Question 1

The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 apply to

Accepted Answer

Most publicly-held companies.

Question 2

The role of the registered independent auditing firm relative to its clients’ internal controls under the
Sarbanes-Oxley Act of 2002 is to

Accepted Answer

Express an opinion on the effectiveness of the entity's internal control.

Question 3

Which of the following statements concerning control deficiencies is true?

Accepted Answer

The two dimensions of control deficiencies are likelihood of occurrence and magnitude.

Question 4

Which of the following statements best describes how the requirements under Sarbanes-Oxley
changed the auditor's responsibility for issuing an opinion in connection with the audits of most public
companies?

Accepted Answer

CPA firms are now required to issue a second opinion related to their evaluation of the
effectiveness of internal controls in addition to an opinion on the overall fairness of the
financial statements

Question 5

Which of the following is not a requirement for management under Section 404 of the Sarbanes-Oxley
Act of 2002?

Accepted Answer

Guarantee effectiveness of the entity’s ICFR.

Question 6

When auditing contingent liabilities, which of the following procedures would generally be least
effective?

Accepted Answer

Examining accounts payable confirmations.

Question 7

Which of the following is an example of a contingent liability

Accepted Answer

Warranty payable.

Question 8

Which of the following is an example of a subsequent event that requires disclosure in the notes to the
financial statements (but not adjustments to the financial statements)?

Accepted Answer

A chemical explosion at a customer’s warehouse occurs after the client’s balance sheet date
and causes all accounts receivable from that customer to be uncollectible.

Question 9

According to the (PCAOB) auditing standard (AS 1215)
related to audit documentation and retention, an auditor should retain audit documentation for how
long of a period of time beyond completion of the engagement?

Accepted Answer

Seven years, unless a longer period is required by state law.

Question 10

Dewey, Needham, & Howe The entity's letter of representation should be
dated _____________ and the audit report should be dated _____________.

Accepted Answer

March 12th; March 12th.

Question 11

In most cases, commitments

Accepted Answer

Are disclosed in a footnote to the financial statements with an adjustment to Other
Comprehensive Income for any gains or losses.

Question 12

The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR
in the entity’s annual report. It also requires auditors to report on the effectiveness of ICFR for large
public companies. Which is false?

Accepted Answer

The auditor should provide recommendations for improving internal control in the audit report.

Question 13

A control deviation caused by an employee performing a control procedure that he or she is not
authorized to perform is always considered a:

Accepted Answer

deficiency in operation.

Question 14

Which of the following is not a factor that might affect the likelihood that a control deficiency could
result in a misstatement in an account balance?

Accepted Answer

the financial statement amounts exposed to the deficiency

Question 15

Entity-level controls can have a pervasive effect on the entity’s ability to meet the control criteria. Which
one of the following is not an entity-level control?

Accepted Answer

controls to monitor the inventory taking process

Question 16

Which of the following controls would most likely be tested during an interim period?

Accepted Answer

controls that operate on a continuous basis

Question 17

If the financial reporting risks for a location are low and the entity has good entity-level controls,
management may rely on which of the following for its assessment?

Accepted Answer

self-assessment processes in conjunction with entity-level controls

Question 18

A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough
requires an auditor to:

Accepted Answer

trace a transaction from each major class of transactions from origination through the entity’s
information system until it is reflected in the entity’s financial reports

Question 19

Which of the following statements concerning control deficiencies is true?

Accepted Answer

The auditor should communicate to management, in writing, all control deficiencies in internal
control identified during the audit.

Question 20

The PCAOB Auditing Standards require the auditor to provide which of the following when performing
an integrated audit?

Accepted Answer

reasonable assurance on both the financial statements and internal control

Question 21

According to the PCAOB, who is responsible for certifying the reliability of the internal controls over
financial reporting process of an entity?

Accepted Answer

the entity’s CEO and/or CFO

Question 22

An “integrated audit” as stated in Section 404 of the Sarbanes-Oxley Act means:

Accepted Answer

the auditor must conduct two audits, one on the effectiveness of internal control and one on
the financial statements, in an integrated way.

Question 23

An auditor performing an audit of internal control over financial reporting would be required to

Accepted Answer

form an opinion on the effectiveness of internal control.

Question 24

An auditor would be most likely to identify a contingent liability by obtaining a(n):

Accepted Answer

letter from the entity’s general legal counsel.

Question 25

An auditor should request that an audited entity send a letter of inquiry to those attorneys who have
been consulted concerning litigation, claims, or assessments. The primary reason for this request is to
provide:

Accepted Answer

corroboration of the information furnished by management concerning litigation, claims, and
assessments.

Question 26

An auditor issued an audit report that was dual dated for a subsequent event occurring after the date
on which the auditor has obtained sufficient appropriate audit evidence but before issuance of the
F/S. Appropriate audit evidence was:

Accepted Answer

limited to the specific event referenced.

Question 27

Which of the following procedures would an auditor most likely perform to obtain evidence about the
occurrence of any changes in internal control between the end of
the reporting period and the date of the auditor’s report?

Accepted Answer

examine relevant internal audit reports issued during the subsequent period

Question 28

Final analytical procedures are generally intended to

Accepted Answer

provide the auditor with a final, overall evaluation of the relationships among financial
statement balances.

Question 29

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and
events that may indicate substantial doubt about an entity’s ability to continue as a going concern?

Accepted Answer

review compliance with the terms of debt agreements

Question 30

Auditing standards primarily encourage which of the following conversations between the auditor and
another party about financial reporting?

Accepted Answer

a conversation with those charged with governance to discuss matters pertaining to financial
reporting

Question 31

Which of the following matters should an auditor communicate to those charged with governance?

Accepted Answer

Yes Yes

Question 32

Which of the following events occurring after the issuance of a set of financial statements and the
accompanying auditor’s report would be most likely to cause the auditor to make further inquiries about
the financial statements?

Accepted Answer

the discovery of information regarding a contingency that existed before the financial
statements were issued

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Audit Exam 3