Due professional care requires

a. A critical review of the work done at every level of supervision.

b. The examination of all corroborating evidence available.

c. The exercise of error-free judgment.

d. A consideration of internal control structure that includes tests of controls.

(AICPA ADAPTED)

c 2. The first general standard requires that the audit of financial statements be performed by a person

or persons having adequate technical training and

a. Independence with respect to the financial statements and supplementary disclosures.

b. Exercising professional care as judged by peer reviewers.

c. Proficiency as an auditor, which likely has been acquired from previous experience.

d. Objectivity as an auditor, as verified by proper supervision. (AICPA ADAPTED)

d 3. An auditor, while performing an audit, strives to achieve the appearance of independence in order

to

a. Reduce risk and liability.

b. Comply with the generally accepted standards of fieldwork.

c. Become independent in fact.

d. Maintain public confidence in the profession. (AICPA ADAPTED)

d 4. Adequate technical training and proficiency as an auditor encompasses an ability to understand a

computer system sufficiently to identify and evaluate

a. The processing and imparting of information.

b. Essential accounting control features.

c. All control procedures.

d. The degree to which programming conforms to the application of generally accepted accounting
principles. (AICPA ADAPTED)

c 5. Competence as a certified public accountant includes all of the following except

a. Having the technical qualifications to perform an engagement.

b. Possessing the ability to supervise and evaluate the quality of staff work.

c. Warranting the infallibility of the work performed.

d. Consulting others if additional technical information is needed. (AICPA ADAPTED)

a 6. Ultimately, the decision about whether or not an auditor is independent must be made by the

a. Auditor.

b. Client.

c. Audit committee.

d. Public. (AICPA ADAPTED)

c 7. Madison Corporation has a few large accounts receivable that total $1,000,000. Nassau

Corporation has a great number of small accounts receivable that also total $1,000,000. The

importance of an error in any one account is, therefore, greater for Madison than for Nassau. This

is an example of the auditor's concept of

a. Account bias.

b. Audit risk.

c. Materiality.

d. Reasonable assurance. (AICPA ADAPTED)

b 8. Which of the following best describes what is meant by generally accepted auditing standards?

a. Acts to be performed by the auditor.

b. Measures of the quality of an auditor's performance.

c. Procedures used to gather evidence to support financial statements.

d. Audit objectives generally determined on audit engagements. (AICPA ADAPTED)

b 9. There is an inverse relationship between the effectiveness of an entity's internal control structure

and the

a. Reliability of financial statements.

b. Extent of detailed audit tests required.

c. Degree of staff supervision required in the performance of an audit.

d. Fairness of management assertions in the financial statements.

a 10. Which of the following best describes the character of the three generally accepted auditing

standards classified as general standards?

a. Criteria for competence, independence, and professional care of individuals performing the audit.

b. Criteria for the content of the financial statements and related footnote disclosures.

c. Criteria for the content of the auditor's report.

d. The requirements for planning and supervision. (AICPA ADAPTED)

c 11. The generally accepted standards of fieldwork relate to

a. The competence, independence, and professional care of persons performing the audit.

b. Criteria for the content of the auditor's report on financial statements.

c. Audit planning and evidence gathering.

d. The need to maintain independence in mental attitude. (AICPA ADAPTED)

d 12. Which of the following statements is correct concerning the concept of materiality?

a. Materiality is determined by reference to AICPA guidelines.

b. Materiality depends only on the dollar amount involved.

c. Materiality depends on the nature of an item rather than on the dollar amount.

d. Materiality is a matter of professional judgment. (AICPA ADAPTED)

a 13. The generally accepted standards of reporting encompass all of the following except
a. Consideration of an entity's internal control structure.

b. Consistent application of accounting principles.

c. Informative disclosures.

d. Conformity of financial statements with GAAP.

c 14. An objective of the fourth generally accepted standard of reporting, relating to the expression of

an opinion, is to

a. Prohibit the auditor from issuing a report that does not include an opinion on the financial

statements taken as a whole.

b. Inform users that the financial statements and related notes are the joint responsibility of the

auditor and management.

c. Prevent users of financial statements from misinterpreting the degree of responsibility assumed

by the auditor.

d. Ensure adequate informative disclosures in the financial statements.

d 15. The least important evidence of a public accounting firm's evaluation of its system of quality

controls would concern the firm's policies and procedures with respect to

a. Employment (hiring).

b. Confidentiality of audit engagements.

c. Assigning personnel to audit engagements.

d. Determination of audit fees. (AICPA ADAPTED)

a 16. Which of the following is not an element of quality control?

a. Documentation.

b. Inspection.
c. Supervision.

d. Consultation. (AICPA ADAPTED)

d 17. Williams & Co., a large international public accounting firm, is due to have a peer review. The

peer review will most likely be performed by

a. Employees and partners of Williams & Co. who are not associated with the particular audit being

reviewed.

b. Audit review staff of the Securities and Exchange Commission.

c. Audit review staff of the AICPA.

d. Employees and partners of another firm. (AICPA ADAPTED)

b 18. In a financial statement audit, audit risk represents the probability that

a. Internal control fails and the failure is not detected by the auditor's procedures.

b. The auditor unknowingly fails to modify an opinion on materially misstated financial statements.

c. Inherent and control risk cause errors that could be material to the financial statements.

d. The auditor is not retained to conduct a financial statement audit in the succeeding year.

a 19. In a financial statement audit, inherent risk represents

a. The susceptibility of an account balance to error that could be material.

b. The risk that error could occur and not be prevented or detected by the internal control structure.

c. The risk that error could occur and not be detected by the auditor's procedures.

d. The risk that the auditor fails to modify materially misstated financial statements.

d 20. What is the magnitude of audit risk if inherent risk is .50, control risk .40, and detection risk .10?

a. .20.

b. .10.

c. .04.

d. Not determinable from the facts given.

