Audit Evidence and Reporting Quiz

The major reason an independent auditor gathers audit evidence is to

• form an opinion on the financial statements.

• detect fraud.

• evaluate management.

• assess control risk.

Which of the following best describes the reason why an independent auditor reports on financial statements?

• A misappropriation of assets may exist, and it is more likely to be detected by independent auditors.

• Different interests may exist between the company preparing the statements and the persons using the statements.

• A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.

• Poorly designed internal controls may be in existence.

Because of the risk of material misstatement, an audit should be planned and performed with an attitude of

• professional skepticism.

• complete trust.

• indifference.

• overconfidence.

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?

• Misappropriation of an asset or groups of assets

• Clerical mistakes in the accounting data underlying the financial statements

• Mistakes in the application of accounting principles

• Misinterpretation of facts that existed when the financial statements were prepared

An auditor reviews aged accounts receivable to assess likelihood of collection to support management’s assertion about account balances of:

• existence.

• completeness.

• accuracy, valuation, and allocation.

• rights and obligations.

An auditor will most likely review an entity’s periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management’s assertion about classes of transactions of:

• occurrence.

• classification.

• completeness

• accuracy

In the audit of accounts payable, an auditor’s procedures will most likely focus primarily on management’s assertion about account balances of

• existence.

• completeness.

• accuracy, valuation, and allocation.

• classification.

The auditor’s responsibility regarding material misstatements caused by fraud is

• less than the auditor’s responsibility regarding material misstatements caused by error.

• greater than the auditor’s responsibility regarding material misstatements caused by error.

• the same as the auditor’s responsibility regarding material misstatements caused by error.

• either less than or greater than the auditor’s responsibility regarding material misstatements caused by error, depending on the circumstances.

Which of the following would not have a direct impact in determining the sufficiency of evidence gathered during an audit?

• The cost-benefit relationship of obtaining the audit evidence

• The quality of audit evidence obtained

• The auditor’s professional judgment

• The risk of material misstatement

When determining the auditor’s or management’s responsibility for compliance with laws and regulations during an audit, which of the following statements below would be incorrect?

• The auditor is not responsible for preventing noncompliance with laws and regulations.

• Management and those charged with governance are responsible for ensuring that the company’s operations are conducted in accordance with all applicable laws and regulations.

• The auditor provides reasonable assurance that the financial statements are free of material misstatement due to noncompliance with laws and regulations.

• The auditor is expected to detect the client’s noncompliance with all laws and regulations affecting transaction cycles under review during the audit itself.