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Total questions: 100
Worksheet time: 50mins
What is the primary objective of an audit of financial statements?
To detect errors and fraud in the financial statements
To comply with legal requirements
To provide an independent opinion on whether the financial statements give a true and fair view
To reduce management’s responsibility for the financial statements
An audit that evaluates the efficiency and effectiveness of an organization’s operations, procedures, and methods is classified as:
Operational audit
Compliance audit
Financial statement audit
All of the above
Which of the following statements about auditing standards is incorrect?
Auditing standards are guidelines for auditors in conducting an audit
Auditing standards are preconditions for audit firms to sign contracts with clients
Auditing standards provide regulations and guidance for performing audits, and address issues that arise during the audit process
None of the above
John Smith, an auditor at XYZ Audit Firm, assisted ABC Corporation in preparing its financial statements, including developing new accounting policies and posting journal entries. He was later engaged to audit those same financial statements. Which ethical threat does this situation present?
Self-interest
Self-review
Familiarity
Intimidation
In which phase of the audit process does the auditor develop the overall audit strategy and detailed audit plan?
Planning and design
Performing audit procedures
Completion and reporting
None of the above
Auditor Ngoc is responsible for the audit of Cuong Thinh Joint Stock Company. Her friend Hang, who is researching corporate finance, asks Ngoc to share information about Cuong Thinh, promising to keep it confidential. If Ngoc provides the information, which ethical principle would she violate?
Integrity
Objectivity
Confidentiality
Professional competence and due care
During the audit of ABC Company, management intentionally overstated ending inventory to improve reported profits. The auditor failed to detect the misstatement and issued an unmodified opinion. After the misstatement was discovered by regulators, both management and the auditor denied responsibility, each blaming the other. According to auditing standards, how should responsibility be assigned in this case?
The auditor and management are equally responsible for the misstatement
Management is responsible for the misstatement in the financial statements, and the auditor is responsible for issuing an inappropriate opinion
The auditor is solely responsible because the misstatement was not detected
Management is responsible for the misstatement only, as the auditor’s responsibility ends with conducting procedures
In the COSO 2013, internal control is defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide ____ ____ regarding the achievement of objectives relating to operations, reporting, and compliance.
good results
reasonable assurance
better solutions
strong assertions
Which type of control activity is illustrated by the example: “The company establishes criteria for selecting suppliers and requires management approval before any supplier is engaged”?
Authorization
Physical controls
Segregation of duties
Performance reviews
“Each month, the internal audit department prepares a plan to review operations of various departments as requested by management, and reports findings to management and the Supervisory Board.” This relates to which component of internal control?
Control environment
Risk assessment
Information and communication
Monitoring of controls
Which of the following statements about internal control is true?
Management, through its activities, provides clear signals to employees about the importance of internal control
Internal control is only affected by management
An effective internal control system provides absolute assurance in achieving objectives
Internal control is designed, implemented, and maintained by management alone
Which of the following audit procedures is most appropriate to perform tests of control in the sales–receivables–cash collection cycle?
Recalculation
Inspection of documents
External confirmation
Physical inventory count
Purchase invoices are matched with purchase orders and goods received notes before payment. What is the main purpose of this control activity?
To ensure goods are received in good condition
To detect duplicate supplier invoices
To prevent payment for unauthorized or unreceived goods
To verify that suppliers deliver on time
What is referred to as the risk that auditors can only assess but not control?
Audit risk
Control risk
Detection risk
All of the above
Which of the following statements about risk assessment is false?
Understanding the business risks facing the entity increases the likelihood of identifying risks of material misstatement
The auditor has a responsibility to identify or assess all business risks
The auditor is concerned with fraud that causes a material misstatement in the financial statements
All of the above
The auditee was unable to detect employee fraud promptly because of inadequate segregation of duties. According to the audit risk model, which type of risk does this represent?
Inherent risk
Control risk
Detection risk
Audit risk
When evaluating whether a misstatement is material, which of the following is always true?
A misstatement greater than VND 100 million is material
The assessment of materiality depends on the auditor’s professional judgment
A misstatement greater than 5% of total assets is material
Misstatements related to revenue are always material because they affect profit
Which of the following is not a reason for the auditor to perform risk assessment?
