Which of the following relatively small misstatements most likely could have a material effect on an entity’s financial statements? a. A piece of obsolete office equipment that was not retired. b. An illegal payment to a foreign official that was not recorded. c. A petty cash fund disbursement that was not properly authorized. d. An uncollectible account receivable that was not written off.

Which of the following relatively small
misstatements most likely could have a
material effect on an entity’s financial
statements?
a. A piece of obsolete office equipment that
was not retired.
b. An illegal payment to a foreign
official that was not recorded.
c. A petty cash fund disbursement that was
not properly authorized.
d. An uncollectible account receivable that
was not written off.
by

1 Answer

Answer :

An illegal payment to a foreign
official that was not recorded.
by

Related questions

The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to a. Provide reasonable assurance that material misstatements will be detected. b. Be an insurer of the fairness in the statements. c. Be a guarantor of the fairness in the statements. d. Be equally responsible with management for the preparation of the financial statements

Description : The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to a. Provide reasonable assurance ... statements. d. Be equally responsible with management for the preparation of the financial statements

Last Answer : Provide reasonable assurance that material misstatements will be detected.

What is the responsibility of an auditor who is engaged to audit the financial statements of a government entity? a. Assess control risk with respect to each component of internal control. b. Assume responsibility for assuring that the entity complies with applicable laws and regulations. c. Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported. d. Design the audit to provide reasonable assurance that the statements are free of material misstatements resulting from illegal acts having direct or indirect effects

Description : What is the responsibility of an auditor who is engaged to audit the financial statements of a government entity? a. Assess control risk with respect to each component of internal ... the statements are free of material misstatements resulting from illegal acts having direct or indirect effects

Last Answer : Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported.

The primary difference between financial statement errors and fraud is that a. Errors are intentional misstatements by management, while fraud involves unintentional mistakes or omissions. b. Errors are more likely to provide an indication that an illegal act has occurred. c. Errors are unintentional mistakes or omissions, while fraud involves intentional misstatements. d. There is no difference as errors and fraud have the same meaning.

Description : The primary difference between financial statement errors and fraud is that a. Errors are intentional misstatements by management, while fraud involves unintentional mistakes or omissions. b. Errors are more ... misstatements. d. There is no difference as errors and fraud have the same meaning.

Last Answer : Errors are unintentional mistakes or omissions, while fraud involves intentional misstatements.

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be conducted? a. The entity has no formal written code of conduct b. The integrity of the entity’s management is suspect c. Procedures requiring segregation of duties are subject to management override d. Management fails to modify prescribed controls for changes in conditions

Description : Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be conducted? a. The entity has no formal written ... subject to management override d. Management fails to modify prescribed controls for changes in conditions

Last Answer : The integrity of the entity’s management is suspect

Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? a. Large amounts of liquid assets that are easily convertible into cash. b. Low growth and profitability as compared to other entity's in the same industry. c. Financial management's participation in the initial selection of accounting principles. d. An overly complex organizational structure involving unusual lines of authority.

Description : Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting? a. Large amounts of liquid assets that are easily ... of accounting principles. d. An overly complex organizational structure involving unusual lines of authority.

Last Answer : An overly complex organizational structure involving unusual lines of authority.

Which of the following statements is incorrect about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. d. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements

Description : Which of the following statements is incorrect about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with ... s perception of the needs of a reasonable person who will rely on the financial statements

Last Answer : An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements

An attestation engagement is one in which a CPA is engaged to: a. Assemble prospective financial statements based on the assumptions of the entity's management without expressing any Testify as an expert witness in accounting, auditing or tax matters, given certain stipulated facts. b. assurance. c. Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party. d. Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.

Description : An attestation engagement is one in which a CPA is engaged to: a. Assemble prospective financial statements based on the assumptions of the entity's management without expressing any Testify as an expert ... or prepare a tax return based on financial information the CPA has not audited or reviewed.

Last Answer : Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party

Inquiries directed towards those charged with governance may most likely a. Relate to their activities concerning the design, and effectiveness of the entity's internal control and whether management has satisfactorily responded to any findings from these activities. b. Help the auditor understand the environment in which the financial statements are prepared. c. Relate to changes in the entity's marketing strategies, sales trends, or contractual arrangements with its customers. d. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting policies

Description : Inquiries directed towards those charged with governance may most likely a. Relate to their activities concerning the design, and effectiveness of the entity's internal control and ... the auditor in evaluating the appropriateness of the selection and application of certain accounting policies

Last Answer : Help the auditor understand the environment in which the financial statements are prepared.