10

c 21. The "hallmark" of auditing is

a. Available audit technology.

b. Generally accepted auditing standards.

c. Professional judgment.

d. Materiality and audit risk.

d 22. An auditor is most likely to refer to one or more of the three general auditing standards in

determining

a. The nature of a report qualification.

b. The scope of auditing procedures.

c. Requirements for the consideration of internal control.

d. Whether the auditor should undertake an audit engagement. (AICPA ADAPTED)

a 23. Which of the following is mandatory if the auditor is to comply with the general standards of the

AICPA’s generally accepted auditing standards?

a. Adequate technical training

b. Use analytical procedures.

c. Use statistical sampling when feasible on an audit engagement.

d. Confirmation of material accounts receivable balances. (AICPA ADAPTED)

b 24. The first general standard requires that a person or persons have adequate technical training and

proficiency as an auditor. This standard is met by

a. Understanding business and finance.

b. Education and experience in auditing.

c. Continuing professional education.

d. Knowledge of Statements of Auditing Standards. (AICPA ADAPTED)

a 25. What is the meaning of the generally accepted auditing standard that requires that the auditor be

independent?

a. The auditor must be without bias with respect to the client audited.

b. The auditor must adopt a critical attitude during the audit.

c. The auditor's sole obligation is to third parties.

d. The auditor may have a direct ownership interest in the client's business if it is not material.

(AICPA ADAPTED)

d 26. The third general standard states that due care is to be exercised in the performance of an audit,

and should be interpreted to mean that an auditor who undertakes an engagement assumes a duty

to perform

a. With reasonable diligence and without fault or error.

b. As a professional who will assume responsibility for losses consequent upon error of judgment.

c. To the satisfaction of the client and third parties.

d. As a professional possessing the degree of skill commonly possessed by others in the field.

(AICPA ADAPTED)

11

a 27. The first standard of fieldwork, which states that the work is to be adequately planned, and

assistants, if any, are to be properly supervised, recognizes that

a. Early appointment of the auditor is advantageous both to the auditor and to the client.

b. Acceptance of an audit engagement after the close of the client's fiscal year is generally not

permissible.

c. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer

of opinion.
d. Performance of substantial parts of the engagement is necessary at interim dates.

(AICPA ADAPTED)

b 28. In connection with the third generally accepted auditing standard of fieldwork, an auditor

examines corroborating evidential matter that includes all of the following except

a. Client accounting manuals.

b. Written client representations.

c. Vendor invoices.

d. Minutes of board meetings. (AICPA ADAPTED)

a 29. Which of the following underlies the application of generally accepted auditing standards,

particularly the standards of fieldwork and reporting?

a. The elements of materiality and risk.

b. The element of internal control.

c. The element of corroborating evidence.

d. The element of reasonable assurance. (AICPA ADAPTED)

c 30. The fourth generally accepted auditing standard of reporting requires an auditor to render a report

whenever an auditor's name is associated with financial statements. The overall purpose of the

fourth standard of reporting is to require that reports

a. Assure that the auditor is independent with respect to the financial statements audited.

b. State that the audit has been conducted in accordance with generally accepted auditing standards.

c. Indicate the character of the engagement and the degree of responsibility assumed by the auditor.

d. Express whether the accounting principles used in preparing the financial statements have been

applied consistently in the period audited. (AICPA ADAPTED)

d 31. The auditor's judgment concerning the overall fairness of the presentation of financial positions,

results of operations, and cash flows is applied within the framework of

a. Quality control.

b. Generally accepted auditing standards that include the concept of materiality.

c. The auditor's evaluation of the audited company's internal controls.

d. Generally accepted accounting principles. (AICPA ADAPTED)

d 32. The concept of materiality would be least important to an auditor in determining

a. Transactions that should be reviewed.

b. The need for disclosing a particular transaction or event.

c. The extent of audit work planned for particular accounts.

d. The effects of an auditor's direct financial interest in a client. (AICPA ADAPTED)

12

b 33. The objective of quality control mandates that a public accounting firm should establish policies

and procedures for professional development that provide reasonable assurance that all

entry-level personnel

a. Prepare working papers that are standardized in form and content.

b. Have the knowledge required to enable them to fulfill responsibilities assigned.

c. Will advance within the organization.

d. Develop specialties in specific areas of public accounting. (AICPA ADAPTED)

b 34. In pursuing its quality control objectives with respect to assigning personnel to engagements, a

public accounting firm may use policies and procedures such as

a. Rotating employees from assignment to assignment on a random basis to aid in the staff training

effort.

b. Requiring timely identification of the staffing requirements of specific engagements so that

enough qualified personnel can be made available.

c. Allowing staff to select the assignments of their choice to promote better client relationships.

d. Assigning a number of employees to each engagement in excess of the number required so as not

to overburden the staff and interfere with the quality of the audit work performed.

(AICPA ADAPTED)

d 35. A public accounting firm studies its personnel advancement experience to determine whether

individuals meeting stated criteria are assigned increased degrees of responsibility. This is

evidence of the firm's adherence to

a. Generally accepted auditing standards.

b. Attestation standards.

c. Supervision and review.

d. Quality control standards. (AICPA ADAPTED)

d 36. Which of the following statements best describes the primary purpose of Statements on Auditing

Standards?

a. Guides intended to set forth auditing procedures that are applicable to a variety of situations.

b. Outlines intended to narrow the areas of inconsistency and divergence of auditor opinion.

c. Authoritative statements, enforced through the code of professional conduct, and intended to limit

the degree of auditor judgment.

d. Interpretations intended to clarify the meaning of generally accepted auditing standards.

b 1. In general, a material weakness in internal control may be defined as a condition in which

material errors or irregularities may occur and not be detected within a timely period by

a. An independent auditor during tests of controls.

b. Employees in the normal course of performing their assigned functions.

c. Management when reviewing interim financial statements and reconciling account balances.

d. Outside consultants who issue a special-purpose report on internal control structure.

(AICPA ADAPTED)

b 2. Internal control procedures are not designed to provide reasonable assurance that

a. Transactions are executed in accordance with management's authorization.

b. Irregularities will be eliminated.

c. Access to assets is permitted only in accordance with management's authorization.

d. The recorded accountability for assets is compared with the existing assets at reasonable intervals.

(AICPA ADAPTED)

c 3. Which of the following is the correct order for performing the auditing procedures A through C

below?