To identify and assess the risk of material misstatement, whether due to fraud or error, at the financial statement and assertion levels
To implement measures to prevent risks at the auditee
To design and perform appropriate audit procedures
To develop an effective audit plan and audit program
Based on evidence gathered, an auditor decides to increase the assessed level of control risk from that originally planned. To maintain the same overall audit risk level, the auditor should:
Decrease tests of details
Increase tests of details
Decrease tests of control
Increase tests of control
All transactions and events that should have been recorded have been recorded. Which assertion does this describe?
Occurrence
Completeness
Rights and Obligations
Accuracy, Valuation and Allocation
Which statement about assertions is true?
Assertions are used by the auditor to consider the different types of potential misstatements that may occur when identifying, assessing and responding to the risks of material misstatement
Assertions about classes of transactions and events for the period and assertions about account balances at the period end are the same
Completeness assertion is primarily a concern for overstated accounts like revenues and assets
Both b and c are true
Which audit procedure should the auditor perform to obtain evidence that administrative expenses are recorded in the correct accounting period?
Examine administrative expense transactions occurring a few days before and after year-end, focusing on proper cut-off
Send confirmation letters to vendors related to administrative expenses
Calculate the ratio of administrative expenses to total expenses over several years
Inquire of management about administrative expenses
Which of the following audit evidence is the most reliable?
Customer confirmation letter regarding accounts receivable balances
Sales invoice
Bank statements provided by the auditee
Discussions with accounts receivable accountant
During the audit of XYZ Company, the auditor needs to assess whether the allowance for doubtful accounts and inventory balances are reasonable. Which analytical procedure would help the auditor perform this assessment?
Reconciling accounts receivable balances with the subsidiary ledger
Preparing an aging schedule of receivables to support the allowance for doubtful accounts
Calculating inventory turnover and comparing it to prior years
Vouching increases and decreases in account balances to supporting documents
During the audit at company ABC for the financial year 31/12/20X1, the audit procedure of sending a confirmation letter for accounts payable to the vendor shows that the amount owed to company X on ABC's books is lower than the confirmed amount of 644,000,000 VND. After reconciliation, the cause is identified as follows: The amount of 644,000,000 VND that company ABC transferred via bank transfer to company X on January 2/20X2. What should the auditor do in this situation?
Accept the account payable balance that was recorded by company ABC
Request an adjustment of increasing in accounts payable to company X by 644,000,000 VND
Recalculate the amount of the account payable to company X
Send confirmation letters again to company X
Which of the following completion procedures must auditors perform before forming an audit opinion?
Reviewing contingent liabilities
Evaluating going concern status
Reviewing subsequent events
All of the above
Fill in the blank in this statement: ____ is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.
Contingent liabilities
Going concern status
Subsequent events
Material misstatements
What type of audit opinion is expressed by the auditor when they conclude that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework?
Unmodified opinion
Unmodified opinion with an Emphasis of Matter paragraph
Unmodified opinion with an Other Matter paragraph
Modified opinion
In the auditor’s report prepared under VSA 700, the following excerpt appears: “Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.” This excerpt belongs to which section of the audit report?
Auditor’s Responsibilities
Introduction
Management’s Responsibilities
Audit Opinion
In which part of the audit report does the auditor explicitly state whether the financial statements give a true and fair view in accordance with the applicable financial reporting framework?
Basis for Opinion
Management’s Responsibilities
Auditor’s Responsibilities
Auditor’s Opinion
“Except for the effects of matter X described in the Basis for Qualified Opinion section, the financial statements present fairly, in all material respects, in accordance with the applicable financial reporting framework.” Which type of audit opinion does this statement represent?
Qualified opinion
Unmodified opinion
Disclaimer of opinion
Adverse opinion
In which case is an “Emphasis of Matter” paragraph included in the auditor’s report?
When the auditor wishes to draw users’ attention to a significant matter that has been appropriately disclosed in the financial statements
When the auditor identifies a material misstatement that management refuses to correct
When the auditor has doubts about the entity’s ability to continue as a going concern
When the auditor detects a serious violation that affects the financial statements
Which statement is correct about audit report?
Before issuing the audit report, the auditor needs to review the information attached to the financial statements
The auditor’s report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements
The auditor’s signature is either in the name of the audit firm, the personal name of the auditor or both, as appropriate for the particular jurisdiction
All of the above
The auditee is being sued by a supplier for breach of contract, with a compensation claim of up to VND 120,000 million. The entity has fully disclosed the lawsuit in the notes to the financial statements in accordance with accounting standards. The auditor agrees with the presentation but wishes to alert readers to this legal risk. Aside from this matter, the financial statements present fairly, in all material respects. Based on the above information, what type of audit opinion should the auditor issue in this situation?
