ACCT 555 Midterm Exam Solutions
ACCT
555 Midterm Exam Solutions
(TCO
F) Which of
the following procedures should an auditor generally perform regarding
subsequent events?
(TCO
A) An
auditor reads the letter of transmittal accompanying a county’s comprehensive
annual financial report and identifies a material inconsistency with the
financial statements. The auditor determines that the financial statements do
not require revision. Which of the following actions should the auditor take?
(TCO
F) An
auditor’s independence is considered impaired if the auditor has:
(TCO
B) When an
independent CPA is associated with the financial statements of a publicly held
entity but has not audited or reviewed such statements, the appropriate form of
report to be issued must include a(an):
(TCO
F) Which is
not a characteristic of the reliability of evidence?
(TCO
C) According
to PCAOB standards, the nature and extent of required planning activities for
an issuer audit are influenced by all of the following factors, except for:
(TCO
F) Analytical
procedures must be used during which phase(s) of the audit?
Test of controls OR planning OR completion
Test of controls OR planning OR completion
(TCO
F) In a
financial statement audit, inherent risk is evaluated to help an auditor assess
which of the following?
(TCO
F) The
primary purpose of performing analytical procedures in the planning phase of an
audit is to
(TCO
G) The most
widely used profitability ratio is
(TCO
G) Which
ratio is best used to assess a company’s ability to meet its long-term debt
obligations?
(TCO
A) Match
the following definitions to the appropriate terms
(TCO
B) The
following is a portion of a qualified audit report issued for a private
company.
To the
shareholders of Tamarak Corporation,
We have
audited the accompanying balance sheet of Tamarak Corporation as of October 31,
2009, and the related statements of income, retained earnings, and cash flows
for the past year. These financial statements are the responsibility of the
company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The
company has included in property and debt in the accompanying balance sheet
certain lease obligations that, in our opinion, should be expensed in order to
conform with generally accepted accounting principles. If these lease
obligations were capitalized, property would be decreased by $4,000,000,
long-term debt by $2,000,000, and retained earnings by $180,000 as of October
31, 2009, and net income and earnings per share would be decreased by $180,000
and $0.62, respectively, for the past year.
Required: Complete
the above qualified audit report by preparing the opinion paragraph. Do not
date or sign the report.
(TCO
C) The
following situation involves a possible violation of the AICPA’s code of
professional conduct. For this situation, (1) determine the applicable rule
number from the code, (2) decide whether or not the code has been violated, and
(3) briefly explain how the situation violates (or does not violate) the code.
Your answer should be set up something like this:
Rule #
_____ Violation? Yes or No.
Provide
a one- or two-line explanation.
Auditor
Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his
favorite client, Super Pup Dog Food, because the client would allow him to take
home to his dog a variety of dog food samples that amounted to a year’s worth
of dog food.
(TCO
C) The
following situation involves a possible violation of the AICPA’s code of
professional conduct. For this situation, (1) determine the applicable rule
number from the code, (2) decide whether or not the code has been violated, and
(3) briefly explain how the situation violates (or does not violate) the code.
Your answer should be set up something like this:
Rule #
_____ Violation? Yes or No.
Provide
a one- or two-line explanation.
Howard
Cunningham & Co., CPAs, designates its firm as Members of the American
Institute of Certified Public Accountants. All of the partners of the firm are
CPAs. However, one of the partners has recently chosen to allow her membership
to lapse because of personal reasons.
(TCO
C) Under
the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of
a public company has specific guidelines to which employees must adhere.
Discuss some of the mandated features of the audit committee of a public
company under SOX
(TCO
D) Discuss
some of the steps the AICPA and the accounting profession as a whole can and
are taking to reduce practitioners’ exposure to lawsuits. You answer should
provide at least five steps
(TCO
F) Match
nine of the terms (A–K) with the definitions provided below (1–9).
A – Foot
B – Compute
C – Scan
D – Inquire
E – Count
F – Trace
G – Recompute
H – Read
I – Examine
J – Observe
K – Compare
A – Foot
B – Compute
C – Scan
D – Inquire
E – Count
F – Trace
G – Recompute
H – Read
I – Examine
J – Observe
K – Compare
_____ 1:
A calculation done by the auditor independent of the client
_____ 2: Addition of a column of numbers to determine if the total is the same as the client’s
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities
_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the audit
_____ 2: Addition of a column of numbers to determine if the total is the same as the client’s
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities
_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the audit
(TCO
G) Discuss
the essential activities involved in the initial planning of an audit.
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