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DEVRY ACCT 555 Midterm .pdf



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DEVRY ACCT 555 Midterm

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ACCT 555 Midterm
(TCO F) Which of the following procedures should an auditor generally perform
regarding subsequent events?
(TCO A) An auditor reads the letter of transmittal accompanying a county’s
comprehensive annual financial report and identifies a material inconsistency with
the financial statements. The auditor determines that the financial statements do not
require revision. Which of the following actions should the auditor take?
(TCO F) An auditor’s independence is considered impaired if the auditor has:
(TCO B) When an independent CPA is associated with the financial statements of a
publicly held entity but has not audited or reviewed such statements, the
appropriate form of report to be issued must include a(an):
(TCO F) Which is not a characteristic of the reliability of evidence?
(TCO C) According to PCAOB standards, the nature and extent of required planning
activities for an issuer audit are influenced by all of the following factors, except for:

(TCO F) Analytical procedures must be used during which phase(s) of the audit?
Test of controls OR planning OR completion
(TCO F) In a financial statement audit, inherent risk is evaluated to help an auditor
assess which of the following?
(TCO F) The primary purpose of performing analytical procedures in the planning
phase of an audit is to
(TCO G) The most widely used profitability ratio is
(TCO G) Which ratio is best used to assess a company’s ability to meet its long-term
debt obligations?
(TCO A) Match the following definitions to the appropriate terms
(TCO B) The following is a portion of a qualified audit report issued for a private
company.
To the shareholders of Tamarak Corporation,
We have audited the accompanying balance sheet of Tamarak Corporation as of
October 31, 2009, and the related statements of income, retained earnings, and cash
flows for the past year. These financial statements are the responsibility of the
company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We
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 our opinion, should be expensed in order to
conform with generally accepted accounting principles. If these lease obligations
were capitalized, property would be decreased by $4,000,000, long-term debt by
$2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net
income and earnings per share would be decreased by $180,000 and $0.62,
respectively, for the past year.
Required: Complete the above qualified audit report by preparing the opinion
paragraph. Do not date or sign the report.
(TCO C) The following situation involves a possible violation of the AICPA’s code of
professional conduct. For this situation, (1) determine the applicable rule number
from the code, (2) decide whether or not the code has been violated, and (3) briefly

explain how the situation violates (or does not violate) the code. Your answer should
be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his
favorite client, Super Pup Dog Food, because the client would allow him to take home
to his dog a variety of dog food samples that amounted to a year’s worth of dog food.
(TCO C) The following situation involves a possible violation of the AICPA’s code of
professional conduct. For this situation, (1) determine the applicable rule number
from the code, (2) decide whether or not the code has been violated, and (3) briefly
explain how the situation violates (or does not violate) the code. Your answer should
be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Howard Cunningham & Co., CPAs, designates its firm as Members of the American
Institute of Certified Public Accountants. All of the partners of the firm are CPAs.
However, one of the partners has recently chosen to allow her membership to lapse
because of personal reasons.
(TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit
committee of a public company has specific guidelines to which employees must
adhere. Discuss some of the mandated features of the audit committee of a public
company under SOX
(TCO D) Discuss some of the steps the AICPA and the accounting profession as a
whole can and are taking to reduce practitioners’ exposure to lawsuits. You answer
should provide at least five steps
(TCO F) Match nine of the terms (A–K) with the definitions provided below (1–9).
A – Foot
B – Compute
C – Scan
D – Inquire
E – Count
F – Trace
G – Recompute
H – Read
I – Examine
J – Observe
K – Compare
_____ 1: A calculation done by the auditor independent of the client
_____ 2: Addition of a column of numbers to determine if the total is the same as the
client’s
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities

_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is
something unusual warranting further investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the
audit
(TCO G) Discuss the essential activities involved in the initial planning of an audit.


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