Which of the following characteristics most likely would heighten an auditor’s concern about the risk of intentional manipulation of financial statements? a. Turnover of senior accounting personnel is low. b. Insiders recently purchased additional shares of the entity’s stock. c. Management places substantial emphasis on meeting earnings projections. d. The rate of change in the entity’s industry is slow.

Description : Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? a. Turnover of senior accounting personnel is low. b ... meeting earnings projections. d. The rate of change in the entity's industry is slow.

Last Answer : Management places substantial emphasis on meeting earnings projections.

Which of the following factors most likely would influence an auditor’s determination of the auditability of an entity’s financial statements? a. The complexity of the accounting system. b. The existence of related-party transactions. c. The adequacy of the accounting records. d. The operating effectiveness of control procedures.

Description : Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements? a. The complexity of the accounting system. b. The ... c. The adequacy of the accounting records. d. The operating effectiveness of control procedures.

Last Answer : The adequacy of the accounting records.

An auditor obtains an understanding of the entity and its environment in order to a. Make constructive suggestions concerning improvements to the client's internal control. b. Understand the events and transactions that may have an effect on the client's financial statements. c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. d. Develop an attitude of professional skepticism concerning management's financial statement assertion

Description : An auditor obtains an understanding of the entity and its environment in order to a. Make constructive suggestions concerning improvements to the client's internal control. b. ... misstated. d. Develop an attitude of professional skepticism concerning management's financial statement assertion

Last Answer : Understand the events and transactions that may have an effect on the client's financial statements

Reasonable assurance means: a. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole. b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements, taken as a whole, are free from any misstatements. c. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are free of material unintentional misstatements. d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial

Description : Reasonable assurance means: a. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole. ... necessary for the auditor to conclude that there are no material misstatements in the financial

Last Answer : Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole

According to Philippine Standards on Auditing, because there are inherent limitations in an audit that affect the auditor's ability to detect material misstatements, the auditor is: a. Neither a guarantor nor an insurer of financial statements. b. A guarantor but not an insurer of the statements. c. An insurer but not a guarantor of the statements. d. Both a guarantor and an insurer of the financial statements.

Description : According to Philippine Standards on Auditing, because there are inherent limitations in an audit that affect the auditor's ability to detect material misstatements, the auditor is: a. Neither a ... guarantor of the statements. d. Both a guarantor and an insurer of the financial statements.

Last Answer : Neither a guarantor nor an insurer of financial statements

Material misstatements in financial statements may arise from all of the following except a. Fraud b. Error c. Limitations of the audit d. Noncompliance with laws and regulations

Description : Material misstatements in financial statements may arise from all of the following except a. Fraud b. Error c. Limitations of the audit d. Noncompliance with laws and regulations

Last Answer : Limitations of the audit

A basic premise underlying analytical procedures is that a. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations. b. Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. c. These procedures cannot replace tests of details of transactions and balances. d. Statistical tests of financial information may lead to the detection of material misstatements in the financial statements.

Description : A basic premise underlying analytical procedures is that a. The study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations. b. Plausible relationships ... financial information may lead to the detection of material misstatements in the financial statements.

Last Answer : Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.

The risk that the auditor's own work will lead to the decision that material misstatements do not exist in the financial statements, when in fact such misstatements do exist, is a. Control risk b. Detection risk c. Inherent risk d. Audit risk

Description : The risk that the auditor's own work will lead to the decision that material misstatements do not exist in the financial statements, when in fact such misstatements do exist, is a. Control risk b. Detection risk c. Inherent risk d. Audit risk

Last Answer : Audit risk

The auditor's best defense when material misstatements in the financial statements are not uncovered in the audit is that a. The financial statements are client's responsibility. b. The audit was conducted in accordance with PSAs c. Client is guilty of contributory negligence. d. The audit was conducted in accordance with generally accepted accounting principles.

Description : The auditor's best defense when material misstatements in the financial statements are not uncovered in the audit is that a. The financial statements are client's responsibility. b. ... contributory negligence. d. The audit was conducted in accordance with generally accepted accounting principles.

