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Question(s) / Instruction(s):

41.     Which of the following would you expect to find in a corporation’s bylaws?
challenging     a.     The kinds and amounts of capital stock authorized.
     b.     The date of incorporation.
     c.     The rules and procedures adopted by the stockholders of the corporation.
     d.     The types of business activities that the corporation is authorized to conduct.
     
42.
challenging     Which of the following would not usually be included in the minutes of the board of directors and/or stockholders?
     a.     The duties and powers of the corporate officers.
     b.     Declaration of dividends.
     c.     Authorization of long-term loans.
     d.     Authorization of individuals to sign checks.
     
43.     When are auditors likely to encounter judgment problems in the use of analytical procedures?
challenging
     a.     Whenever the auditor places reliance on management’s explanations for unusual fluctuations in account balances without first developing independent expectations.
     b.     Whenever the auditor allows unaudited balances to unduly influence his/her expectations of current balances.
     c.     Whenever the auditor fails to consider the pattern reflected by several unusual fluctuations when trying to explain what caused them.
     d.     The auditor is likely to encounter judgment problems in each of the above instances.
     
44.     The major concern when using nonfinancial data in analytical procedures is
challenging     a.     the accuracy of the nonfinancial data.
     b.     the source of the nonfinancial data.
     c.     the type of nonfinancial data.
     d.     the presence of multiple sources of nonfinancial data.
     
45.
challenging     An auditor searching for related party transactions should obtain an understanding of each subsidiary’s relationship to the total entity because
     a.     the business structure may be deliberately designed to obscure related-party transactions.
     b.     this may reveal whether transactions would have taken place if the parties had been unrelated.
     c.     transactions may have been consummated on terms equivalent to arm’s-length transactions.
     d.     this may permit the audit of intercompany account balances to be performed as of concurrent dates.

46.
challenging
     A CPA is conducting the first examination of a non-public company’s financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor’s audit files. This procedure is
     a.     acceptable if the client and the predecessor auditor agree to it.
     b.     acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor’s work.
     c.     required if the CPA is to render an unqualified opinion.
     d.     unacceptable because the CPA should bring an independent viewpoint to a new engagement.
     
47.      Early appointment of the independent auditor will enable
challenging     a.     a more thorough examination to be performed.
     b.     a proper study and evaluation of internal control to be performed.
     c.     sufficient competent evidential matter to be obtained.
     d.     a more efficient examination to be planned.

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