A =Tests of controls

B = Preparation of a flowchart depicting the client's internal control structure

C = Substantive tests

a. ABC.

b. ACB.

c. BAC.

d. BCA. (AICPA ADAPTED)

a 4. A secondary purpose of the auditor's consideration of internal control is to provide

a. A basis for constructive suggestions about improvements in internal control structure.

b. A basis for assessing control risk.

c. An assurance that the records and documents have been maintained in accordance with existing

company policies and procedures.

d. A basis for the determination of the resultant extent of the tests to which auditing procedures are

to be restricted. (AICPA ADAPTED)

c 5. When considering internal control, an auditor must be aware of the concept of reasonable
assurance, which recognizes that

a. Employment of competent personnel provides assurance that the objectives of internal control

will be achieved.

b. Establishment and maintenance of internal control is an important responsibility of the

management and not of the auditor.

c. Cost of internal control procedures should not exceed the benefits expected to be derived from the

control.

d. Segregation of incompatible functions is necessary to ascertain that the control procedures are

effective. (AICPA ADAPTED)

38

b 6. After considering a client's internal control, an auditor has concluded that the system is well

designed and is functioning as anticipated. Under these circumstances, the auditor would most

likely

a. Cease to perform further substantive tests.

b. Not increase the extent of planned substantive tests.

c. Increase the extent of anticipated analytical procedures.

d. Perform all tests of controls to the extent outlined in the preplanned audit program.

(AICPA ADAPTED)

c 7. The primary purpose of the auditor's consideration of internal control is to provide a basis for

a. Determining whether procedures and records that are concerned with the safeguarding of assets

are reliable.

b. Constructive suggestions to clients concerning deficiencies in internal control.

c. Determining the nature, timing, and extent of audit tests to be applied.

d. The expression of an opinion. (AICPA ADAPTED)

b 8. The purpose of tests of controls is to provide reasonable assurance that the

a. Accounting treatment of transactions and balances is valid and proper.

b. Control procedures are functioning as intended.

c. Entity has complied with disclosure requirements of GAAP.

d. Entity has complied with requirements of quality control. (AICPA ADAPTED)

b 9. The auditor's review of the client's internal control is documented in order to substantiate

a. Conformity of the accounting records with GAAP.

b. Compliance with generally accepted auditing standards.

c. Adherence to requirements of management.

d. The fairness of the financial statement presentation. (AICPA ADAPTED)

d 10. After consideration of a client's internal control, an auditor might decide to

a. Increase the extent of substantive testing in areas where the control structure is strong.

b. Reduce the extent of tests of controls in areas where the controls are strong.

c. Reduce the extent of both substantive tests and tests of controls in areas where the controls are

strong.

d. Increase the extent of substantive testing in areas where the controls are weak.

(AICPA ADAPTED)

a 11. After documenting internal control in an audit engagement, the auditor may perform tests on

a. Those controls that the auditor plans to rely on.

b. Those controls in which deficiencies were identified.

c. Those controls that have a material effect on the financial statement balances.

d. A random sample of the controls that were reviewed. (AICPA ADAPTED)

a 12. The auditor is examining copies of sales invoices only for the initials of the person responsible for

checking the extensions. This is an example of a

a. Test of controls.

b. Substantive test.

c. Dual-purpose test.

d. Test of balances. (AICPA ADAPTED)

39

b 13. In an auditor's consideration of internal control, the completion of a questionnaire is most closely

associated with which of the following?

a. Separation of duties.

b. Understanding the system.

c. Flowchart accuracy.

d. Tests of controls. (AICPA ADAPTED)

b 14. The reliance placed on substantive tests in relation to control risk varies in a relationship that is

ordinarily

a. Parallel.

b. Inverse.

c. Direct.

d. Equal. (AICPA ADAPTED)

c 15. The auditor observes client employees in order to

a. Prepare a flowchart.

b. Update information contained in the organization and procedure manuals.

c. Corroborate the information obtained during the initial review of the system.
d. Determine the extent of compliance with quality control standards. (AICPA ADAPTED)

c 16. A consideration of internal control made during an audit is usually not sufficient to express an

opinion on an entity's controls because

a. Weaknesses in the system may go unnoticed during the audit engagement.

b. A consideration of internal control is not necessarily made during an audit engagement.

c. Only those controls on which an auditor intends to rely are reviewed, tested, and evaluated.

d. Controls can change each year. (AICPA ADAPTED)

a 17. An auditor's report on internal control of a publicly held company would ordinarily be of least

use to

a. Shareholders.

b. Officers.

c. Directors.

d. Regulatory agencies. (AICPA ADAPTED)

a 18. The accountant's report expressing an opinion on an entity's internal controls should state that the

a. Establishment and maintenance of internal control is the responsibility of management.

b. Objectives of the client's internal controls are being met.

c. Consideration of the internal controls was conducted in accordance with generally accepted

auditing standards.

d. Inherent limitations of the client's internal controls were examined. (AICPA ADAPTED)

d 19. The accountant's report expressing an opinion on an entity's internal controls would not include a

a. Description of the scope of the engagement.

b. Specific date that the report covers rather than a period of time.

c. Brief explanation of the broad objectives and inherent limitations of internal control.

d. Statement that the entity's internal controls are consistent with that of the prior year after giving

effect to subsequent changes. (AICPA ADAPTED)

40

a 20. A CPA's consideration of internal control in an audit

a. Is generally more limited than that made in connection with an engagement to express an opinion

on internal control.

b. Is generally more extensive than that made in connection with an engagement to express an

opinion on internal control.

c. Will generally be identical to that made in connection with an engagement to express an opinion

on internal control.

d. Will generally result in the CPA expressing an opinion on the internal control.

(AICPA ADAPTED)

c 21. The auditor who becomes aware of reportable conditions is required to communicate this to the

a. Audit committee and client's legal counsel.

b. Board of directors and internal auditors.

c. Senior management and board of directors.

d. Internal auditors and senior management. (AICPA ADAPTED)

d 22. Which of the following is not a purpose of an auditor's attempt to understand internal control

when a client processes accounting information by computer?

a. Determine the extent to which the computer is used in significant accounting applications.

b. Understand the flow of transactions in the system.

c. Comprehend the basic structure of accounting control.

d. Identify the controls that can be relied on when designing substantive tests of details.

(AICPA ADAPTED)

d 23. Which of the following is likely to be of least importance to an auditor when assessing control
risk in a company that processes data by computer?

a. The segregation of duties within the computer department.

b. The control over source documents.

c. The documentation maintained for accounting applications.

d. The cost-benefit ratio of data processing operations. (AICPA ADAPTED)

b 24. In considering a client's internal control structure in a computer environment, the auditor will

encounter general controls and application controls. Which of the following is an application

control?

a. Organization charts.

b. Hash total.

c. Systems flowcharts.

d. Control over program changes. (AICPA ADAPTED)

a 25. Auditing by testing the input and output of a computer system--i.e., auditing "around" the

computer--instead of the computer software itself will

a. Not detect program errors that do not appear in the output sampled.

b. Detect all program errors, regardless of the nature of the output.

c. Provide the auditor with the same type of evidence.

d. Not provide the auditor with confidence in the results of the auditing procedures.

