion level.
Choice "B" is incorrect. The client’s improper disclosure of derivative activity would pertain to (disclosure) assertion level risk instead of financial statement level risk.
Choice "D" is incorrect. If the auditor assesses risk of material misstatement at the assertion level, he or she would need to assess both the control risk and the inherent risk."
In evaluating the reasonableness of an accounting estimate, an auditor would be least likely to use which of the following approaches?
A.
Review and test the process used to develop the estimate.
B.
Review the minutes of board of directors and shareholder meetings for discussion of the estimate.
C.
Develop an independent expectation of the estimate.
D.
Review subsequent events or transactions occurring prior to audit completion.,"Choice "B" is correct. Even if estimates were discussed during board meetings and/or shareholder meetings, it is unlikely that review of such discussion would provide evidence that the estimate is reasonable.
Choices "D", "C", and "A" are incorrect. Reviewing subsequent events, developing an independent expectation, and reviewing and testing the process used to develop the estimate are all appropriate methods used to evaluate the reasonableness of an accounting estimate."
An auditor is in the process of gathering evidence during the current audit. Which of the following would not be considered corroborating evidence?
A.
Sales invoices
B.
Board minutes
C.
Inquiries
D.
Confirmations,"Choice "A" is correct. If an auditor reviews a client’s invoices, he or she would be examining the underlying accounting records of the client. Other underlying accounting records the auditor may review include contracts, ledgers, worksheets, checks, and journal entries.
Choice "B" is incorrect. Examining the minutes of a board meeting would be corroborating evidence.
Choice "C" is incorrect. Performing inquiries of client management or outside parties would be considered corroborating evidence.
Choice "D" is incorrect. Obtaining audit evidence through confirmations represents corroborating evidence."
When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?
A.
Comparing client data with client-determined expected results to reduce detailed tests of account balances.
B.
Considering the pattern of several unusual changes without trying to explain what caused them.
C.
Identifying reasonable explanations for unexpected differences before talking to client management.
D.
Considering unaudited account balances and ratios to calculate what adjusted balances should be.,"Choice "C" is correct. Identifying reasonable explanations for unexpected differences before talking to client management helps the auditor in assessing if management's explanation is reasonable. Management's explanation should always be corroborated with other evidence.
Choice "A" is incorrect. Since the data is obtained from sources within the entity, it is not as reliable for developing expectations.
Choice "B" is incorrect. Analytical procedures assume that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. Conditions that might cause variations in these relationships include unusual events. Expectations cannot be developed when there is no explanation of what caused a pattern of unusual changes.
Choice "D" is incorrect. Unaudited account balances are less reliable."
As part of audit procedures performed on a client’s transactions, the auditor reconciles supporting schedules to the corresponding general ledger entries. The auditor would most likely be testing which of the following assertions?
A.
Understandability of presentation and classification.
B.
Cutoff.
C.
Existence and occurrence.
D.
Valuation, allocation, and accuracy.,"Choice "D" is correct. If the auditor performs a reconciliation of supporting schedules to the client’s general ledger entries, the auditor would most likely be testing the valuation, allocation, and accuracy assertion for a particular transaction cycle.
Choices "B", "C", and "A" are incorrect as other auditing procedures would be used to test the cutoff, existence and occurrence, and understandability of presentation and classification assertions."
In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also consider the:
I.
Likely rate of deviations.
II.
Allowable risk of assessing control risk too high.
A.
I only.
B.
II only.
C.
Both I and II.
D.
Either I or II.,"Choice "A" is correct. In determining the number of sample items to select in a test of controls, the auditor would also consider the likely rate of deviations. The higher the expected rate, the greater the number of items selected.
Choices "B", "C", and "D" are incorrect. The process of establishing the number of sample items to select in a test of controls would include the consideration of the allowable risk of assessing control risk too low, not too high."