Last Answer : The audit was conducted in accordance with PSAs

The concept of materiality would be least important to an auditor when considering the a. Decision whether to use positive or negative confirmations of accounts receivable. b. Adequacy of disclosure of a client's illegal act. c. Discovery of weaknesses in a client's internal control structure. d. Effects of a direct financial interest in the client upon the CPA's independence.

Description : The concept of materiality would be least important to an auditor when considering the a. Decision whether to use positive or negative confirmations of accounts receivable. b. Adequacy of disclosure of a ... . d. Effects of a direct financial interest in the client upon the CPA's independence.

Last Answer : Effects of a direct financial interest in the client upon the CPA's independence.

The auditor's understanding of the entity and its environment consists an understanding of the following aspects: a. Industry, regulatory and other external factors, including the applicable financial reporting framework b. Nature of the entity, including the entity's selection and application of accounting policies c. Objectives and strategies and the related business risks that may result in a material misstatement of the financial statements d. All of these.

Description : The auditor's understanding of the entity and its environment consists an understanding of the following aspects: a. Industry, regulatory and other external factors, including the applicable financial reporting ... may result in a material misstatement of the financial statements d. All of these.

Last Answer : All of these.

The purpose of an audit of financial statements is to a. Obtain an absolute level of assurance that the financial statements as a whole are free from material misstatement. b. Relieve management or those charged with governance of the responsibility for the preparation and presentation of the financial statements in accordance with the applicable financial reporting framework. c. Enhance the degree of confidence of intended users in the financial statements. d. Assure the future viability of the entity by expressing an opinion on the entity's financial statements.

Description : The purpose of an audit of financial statements is to a. Obtain an absolute level of assurance that the financial statements as a whole are free from material misstatement. b. Relieve management ... the future viability of the entity by expressing an opinion on the entity's financial statements.

Last Answer : Enhance the degree of confidence of intended users in the financial statements.

Most of the independent auditor's work in formulating an opinion on financial statements consists of a. Studying and evaluating internal control b. Obtaining and examining evidential matter c. Examining cash transactions d. Comparing recorded accountability with assets

Description : Most of the independent auditor's work in formulating an opinion on financial statements consists of a. Studying and evaluating internal control b. Obtaining and examining evidential matter c. Examining cash transactions d. Comparing recorded accountability with assets

Last Answer : Obtaining and examining evidential matter

It is the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. a. Lower materiality b. Lesser materiality c. Performance materiality d. Materiality

Description : It is the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of ... as a whole. a. Lower materiality b. Lesser materiality c. Performance materiality d. Materiality

Last Answer : Performance materiality

For what reason does an independent auditor gather evidence? a. To assess management performance b. To detect fraud c. To detect misstatements d. To form an opinion on the financial statements

Description : For what reason does an independent auditor gather evidence? a. To assess management performance b. To detect fraud c. To detect misstatements d. To form an opinion on the financial statements

Last Answer : To form an opinion on the financial statements

Which of the following is least likely considered a financial statement audit risk factor? a. Management operating and financing decisions are dominated by top management. b. A new client with no prior audit history. c. Rate of change in the entity's industry is rapid. Profitability of the entity relative to its industry is inconsistent.d

Description : Which of the following is least likely considered a financial statement audit risk factor? a. Management operating and financing decisions are dominated by top management. b. A new client with no ... entity's industry is rapid d. Profitability of the entity relative to its industry is inconsistent.

Last Answer : Management operating and financing decisions are dominated by top management.

Which of the following least likely limits the auditor’s ability to detect material misstatement? a. The inherent limitations of any accounting and internal control system. b. Most audit evidences are conclusive rather than being persuasive. c. Audit is based on testing d. Audit procedures that are effective in detecting ordinary misstatements are ineffective in detecting intentional misstatements

Description : Which of the following least likely limits the auditor's ability to detect material misstatement? a. The inherent limitations of any accounting and internal control system. b ... procedures that are effective in detecting ordinary misstatements are ineffective in detecting intentional misstatements

Last Answer : Most audit evidences are conclusive rather than being persuasive

The auditor is required to comply with all PSAs relevant to the audit of an entity's financial statements. A PSA is relevant to the audit when: I. The PSA is in effecII. The circumstances addressed by the PSA exist. a. I only b. II only c. Either I or II d. Both I and IIt