Unmodified opinion
Unmodified opinion with an Emphasis of Matter paragraph
Unmodified opinion with an Other Matter paragraph
Disclaimer of opinion
During the audit of ABC Company, the auditor identified that certain expenses were misstated. The misstatement is material but not pervasive, and the rest of the financial statements are fairly presented. What type of audit opinion should the auditor issue?
Unmodified opinion
Qualified opinion
Disclaimer of opinion
Adverse opinion
Which of the following statements is incorrect about audit procedures the auditor can use to detect subsequent events?
Reviewing accounting records or transactions occurring between the date of the financial statements and the date of the auditor’s report
Inquiring of management and, where appropriate, those charged with governance
Disregarding events occurring after the financial statement date that do not affect income, as they are not relevant to the audit
Inspecting minutes, if any, of the meetings of the entity’s owners, management, and those charged with governance that have been held after the date of the financial statements
Right before the completion of the audit, but before the issuance of the audit report, the auditee experienced a fire that damaged inventory and affected its financial position. How should the auditor respond to this subsequent event when auditing the entity’s financial statements?
Ignore the fire because it occurred after the reporting period
Request the auditee to disclose the event in the financial statements, as it is a material subsequent event
Adjust all inventory balances for the year ended before the fire, regardless of the extent of damage
Postpone issuing the audit report until the full impact of the fire is known
During the audit of DEF Company for the year ended 31 December 20X1, the auditor noted that on 20 January 20X2, before the auditor’s report date, the government enacted a new tax law that significantly increased corporate tax rates. Management is unsure how to reflect this event in the financial statements. What should the auditor require management to do?
Adjust the financial statements as of 31 December 20X1
Disclose the event in the notes to the financial statements
Take no action because the law was enacted after year-end
Recognize a provision for additional tax liabilities as of 31 December 20X1
Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. Which type of audit opinion should the audit issue in this situation?
Unmodified opinion
Qualified opinion or adverse opinion
Qualified opinion or disclaimer of opinion
None of the above
Because the audit contract was signed after December 31, the end of the financial year, the auditor could not attend the inventory stocktake at the audit client. The auditor also cannot perform alternative audit procedures. The auditor concludes that misstatements, individually or in the aggregate, due to this issue are material and pervasive to the financial statements. Which type of audit opinion should the audit issue in this situation?
Unmodified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
An audit that aims to provide an opinion on the truthfulness and fairness of financial statements is classified as:
Operational audit
Compliance audit
Financial statement audit
All of the above
Which of the following is an example of a compliance audit?
Evaluate whether the computerized payroll processing for a Chinese subsidiary is operating efficiently and effectively
Determine whether bank requirements for loan continuation have been met
Annual audit of Vinamilk’s financial statements
All of the above
Which of the following statements about auditing standards is correct?
Auditing standards are general practice guidelines for accountants
Auditing standards are preconditions for audit firms to sign audit contracts with clients
Auditing standards are regulations and guidelines for conducting audits, as well as address the relationships and issues that arise during the audit process
None of the above
After reviewing the audit files, the audit manager discovers that the finance director of the audited firm and the audit partner have known each other for many years and frequently spent time together with their families. Which ethical threat does this situation present?
Self interest
Self review
Familiarity
Intimidation
In which phase of the audit process are the level of materiality and risk assessment determined?
Planning and design
Performing audit tests
Completing and reporting
None of the above
The auditor receives a gift of a Mez112 car, a new product from the client, while conducting the audit of the client’s financial statements. Which professional ethic does this situation violate?
Independence
Confidentiality
Professional behavior
Professional competence and due care
Which of the following statements about auditing is true?
The primary purpose of auditing in the economy is to facilitate businesses in raising capital from investors
If a business is small and its operations are simple, it does not need to create an audit plan
A business engages an independent audit firm to audit its financial statements to mitigate the manager’s responsibility for those statements
Auditing should be done by a competent, independent person
Filling the blank in the definition of internal control: Internal control is defined in the 2013 COSO Framework as a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of ________ relating to operations, reporting, and compliance.
