acct 242 exam 1 E, C & A

  1. Which of the following is the most logical reason for the use of sampling to answer a question of interest?

    A. Sampling results in a time savings, particularly if the size of the population is large.
  2. Sampling risk has a(n) ___ relationship with sample size; that is, as the sampling risk increases, sample size ___.

    A. inverse; decreases
  3. The precision interval is that range of values that has a ____ likelihood of containing the ___

    C. one minus sampling risk; true population
  4. A method of sample selection in which a series of contiguous units are selected is referred to as:

    A. block selection
  5. Assume that you are interested in determining if the average weight of students in your class exceeds 140 lbs. Which of the following sets of conditions would expose you to sampling risk?

    C. sample estimate = 135 lbs; true average 145 lbs
  6. In which of the following situations would the use of sampling ordinarily be considered most appropriate?

    B. The population is comprised of a large number of relatively homogenous items
  7. Sampling ordinarily results in a sacrifice of ___ to gain ___.

    C. effectiveness; efficiency
  8. Which of the following would not be an example of the application of sampling?

    • B. Examining all members of a graduating class at a university to
    • determine whether their average starting salary is greater than some
    • specified level
  9. If you were trying to randomly select 20 names from 2 pages in a local telephone directory (which contains approximately 250 names per page), which of the following approaches would be most illustrative of systematic random selections?

    C. Identifying a random starting point and selecting every 25th name for examination
  10. The precision interval is determined by adding and subtracting precision from the ____.

    C. sample estimate
  11. Auditors consider statistical sampling to be characterized by the following:

    C. representative sample selection and mathematical calculation of the results
  12. In which of the following scenarios would the use of sampling be most appropriate?

    B. the need for precise information about the population is less important
  13. The risk that the decision made based on the sample is different from the decision made based on the entire population is referred to as:

    B. sampling risk
  14. Which of the following is not a method used by the auditor to control his or her exposure to sampling risk during an examination?

    A. performing the appropriate audit procedure
  15. Which of the following is one of the advatages of nonstatistical sampling?

    D. nonstatistical sampling is typically less expensive than statistical sampling
  16. Selecting a sample using a series of random numbers to identify sample items is referred to as:

    B. unrestricted random selection
  17. If systematic selection is used with a starting point of 10, a population size of 100, and a desired sample size of 20, the first 3 items selected for examination would be:

    C. 10, 15, 20
  18. A limitation of systematic random selection is that this mehtod:

    D. may result in bypassing a number of items having similar characteristics
  19. Which of the following are appropriately used for statistical sampling applications?
    unrestircited random selection / block selection

    D. yes, no
  20. Which of the following pairs of selection methods could appropriately be used in statistical sampling applications?

    A. unrestricted randome selection, systematic random selection
  21. The likelihood that an identified precision interval contains the true (but unknown) population value is the:

    C. confidence
  22. Which of the following statements is not true if the precision internval for a sampling risk of 10% ranges from 60 to 70?

    A. A 90% probabilty exists that the true population value is less than 60 or greater than 70
  23. In audit sampling applications, sample risk is:

    • C. the probability that an auditor's conclusion based on a sample might
    • be different from the conclusion based on an audit of the entire
    • population
  24. The risk of incorrect acceptance in variables sampling and the risk of assessing control risk too low in attribute sampling both relate to:

    B. effectiveness of an audit
  25. The type of sampling most frequently used by the auditor during his or her study of internal control is referred to as:

    D. attribute sampling
  26. Which of the following components of the audit risk model is most closely associated with attribute sampling?

    A. control risk
  27. The auditor will choose to reduce his or her reliance on controls if the ____ is greater than the ____.

    B. adjusted sample deviation rate; tolerable deviation rate
  28. An advantage of statistical sampling over nonstatistical sampling mehtods is that statistical methods:

    D. provide an objective basis for quantitatively evaluating sampling risk
  29. The risk of incorrect rejection and the likelihood of assessing control risk too high relate to the:

    A. efficiency of the audit
  30. A lack of reasonable care that may be characterized by the failur of auditors to follow GAAS in the conduct of the audit is known as

    A. ordinary negligence
  31. Users of financial statements have a different perception concerning the nature of auditors' services the actual objective of an audit. This difference is known as

    C. expectatations gap
  32. Individuals that believe they relied on misstated financial statements to make a decision and have lost money as a result will isse an action known as a

    D. tort
  33. The Securities Act of 1933 and The Securities Exchange Act of 1934 contain

    D. both of these
  34. Which of the following parties is known by name to auditors as the audit is conducted?

    C. primary beneficiary
  35. Which of the following would be auditors' most likely defense in an action brought under the Securities Exchange Act of 1934?

    B. The auditors acted in good faith and were not aware of the materially misstated financial statements
  36. Which of the following cases provides auditors with the broadest exposure for liability to third parties for ordinary negligence under common law?

    C. Rosenblum Inc v Adler
  37. A "public company" subject to the periodic reporting requirements of the Securities Exchange Act of 1934 must file an annual report with the SEC known as the

    A. Form 10-K
  38. The official name of the Sarbanes-Oxley Act is

    A. The U.S. Public Company Reform and Investor Protection Act of 2002
  39. Which of the following is not part of the Sarbanes-Oxley Act?

