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WorksheetsQuiz 3 (THIS SEM)
Total questions: 55
Worksheet time: 28mins
Where would a copy of an auditee's long-term lease contract for a building most likely be kept?
a) In the planning file.
b) In the permanent file.
c) IN the administrative file
d) In the audit evidence file
Unlike consulting services, assurance services?
a) make recommendation to management.
b) report on how to use information.
c)report on the quality of information
d) are two-party contracts
How is the audit report referred to when the auditor has no reservations about management's financial statements?
a) An unqualified report.
b) A qualified report.
c) An adverse report.
d) An integrated part
Which of the following should be considered by the auditor in deciding which means (or combination of means) to
use in selecting items for testing?
I. Audit efficiency
II. The risk of material misstatement related to the assertion being tested
a) I only
b) II only
c) Both I and II
d) Neither I nor II
Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would
a) decrease substantive testing.
b) decrease detection risk.
c) increase inherent risk.
d) increase materiality levels.
Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
a) An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
c) Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence
b) The fair presentation of audited financial statements in accordance with an applicable financial reporting is an implicit part of the auditor's responsibilities.
d) The auditor's report should provide an assurance as to the future viability of the entity.
In determining the quantity and quality of evidence to gather, the auditor will be satisfied when the evidence is
a) irrefutable.
b) conclusive.
c) highly persuasive.
d) sufficiently convincing.
Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the following factors, except
a) The use of selective testing.
b) The fact that much of the evidence available to the practitioner is persuasive rather than conclusive.
c) The practitioner may not have the required assurance knowledge and skills to gather and evaluate evidence
d) The use of judgement in gathering and evaluating evidence and forming conclusions based on that evidence.
Which description best illustrates sampling risk?
a) Applying audit procedures which are inappropriate for the audit objectives.
b) Failing to recognize errors or deviations in the documents examined.
c) Arriving at incorrect statistical conclusions because of computational errors
d) Choosing a sample that does not represent the population.
Which of the following forms may the subject matter of an assurance engagement take?
1. Financial performance or conditions
II. Non-financial performance or conditions
III. Physical characteristics
IV. Systems and processes
V. Behavior
a) I and II
b) I, II, and III
c) I, III, and IV
d) I, II, III, IV, and V
When a subsequent event provides evidence about conditions that did not exist at the balance sheet date, what is the best course of action for the auditor to follow?
a) Ensure that any necessary footnote disclosures be included in the financial statements.
b) Ensure that the financial statements are adjusted to reflect the information, including any necessary footnote disclosures.
c) Give an inappropriate opinion.
d) Provide management with a new engagement letter to document the terms of the revised arrangement.
When the entity fails to include information either in the face of the financial statements or in the related footnotes that is necessary for the fair presentation of financial statements, it is the responsibility of the auditor to present the nature and impact of the faulty accounting or misstatement in the auditor's report and express a(n)
a) qualified opinion or a disclaimer of opinion.
b) qualified opinion or an adverse opinion.
c) adverse opinion or a disclaimer of opinion.
d) qualified opinion or an unqualified opinion.
Which of the following would allow the auditor to limit the exposure to sampling risk?
I. Determining an appropriate sample size
II. Performing an appropriate audit procedure
a) I only
b) II only
c) Both I and II
d) Neither I nor II
An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should
a) engage financial experts familiar with the nature of the business entity.
b) obtain a knowledge of matters that relates to the nature of the entity's business.
c) refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d) first inform management that an unqualified opinion cannot be issued.
When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called
.
a) block selection.
b) haphazard selection.
c) systematic selection
d) statistical selection.
Which of the following is not one of the three primary objectives of effective internal control?
a) Reliability of financial reporting
b) Efficiency and effectiveness of operations
c) Compliance with laws and regulations
d) Assurance of elimination of business risk
Which of the following statements conceming the relevance of various types of controls toa financial statement audit is correct?
a) All controls are ordinarily relevant to a financial statement audit.
b) Controls over safeguarding of assets and liabilities are of primary importance, while controls over the reliability of financial reporting may also be relevant.
c) Controls over the reliability of financial reporting are ordinarily most directly relevant to a financial statement audit, but other controls may also be relevant.
d) An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is taken.
An auditor should consider two key issues when obtaining an understanding of a client's internal controls. These issues are
a) The effectiveness and efficiency of the controls.
b) The frequency and effectiveness of the controls.
c) The design and implementation of the controls.
d) The implementation and efficiency of the controls.
An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believes
a) Controls are unlikely to pertain to the assertions.
b) The entity's control components are interrelated.
c) Sufficient appropriate audit evidence to support the assertions is likely to be available.
d)More emphasis on tests of controls than substantive tests is warranted.
