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61.     Most illegal acts affect the financial statements
challenging     a.     directly.
     b.     only indirectly.
     c.     both directly and indirectly.
     d.     materially if direct; immaterially if indirect.
62.     Auditing standards regarding the detection of indirect-effect illegal acts clearly state that the auditor provides
challenging     a.     no assurance that they will be detected.
     b.     the same reasonable assurance provided for other items.
     c.     assurance that they will be detected, if material.
     d.     assurance that they will be detected, if highly material.
challenging     In describing the cycle approach to segmenting an audit, which of the following statements is not true?
     a.     All general ledger accounts and journals are included at least once.
     b.     Some journals and general ledger accounts are included in more than one cycle.
     c.     The “capital acquisition and repayment” cycle is closely related to the “acquisition of goods and services and payment” cycle.
     d.     The “inventory and warehousing” cycle may be audited at any time during the engagement since it is unrelated to the other cycles.
64.     Which of the following journals would be included most often in the various audit cycles?
challenging     a.     Cash receipts journal.
     b.     Cash disbursements journal.
     c.     General journal.
     d.     Sales journal.
65.     Transaction cycles begin and end
challenging     a.     at the beginning and end of the fiscal period.
     b.     at the balance sheet date.
     c.     at January 1 and December 31.
     d.     at the origin and final disposition of the company.
66.     For the most part, auditors treat each transaction cycle
challenging     a.     as an interrelated unit with the other cycles throughout the entire audit.
     b.     separately as the audit is being performed.
     c.     as a separate business unit with different audit teams.
     d.     as a joint venture with other clients in the same industry.
67.     Which of the following statements is not true?
     a.     Inclusion of an account receivable from a customer in the accounts receivable trial balance when there is no receivable from that customer violates the existence objective.
     b.     Failure to include an account receivable from a customer in the accounts receivable trial balance when a receivable exists violates the completeness objective.
     c.     The accounts receivable listing should include one total for all receivables from customers and officers.
     d.     Individual accounts receivable on a listing of accounts receivable should be the same in the accounts receivable master file and the total should equal the general ledger control account.
challenging     After the general objectives are understood, specific objectives for each account balance on the financial statements can be developed. Which of the following statements is true?
     a.     There should be at least one specific objective for each relevant general objective.
     b.     There will be only one specific objective for each relevant general objective.
     c.     There will be many specific objectives developed for each relevant general objective.
     d.     There must be one specific objective for each general objective.
challenging     To adequately plan the appropriate audit evidence to gather, generally accepted auditing standards require the auditor to gain an understanding of
     a.     the client’s procedural manuals.
     b.     the client’s organization charts.
     c.     the client’s internal control.
     d.     all of the above.
challenging     Which of the following factors is most important concerning an auditor’s responsibility to detect errors and irregularities?
     a.     The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication of accounting principles.
     b.     The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts to misstate the financial statements.
     c.     The possibility that management fraud, defalcations, and the misappropriation of assets may indicate the existence of illegal acts.
     d.     The risk that mistakes, falsifications, and omissions may cause the financial statements to contain material misstatements.
challenging     An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of errors or irregularities and therefore should
     a.     plan and perform the engagement with an attitude of professional skepticism.
     b.     not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.
     c.     design audit tests to detect unrecorded transactions.
     d.     extend the work to audit most recorded transactions and records of an entity.

     When the auditor’s regular examination leading to an opinion on financial statements discloses specific circumstances that make him suspect that fraud may exist and he concludes that the results of such fraud, if any, could not be so material as to affect his opinion, he should
     a.     refer the matter to the appropriate representatives of the client with the recommendation that it is to be pursued to a conclusion.
     b.     immediately extend his audit procedures to determine if fraud has occurred and, if so, the amount thereof.
     c.     reach an understanding with the client as to whether the auditor or the client, subject to the auditor’s review, is to make the investigation necessary to determine whether fraud has occurred and, if so, the amount thereof.
     d.     make a note in his working papers of the possibility of a fraud of immaterial amount so as to pursue the matter next year.

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