Advanced Auditing Exam Practice Tests
Course Introduction
Advanced Auditing delves into the complex concepts and methodologies utilized in modern auditing practices, building on foundational knowledge to address contemporary challenges faced by auditors. The course examines advanced audit planning, risk assessment, and the application of audit evidence, with a particular focus on regulatory frameworks, ethical considerations, and emerging technologies in the auditing profession. Students will engage with topics such as forensic auditing, audit automation, fraud detection, group audits, auditing in a digital environment, and quality assurance. Through case studies and practical applications, the course prepares students to handle intricate auditing engagements and to critically analyze audit reports, opinions, and findings in various organizational contexts.
Recommended Textbook
Principles of Auditing Other Assurance Services 21st Edition by Ray Whittington
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Page 2
Chapter 1: The Role of the Public Accountant in the American Economy
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Sample Questions
Q1) The review of a company's financial statements by a CPA firm:
A)Is substantially less in scope of procedures than an audit.
B)Requires detailed analysis of the major accounts.
C)Is of similar scope as an audit and adds similar credibility to the statements.
D)Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements.
Answer: A
Q2) An operational audit differs in many ways from an audit of financial statements.Which of the following is the best example of one of these differences?
A)The usual audit of financial statements covers the four basic statements,whereas the operational audit is usually limited to either the balance sheet or the income statement.
B)Operational audits are more subjective and often involve evaluating efficiency and effectiveness of operations.
C)Operational audits do not ordinarily result in the preparation of a report.
D)The operational audit deals with pre-tax income.
Answer: B
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Chapter 2: Professional Standards
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Sample Questions
Q1) The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the:
A)Management fails to take appropriate corrective action.
B)Illegal act has material financial statement implications.
C)Illegal act has received widespread publicity.
D)Auditors cannot reasonably estimate the effect of the illegal act on the financial statements.
Answer: A
Q2) Which of the following is most likely to be included in a public company financial statement audit report?
A)Adverse opinion.
B)The name of the engagement partner.
C)The audit was performed in accordance with generally accepted auditing standards.
D)The year the auditor began serving the company.
Answer: D
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Chapter 3: Professional Ethics
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Sample Questions
Q1) The American Institute of Certified Public Accountants has been the primary source for ethical rules for internal auditors.
A)True
B)False
Answer: False
Q2) Statements on Accounting and Review Services are enforceable under the AICPA Code of Professional Conduct.
A)True
B)False
Answer: True
Q3) Which of the following family relationships is most likely to impair a CPA's independence with respect to a particular audit client on which the CPA works as a "covered member"?
A)A close relative has a material investment in that client of which the CPA is not aware.
B)A cousin has an immaterial investment in the client of which the CPA is aware.
C)The CPA's sister is controller of the audit client.
D)The CPA's spouse participates in a savings plan sponsored by the client.
Answer: C
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5
Chapter 4: Legal Liability of Cpas
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Sample Questions
Q1) Which of the following is a correct statement related to CPA legal liability under common law?
A)CPAs are normally liable to their clients,the shareholders,for either ordinary or gross negligence.
B)CPAs are liable for either ordinary or gross negligence to identified third parties for whose benefit the audit was performed.
C)CPAs may escape all personal liability through incorporation as a limited liability corporation.
D)CPAs are guilty until they prove that they performed the audit with "good faith."
Q2) The burden of proof that must be proven to recover losses from the auditors under the Securities Exchange Act of 1934 is generally considered to be:
A)Less than the Securities Act of 1933.
B)The same as the Securities Act of 1933.
C)Greater than the Securities Act of 1933.
D)Indeterminate in relation to the Securities Act of 1933.
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6
Chapter 5: Audit Evidence and Documentation
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Sample Questions
Q1) Auditors must obtain written client representations that typically should be signed by:
A)The president and the chairperson of the board.
B)The treasurer and the internal auditor.
C)The chief executive officer and the chief financial officer.
D)The corporate counsel and the audit committee chairperson.
Q2) Which of the following approaches to an audit is most likely to result in a detailed analysis of one or more characteristics of an entire population?
A)A horizontal analysis approach.
B)A test design approach.
C)A data analytical approach.
D)A ratio analysis approach.
