Audit 2

Question 1

Is this supply or demand: The quantity of a good or service that producers are willing and able to offer for sale at different prices, over a certain time period.

Answer 1

Supply

Question 2

Supply tends to _________ as prices rise, due to the profit incentive.

Answer 2

INCREASE

Question 3

Is this supply or demand: the quantity of a good or service that consumers are willing and able to purchase at different prices, over a certain time period.

Answer 3

Demand

Question 4

Demand tends to _________ as the price increases, assuming other factors remain constant.

Answer 4

DECREASE

Question 5

What occurs when the supply curve and demand curve intersect, representing a balance between the quantity supplied and the quantity demanded at the equilibrium price.

Answer 5

Market equilibrium.

Question 6

If the quantity demanded changes significantly with a small change in price, the demand is said to be ________.

Answer 6

ELASTIC

Question 7

If the quantity demanded changes slightly with a small change in price, the demand is said to be ________.

Answer 7

INELASTIC

Question 8

What measures how responsive the quantity supplied or demanded is to a change in price?

Answer 8

Elasticity

Question 9

If MR>MC, the firm can increase profit by ___________ output.

Answer 9

INCREASING

Question 10

IF MR<MC, the firm can increase profit by ___________ output.

Answer 10

REDUCING

Question 11

Draw the Business cycle, include peak, trough, recession phase, recovery phase and expansion phase.

Answer 11

Draw it

Question 12

What measures the average change in prices over time that customers pay for a basket of goods and services?

Answer 12

Consumer Price Index (CPI)

Question 13

What is a key measure of inflation?

Answer 13

Consumer Price Index (CPI)

Question 14

What is a measure of inflation from the perspective of product sellers?

Answer 14

Producer Price Index (PPI)

Question 15

What measures the average change over time in the selling prices received by domestic producers for their output?

Answer 15

Producer Price Index (PPI)

Question 16

What is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight.

Answer 16

Federal Funds Rate

Question 17

What is used by the Federal Reserve to control inflation and is a leading indicator of monetary policy?

Answer 17

Federal Funds Rate

Question 18

What is the return an investor realizes on a bond?

Answer 18

Bond Yield

Question 19

What is a leading indicator?

Answer 19

The yield curve

Question 20

What is a predictor of a recession?

Answer 20

An inverted yield curve.

Question 21

What is a measure of the prevalence of unemployment and is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force?

Answer 21

The unemployment rate

Question 22

Why can the unemployment rate be a lagging indicator of the economy?

Answer 22

Because unemployment tends to increase for some time even after an economy starts to recover.

Question 23

What measures changes in the average prices of
consumer goods and services over time, making it a key indicator of price stability and inflation?

Answer 23

The consumer price index (CPI)

Question 24

What measures economic growth?

Answer 24

changes in Gross Domestic Product (GDP)

Question 25

Does the audit committee need to be independent of management?

Answer 25

YES

Question 26

Does the audit committee have to have a financial expert?

Answer 26

YES

Question 27

TRUE or FALSE: f there is no financial expert on the audit committee, they must disclose that and the reason.

Answer 27

TRUE

Question 28

TRUE or FALSE: if a financial expert exists on the audit committee, it must be disclosed, the issuer cannot say it does not have one.

Answer 28

TRUE

Question 29

TRUE or FALSE: the financial expert designation must apply to one person, not a collective group.

Answer 29

TRUE

Question 30

TRUE or FALSE: the financial expert must have their CPA.

Answer 30

FALSE

Question 31

If the issuer has identified a financial expert on the audit committee, do they have to disclose the individual's name and whether they are independent of management?

Answer 31

YES

Question 32

Is a change in inventory valuation method (LIFO to FIFO for example) a change in accounting principle or change in accounting estimate?

Answer 32

Change in accounting principle

Question 33

Is a change in useful lives or bad debt percentage a change in accounting principle or a change in accounting estimate?

Answer 33

Change in accounting estimate

Question 34

TRUE or FALSE: for the audit of an issuer and non-issuer, the auditor is required to communicate, in writing, significant deficiencies and material weaknesses in IC to TCWG.

Answer 34

TRUE

Question 35

What are the three core responsibilities of effective internal control segregation of duties:

Answer 35

1. Authorization 2. Recordkeeping 3. Custodial functions (shipping, receiving)

Question 36

TRUE or FALSE: Auditors can only opine on supplementary information in relation to the financial statements as a whole if neither an adverse opinion nor a disclaimer of opinion was issued on the financial statements?

Answer 36

TRUE

Question 37

When providing an opinion on supplementary information, the auditor should perform procedures using a materiality level that is the _________ as the materiality level used in the audit of the financial statements to ensure consistency and relevance in evaluating the supplementary information in relation to the overall statements.

Answer 37

SAME

Question 38

Can a CPA take a commission from a non-attest client?

Answer 38

Yes

Question 39

What is it called when the sample results cause the auditor to conclude that the account balance is materially misstated, when in fact it is not (as discovered through additional testing)

Answer 39

Incorrect rejection

Question 40

What is it called when the sample results cause the auditor to conclude that the account balance is not materially misstated, when in fact it is. This leads to an inappropriate audit opinion.

Answer 40

Incorrect acceptance

Question 41

What are the five components of COSO IC Framework?

Answer 41

1. Control Environment 2. Risk Assessment 3. Control Activities 4. Information and Communication 5. Monitoring Activities

Question 42

What SOC report is aimed at the internal control over financial reporting?

Answer 42

SOC 1

Question 43

What SOC report focusses on controls related to security, availability, processing integrity, confidentiality and privacy of a system (based on the Trust Services Criteria of the AICPA)?

Answer 43

SOC 2

Question 44

What type of SOC report focusses on the suitability of the design of controls at a point in time?

Answer 44

Type 1

Question 45

What type of SOC report focusses on the suitability of the design of controls and the operating effectiveness over a period of time?

Answer 45

Type 2

Question 46

Who are the users of a SOC 1 report?

Answer 46

management, user entities, auditors.

Question 47

Who are the users of a SOC 2 report?

Answer 47

more broad than a SOC 1, usually stakeholders, suppliers, customers.

Question 48

Human error, collusion, management override, cost vs. benefit are all examples of __________ limitations of Internal Controls.

Answer 48

Inherent limitations

Question 49

What are the components of the Fraud Triangle?

Answer 49

1. Pressure 2. Opportunity 3. Rationalization

Question 50

Major Program determination for Single Audits must include all HIGH risk Type A programs and all HIGH risk Type B programs. The difference in Type A and Type B programs is their federal expenditure level. I think the differentiating threshold is $750k or more.

Answer 50

Major program determination