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1. Materiality underlies the application of generally acceptedauditing standards, particularly the: a. general and field workstandards. b. general and reporting standards. c. field work andreporting standards. d. reporting standards. e. generalstandards.

2. Which of the following is not a weakness of analyticalprocedures? a. Fraudulent financial reporting often reports numbersthat appear to be reasonable. b. The auditor may have no basis forpresuming that the data used is accurate. c. Analytical proceduresare usually very cost effective. d. Improper specification ofrelationships between the variables used may undermine theireffectiveness. e. Any audit procedure runs some risk of failing todetect material misstatements.

3. The auditor makes preliminary judgments about materialitylevels in planning the audit. This materiality assessment isreferred to as: a. planning materiality. b. preliminarymateriality. c. initial materiality. d. beginning materiality. e.benchmark materiality.

4. When setting the level of materiality on a particularengagement, the auditor is required to consider: a. the uniquecircumstances pertaining to the entity. b. the information needs ofthe users. c. neither the unique circumstances pertaining to theentity nor the information needs of the users. d. the informationneeds of the client. e. both the unique circumstances pertaining tothe entity and the information needs of the users.

5. In a normal audit, the relationship between the level ofmateriality used to plan the engagement and the level ofmateriality used to evaluate evidence is: a. they must beidentical. b. the former may be either higher or lower than thelatter. c. the former is normally higher than the latter. d. theformer is normally lower than the latter. e. they can never be thesame.

6. In planning the audit, the auditor should assess materialityat two levels: a. the preliminary level and the final level. b. thecompany level and the divisional level. c. the account balancelevel and the detailed item level. d. the financial statement leveland the account balance level. e. the account balance level and thetransaction level.

7. Materiality at the account balance level is stated inplanning an audit because: a. some users make decisions based uponindividual account balances. b. the auditor verifies accountbalances in reaching an overall conclusion on the fairness of thefinancial statements. c. the opinion on the fairness of thefinancial statements extends to the individual account balances. d.official pronouncements have specified different levels ofmateriality for various financial statement items. e. the opinionon the fairness of the financial statements extends to theindividual transactions.

8. In making a preliminary judgments about materiality, theauditor initially determines the aggregate (overall) level ofmateriality for each statement. For planning purposes, the auditorshould use the: a. levels separately. b. level he or she judges tobe the more reliable. c. average of these levels. d. largestaggregate level. e. smallest aggregate level.

9. Quantitative guidelines for setting materiality levels arecurrently provided by: a. neither GAAP nor GAAS. b. GAAP. c. GAAS.d. both GAAP and GAAS. e. the AICPA.

10. Professional standards recognize that a misstatement that isquantitatively immaterial may be qualitatively material. In regardto these items, professional standards require the auditor to: a.plan the audit to search for them. b. design explicit procedures todetect them. c. be on the alert for them. d. report them to theaudit committee. e. report them directly to client management.

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1. Materiality underlies the application of generally acceptedauditing standards, particularly the: a. general and field workstandards. b. general and reporting standards. c. field work andreporting standards. d. reporting standards. e. generalstandards.

2. Which of the following is not a weakness of analyticalprocedures? a. Fraudulent financial reporting often reports numbersthat appear to be reasonable. b. The auditor may have no basis forpresuming that the data used is accurate. c. Analytical proceduresare usually very cost effective. d. Improper specification ofrelationships between the variables used may undermine theireffectiveness. e. Any audit procedure runs some risk of failing todetect material misstatements.

3. The auditor makes preliminary judgments about materialitylevels in planning the audit. This materiality assessment isreferred to as: a. planning materiality. b. preliminarymateriality. c. initial materiality. d. beginning materiality. e.benchmark materiality.

4. When setting the level of materiality on a particularengagement, the auditor is required to consider: a. the uniquecircumstances pertaining to the entity. b. the information needs ofthe users. c. neither the unique circumstances pertaining to theentity nor the information needs of the users. d. the informationneeds of the client. e. both the unique circumstances pertaining tothe entity and the information needs of the users.

5. In a normal audit, the relationship between the level ofmateriality used to plan the engagement and the level ofmateriality used to evaluate evidence is: a. they must beidentical. b. the former may be either higher or lower than thelatter. c. the former is normally higher than the latter. d. theformer is normally lower than the latter. e. they can never be thesame.

6. In planning the audit, the auditor should assess materialityat two levels: a. the preliminary level and the final level. b. thecompany level and the divisional level. c. the account balancelevel and the detailed item level. d. the financial statement leveland the account balance level. e. the account balance level and thetransaction level.

7. Materiality at the account balance level is stated inplanning an audit because: a. some users make decisions based uponindividual account balances. b. the auditor verifies accountbalances in reaching an overall conclusion on the fairness of thefinancial statements. c. the opinion on the fairness of thefinancial statements extends to the individual account balances. d.official pronouncements have specified different levels ofmateriality for various financial statement items. e. the opinionon the fairness of the financial statements extends to theindividual transactions.

8. In making a preliminary judgments about materiality, theauditor initially determines the aggregate (overall) level ofmateriality for each statement. For planning purposes, the auditorshould use the: a. levels separately. b. level he or she judges tobe the more reliable. c. average of these levels. d. largestaggregate level. e. smallest aggregate level.

9. Quantitative guidelines for setting materiality levels arecurrently provided by: a. neither GAAP nor GAAS. b. GAAP. c. GAAS.d. both GAAP and GAAS. e. the AICPA.

