SOLUTIONS FOR MULTIPLE CHOICE-QUESTIONS
Louwers, Ramsay, Sinason, & Strawser 2005
This is an attestation to the prize promoter's claims.
This is an audit engagement to give an opinion on
1. Describe the three ways that the existence or occurrence of long-term debt can be tested.
Existence and occurrence can be tested by:
Confirming with creditors all recorded loans and other notes payable, including
1. What measure of self-regulation is in place to monitor the performance of the public
accounting profession in the area of assurance services?
The Public Oversight Board (POB) is an autonomous body that monitors the perfor
1. Name the assertions that management presents within company financial statements.
Existence or Occurrence
Rights and Obligations
Valuation or Allocation
Presentation and Disclosure
2. In planning substantive
1. Define the risk of incorrect rejection and the risk of incorrect acceptance and explain the
difference between both risks.
The risk of incorrect rejection is the risk that an audit sample will support concluding that a
1. Name the two major business functions associated with the revenue/receipt cycle.
1. Resources (goods or services) are sold to customers in exchange for promises of future
2. Cash is collected from customers.
2. In considering
1. Describe what is meant by planned detection risk and what effect planned detection risk would
have on evidence.
Detection risk is the likelihood that error could occur and not be detected by the auditors
procedures. Detection risk is
1. Explain the two components of audit risk.
Audit risk is a combination of two components:
The risk that material errors will occur in the process by which financial statements are
The risk that the auditor will not detect
1. Outline how an auditor obtains an understanding of internal control.
Performing a preliminary review
By documenting the system
By performing a transaction walk-through
Determining whether existing control procedures a
1. When would an auditor issue an adverse opinion?
Adverse opinions are issued when financial statements depart from GAAP, or when management
is unable to justify an accounting change (and the effect of the departure or change is so high
1. Explain the difference between errors and fraud.
Errors are unintentional misstatements or omission in financial statements whereas fraud arises
from fraudulent financial reporting and from misappropriation of assets.
2. Explain what
Describe what is meant by reportable conditions.
Reportable conditions are significant deficiencies in internal control discovered during an audit
that could adversely affect the entitys ability to record, process, summarize, and repo
1. Name the four basic sources that are used to search for unrecorded payables.
A year-end accounts payable trial balance
The cash disbursements journal
Canceled (paid) voucher package
The file of unmatched receiving reports
1. Name the two major business functions encompassed by personnel and payroll.
Resources (services) are acquired from employees in exchange for obligations to pay.
Obligations to employees are paid.
2. What safeguards should managemen
1. Name the four instances in which litigation would impair auditor independence.
Litigation by management alleging deficiencies in audit work.
Litigation by the auditor alleging management fraud or deceit.
An expressed intent by man
1. Compare and contrast common law with statutory law.
The source of common law is the written opinions of prior courts within a state (legal precedent), each
state having its own common law. Common law is based in the doctrine of stare
1. Explain the conversion cycle.
The conversion cycle encompasses the production of finished products for sale, and relates
directly to two other cycles. It uses resources and information provided by the
1. Explain the purpose of economy and efficiency audits.
Economy and efficiency audits determine:
Whether an entity acquires, protects, and uses resources economically and efficiently,
The causes of diseconomies or inefficiencies, and
1. Describe an auditor's responsibilities to the client after the audit work has been completed.
An auditor continues to be responsible to:
Communicate with the audit committee, including fraudulent financial reporting,
To discover fa
1. Compare and contrast a review engagement and a compilation engagement.
In a review engagement, an attestation service, the independent accountant performs analytical
procedures, makes inquiries of management, and issues
1. Evidential matter consists of the accounting data that underlies managements financial
statements and the information that supports the accounting data. Please compare underlying
accounting data with corroborating information.