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auditing questions




1. Intentionally reporting product sales in the financial statements for the period prior to when;they actually occurred is a violation of which generally accepted accounting principle?;a. Periodicity;b. Matching;c. Historical cost;d. Revenue recognition;2. Walden Industries is being sued by a former employee for wrongful termination. It is;probable that the company will lose the case and be ordered to pay the plaintiff a significant;sum of money. If Walden fails to report this information somewhere in its financial;statements, it is violating the GAAP concept of;a. Materiality;b. Full disclosure;c. Matching;d. Cost-benefit;3. A company?s financial statements are the responsibility of;a. The independent auditors;b. The shareholders;c. The accounting department;d. Management;4. Under Sarbanes-Oxley, chief executive officers and chief financial officers are required to;personally certify annual and quarterly SEC filings. Which of the following is an item that;they must certify in their reports?;a. They have disclosed to the audit committee any material control weakness.;b. The financial statements were prepared in conformity with GAAP.;c. The company?s internal controls have prevented or detected all material instances of;fraud during the last year.;d. All of the above;5. The Sarbanes-Oxley Act placed restrictions on the types of services that public accounting;firms are allowed to perform for audit clients. Which of the following services are public;audit firms now expressly prohibited from performing for their audit clients?;a. Quarterly review services;b. Tax services;c. Bookkeeping services;d. All of the above;6. Under Sarbanes-Oxley, pubic accounting firms must rotate the lead partner or the partner;reviewing the audit every year.;a. True;b. False;7. Staff Accounting Bulletin Topic 13, ?Revenue Recognition,? indicates that revenue is;considered realized or realizable and earned when four criteria are met. Which of the;following is one of these criteria?;a. Collectibility is reasonably assured.;b. Goods have been scheduled to be delivered or services have been scheduled to be;rendered within the current fiscal period.;c. The seller has located alternate buyers.;d. All of the above are criteria for revenue recognition.;8. An unusual growth in the number of days? sales in receivables can be a red flag for which of;the following financial statement fraud schemes?;a. Timing differences;b. Fictitious revenues;c. Improper asset valuation;d. All of the above;9. An organization that seeks to fraudulently minimize its net income due to tax considerations;may do so by;a. Recording fictitious revenues;b. Omitting existing liabilities;c. Expensing capitalized expenditures;d. Underestimating warranty repairs expense;10. An inability to generate cash flows from operations while reporting earnings and earnings;growth is a red flag for which of the following financial statement fraud schemes?;a. Improper asset valuation;b. Fictitious revenues;c. Concealed liabilities and expenses;d. All of the above;11. GAAP strictly prohibits companies from engaging in all related-party transactions because;without an arm?s-length business negotiation process, the company may suffer economic;harm and ultimately injure unsuspecting shareholders.;a. True;b. False;12. Which of the following is a common target for improper asset valuation schemes?;a. Accounts receivable;b. Business combinations;c. Inventory valuation;d. All of the above;13. In the vertical analysis of an income statement, _____________ is assigned 100 percent, with;all other items expressed as a percentage thereof.;a. Gross sales;b. Net sales;c. Net income;d. Gross margin;14. The technique for analyzing the percentage change in individual financial statement items;from one accounting period to the next is known as;a. Ratio analysis;b. Vertical analysis;c. Horizontal analysis;d. Correlation analysis;15. Sally Lauren is the external auditor for Modus Industries, a public company that;manufactures disk drives. As she analyzes the numbers, she finds that the quick ratio, which;has typically remained consistent, increased from 1.7 to 2.3 over the previous year. What;type of financial statement fraud scheme could be occurring?;a. Inflated inventory;b. Omitted expenses;c. Fictitious accounts receivable;d. None of the above


Paper#80360 | Written in 18-Jul-2015

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