(AICPA ADAPTED)

41

b 26. Smith Corporation has numerous customers. A customer file is kept on disk. Each customer file

contains the name, address, credit limit, and account balance. The auditor wishes to test this file
to determine whether credit limits are being exceeded. The best procedure for the auditor to

follow would be to

a. Develop test data that would cause some account balances to exceed the credit limit and

determine if the system properly detects such situations.

b. Develop a program to compare credit limits with account balances and print out the details of any

account with a balance exceeding its credit limit.

c. Request a printout of all account balances so they can be manually checked against the credit

limits.

d. Request a printout of a sample of account balances so they can be individually checked against

the credit limits. (AICPA ADAPTED)

a 27. Which of the following methods of testing application controls utilizes software prepared by the

auditors and applied to the client's data?

a. Parallel simulation.

b. Integrated test facility.

c. Test data.

d. Exception report tests. (AICPA ADAPTED)

c 28. The test–data method is used by auditors to test the

a. Accuracy of input data.

b. Validity of the output.

c. Procedures contained within the program.

d. Normalcy of distribution of test data. (AICPA ADAPTED)

c 29. Which of the following is true of generalized audit software?

a. They can be used only in auditing on-line computer systems.

b. They can be used on any computer without modification.

c. They each have their own characteristics, which the auditor must carefully consider before using
in a given audit situation.

d. They enable the auditor to perform all manual compliance test procedures less expensively.

(AICPA ADAPTED)

d 30. Assume that an auditor estimated that 10,000 checks were issued during the accounting period. If

an application control that performs a limit check for each check request is to be subjected to the

auditor's test–data approach, the sample should include:

a. Approximately 1,000 test items.

b. A number of test items determined by the auditor to be sufficient under the circumstances.

c. A number of test items determined by the auditor's reference to the appropriate sampling tables.

d. One transaction. (AICPA ADAPTED)

d 31. PC DOS, MS DOS, and AppleDOS are examples of

a. Application software.

b. Generalized audit software.

c. Database management systems.

d. Operating software.

42

c 32. Which of the following is not an example of a computer-assisted audit technique?

a. Integrated test data.

b. Audit modules.

c. Disk operating systems.

d. Audit hooks.

c 33. Which of the following statements most likely represents a disadvantage for an entity that

maintains computer data files rather than manual files?

a. It's usually more difficult to detect transposition errors.

b. Transactions are usually authorized before they are executed and recorded.

c. It's usually easier for unauthorized persons to access and alter the files.

d. Random error is more common when similar transactions are processed in different ways.

b 34. Transaction authorization within an organization may be either specific or general. An example of

specific transaction authorization is the

a. Setting of automatic reorder points.

b. Approval of a construction budget for a new warehouse.

c. Establishment of a customer's credit limits.

d. Establishment of sales prices. (AICPA ADAPTED)

a 35. Proper segregation of functional responsibilities calls for separation of the functions of

a. Authorization, execution, and recording.

b. Authorization, execution, and payment.

c. Custody, execution, and reporting.

d. Authorization, payment, and recording. (AICPA ADAPTED)

b 36. An auditor should consider the competence of a client's employees because their competence

bears directly and importantly on the

a. Cost-benefit relationship of internal control.

b. Achievement of the objectives of internal control.

c. Comparison of recorded accountability with assets on hand.

d. Timing of the tests to be performed. (AICPA ADAPTED)

a 37. Which of the following elements is not a part of an entity's internal controls?

a. Control risk.

b. Control activities.

c. The accounting system.

d. The control environment. (AICPA ADAPTED)

d 38. Which of the following statements about internal control is correct?

a. Properly maintained internal controls reasonably assure that collusion among employees cannot

occur.

b. Establishing and maintaining internal control is the internal auditor's responsibility.

c. Exceptionally strong control allows the auditor to eliminate substantive tests of details.

d. The cost-benefit relationship should be considered in designing internal controls.

(AICPA ADAPTED)

43

b 39. Which of the following is not done by an auditor when obtaining an understanding of an entity's

internal controls?

a. Identify the types of potential misstatements that can occur.

b. Consider the operating effectiveness of the internal controls.

c. Design substantive tests.

d. Consider factors that affect the risk of material misstatements. (AICPA ADAPTED)

c 40. Which of the following audit tests would be a test of controls?

a. Tests of the specific items making up the balance in a financial statement account.

b. Comparing inventory prices to vendors' invoices.

c. Comparing signatures on canceled checks to board of directors' authorizations.

d. Tests of the additions to property, plant, and equipment by physical inspections.

(AICPA ADAPTED)
c 41. The sequence of steps in gathering evidence as the basis of the auditor's opinion is:

a. Substantive tests, documentation of control structure, and tests of controls.

b. Documentation of control structure, substantive tests, and tests of controls.

c. Documentation of control structure, tests of controls, and substantive tests.

d. Tests of controls, documentation of control structure, and substantive tests.

(AICPA ADAPTED)

c 42. Which of the following procedures is essential to determining whether necessary control activities

were prescribed and are being followed?

a. Developing questionnaires and checklists.

b. Evaluating the entity's procedures for risk assessment.

c. Documenting and testing controls.

d. Observing employees and making inquiries. (AICPA ADAPTED)

b 43. Evidence about segregation of duties is best obtained by

a. Inspecting documents that contain the initials of who performed control activities.

b. Direct personal observation of employees who perform control activities.

c. Preparing a flowchart of who performs the duties.

d. Making inquiries of coworkers about the employee who performs the duties.

(AICPA ADAPTED)

a 44. An auditor's flowchart of a client's internal controls is a diagram depicting the auditor's

a. Understanding of the internal controls.

b. Program for tests of controls.

c. Documentation of having considered the internal controls.

d. Understanding of the types of irregularities that are probable. (AICPA ADAPTED)

a 45. An auditor is required to communicate significant deficiencies in internal control to

a. Audit committee of the board of directors.

b. Creditors and board of directors.

c. Board of directors and internal auditors.

d. Internal auditors and senior management. (AICPA ADAPTED)

44

b 46. An auditor has concluded that a client's internal controls are well designed and functioning as

expected. Under these circumstances the auditor would most likely

a. Cease to perform further substantive tests.

b. Not increase the extent of planned substantive tests.

c. Increase the extent of planned analytical procedures.

d. Perform all tests of controls to the extent outlined in the audit program. (AICPA ADAPTED)

b 47. Reportable conditions are matters that come to an auditor's attention and that should be

communicated to an entity's audit committee because they represent

a. Material irregularities or illegal acts perpetrated by management.

b. Significant deficiencies in the design or operation of internal control.

c. Flagrant violations of the entity's documented conflict-of-interest policies.

d. Intentional attempts by client personnel to limit the scope of the auditor's work.