Description : The auditor is required to comply with all PSAs relevant to the audit of an entity's financial statements. A PSA is relevant to the audit when: I. The PSA is in effect II. The circumstances addressed by the PSA exist. a. I only b. II only c. Either I or II d. Both I and II

Last Answer : Both I and II

Which of the following types of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles? a. Operational audit b. Compliance audit c. Performance audit d. Financial statement audit

Description : Which of the following types of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles? a. Operational audit b. Compliance audit c. Performance audit d. Financial statement audit

Last Answer : Financial statement audit

Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements? a. The auditor's report should provide an assurance as to the future viability of the entity. b. Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence. c. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion. d. The fair presentation of audited financial statements in accordance with an applicable financial reporting framework is an implicit part of the auditor's responsibilities

Description : Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements? a. The auditor's report should provide an assurance as to the future ... with an applicable financial reporting framework is an implicit part of the auditor's responsibilities

Last Answer : An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion

An objective of a performance audit is to determine whether an entity's a. Operational information is in accordance with government auditing standardsb. Specific operating units arefunctioning economically andefficiently.c. Financial statements present fairly theresults of operations.d. Internal control is adequatelyoperating as designed

Description : An objective of a performance audit is to determine whether an entity's a. Operational information is in accordance with government auditing standards b. Specific operating units are functioning ... present fairly the results of operations. d. Internal control is adequately operating as designed

Last Answer : Specific operating units are functioning economically and efficiently

A typical objective of an operational audit is for the auditor to a. Determine whether the financial statements fairly present the entity's operations. b. Evaluate the feasibility of attaining the entity's operational objectives. c. Make recommendation for improving performance. d. Report on the entity's relative success in maximizing profits

Description : A typical objective of an operational audit is for the auditor to a. Determine whether the financial statements fairly present the entity's operations. b. Evaluate the feasibility of ... recommendation for improving performance. d. Report on the entity's relative success in maximizing profits

Last Answer : Make recommendation for improving performance

A typical objective of an operational audit is to determine whether an entity's a. Internal control structure is adequately operating as designed b. Operational information is in accordance with generally accepted accounting principles. c. Specific operating units are functioning efficiently and effectively d. Financial statements present fairly the results of operations

Description : A typical objective of an operational audit is to determine whether an entity's a. Internal control structure is adequately operating as designed b. Operational information is in ... are functioning efficiently and effectively d. Financial statements present fairly the results of operations

Last Answer : Specific operating units are functioning efficiently and effectively

An auditor may accept an engagement to perform specified procedures on the specific subject matter of specified elements, accounts, or items of a financial statement if a. The report does not list the procedures performed. b. The auditor is also the entity's continuing auditor. c. The financial statements are prepared in accordance with a special purpose framework. d. Use of the report is restricted

Description : An auditor may accept an engagement to perform specified procedures on the specific subject matter of specified elements, accounts, or items of a financial statement if a. The report does not list ... are prepared in accordance with a special purpose framework. d. Use of the report is restricted

Last Answer : Use of the report is restricted

PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to a. Reviews of any historical financial information of an audit client. b. Reviews of historical financial or other information by a practitioner other than the entity's auditor. c. Reviews of historical financial or other information of an audit client. d. Reviews of any historical financial information by a practitioner other than the entity's auditor.

Description : PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to a. Reviews of any historical financial information of an audit client. b. Reviews of ... d. Reviews of any historical financial information by a practitioner other than the entity's auditor.

Last Answer : Reviews of any historical financial information by a practitioner other than the entity's auditor.

Professional judgment:a. Is not used in making decisions about materiality and audit risk. b. Is necessary in the evaluation of management's judgments in applying the entity's applicable financial reporting framework. c. Should be exercised in planning and performing an audit of financial statements but need not be documented. d. Can be used as the justification for the decisions made by the auditor that are not supported by the facts and circumstances of the engagement

Description : Professional judgment:a. Is not used in making decisions about materiality and audit risk. b. Is necessary in the evaluation of management's judgments in applying the entity's applicable financial ... made by the auditor that are not supported by the facts and circumstances of the engagement

Last Answer : Is necessary in the evaluation of management's judgments in applying the entity's applicable financial reporting framework

