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