(AICPA ADAPTED)

d 48. Which of the following statements best describes a weakness often associated with computers?

a. Computer equipment is more subject to systems error than manual processing is subject to human
error.

b. Computer equipment processes and records similar transactions in a similar manner.

c. Control activities for detecting invalid and unusual transactions are less effective than manual

control activities.

d. Functions that would normally be separated in a manual system are combined in a computer

system. (AICPA ADAPTED)

b 49. Accounting functions that are normally considered incompatible in a manual system are often

combined by computer software. This necessitates an application control that prevents

unapproved

a. Access to the computer library.

b. Revisions to existing software.

c. Usage of software.

d. Testing of modified software. (AICPA ADAPTED)

b 50. When software or files can be accessed from on-line servers, users should be required to enter

a. A parity check.

b. A personal identification code.

c. A self-diagnosis test.

d. An echo check.

b 51. An auditor's consideration of a company's computer control activities has disclosed the following

four circumstances. Indicate which circumstance constitutes a significant deficiency in internal

control.

a. Computer operators do not have access to the complete software support documentation.

b. Computer operators are closely supervised by programmers.

c. Programmers are not authorized to operate computers.

d. Only one generation of backup files is stored in an off-premises location. (AICPA ADAPTED)
45

a 52. A control feature requires the computer to send signals to the printer to activate the print

mechanism for each character. The print mechanism, just prior to printing, sends a signal back to

the computer verifying that the proper print position has been activated. This type of hardware

control is referred to as a/an

a. Echo check.

b. Validity check.

c. Signal check.

d. Check digit. (AICPA ADAPTED)

d 53. In a computer system, hardware controls are designed to

a. Arrange data in a logical sequence for processing.

b. Correct errors in software.

c. Monitor and detect errors in source documents.

d. Detect and control errors arising from use of equipment. (AICPA ADAPTED)

b 54. The primary objective of procedures performed to obtain an understanding of internal control is

to provide an auditor with

a. Evidential matter to use in reducing detection risk.

b. Knowledge necessary to plan the audit.

c. A basis from which to modify tests of controls.

d. Information necessary to prepare flowcharts.

Which of the following is generally more important in a review than in a compilation?

a. Determining the accounting basis on which the financial statements are to be presented.

b. Gaining familiarity with industry accounting principles and practices.

c. Obtaining a signed engagement letter.

d. Obtaining a signed representation letter. (AICPA ADAPTED)

d 2. Which of the following procedures is not included in a review engagement on a nonpublic entity?

a. Inquiries of management.

b. Inquiries regarding events subsequent to the balance sheet date.

c. Any procedures designed to identify relationships among data that appear to be unusual.

d. A study and evaluation of internal control structure. (AICPA ADAPTED)

c 3. When auditing a public entity's financial statements that include segment information, the auditor

should

a. Make certain the segment information is labeled "unaudited" and determine that the information

is consistent with audited information.

b. Make certain the segment information is labeled "unaudited" and perform only analytical review

procedures on the segment information.

c. Audit the segment information and, if the information is adequate and in conformity with GAAP,

do not make reference to the segment information in the auditor's report.

d. Audit the segment information and, if the information is adequate and in conformity with GAAP,

refer to the segment information in the auditor's report. (AICPA ADAPTED)

a 4. If management chooses to place supplementary information required by the FASB in footnotes

attached to the financial statements, this information should be clearly marked as

a. Unaudited.

b. Supplementary information required by the FASB.

c. Disclosures required by the FASB.

d. Audited financial data required by GAAP. (AICPA ADAPTED)

b 5. Which of the following best describes the auditor's responsibility for "other information" included

in the annual report to stockholders, which contains financial statements and the auditor's report?
a. The auditor has no obligation to read the "other information."

b. The auditor has no obligation to corroborate the "other information" but should read the "other

information" to determine whether it is materially inconsistent with the financial statements.

c. The auditor should extend the examination to the extent necessary to verify the "other

information."

d. The auditor must modify the auditor's report to state that the "other information is unaudited" or

"not covered by the auditor's report." (AICPA ADAPTED)

d 6. When an independent audit report is incorporated by reference in a SEC registration statement, a

prospectus that includes a statement about the independent accountant's involvement should refer

to the independent accountant as

a. Auditor of the financial reports.

b. Management's designate before the SEC.

c. Certified preparer of the report.

d. Expert in auditing and accounting. (AICPA ADAPTED)

120

c 7. If information accompanying the basic financial statements in an auditor-submitted document has

been subjected to auditing procedures, the auditor may express an opinion which states that the

accompanying information is fairly stated in

a. Conformity with generally accepted accounting principles.

b. Terms of negative assurance.

c. All material respects in relation to the basic financial statements taken as a whole.

d. Conformity with principles for presenting accompanying information. (AICPA ADAPTED)

b 8. The auditor's inquiries of management regarding supplementary information on the effects of

price level changes should be directed to the judgments made concerning

a. Relevance and validity.

b. Measurement and presentation.

c. Accuracy and objectivity.

d. Rights and obligations. (AICPA ADAPTED)

a 9. Comfort letters are ordinarily signed by the

a. Independent auditor.

b. Client.

c. Client's lawyer.

d. Internal auditor. (AICPA ADAPTED)

c 10. When an auditor submits a document containing audited financial statements to a client, the

auditor has the responsibility to report on

a. Only the basic financial statements included in the document.

b. The basic financial statements and only that additional information required to be presented in

accordance with provisions of the FASB.

c. All of the information included in the document.

d. Only that portion of the document which was audited. (AICPA ADAPTED)

b 11. An accountant's compilation report should be dated as of the date of

a. Completion of fieldwork.

b. Completion of the engagement.

c. Transmittal of the compilation report.

d. The latest subsequent event referred to in the notes to the financial statements.