Results
Purposes
Objectives
Assertions
“Do not assign any individual or department within the entity to undertake all functions related to fixed assets, including asset custody, recording, approval of purchases, disposal, and asset sales”. Which component of internal control does this requirement relate to?
Control environment
Risk assessment
Control activities
Information and communication
Which of the following is an inherent limitation of internal control?
The potential for human error
Collusion between employees
The possibility of controls being bypassed or overridden by management
All of the above
Which of the following statements about internal control is false?
Management, through its activities, provides clear signals to employees about the importance of internal control
Internal control is only affected by the management of the entity
An effective internal control system can only provide a reasonable assurance in achieving an organization's objectives
Internal control is designed, implemented and maintained by those charged with governance, management and other personnel
To understand internal control of the sales–receivable–cash collection cycle, which audit procedures can auditors apply?
Observation
Inquiry
Documents and inspection
All of the above
Which methods can auditors apply to document their understanding of internal control of the sales–receivable–cash collection cycle?
Narrative notes
Questionnaires
Flowcharts
All of the above
What is referred to as the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated?
Business risk
Fraud risk
Audit risk
Detection risk
Which of the statements about risk assessment is false?
An understanding of the business risks facing the entity increases the likelihood of identifying risks of material misstatement
The auditor has a responsibility to identify or assess all business risks
The auditor is concerned with fraud that causes a material misstatement in the financial statements
All of the above
Which of the following factors does not affect control risk?
Weakness of control environment
Ineffectiveness of control activities
Lack of tests of controls
Lack of monitoring
The company failed to detect timely fraud by sales employees who inflated revenue to receive higher commissions. Which type of risk is associated with this situation?
Inherent risk
Control risk
Detection risk
Audit risk
Based on 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 could:
Decrease detection risk
Increase materiality levels
Decrease substantive testing
Increase inherent risk
A client decides not to record an auditor’s proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?
The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.
The financial statements do not conform with accounting standards.
The financial statements contain unadjusted misstatements that should result in a qualified opinion.
The financial statements are free from material misstatement, but disclosure of the proposed adjustment is required in the notes to the financial statements
Which assertion requires that all assets, liabilities and equity interests that should have been recorded are actually recorded?
Existence
Right & Obligations
Completeness
Valuation and allocation
Which statement about assertions is true?
Assertions are used by the auditor to consider the different types of potential misstatements that may occur when identifying, assessing and responding to the risks of material misstatement
Assertions about classes of transactions and events for the period and assertions about account balances at the period end are the same
Completeness assertion is primarily a concern for overstated accounts like revenues and assets
The existence assertion only applies to physical assets, such as inventory or property, plant, and equipment
The auditor selects a sample of transactions from the accounts receivable ledger before and after the year-end and vouches them to related original documents. This audit procedure is carried out to collect evidence to satisfy the assertion of:
Occurrence
Completeness
Accuracy
Cut-off
Evidence is considered “sufficient” when:
It meets the audit objectives
It provides a reasonable basis for forming an opinion on the financial statements.
It is relevant and reliable
It is collected randomly
During the audit at company ABC for the year end 31/12/N, the audit procedure of sending a confirmation letter for accounts payable to the vendor shows that the amount owed to company X on ABC’s books is lower than the confirmed amount of 644,000,000 VND. After reconciliation, the cause is identified as follows: The amount of 644,000,000 VND that company ABC paid via bank transfer to company X on December 28/N was recorded by company X on January 2/N+1. What should the auditor do in this situation?
Accept the account payable balance that was recorded by company ABC
Request an adjustment of increasing in accounts payable to company X by 644,000,000 VND
Recalculate the amount of the account payable to Company X
Send confirmation letters again to company X
To achieve the audit objective regarding the existence of cash balances, which of the following substantive tests may auditors perform?
Select cash receipt documents within the period and check the cash receipts journal to determine if transactions are correctly recorded in the accounting period
Select cash receipt transactions in the cash receipts journal within the period to determine if there are sufficient valid original documents
Witness the physical cash count
Select cash disbursement documents within the period and check if the documents are properly approved
Which of the following completion procedures must auditors perform before forming an audit opinion?
Reviewing contingent liabilities
Evaluating going concern status
Reviewing subsequent events
All of the above
Filling the blank in this statement: ______ are events that occur between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.
