MB-AUDTH SET A

Evaluate the following statements: I. Auditors obtain and evaluate evidence regarding assertions about economic actions and events to verify the accuracy of those assertions. II. Management may have incentives to present biased financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.

• Both statements are true.

• Both statements are false

• Only statement II is true

• Only statement I is true

The following statements are correct, except

• The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement.

• The foundation for the audit opinion formulation process relies on obtaining evidence to support the auditor’s opinion.

• Audit staff performing audit work must be appropriately supervised by partners and managers.

• Auditors should conduct their work with an attitude of professional skepticism.

After obtaining an understanding of internal control and arriving at a preliminary assessed level of control risk, an auditor decided to perform tests of controls. The auditor most likely decided that:

• Additional evidence to support a reduction in the assessed level of control risk is not available.

• An increase in the assessed level of control risk is justified for certain financial statement assertions.

• It would be efficient to perform tests of controls that would result in a reduction in planned substantive procedures.

• There were many internal control deficiencies that would allow misstatements to enter the accounting system.

The objective of the System of Quality management (SOQM) is/are I. To provide the firm with reasonable assurance that the firm and its personnel fulfill their responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; II. To provide the firm with absolute assurance that engagement reports issued by the firm or engagement partners are appropriate in the circumstances.

• Only statement 1 is correct.

• Both statements are correct.

• Only statement 2 is correct.

• Both statements are incorrect.

Which of the following is not part of the systematic process called auditing?

• Communicating results of the audit to users.

• Procuring and evaluating evidence.

• Assisting management in designing internal controls.

• Comparing evidence regarding assertions to certain established criteria.

Which of the following is not a primary driver of audit quality?

• Skills and personal qualities of audit staff.

• Size of the audit firm.

• Effective audit processes.

• Audit firm culture.

When is the culture of an audit firm likely to provide a positive contribution to audit quality?

• When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise.

• When the leadership of the audit firm ensures robust systems for client acceptance and continuation based on the likelihood of increased audit fees.

• When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded.

• When the leadership of the audit firm ensures financial considerations drive actions.

The following relates to an entity’s internal control. Which statement is true?

• Internal control helps an organization eliminate the risk of failing to provide users with reliable financial information.

• Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations, and operating efficiency.

• A deficiency in design of internal controls exists when an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met.

• Effective internal control requires an organization to establish an appropriate structure and clearly defined lines of responsibility and authority where everyone in the organization has equal responsibility for the effective operation of internal control.

What is the primary benefit of effective internal control in an organization?

• Achieving certain organizational goals.

• Completing a successful audit for the entity.

• Maximizing value for shareholders.

• Obtaining profitability and financial strength.

Which of the following is not one of the underlying principles of an effective control environment?

• The organization demonstrates a commitment to integrity and ethical values.

• The board of directors demonstrates independence from management and exercises oversight for the development and performance of internal control.

• Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in pursuit of objectives.

• The organization considers the potential for fraud in assessing risks to the achievement of objectives.