(AICPA ADAPTED)

b 12. A CPA has been engaged to compile financial statements for a nonpublic client. Which of the
following statements best describes this engagement?

a. The CPA must perform the basic accepted auditing procedures necessary to determine that the

statements are in conformity with GAAP.

b. The CPA is performing an accounting service rather than an examination of financial statements.

c. The financial statements are representations of both management and the CPA.

d. The CPA may prepare the statements from the books but may not assist in adjusting and closing

the books. (AICPA ADAPTED)

121

a 13. Which of the following would not be included in an accountant's review report on the financial

statements of a nonpublic entity?

a. A statement that the review was made in accordance with generally accepted auditing standards.

b. A statement that all information included in the financial statements is the representation of

management.

c. A statement describing the principal procedures performed.

d. A statement describing the auditor's conclusions based on the results of the review.

(AICPA ADAPTED)

a 14. An accountant who is not independent may issue a

a. Compilation report.

b. Review report.

c. Comfort letter.

d. Qualified opinion. (AICPA ADAPTED)

c 15. The objective of a review of the interim financial information of a public company is to

a. Provide the accountant with a basis for expressing of an opinion.

b. Estimate the accuracy of financial statements from limited tests of accounting records.

c. Provide the accountant with a basis for reporting to the board of directors or shareholders.

d. Obtain corroborating evidence through inspection, observation, and confirmation.

(AICPA ADAPTED)

b 16. An auditor's report would be designated as a special report when it is issued in connection with

which of the following financial statements?

a. Financial statements for an interim period that are subjected to a limited review.

b. Financial statements that are prepared in accordance with a comprehensive basis of accounting

other than GAAP.

c. Financial statements that purport to be in accordance with GAAP but do not include a statement

of cash flows.

d. Financial statements that are unaudited and are prepared from a client's accounting records.

(AICPA ADAPTED)

a 17. An auditor has been engaged to audit financial statements that were prepared on a cash basis. The

auditor

a. Must ascertain that there is proper disclosure of the fact that the cash basis has been used, the

general nature of material items omitted, and the net effect of the omissions.

b. May not be associated with statements that are not in accordance with GAAP.

c. Must render a qualified report explaining the departure from GAAP in the opinion paragraph.

d. Must restate the financial statements on an accrual basis and then issue the standard report.

(AICPA ADAPTED)
d 18. When issuing a comfort letter to underwriters, the accountant should

a. File a copy with the SEC.

b. Disclaim an opinion.

c. Avoid any reference to the accountant's independence.

d. Express negative assurance. (AICPA ADAPTED)

122

a 19. An auditor should not issue a report on

a. The achievability of forecasts.

b. Internal control.

c. Management performance.

d. Quarterly financial information. (AICPA ADAPTED)

b 20. Under which of the following circumstances may audited financial statements contain a note

disclosing a subsequent event that is labeled unaudited?

a. When the subsequent event does not require adjustment of the financial statements.

b. When the event occurs after completion of fieldwork and before issuance of the auditor's report.

c. When audit procedures with respect to the subsequent event were not performed by the auditor.

d. When the event occurs between the date of the auditor's original report and the date of the

reissuance of the report. (AICPA ADAPTED)

d 21. Auditors often request that the audit client send a letter of inquiry to those attorneys who have

been consulted with respect to litigation, claims, or assessments. The primary reason for this

request is to provide the auditor with

a. An estimate of the dollar amount of the probable loss.

b. An opinion about whether the loss is possible, probable, or remote.

c. Information concerning the progress of cases to date.

d. Corroborative evidential matter. (AICPA ADAPTED)

a 22. A lawyer's response to an auditor's request for information concerning litigation, claims, and

assessments will ordinarily contain which of the following information?

a. An explanation for limitations on the scope of the response.

b. A statement of concurrence with the client's determination of which unasserted possible claims

warrant specification.

c. Confidential information that would be prejudicial to the client's defense if publicized.

d. An assertion that the list of possible unasserted claims identified by the client represents all

claims of which the lawyer may be aware. (AICPA ADAPTED)

c 23. A lawyer's response to a letter of audit inquiry may be limited to matters that are considered

individually or collectively material to the financial statements if

a. The auditor has instructed the lawyer about the limits of materiality in financial statements.

b. The client and the auditor have agreed on the limits of materiality and the lawyer has been

notified.

c. The lawyer and auditor have reached an understanding about the limits of materiality.

d. The lawyer's response to the inquiry explains the legal meaning of materiality limits and

establishes quantitative parameters. (AICPA ADAPTED)

b 24. An attorney is responding to an independent auditor as a result of the audit client's letter of

inquiry. The attorney may appropriately limit the response to

a. Asserted claims and litigation.

b. Matters to which the attorney has given substantive attention in the form of legal consultation or

representation.

c. Asserted, overtly threatened, or pending claims and litigation.

d. Items that have an extremely high probability of being resolved to the client's detriment.

c 1. Which of the following best describes a trend in litigation involving CPAs?

a. A CPA cannot render an opinion on a company unless the CPA has audited all affiliates of that

company.

b. A CPA may successfully assert as a defense that the CPA had no motive to be part of a fraud.

c. A CPA may be exposed to criminal as well as civil liability.

d. A CPA is primarily responsible for a client's footnotes in an annual report filed with the SEC.

(AICPA ADAPTED)

c 2. As a consequence of failure to adhere to generally accepted auditing standards in the course of an

audit of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of

funds by the company's controller. As a matter of common law, to what extent would Harrison

be liable to the Lamp Corp. for losses attributable to the theft?

a. No liability since the ordinary examination cannot be relied on to detect defalcations.

b. No liability because privity of contract is lacking.

c. Liable for losses attributable to her or his negligence.

d. Liable only if it could be proved that he or she was grossly negligent. (AICPA ADAPTED)

b 3. The Apex Surety Company wrote a general fidelity bond covering defalcations by the employees

of Watson, Inc. Thereafter, Grand, an employee of Watson, embezzled $18,999 of company

funds. When his activities were discovered, Apex paid Watson the full amount in accordance

with the terms of the fidelity bond and then sought recovery against Watson's auditors, Kane &

Dobbs, CPAs. Which of the following would be Kane & Dobbs' best defense?

a. Apex is not in privity of contract.

b. The shortages were the result of clever forgeries and collusive fraud that would not be detected by

an examination made in accordance with generally accepted auditing standards.