Q3) The permanent file section of the working papers that is retained for each audit client most likely contains:
A)Review notes pertaining to questions and comments regarding the audit work performed.
B)A schedule of time spent on the engagement by each individual auditor.
C)Correspondence with the client's legal counsel concerning pending litigation.
D)Narrative descriptions of the client's accounting procedures and controls.
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Page 7
Chapter 6: Audit Planning, understanding the Client, assessing
Risks, and Responding
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Sample Questions
Q1) Which of the following would be <b>least</b> likely to be considered an audit planning procedure?
A)Use an engagement letter.
B)Develop the overall audit strategy.
C)Perform the risk assessment.
D)Develop the audit plan.
Q2) Which of the following is <b>not </b>used by auditors to establish the completeness of recorded assets?
A)Assessing control risk.
B)Tracing from source documents to entries in the accounting records.
C)Performing analytical procedures.
D)Vouching transactions.
Q3) Which of the following statements is always true when an auditor is planning a year-end audit?
A)An engagement should <b>not </b>be accepted after the fiscal year-end.
B)An inventory count must be observed at the balance sheet date.
C)The client's audit committee should not be told of any specific audit procedures which will be performed.
D)An audit plan should be developed that includes a time budget.
Page 8
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Chapter 7: Internal Control
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Sample Questions
Q1) Which of the following is correct with respect to control deficiencies discovered during an audit?
A)Auditors must communicate and recommend corrections relating to all material weaknesses in internal control to management.
B)All material weaknesses in internal control must be reported to the audit committee in writing.
C)All such matters must be communicated to the audit committee and regulatory agencies.
D)All control deficiencies are also significant deficiencies.
Q2) A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:
A)The entire year.
B)The prior quarter.
C)The "as-of date."
D)The end of each quarter.
Q3) Well-designed internal control can be circumvented by collusion.
A)True
B)False
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Chapter 8: Consideration of Internal Control in an Information Technology Environment
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Sample Questions
Q1) Which of the following statements presents an example of a general control for a computerized system?
A)Limiting entry of sales transactions to only valid credit customers.
B)Creating hash totals from Social Security numbers for the weekly payroll.
C)Restricting entry of accounts payable transactions to only authorized users.
D)Restricting access to the computer center by use of biometric devices.
Q2) Which of the following is <b>not</b> a data communication control?
A)Data encryption.
B)Parity check.
C)Message acknowledgment techniques.
D)Distributed data processing.
Q3) Substantive procedures that cannot be performed with generalized audit software include:
A)Performing certain analytical procedures,such as inventory turnover.
B)Observing inventory.
C)Recomputing depreciation.
D)Selecting audit samples.
Q4) Decentralized data processing eliminates the need for data security.
A)True B)False
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Chapter 9: Audit Sampling
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Sample Questions
Q1) Which of the following statements is correct concerning the use of nonstatistical sampling for substantive tests?
A)Its use is generally acceptable only for populations with an immaterial book value.
B)It requires the use of structured sample size selection techniques to be acceptable.
C)It may be especially useful in circumstances in which the combination of inherent and control risk is at the maximum level.
D)Results will be projected to the population.
Q2) What effect does increasing the risk of incorrect acceptance have on sample size?
A)Increases.
B)Decreases.
C)No effect.
D)Indeterminate.
Q3) Increases in the tolerable misstatement result in a decreased sample size when using mean-per-unit estimation.
A)True
B)False
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11
Chapter 10: Cash and Financial Investments
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Sample Questions
Q1) By preparing a four-column bank reconciliation ("proof of cash")at year-end,an auditor will generally <b>not</b> be able to detect:
A)An unrecorded deposit made at the bank at the end of the month.
B)A second payment of an account payable which had already been paid in full two months earlier.
C)An unrecorded check cashed during that month.
D)A bank charge during the month not recorded on the books.
Q2) The Parmalat fraud case involved:
A)A fraudulent cash confirmation.
B)Kiting of funds between banks in India and banks in Pakistan.
C)A bank reconciliation performed by the client that systematically understated cash.
D)Major unrecorded disbursements for equipment.
Q3) Lapping of accounts receivable by an employee is can occur when there is adequate segregation of duties with respect to cash disbursements.
