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UMUC ACCT612/ UMUC ACCT612 MIDTERM EXAM 2016

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Question SECTION 1: 2 POINTS EACH. PLEASE SELECT THE BEST ANSWER TO EACH OF THE FOLLOWING QUESTIONS. 1) In a financial statement audit, the auditor A) determines whether the financial statements are stated in accordance with specified criteria. B) must have a thorough understanding of the entity and its environment. C) gathers evidence to determine whether the statements contain material errors or other misstatements. D) all of the above. 2) The use of the Certified Public Accountant title is regulated by A) the federal government. B) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. C) the Securities and Exchange Commission. D) state law through the licensing departments of each state. 3) When auditing accounting data, auditors focus on A) determining if fraud has occurred. B) analyzing the financial information to be sure that it complies with government requirements. C) determining whether recorded information properly reflects the economic events that occurred during the accounting period. D) determining if taxable income has been calculated correctly. 4) An accountant A) must have an understanding of the principles and rules that provide the basis for preparing the accounting information. B) must possess expertise in the accumulation of audit evidence. C) must be a CPA. D) must decide the number and types of items to test. 5) Statements on Standards for Accounting and Review Services (SSARS) are issued by the A) Securities and Exchange Commission. B) Accounting and Review Services Committee. C) Financial Accounting Standards Board. D) Professional Ethics Executive Committee. 6) In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that A) the purpose of an audit is to prevent fraud. B) the internal control policies and procedures are developed by the auditors. C) management is responsible for the preparation of the financial statements. D) management can restrict the auditor’s access to important information relevant to the financial statements. 7) When assessing the risk of material misstatements in the financial statements, A) inadequate internal control procedures will mitigate client business risk. B) company management is responsible for determining materiality levels. C) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. D) the auditor must have an understanding of the client’s business and industry. 8) The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the A) Form 10-Q. B) Form 10-K. C) Form 8-K. D) Form S-1. 9) When analyzing the various types of audit reports, A) companies will generally make the appropriate changes to their accounting records to avoid a qualification by the auditor. B) management is more concerned about a qualified report than a disclaimer report. C) an adverse report is issued when the auditor is unable to form an opinion on the financial statements. D) the unmodified opinion with an emphasis-of-matter paragraph is the most common type of report. 10) When an auditor issues a qualified report due to a scope limitation an explanatory paragraph is normally added. Which, if any, of the following paragraphs are also modified? A) Introductory Scope Opinion No Yes Yes B) Introductory Scope Opinion Yes Yes Yes C) Introductory Scope Opinion No Yes No D) Introductory Scope Opinion Yes Yes No 11) Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes A) total assets. B) working capital. C) net income. D) all of the above. 12) When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issu

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