c. Kane & Dobbs were not guilty of either gross negligence or fraud.

d. Kane & Dobbs were not aware of the Apex-Watson surety relationship. (AICPA ADAPTED)

b 4. Martin Corporation orally engaged Humm & Dawson to audit its year-end financial statements.
The engagement was to be completed within two months after the close of Martin's fiscal year for

a fixed fee of $2,500. Under these circumstances, what obligation is assumed by Humm &

Dawson?

a. None. The contract is unenforceable since it is not in writing.

b. An implied promise to exercise reasonable standards of competence and care.

c. An implied obligation to take extraordinary steps to discover all defalcations.

d. The obligation of an insurer of its work, which is liable without fault. (AICPA ADAPTED)

a 5. One of the most significant aspects of the Continental Vending case was that it

a. Created a more general awareness of the auditor's exposure to criminal prosecution.

b. Extended the auditor's responsibility for financial statements of subsidiaries.

c. Extended the auditor's responsibility for events after the end of the audit period.

d. Defined the auditor's common-law responsibilities to third parties. (AICPA ADAPTED)

142

b 6. The 1136 Tenants case was chiefly important because of its emphasis on the legal liability of the

CPA when

a. Performing a review of financial statements.

b. An engagement letter is not obtained.

c. An audit results in a disclaimer of opinion.

d. Preparing letters for underwriters. (AICPA ADAPTED)

d 7. In which of the following statements about a public accounting firm's action is scienter or its

equivalent absent?

a. Reckless disregard for the truth.

b. Actual knowledge of fraud.

c. Intent to gain monetarily by concealing fraud.

d. Performance of substandard auditing procedures. (AICPA ADAPTED)

c 8. Doe and Co., CPAs, issued an unqualified opinion on the 2005 financial statements of Marx

Corp. These financial statements were included in Marx's annual report and form 10K filed with

the SEC. Doe did not detect material misstatements in the financial statements as a result of

negligence in the performance of the audit. Based on the financial statements, Fitch purchased

stock in Marx. Shortly thereafter, Marx became insolvent, causing the price of the stock to

decline drastically. Fitch has commenced legal action against Doe for damages based on Section

10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Doe's best defense to such an

action would be that

a. Fitch lacks privity to sue.

b. The engagement letter specifically disclaimed all liability to third parties.

c. There is no proof of scienter.

d. There has been no subsequent sale for which a loss can be computed. (AICPA ADAPTED)

b 9. Hall purchased bonds for Eon Corp. in a public offering subject to the Securities Act of 1933.

Kosson and Co., CPAs, rendered an unqualified opinion on Eon's financial statements, which

were included in Eon's registration statement. Kosson is being sued by Hall based on

misstatements contained in the financial statements. In order to be successful, Hall must prove

materiality of Kosson's

Damages Misstatement Scienter

a. Yes Yes Yes

b. Yes Yes No

c. Yes No No

d. No Yes Yes (AICPA ADAPTED)

b 10. Lewis & Clark, CPAs, rendered an unqualified opinion on the financial statements of a company
that sold common stock in a public offering subject to the Securities Act of 1933. Based on a

false statement in the financial statements, Lewis & Clark are being sued by an investor who

purchased shares of this public offering. Which of the following represents a viable defense?

a. The investor has not met the burden of proving fraud or negligence by Lewis & Clark.

b. The investor did not actually rely on the false statement.

c. Detection of the false statement by Lewis & Clark occurred after their examination date.

d. The false statement is immaterial in the overall context of the financial statements.

(AICPA ADAPTED)

143

c 11. Gibson is suing Simpson & Sloan, CPAs, to recover losses incurred in connection with Gibson's

transactions in Zebra Corporation securities. Zebra's Annual Form 10-K Report contained

material false and misleading statements in the financial statements audited by Simpson & Sloan.

To recover under the Securities and Exchange Act of 1934, Gibson must, among other things,

establish that

a. All of his past transactions in Zebra securities, both before and after the auditors' report date,

resulted in net losses.

b. The transaction in Zebra securities that resulted in a loss occurred within 90 days of the auditors'

report date.

c. He relied on the financial statements in his decision to purchase or sell Zebra securities.

d. The market price of the stock dropped significantly after Zebra issued corrected financial

statements. (AICPA ADAPTED)

b 12. Humm & Dawson had been engaged to audit the Martin Corporation's financial statements.
Although an engagement letter was not prepared, Martin agreed orally to a fixed fee of $2,500.

Which of the following best describes the obligation assumed by Humm & Dawson?

a. None; the agreement is not in writing.

b. An implied promise to exercise due care.

c. An implied obligation to detect all fraud.

d. An implied obligation to detect all illegal acts. (AICPA ADAPTED)

d 13. Winslow Manufacturing, Inc. sought a $200,000 loan from National Lending Corporation.

National Lending insisted that audited financial statements be submitted before granting credit.

Winslow agreed. An audit was performed by an independent auditor who submitted an audit

report to Winslow that was to be used solely for the purpose of negotiating a loan from National.

National, upon reading the audited financial statements, decided in good faith not to extend the

credit desired. Certain ratios, used routinely by National in reaching credit decisions, were judged

insufficient. Winslow used copies of the audited financial statements to obtain credit elsewhere.

Despite complying with generally accepted auditing standards, the independent auditor failed to

discover a sophisticated embezzlement scheme perpetrated by Winslow's chief financial officer.

The auditor is liable to

a. Third parties who relied on the audited financial statements to extend credit.

b. Winslow to repay the audit fee because National did not extend credit.

c. Winslow for any losses Winslow suffered as a result of failing to discover the embezzlement.

d. None of the parties. (AICPA ADAPTED)

b 14. Which of the following ultimately determines the specific audit procedures necessary to provide

an independent auditor with a reasonable basis for the expression of an opinion?

a. The audit program.

b. The auditor's judgment.

c. Generally accepted auditing standards.

d. The auditor's working papers. (AICPA ADAPTED)

b 15. An auditor who believes that a material irregularity may exist should initially

a. Discuss the matter with those believed to be involved in the perpetration of the material

irregularity.

b. Discuss the matter with a higher level of management.

c. Withdraw from the engagement.

d. Consult legal counsel. (AICPA ADAPTED)

144

c 16. Which of the following, if material, would be an irregularity?

a. Mistakes in the application of accounting principles.

b. Clerical mistakes in the accounting data underlying the financial statements.

c. Misappropriation of an asset or groups of assets.

d. Misinterpretations of facts that existed when the financial statements were prepared.

