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WorksheetsMB-AUDTH SET A
Total questions: 34
Worksheet time: 17mins
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.
Which of the following assertions address whether accounts have been included in the financial statements at appropriate amounts?
Completeness assertion.
Valuation or allocation assertion.
Rights and obligations assertion.
None of the above.
Which of the following is a procedure which analyzes plausible relationships among financial and nonfinancial data?
Analytical procedures.
Scanning.
Reviewing.
Observation.
Which of the following is a reason why an auditor needs an understanding of internal controls?
To provide individual comments on internal control non-compliance.
To assess the risk of possible misstatements in the financial statements.
To become comfortable that the client will pay its audit bills.
To assess materiality.
Which of the following is not a reason why an auditor obtains an understanding of internal controls?
Understanding the entity's internal control is a requirement of professional auditing standards.
The auditor must use the information to assess the risk of material misstatements arising from the lack of internal control.
It is the primary basis for the audit report.
It assists the auditor in designing the nature, timing, and extent of further audit procedures.
Evaluate the following statements: Statement 1: From among PRBOA members, the Chairman of the PRBOA is tasked to appoint a vice-chairman for a term of three (3) years. (False) Statement 2: The public practice of accountancy is confined to sole proprietorship and partnership only. (True)
Only statement 1 is correct.
Both statements are correct.
Only statement 2 is correct.
Both statements are incorrect.
Which statement is true concerning materiality?
Misstatements are material if they could reasonably be expected to influence the decisions of users of the financial statements.
Materiality guidelines are specifically prescribed by the law.
Materiality is not a useful concept in assessing internal control effectiveness.
Materiality is a concept applied to financial statement presentation but not to disclosures.
Which of the following statements is true regarding client acceptance or continuance decisions?
An audit firm cannot discontinue providing audit services to a client without just cause.
Potential audit fees are not a valid consideration in the acceptance or continuance decision.
The client acceptance/continuance decision is one of the most important factors in audit quality.
Audit firms are not permitted to conduct background checks on the management of a potential client.
What type of relationship exists between audit risk and detection risk?
Direct.
Inverse.
Indirect.
No relationship.
Which of the following statements best describes what is meant by setting control risk at 100%?
Controls are effective.
Controls are relevant.
Controls are ineffective.
Cannot be determined from the information given.
An increase in the risk of material misstatement would lead to which of the following responses?
Increase in the extent of audit procedures.
Decrease in the extent of audit procedures.
Earlier performance of audit procedures.
No change in the extent or timing of audit procedures.
An audit program provides an effective means for which of the following?
Reviewing the completeness and persuasiveness of procedures performed.
Recording the audit work performed and those responsible for performing the work.
Organizing and distributing the work.
All the above.
What is the first phase in an audit?
Client acceptance or client continuance.
Understanding the client.
Understanding internal controls.
Testing of account balances.
The extent of procedures is affected mostly by which of the following factors?
The sheer volume of procedures to be applied by the auditor.
The time of year in which the client takes a physical inventory in the warehouse.
The auditor's judgment that misstatements are probable in certain balances.
The availability of the client's staff at or near the balance sheet date.
Which components of the SOQM comprise quality objectives the firm is required to establish, that form the basis for identifying and assessing quality risks and designing and implementing responses? I. Governance and Leadership II. The firm’s risk assessment process III. Relevant Ethical Requirements IV. Acceptance and continuance of client relationship V. Monitoring and remediation VI. Engagement performance VII. Resources VIII. Information and communication
All of the above components
Only II and VI
All except I and III
All except II and V
Which of the following would be least likely to be regarded as a test of a control?
Tests of the additions to property by physical inspection.
Comparisons of the signatures on cancelled checks to the authorized check signer list.
Tests of signatures on purchase orders.
Recalculation of payroll deductions.
Which of the following components is the foundation for all other components of internal control?
Control risk assessment.
Control environment.
Information and communication.
Monitoring.
An audit program is created to specify which of the following?
The type of audit opinion to be rendered based upon procedures performed.
The audit procedures that will be performed every year for the client.
How an auditor should think while performing audit procedures.
Audit objectives and procedures to be followed during the audit process.
Which one of the following is the primary reason for documenting audit work?
To prevent litigation by other parties that question the audit performance.
To provide a stand-alone medium that gives audit conclusions and supports the opinion.
To give the client a full reporting of all work performed on their behalf.
To supply a point of reference for all auditors performing the work subsequently.
Which item is correct concerning the risk of material misstatement?
Risk of material misstatement arises because audit procedures have been misapplied.
Risk of material misstatement can be controlled and changed by the auditor.
Risk of material misstatement must be assessed in non-quantitative terms.
Risk of material misstatement is controllable by the client.
In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk-through?
To assure that employees are performing assigned functions accurately.
To confirm the auditor's understanding of the internal control structure.
To select documents for detailed tests of controls.
To verify the results of the auditor's sampling plan.
Which of the following factors would lead an auditor to assess inherent risk at a higher level?
The account balance is easily determined without estimation.
The account balance is composed of a high volume of nonroutine transactions.
The account balance is composed of simple transactions.
All of the above would lead the auditor to assess a higher level of inherent risk.
Which of the following is a reason a predecessor auditor can decline to reply to a firm’s current auditor? I. Data is under court order. II. They must always respond. III. The client does not approve of confidential information being shared.
I, II, III
I and III only
II only
III only
Which of the following statements is false?
Inherent risk is inversely related to the level of control risk.
Inherent risk is directly related to the amount of evidence required in account testing.
Inherent risk is the susceptibility of the financial statements to material misstatement, assuming no internal controls.
Inherent risk and control risk are assessed by the auditor and controlled by the client.
If the results of tests of controls support the design and operations of controls as expected, the auditor uses control risk as the preliminary assessment.
a lower
the same
a higher
either a lower or higher