When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs
a) Tests of controls and extensive tests of property and equipment balances at the end of the year.
b) Analytical procedures for current year property and equipment transactions.
c) Tests of controls and limited tests of current year property and equipment transactions.
d) Analytical procedures for property and equipment balances at the end of the year.
Which of the following statements concerning evidential matter is true?
a) Appropriate evidence supporting management's assertions should be convincing rather than merely persuasive, pesubsint rather than conclusire
b ) Effective internal control contributes little to the reliability of the evidence created within the entity.
c) The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained.
d) A client's accounting records cannot be considered sufficient evidence to support the financial statements.
Which of the following is a general principle relating to the reliability of audit evidence?
a)X Audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor.
b) Audit evidence provided by copies is more reliable than that provided by facsimiles.
c) Audit evidence obtained from knowledgeable independent sources outside the client company is more reliable than audit evidence obtained from non-independent sources.
d) Audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls
Which of the following best describes the purpose of control activities?
a) The actions, policies, and procedures that reflect the overall attitudes of management.
b) The identification and analysis of risks relevant to the preparation of financial statements.
c) X Activities that deal with the ongoing assessment of the quality of internal control by management.
d) The policies and procedures that help ensure that necessary actions are taken in order to achieve the entity's objectives
The auditor's understanding of the entity's accounting and internal control systems is usually gained through po experience with the entity. In addition, the auditor may perform the following procedures, except
a) Inquiries of relevant management, supervisory, and other people at various organizational levels within the entity, as well as citations to paperwork, job descriptions, and flow charts.
b) Internal control processes must be reperformed.
c) Inspecting the accounting and internal control system's documents and records.
d) Observation of the entity's activities and operations, including computer operations organization menagement people, and transaction processing nature
Subsequent to the consideration of internal control, an auditor might decide to
a) Limit the scope of control testing in areas where internal control is strong.
b) In areas where internal control is strong, expand the scope of control and substantive tests.
c) In areas where internal control is lacking, expand the scope of substantive testing.
d) In areas where internal control is strong, reduce the scope of both substantive and control tests.
For good internal control, which of the following functions should not be assigned to the Company's accounting department?
a) Reconciling accounting records with existing assets.
b) Preparing financial reports.
c) Signing payroll checks.
d) Recording financial transactions.
Which of the following factors would most likely be considered as an inherent limitation to an entity's internal control?
a) The complexity of the information processing system.
b) Human judgement in the decision making process,
c) The ineffectiveness of the board of directors.
d) The lack of management incentives to improve the control environment
An auditor who uses the a work of an expert may refer to the expert in the auditor's report if the
a) Auditor believes that the expert's findings are reasonable in the circumstances.
b) Expert's findings support the related assertions in the financial statements.
c) Auditor modifies the report because of the difference between the client's and the expert's valuation of an asset.
d) Expert's findings provide the auditor with greater assurance of reliability about management's representations
When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called
a) Inquiry
b) Confirmation
c) Vouching
d) Physical examination
Narratives, flowcharts, and internal control questionnaires are three common methods of
a) Documenting the auditor's understanding of internal controls.
b) Designing the audit manual and procedures.
c) Documenting the auditor's understanding of a client's organizational structure.
d) Testing the internal controls
Which of the following steps should an auditor perform first to determine the existence of related parties?
a) Examine invoices, contracts, and purchase orders.
b) Request a list of related parties from management.
c) Review the company's business structure,
d) Review proxy and other materials filed with the SEC.
The auditor should obtain an understanding of the entity's objectives and strategies, and those business risks that may result in risks of material misstatement. Which of the following statements conceming the entity's business risk is Incorrect?
a) Business risk is broader than the risk of material misstatement of the financial statements, though it includes the latter.
b) An understanding of the business risks facing the entity increases the likelihood of identifying risks of material misstatement.
c) The auditor has a responsibility to identify or assess all business risks.
d) Business risk may arise from the development of new products or services that may fail.
The auditor should obtain an understanding of the entity's objectives and strategies, and those business risks that may result in risks of material misstatement. Which of the following statements conceming the entity's business risk is Incorrect?
a) Business risk is broader than the risk of material misstatement of the financial statements, though it includes the latter.
b) An understanding of the business risks facing the entity increases the likelihood of identifying risks of material misstatement.
c) The auditor has a responsibility to identify or assess all business risks.
d) Business risk may arise from the development of new products or services that may fail.
Which normally Involves a set of procedure to initially ascertain the implementation of controls through a completed transaction?
a)Study the design of internal controls
b) Walkthrough of processes and controls
c) Test of controls
d) Substantive testing.