(AICPA ADAPTED)

d 17. When unable to determine the amounts associated with certain illegal acts committed by a client,

the auditor would most likely issue

a. A review opinion with a separate explanatory paragraph.

b. Only an adverse opinion.

c. Either a qualified opinion or an adverse opinion.

d. Either a qualified opinion or a disclaimer of opinion. (AICPA ADAPTED)

c 18. The auditor is most likely to presume that a high risk of irregularities exists if

a. The client is a multinational company that does business in numerous foreign countries.

b. The client does business with several related parties.

c. Inadequate segregation of duties places an employee in a position to perpetrate and conceal thefts.

d. Inadequate employee training results in lengthy EDP exception reports each month.

(AICPA ADAPTED)

a 19. An auditor who finds that the client has committed an illegal act would be most likely to

withdraw from the engagement when the

a. Illegal act affects the auditor's ability to rely on management representations.

b. Illegal act has material financial statement implications.

c. Illegal act has received widespread publicity.

d. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements.

(AICPA ADAPTED)

c 20. The Foreign Corrupt Practices Act requires that

a. Auditors engaged to examine the financial statements of publicly held companies report all illegal

payments to the SEC.

b. Privately held companies devise and maintain an adequate internal control structure.

c. Publicly held companies devise and maintain an adequate internal control structure.

d. U.S. firms doing business abroad report sizable payments to non-U.S. citizens to the Justice

Department. (AICPA ADAPTED)

a 21. Donalds & Company, CPAs, audited the financial statements included in the annual report

submitted by Markum Industries, Inc. to the Securities and Exchange Commission. The audit was

deficient in several respects. Markum is now insolvent and unable to satisfy shareholders' claims.

The shareholders have taken legal action against Donalds under Section 10b and Rule 10b-5 of

the Securities Exchange Act of 1934. Which of the following is Donalds' best defense?

a. Donalds did not intend to deceive, manipulate, or defraud Markum's shareholders.

b. Section 10b does not apply.

c. Donalds was not in privity to the shareholders.

d. The engagement letter specifically disclaimed liability to any third party. (AICPA ADAPTED)

145

a 22. A third party sues a public accounting firm for negligence under common law on the basis of

materially false financial statements. Which of the following is the firm's defense?

a. Lack of privity.

b. Lack of reliance.

c. Lack of intent.

d. Contributory negligence. (AICPA ADAPTED)

c 23. Purchasers of securities have brought suit against an independent auditor under the Securities Act

of 1933. The firm will prevail in the suit, even though the firm issued an unqualified opinion on

materially misstated financial statements, if

a. The firm was unaware of the material misstatements.

b. The purchasers had no direct dealings with the auditor.

c. The firm can show that the purchasers did not rely on the financial statements.

d. The firm can show that there was no intent to deceive or manipulate the purchasers.

(AICPA ADAPTED)

a 24. When seeking to recover stock market losses from a public accounting firm on the basis of an

unqualified opinion that accompanied a registration statement, an investor must establish that

a. The audited financial statements were materially misstated.

b. He or she relied on the financial statements.

c. The firm did not act in good faith.

d. If the firm had exercised due care, the material misstatement would have been discovered.

(AICPA ADAPTED)

c 25. An auditor is subject to criminal liability if he or she

a. Refuses to return a client's working papers.

b. Performs an audit negligently.

c. Willfully omits a material fact required to be stated in a registration statement.

d. Willfully breaches a contract with a client. (AICPA ADAPTED)

a 26. If an independent auditor believes that material errors or fraud exist, he or she should

a. Consider the implications and discuss the matter with appropriate levels of management.

b. Make the investigation necessary to determine whether the errors or fraud have, in fact, occurred.

c. Request that management investigate whether the errors or fraud have, in fact, occurred.

d. Consider whether the errors or fraud were the result of a failure by employees to comply with

existing internal controls. (AICPA ADAPTED)

d 27. With respect to errors and fraud, which of the following should be part of an auditor's planning of

the audit engagement?

a. Plan to search for errors or fraud that would have a material or immaterial effect on the financial

statements.

b. Plan to discover errors or fraud that are either material or immaterial.

c. Plan to discover errors or fraud that are material.

d. Plan to consider factors affecting the risk of material misstatement both at the financial

statement and the account balance level. (AICPA ADAPTED)

146
d 28. An audit conducted in accordance with generally accepted auditing standards generally should

a. Be expected to provide assurance that illegal acts will be detected when internal control is

effective.

b. Be relied on to disclose violations of truth in lending laws.

c. Include a plan to actively search for illegal acts.

d. Not be relied on to provide assurance that illegal acts will be detected. (AICPA ADAPTED)

c 29. If an auditor believes a client may have committed illegal acts, which of the following actions

should the auditor take?

a. Consult with the client's counsel and the auditor's counsel to determine how the suspected illegal

acts will be communicated to stockholders.

b. Extend auditing procedures to determine whether the suspected illegal acts have a material effect

on the financial statements.

c. Make inquiries of the client's management and obtain an understanding of the circumstances

underlying the acts and of other evidence to determine the effects of the acts on the financial

statements.

d. Notify each member of the audit committee of the board of directors about nature of the acts and

request that they advise an approach to be taken by the auditor. (AICPA ADAPTED)

d 30. If an illegal act is discovered during the audit of a publicly held company, the auditor should

a. Notify the regulatory authorities.

b. Determine who was responsible for the act.

c. Modify the extent of auditing procedures.

d. Report the act to high-level personnel within the client's organization. (AICPA ADAPTED)

d 31. An audit client's board of directors and audit committee refused to take action about an

immaterial illegal act that was brought to their attention by the auditor. Because of their failure to
act, the auditor withdrew from the engagement. The auditor's decision to withdraw was primarily

due to doubts concerning

a. Inadequate financial statement disclosures.

b. Compliance with the Foreign Corrupt Practices Act.

c. Scope limitations resulting from the inaction.

d. Reliance on management's representations. (AICPA ADAPTED)

b 32. Which of the following statements correctly describes the unlawful influence provision of the

Foreign Corrupt Practices Act? The Act applies

a. Only to multinational corporations.

b. To all domestic corporations engaged in interstate commerce.

c. To corporations whose securities are registered under the Securities Exchange Act of 1934.

d. To corporations engaged in foreign commerce.