    C. An increased duty on the part of auditors to identify financial statment fraud
  40. Auditors have greater liability under the Securities Act of 1933. Which of the following is the reason that this greater liability exists?

    A. The plaintiff does not have to prove that they relied on the financial statements
  41. Which of the following cases provides auditors with the greatest exposure to liability to nonshareholder third parites under common law?

    A. Rosenblum v Adler
  42. In order to prove fraud the plaintiff must prove the defendant acted

    A. With scienter
  43. The legal doctrine that states that a successful plaintiff can recover the full amount of damages from any defendant that has the ability to pay is called

    A. joint and several liability
  44. Actions initiated by the user of financial statements seeking damages because of auditor negligence or other inappropriate performance in auditing are called

    D. torts
  45. Of the following:
    W. A damage was suffered
    X. A duty to perform was owed
    Y. There was reliance on the information
    Z. A loss was suffered due to the reliance
    Which of these needs to be present to prove ordinary negligence under common law liability?

    A. W X Y and Z
  46. Mike wants to assert a claim against auditors because he sold products on credit to MUT Company in reliance on MUT's financial statements, and MUT went bankrupt. For Mike to be successful he must be in a jurisdiction that allows lawsuits for negligence by

    D. foreseen parties
  47. As a direct response to Enron and WorldCom, Sarbanes - Oxley

    C. requires CEOs and CFOs to certify financial statements and related disclosures
  48. The primary litigation reform contained in the Private Securities Litigation Reform Act is

    B. proportionate liability
  49. The SEC regulation that governs disclosures in annual reports is

    B. Regulation S-X
  50. Which of the following assurance services is designed to assist senior citizens in making financial and living decisions?

    D. PrimePlus
  51. The AICPA Special Committee on Assurance Services (SCAS) identified eight mega trends that can affect a CPAs business. Which of the following is one of these mega trends identified by the SCAS?

    D. all of the above
  52. A review of unaudited financial states consists of

    C. conducting inquiry of manangement, performing analytical procedures, and obtaining a management representation letter
  53. Which of the following statements is true concerning interim financial information?
    a. an audit of interim financial information is required for SEC companies
    b. the accountant needs to obtain sufficient knowledge of the entity's business and industry before undertaking an engagement on interim financial information
    c. an accountant may not repot on financial information presented separately from audited financial statements
    d. interim financial information may not be included as part of a note to the audited financial statements
    • b. the accountant needs to obtain sufficient knowledge of the entity's
    • business and industry before undertaking an engagement on interim
    • financial information
  54. According to SAS 50, Reports on the "Application of Accounting Principles", which of the following is NOT allowed when writing a repot in response to a request for consultation resulting the application of an accounting principle?

    A. providing a written report on a hypothetical transaction
  55. Even though Sarbanes-Oxley only applies to publicly traded companies and organizations are requesting that public accounting firm attest to the effectiveness of their internal controls. Several conditions must be met before a public accounting firm can undertake such an engagement. Which of the following is NOT one of the necessary conditions?

    A. management's evaluation of control can be supported by internal audit review
  56. A compliation report should include all of the following except

    D. a statement that adequate discloser has been made concerning accounting policy and practice
  57. Nonaudit clients sometimes engage public accounting firms to perform a specified set of audit procedures rather than a complete audit of the financial statements taken as a whole. This type of engagement is called a(n)

    A. agreed upon procedures engagement
  58. Which of the following statements is true concerning a compliance audit?

    D. materiality is difficult to measure in a compliance audit
  59. An other business that executes or records transaction on behalf of a client is called a(n)

    B. service organization
  60. In providing assurance to clients, the CPA is building upon the characteristics of:

    D. objectivity and integrity
  61. Bill is surfing the internet and finds a great pair of rollerblades at a really low price. Bill has never heard of the company on this website and is concerned that he may not receive the product he orders. Bill may be more willing to place an order with this company if:

    C. the site displays the Web Trust seal
  62. Which one of the following is NOT a principle of Trust Services?

    C. authentication
  63. Practice in connection with unaudited historical cost financial statements is conducted by:

    D. all CPA firms
  64. The offical Statements on Standards for Accounting and Review Services are applicable to practice with:

    B. unaudited financial statements of nonpublic companies
  65. A review service engagement for an accountant's association with unaudited financial statements involves:

    D. less work than an audit but more than a compilation
  66. When an accountant is not independent, the following report can nevertheless be given:

    C. compilation report
  67. An accountant is premitted to express "negative assurance" in which of the following types of reports?

    D. review report on unaudited financial statements
  68. When a company's financial statements in a review or compilation engagement contain a known material departure, acceptable to the CPA, from a FASB Statement on Financial Accounting Standards, the accountant's report can:

    • C. explain the departure as necessary to make the statements not
    • misleading, then give the standard review report negative assurance
  69. When interim financial information is a note to annual financial statements, the standard audit report on the annual financial statements should:

    B. not mention the interim information unless there is an exception the auditor needs to include in the report
Card Set
acct 242 exam 1 E, C & A
acct 242 exam 1 E, C & A