A)True
B)False
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Chapter 11: Accounts Receivable, notes Receivable, and Revenue
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Sample Questions
Q1) Confirmation of individual accounts receivable balances directly with debtors will,of itself,normally provide evidence concerning the
A)Collectability of the balances confirmed.
B)Ownership of the balances confirmed.
C)Existence of the balances confirmed.
D)Internal control over balances confirmed.
Q2) When it is impossible to confirm accounts receivable,the auditors may be able to satisfy themselves as to the existence of accounts receivable by alternative procedures.
A)True
B)False
Q3) The individual looking for guidance on revenue recognition is most likely to appropriately review:
A)APB 99.
B)FASB ASC 606.
C)ASR 44.
D)B1 Document.
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13
Chapter 12: Inventories and Cost of Goods Sold
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Sample Questions
Q1) An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise.When vendors' invoices arrive,one of the employees approves the invoices for payment.After the invoices are paid,the employee destroys the invoices and the related vouchers.In gathering evidence regarding the fraud,the auditor most likely would select items for testing from the file of all:
A)Cash disbursements.
B)Approved vouchers.
C)Receiving reports.
D)Vendors' invoices.
Q2) Purchase cutoff procedures should be designed to test whether all inventory:
A)Owned by the company was recorded.
B)On the year-end balance sheet was carried at lower-of-cost-or-market.
C)On the year-end balance sheet was paid for by the company.
D)Owned by the company is in the possession of the company.
Q3) The use of a "blind" purchase order is designed to prevent errors by the:
A)Purchase department.
B)Receiving department.
C)Stores department.
D)Accounting department.
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Chapter 13: Property,plant,and Equipment: Depreciation and Depletion
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Sample Questions
Q1) The auditors' approach to the audit of property,plant,and equipment largely results from the fact that many transactions occur.
A)True
B)False
Q2) In violation of company policy,Miller Company erroneously capitalized the cost of painting its warehouse.The auditors examining Miller's financial statements would most likely detect this when:
A)Discussing capitalization policies with Miller's controller.
B)Examining maintenance expense accounts.
C)Observing,during the physical inventory observation,that the warehouse had been painted.
D)Examining the construction work orders supporting items capitalized during the year.
Q3) The auditors are <b>least</b> likely to learn of retirements of equipment through which of the following?
A)Review of the purchase returns and allowances account.
B)Review of depreciation.
C)Analysis of the debits to the accumulated depreciation account.
D)Review of insurance policy riders.
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Chapter 14: Accounts Payable and Other Liabilities
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Sample Questions
Q1) Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger.Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if:
A)There are usually invoices in an unmatched invoice file.
B)Vendors' requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed.
C)Partial payments to vendors are continuously made in the ordinary course of business.
D)It is difficult to reconcile vendors' monthly statements.
Q2) Confirmation of accounts payable is a required generally accepted auditing procedure.
A)True
B)False
Q3) Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?
A)Examining reported purchase returns that appear too low.
B)Examining vendor statements for amounts not reported as purchases.
C)Search for customer-returned goods that were not reported as returns.
D)Reviewing bank transfers recorded as cash received from customers.
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Page 16
Chapter 15: Debt and Equity Capital
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Sample Questions
Q1) For a large publicly traded client,the auditors' examination of capital stock accounts will not normally include:
A)Analysis of capital stock accounts.
B)Confirmation of shares issued with the independent registrar.
C)Accounting for the proceeds of major stock issues.
D)Reconciliation of a stock certificate book with the general ledger.
Q2) When an independent registrar and stock transfer agent is used,it is likely that the auditor will confirm the number of shares outstanding with those parties rather than the shareholders.
A)True
B)False
Q3) For a corporation that does not utilize the services of an independent registrar and stock transfer agent,which of the following represents a weakness in internal control over stock issuance?
A)Stock certificates are prenumbered.
B)Stock certificates are signed immediately upon receipt from the printer.
C)Stock certificates are in the exclusive custody of a responsible officer.
D)Stock certificates require the signature of two officers.
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Chapter 16: Auditing Operations and Completing the Audit
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Sample Questions
Q1) It would be appropriate for the payroll accounting department to be responsible for which of the following functions?
A)Approval of employee time records.
B)Maintenance of records of employment,discharges,and pay increases.