To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace
a) Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.
b) Inventory tags noted during the auditor's observation to items listed in the inventory listing schedule.
c) Inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices.
d) Items listed in receiving reports and vendors' invoices to the inventory listing schedule
Select which of the following statements is false
a) There are two main type of file for audit working papers: the permanent audit file and the current audit file.
b) The date of the working papers and the name of the person preparing the file should be clearly stated on all documents.
c) The primary objective of audit working papers is to prove the work was done and complies with PSA requirements.
d) Working papers must only be prepared in electronic form to ensure confidentiality and security.
Which of the following most likely would give the most assurance concerning the valuation assertion of accounts
receivable?
a) Tracing amounts in the subsidiary ledger to details on shipping documents.
b) Comparing receivables turnover ratio to industry statistics for reasonableness.
c) Inquiring about receivables pledge under loan agreement.
d) Assessing the allowance for uncollectible accounts for reasonableness.
In testing the existence assertion for an asset, an auditor ordinarily works from the
a) Financial statements to potentially unrecorded items.
b) Potentially unrecorded items to the financial statements
c) Accounting records to supporting evidence.
d) Supporting evidence to accounting records
The information obtained by the auditor in arriving at the conclusions on which the audit opinion is based is called
a) Audit assertions
b) Audit evidence
c) Audit Standards
d) Audit Working papers
An example of external documents is
a) Bank statements.
b) Employee's time reports
c) Carbon copies of check vouchers
d) Purchase order for company purchases
Evidence is generally considered competent when
a) It has been obtained by random selection.
b) It has the qualities of being relevant, objective and free from known bias.
c) It consists of written statements made by managers of the enterprise under audit
d) There is enough of it to afford a reasonable basis for an opinion on financial statements.
Evidential matter is generally considered sufficient when
a) It is appropriate.
b) It has been obtained by random selection
c) It has the qualities of being relevant, objective and free from known bias.
d) There is enough of it to afford a reasonable basis for an opinion on financial statements
Whenever possible, most auditors prefer to replace test of details with analytical procedures because
a) The test of details are more expensive.
b) The analytical procedures are more reliable.
c) The analytical procedures are more persuasive.
d). The test of details are more difficult to interpret..
Of the following, which is the least persuasive type of audit evidence?
a) Documents mailed by outsiders to the auditor
b) Correspondence between auditor and vendors
c) Copies of sales invoices inspected by the auditor
d) Computations made by the auditor
Which of the following should an auditor do when control risk is assessed at the maximum level?
a) Perform fewer substantive tests of details.
b) Perform more tests of controls.
c) Document the assessment.
d) Document the internal control system more extensively.
The objective of the test of the operating effectiveness of controls is to determine if
a) Controls are functioning as designed.
b) Necessary controls are absent.
c) Incompatible functions exist.
d) Material peso errors exist.
The understanding obtained by the auditor regarding internal control and the final assessed level of control risk, is used primarily to determine the nature, timing, and extent of
a) Sampling procedures
b) Test of controls
c) Substantive procedures
d) Further audit procedures
Which of the following types of audit procedures according to purpose is not always required to be performed by an auditor?
a) Risk assessment procedures
b) Test of controls
c) Substantive procedures
d) All of the above are required procedures
Why is fixed asset typically considered to be one of the accounts least susceptible to fraud?
a) Internal control on this account is inherently effective.
b) The depreciated values are always smaller than cost.
c) For most companies, the recorded amounts of fixed asset are immaterial.
d) The inherent risk of fixed asset is usually low
Which of the following statements is correct regarding internal control?
a) A well-designed internal control environment ensures the achievement of an entity'
b) An inherent limitation to internal control is the fact that controls can be circumvented by management override.
c) A well-designed and operated internal control environment should detect collusion perpetrated by two people.
d)Internal control is a necessary business function and should be designed and operated to detect all errors and fraud.
During an audit engagement, pertinent data are compiled and included in the audit working papers. The working papers primarily are considered to be
a) A client-owned record of conclusions reached by the auditors who performed the engagement.
b) Evidence supporting financial statements.
c) Support for the auditor's representations as to compliance with relevant PSAs.
d) A record to be used as a basis for the following year's engagement.
The following individuals are considered as experts, except
a) An individual with expertise in applying methods of accounting for deferred income tax.
b) An expert in taxation law.
c) An individual with expertise in complex modeling for the purpose of valuing financial instruments.
d) An individual with expertise in the valuation of assets acquired and liabilities assumed in business combination
The preliminary judgement about materiality and the amount of audit evidence to be accumulated are .
related
a) Directly
b) Indirectly
c) Inversely
d) Not
The best way for an auditor to obtain evidence about segregation of duties is to
a) Observe personnel performing their duties
b) Reperform the task
c) Inspect documents and records to ensure an independent check has been performed
d) Discuss the performance of duties within the company with the internal auditor
When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be performing
a) Tracing
b) Vouching
c) Walk-through
d) Controls testing