Contingent liabilities
Going concern status
Subsequent events
Material misstatements
What type of audit opinion is expressed by the auditor when they conclude that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework?
Unmodified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with VSAs/ISAs?
A title that emphasizes the report is from an independent auditor
A statement explaining management’s responsibilities for the financial statements
The signature of the auditor’s firm
The list of team members of the audit
In what circumstances does an auditor express a qualified opinion?
The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements.
The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
Both a and b
Neither a nor b
Where in the audit report should the auditor express the scope limitation for a qualified opinion due to the insufficiency of audit evidence?
Auditor’s responsibility paragraph
Opinion paragraph
Notes to the financial statement
Introduction paragraph
The auditor could not witness the cash count but performed alternative procedures and obtained sufficient appropriate evidence. All other items are free from material misstatement. Which audit opinion should the auditor express?
Unmodified opinion.
Unmodified opinion with an “other matter” paragraph.
Unmodified opinion with an “emphasis of matter” paragraph.
Disclaimer of opinion.
Which statement is incorrect about audit report?
Before issuing the audit report, the auditor needs to review the information attached to the financial statements
The auditor’s report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements
The "emphasis of matter" paragraph is only used for audit reports with an unmodified opinion
The auditor’s signature is either in the name of the audit firm, the personal name of the auditor or both, as appropriate for the particular jurisdiction
If the auditor is unable to obtain sufficient appropriate audit evidence and the potential effects of undetected misstatements (if any) could be material and pervasive to the financial statements, which audit opinion should the auditor express?
Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Which of the following statements about Emphasis of Matter paragraph is true?
A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance paragraph that it is fundamental to users’ understanding of the financial statements
A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report
Both a and b are incorrect
Both a and b are correct
Which of the following statements is incorrect about audit procedures the auditor can use to detect subsequent events?
Reviewing accounting records or transactions occurring between the date of the financial statements and the date of the auditor’s report
Inquiring of management and, where appropriate, those charged with governance
Disregarding events occurring after the financial statement date that do not affect income, as they are not relevant to the audit
Inspecting minutes, if any, of the meetings of the entity’s owners, management, and those charged with governance that have been held after the date of the financial statements
Which of the following statements is correct?
When considering the impact of errors on the financial statements, the auditor only needs to consider detected errors and does not need to focus on estimated or predicted errors, as there is no specific evidence for those errors
When considering the impact of errors on the financial statements, the auditor must consider both detected errors and estimated or predicted errors
When considering the impact of errors on the financial statements, the auditor must consider all errors, and if adjustments are needed, the auditor may request the entity to adjust both detected errors and estimated or predicted errors
All of the above are correct
Due to the audit contract being signed after December 31, the auditor could not attend the fixed asset count at the audit client and also could not perform alternative audit procedures. The auditor concludes that misstatements, individually or in the aggregate, are material but not pervasive to the financial statements. Which type of audit opinion should be issued in this situation?
Unmodified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. Which type of audit opinion should be issued in this situation?
Unmodified opinion
Qualified opinion or adverse opinion
Qualified opinion or disclaimer of opinion
None of the above
A number of frozen yogurt stores have opened in the last few years and your client, YogurtLand, has experienced a noticeable decline in customer traffic over the past 13 months that has caused you to have substantial doubt about YogurtLand’s ability to continue as a going concern. Assuming there are no other material misstatements in the financial statements, which type of audit opinion should be issued in this situation?
Unmodified opinion
Unmodified opinion with an Emphasis of matter paragraph
Unmodified opinion with an Other matter paragraph
Adverse opinion
John Smith, an auditor at XYZ Audit Firm, assisted ABC Corporation in preparing its financial statements, including developing new accounting policies and posting journal entries. He was later engaged to audit those same financial statements. Which ethical threat does this situation present?
Self-interest
Self-review
Familiarity
Intimidation
Which of the following situations would prohibit an audit firm from performing an audit for an entity?
The audit firm performed bookkeeping services for the entity in the immediately preceding year
The entity is a private company
The audit firm has audited the entity for three consecutive years
All of the above are incorrect
An auditor does not attend regular professional training courses or seminars to update their knowledge and skills as required by professional regulations. This behavior may result in outdated knowledge and negatively affect the quality of audit work. Which ethical principle has the auditor violated?