10. Professional standards recognize that a misstatement that isquantitatively immaterial may be qualitatively material. In regardto these items, professional standards require the auditor to: a.plan the audit to search for them. b. design explicit procedures todetect them. c. be on the alert for them. d. report them to theaudit committee. e. report them directly to client management.

Answer: The answer to the following question is given below - be sure to thumb...

1. Materiality underlies the application of generally acceptedauditing standards, particularly the: a. general and field workstandards. b. general and reporting standards. c. field work andreporting standards. d. reporting standards. e. generalstandards.

2. Which of the following is not a weakness of analyticalprocedures? a. Fraudulent financial reporting often reports numbersthat appear to be reasonable. b. The auditor may have no basis forpresuming that the data used is accurate. c. Analytical proceduresare usually very cost effective. d. Improper specification ofrelationships between the variables used may undermine theireffectiveness. e. Any audit procedure runs some risk of failing todetect material misstatements.

3. The auditor makes preliminary judgments about materialitylevels in planning the audit. This materiality assessment isreferred to as: a. planning materiality. b. preliminarymateriality. c. initial materiality. d. beginning materiality. e.benchmark materiality.

4. When setting the level of materiality on a particularengagement, the auditor is required to consider: a. the uniquecircumstances pertaining to the entity. b. the information needs ofthe users. c. neither the unique circumstances pertaining to theentity nor the information needs of the users. d. the informationneeds of the client. e. both the unique circumstances pertaining tothe entity and the information needs of the users.

5. In a normal audit, the relationship between the level ofmateriality used to plan the engagement and the level ofmateriality used to evaluate evidence is: a. they must beidentical. b. the former may be either higher or lower than thelatter. c. the former is normally higher than the latter. d. theformer is normally lower than the latter. e. they can never be thesame.

6. In planning the audit, the auditor should assess materialityat two levels: a. the preliminary level and the final level. b. thecompany level and the divisional level. c. the account balancelevel and the detailed item level. d. the financial statement leveland the account balance level. e. the account balance level and thetransaction level.

7. Materiality at the account balance level is stated inplanning an audit because: a. some users make decisions based uponindividual account balances. b. the auditor verifies accountbalances in reaching an overall conclusion on the fairness of thefinancial statements. c. the opinion on the fairness of thefinancial statements extends to the individual account balances. d.official pronouncements have specified different levels ofmateriality for various financial statement items. e. the opinionon the fairness of the financial statements extends to theindividual transactions.

8. In making a preliminary judgments about materiality, theauditor initially determines the aggregate (overall) level ofmateriality for each statement. For planning purposes, the auditorshould use the: a. levels separately. b. level he or she judges tobe the more reliable. c. average of these levels. d. largestaggregate level. e. smallest aggregate level.

9. Quantitative guidelines for setting materiality levels arecurrently provided by: a. neither GAAP nor GAAS. b. GAAP. c. GAAS.d. both GAAP and GAAS. e. the AICPA.

10. Professional standards recognize that a misstatement that isquantitatively immaterial may be qualitatively material. In regardto these items, professional standards require the auditor to: a.plan the audit to search for them. b. design explicit procedures todetect them. c. be on the alert for them. d. report them to theaudit committee. e. report them directly to client management.

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1. A gain is recognized on the disposal of plant assetswhen:

A) The sales price is greater than theresidual value but less than the book value.

C) The sales price is greater than the bookvalue and greater than the residual value.

D) The sales price is greater than the bookvalue and less than the residual value.


4. Silverado Company purchased equipmenthaving an invoice price of $21,100. The terms of sale were 4/10,n/30, and Silverado paid within the discount period. In addition,Silverado paid a $155 delivery charge, $225 installation charge,and $947 sales tax. The amount recorded as the cost of thisequipment is:

A) $21,583.

B) $20,636

D) $21,480

6. On March 2, 2009, Farlow Industriespurchased a fleet of automobiles at a cost of $660,000. The carsare to be depreciated by the straight-line method over six yearswith no salvage value. Farlow uses the half-year convention tocompute depreciation for fractional periods. The book value of thefleet of automobiles at December 31, 2010, will be:


A) $495,000.

B) $440,000.

D) $400,000


7. Which of the following would not beamortized?:

A) Oil well

B) Copyright

D) Patent


8. Del Rey Imports sold a depreciable plantasset for cash of $25,000. The accumulated depreciation amounted to$60,000, and a loss of $5,000 was recognized on the sale. Underthese circumstances, the original cost of the asset must havebeen:

B) $65,000

C) $80,000

D) $90,000


9. Total stockholders' equity of ConcordCompany is $3,000,000. The fair market value of Concord's netidentifiable assets (assets less liabilities) is $4,000,000.Wheeler Corporation makes an offer to purchase Concord's entirebusiness for $4,800,000. In this situation:

A) Concord Company should report goodwillof $800,000 in its balance sheet.

B) Concord Company should report goodwillof $1,800,000 in its balance sheet.

D) Wheeler Corporation is willing to pay$800,000 for goodwill generated by Concord, and Wheeler will reportthis goodwill in its balance sheet if the purchase isfinalized.


12. If an asset is determined to beimpaired, it should be:

A. depreciated only using the straight-linemethod

C. reclassified as a liability

D. written down to its fair marketvalue

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