C)Preparation of periodic governmental reports as to employees' earnings and withholding taxes.
D)Distribution of paychecks to employees.
Q2) Hall accepted an engagement to audit the year 1 financial statements of XYZ Company.XYZ completed the preparation of the year 1 financial statements on February 13,year 2,and Hall began the audit work on February 17,year 2.Hall completed the audit work on March 24,year 2,and completed the report on March 28,year 2.The client's representation letter normally would be dated:
A)February 13,year 2.
B)February 17,year 2.
C)March 24,year 2.
D)March 28,year 2.
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18
Chapter 17: Auditors Reports
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Sample Questions
Q1) An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time.In evaluating the entity's plans for dealing with the adverse effects of future conditions and events,the auditor most likely would consider,as a mitigating factor,the entity's plans to:
A)Repurchase the entity's stock at a price below its book value.
B)Issue stock options to key executives.
C)Refinance debt to lower loan payments.
D)Accelerate the due date of an existing mortgage.
Q2) When evaluating the results of audit tests,materiality depends solely upon the dollar amount of the item.
A)True
B)False
Q3) Audit reports should be dated as the date on which sufficient appropriate audit evidence has been collected.
A)True
B)False
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Chapter 18: Integrated Audits of Public Companies
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Sample Questions
Q1) The framework most likely to be used by the client in its internal control assessment is the:
A)COSO internal control framework.
B)COSO enterprise risk management framework.
C)FASB 37 internal control definitional framework.
D)AICPA internal control analysis manager.
Q2) Which of the following is a weakness in internal control that allows a reasonable possibility that a significant (but less than material)misstatement may occur and not be detected?
A)Control deficiency.
B)Material weakness.
C)Reportable material item.
D)Significant deficiency.
Q3) According to PCAOB standards,determining the allowance for doubtful accounts is referred to as a(n):
A)Substantive transaction.
B)Routine transaction.
C)Nonroutine transaction.
D)Accounting estimate transaction.
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Page 20
Chapter 19: Additional Assurance Services: Historical Financial Information
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Sample Questions
Q1) An auditor's report would be designated as a report on financial statements following a special purpose financial reporting framework for financial statements when they are:
A)For an interim period and are subjected to a review.
B)Unaudited and are prepared from a client's accounting records.
C)Prepared in accordance with a regulatory basis of accounting other than generally accepted accounting principles.
D)Purported to be in accordance with generally accepted accounting principles but do not include a presentation of the statement of cash flows.
Q2) Each page of the financial statements compiled by an accountant may include a reference such as:
A)See accompanying accountant's notes.
B)Unaudited,see accountant's opinion.
C)See accountant's compilation report.
D)Subject to compilation restrictions.
Q3) Letters to underwriters should not contain negative assurances.
A)True
B)False
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Chapter 20: Additional Assurance Services: Other Information
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Sample Questions
Q1) Reviews of management's discussion and analysis for an annual or an interim period are not allowed by the AICPA.
A)True
B)False
Q2) Accepting an engagement to examine an entity's financial projections most likely would be appropriate if the projections were to be distributed to:
A)All employees who work for the entity.
B)Potential stockholders who request a prospectus or a registration statement.
C)A bank with which the entity is negotiating for a loan.
D)All stockholders of record as of the report date.
Q3) Trust Services are a part of the AICPA's vision that increases trust in annual historical financial statements.
A)True B)False
Q4) Assurance services improve the quality of information or its context for decision makers.
A)True
B)False
Page 22
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Chapter 21: Internal, operational, and Compliance Auditing
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Q1) Independence and Objectivity is one of the sections of attribute standards in the IIA's Standards of the Professional Practice of Internal Auditing.
A)True
B)False
Q2) In planning an operational audit,an on-site survey could assist with all of the following,except:
A)Obtaining auditee comments and suggestions on control problems.
B)Obtaining preliminary information on internal control.
C)Identifying areas for audit emphasis.
D)Evaluating the effectiveness of the internal control.
Q3) The primary purpose of the internal auditors' evaluation of internal control is to:
A)Determine if management has planned and implemented activities needed to attain goals and objectives.
B)Determine the extent of tests of controls needed during field work.
C)Identify areas for fraud investigation.
D)Determine if employees have incompatible duties that have compromised the control environment.
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