Violation of the principle of independence due to a lack of objectivity in judgment
Violation of the principle of integrity due to dishonesty in professional conduct
Violation of the principle of professional competence and due care due to failure to maintain and update professional knowledge
Violation of the principle of professional behavior due to damaging personal and organizational reputation
During a training session, an audit senior asks new staff to recall the primary purpose of internal control as defined in auditing standards. Internal control is designed primarily to:
Eliminate all risks faced by an entity
Guarantee the accuracy of financial statements
Provide reasonable assurance regarding the achievement of objectives
Replace the need for external audit
“Each month, the internal audit department prepares a plan to review operations of various departments as requested by management, and reports findings to management and the Supervisory Board.” This relates to which component of internal control?
Control environment
Risk assessment
Information and communication
Monitoring of controls
While planning the audit, the engagement team discusses risks that exist before considering internal controls. Inherent risk is best described as the risk of:
Auditor issuing an inappropriate opinion
Internal controls failing to detect misstatements
Material misstatement before considering related controls
Management override of controls only
An auditor evaluates whether the client’s controls can prevent or detect material misstatements. Control risk refers to the risk that:
Financial statements contain fraud
Auditors fail to detect misstatements
Internal controls fail to prevent or detect material misstatements
Business objectives are not achieved
Which of the following audit procedures is most appropriate to perform tests of control in the sales–receivables–cash collection cycle?
Recalculation
Inspection of documents
External confirmation
Physical inventory count
In Company E, one employee is responsible for authorizing transactions, recording them, and maintaining custody of related assets. This situation primarily increases which type of audit risk?
Inherent risk
Control risk
Detection risk
Business risk
Which of the following statements about risk assessment is false?
Understanding the business risks facing the entity increases the likelihood of identifying risks of material misstatement
The auditor has a responsibility to identify or assess all business risks
The auditor is concerned with fraud that causes a material misstatement in the financial statements
All of the above
After evaluating internal controls, the auditor concludes that control risk is high. How should the auditor most appropriately respond?
Reduce substantive audit procedures
Increase reliance on internal controls
Increase the extent of substantive procedures
Issue a qualified opinion immediately
An audit team evaluates different sources of evidence obtained during the audit. Which type of audit evidence is generally considered the most reliable?
Oral explanations provided by management
Internally generated documents without controls
Evidence obtained directly by the auditor (e.g., observation, recalculation)
Copies of documents provided by the client
While planning the audit, the auditor performs ratio and trend analysis on financial information. Analytical procedures primarily involve:
Physical inspection of assets
Inquiry of management only
Evaluation of financial information through analysis of relationships and trends
Confirmation with external parties
An auditor debates whether the evidence obtained is adequate to support the audit opinion. The concept of sufficiency of audit evidence relates to:
The quantity of evidence obtained
The relevance of evidence to assertions
The quality and reliability of evidence
The timing of audit procedures
Inventory represents a significant portion of total assets. The auditor needs to verify whether inventory recorded in the financial statements actually exists. Which audit procedure provides the most appropriate evidence regarding the existence of inventory?
Reviewing purchase invoices
Performing analytical procedures
Observing the physical inventory count
Inquiry of warehouse personnel
The auditor evaluates whether inventory is stated at the lower of cost and net realizable value. This audit work is most directly related to which assertion?
Existence
Valuation and allocation
Rights and obligations
Completeness
The auditor reviews the notes to the financial statements to assess whether information is properly classified and understandable. This work primarily relates to which assertion?
Occurrence
Presentation and disclosure
Cut-off
Accuracy
The auditor suspects that management may have delayed recording certain supplier invoices until after year-end. Which audit procedure is most appropriate to test the completeness of liabilities?
Confirming accounts receivable with customers
Observing the year-end inventory count
Inspecting subsequent cash disbursements after year-end
Reviewing depreciation schedules
During an internal discussion, an audit senior asks a junior auditor to recall the definition of a disclaimer of opinion. A disclaimer of opinion is most appropriately issued when the auditor:
Identifies material misstatements that are pervasive
Lacks independence
Is unable to obtain sufficient appropriate audit evidence
Disagrees with management’s estimates
An auditor reviews a prior-year audit report containing an Emphasis of Matter paragraph. The primary purpose of an Emphasis of Matter paragraph is to:
Modify the audit opinion
Highlight matters already disclosed that are fundamental to users’ understanding
Correct material misstatements
Replace note disclosures