Which of the following is an example of fraudulent financial reporting? a. The treasurer diverts customer payments to his personal due, concealing hisactions by debiting an expense account,thus overstating expenses. b. Company management changesinventory count tags and overstatesending inventory, while understatingcost of goods sold. c. An employee steals inventory and the“shrinkage” is recorded in cost of goodssold. d. An employee steals small tools from thecompany and neglects to return them;the cost is reported as a miscellaneousoperating expense

Description : Which of the following is an example of fraudulent financial reporting? a. The treasurer diverts customer payments to his personal due, concealing hisactions by debiting an expense account, thus ... the company and neglects to return them; the cost is reported as a miscellaneous operating expense

Last Answer : Company management changes inventory count tags and overstates ending inventory, while understating cost of goods sold

Which of the following matters would an auditor most likely consider when establishing the scope of the audit?a. Audit areas where there is a higher risk of material misstatement. b. The expected audit coverage, including the number and locations of the entity's components to be included. c. The entity's timetable for reporting, such as at interim and final stages. d. The discussion with the entity's management concerning the expected communications on the status of audit work throughout the engagement and the expected deliverables resulting from the audit procedures.

Description : Which of the following matters would an auditor most likely consider when establishing the scope of the audit? a. Audit areas where there is a higher risk of material misstatement. ... status of audit work throughout the engagement and the expected deliverables resulting from the audit procedures.

Last Answer : The expected audit coverage, including the number and locations of the entity's components to be included.

A violation of the ethical standards would most likely have occurred when a CPA a. Made arrangement with a bank to collect notes issued by a client in payment of fees due. b. Joined an accounting firm made up of three non-CPA practitioners. c. Issued an unqualified opinion on the 2006 financial statements when fees for the 2005 audit were unpaid. d. Purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period

Description : A violation of the ethical standards would most likely have occurred when a CPA a. Made arrangement with a bank to collect notes issued by a client in payment of fees due. b. Joined an ... bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period

Last Answer : Issued an unqualified opinion on the 2006 financial statements when fees for the 2005 audit were unpaid

A violation of the ethical standards would most likely have occurred when a CPA a. Made arrangement with a bank to collect notes issued by a client in payment of fees due. b. Joined an accounting firm made up of three non-CPA practitioners. c. Issued an unqualified opinion on the 2010 financial statements when fees for the 2009 audit were unpaid. d. Purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period.

Description : A violation of the ethical standards would most likely have occurred when a CPA a. Made arrangement with a bank to collect notes issued by a client in payment of fees due. b. Joined an accounting ... firm's practice of monthly write-ups for a percentage of fees received over a three-year period.

Last Answer : Issued an unqualified opinion on the 2010 financial statements when fees for the 2009 audit were unpaid

Orange Corp. has a few large accounts receivable that total P2,000,000. Yellow Corp. has a large number of small accounts receivable that also total P2,000,000. The importance of an error in any one account is, therefore, greater for Orange Corp. than for Yellow Corp. This is an example of the auditor's concept of: a. Materiality. b. Reasonable assurance. c. Comparative analysis d. Relative risk

Description : Orange Corp. has a few large accounts receivable that total P2,000,000. Yellow Corp. has a large number of small accounts receivable that also total P2,000,000. The importance of an error in ... auditor's concept of: a. Materiality. b. Reasonable assurance. c. Comparative analysis d. Relative risk

Last Answer : Materiality.

The subject matter of an assurance engagement can take the following forms except a. The entity’s internal control. b. Historical or prospective financial statementsc. Evaluation of a capital investment proposal. d. Performance of an entity that could indicate efficiency and effectiveness.

Description : The subject matter of an assurance engagement can take the following forms except a. The entity’s internal control. b. Historical or prospective financial statements. c. Evaluation of a capital investment proposal. d. Performance of an entity that could indicate efficiency and effectiveness

Last Answer : Evaluation of a capital investment proposal.

The ordinary examination of financial statements is not primarily designed to disclose defalcations and other irregularities although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from a. Theft of inventories. b. Collusion on the part of several employees. c. Failure to record cash receipts for services rendered. d. Forgeries on company checks

Description : The ordinary examination of financial statements is not primarily designed to disclose defalcations and other irregularities although their discovery may result. Normal audit procedures are more likely to ... . Failure to record cash receipts for services rendered. d. Forgeries on company checks

Last Answer : Theft of inventories