Advanced Auditing
Mock Exam
Course Introduction
Advanced Auditing delves into the complex concepts, methodologies, and practices necessary for conducting high-level financial, operational, and compliance audits. The course covers topics such as audit planning and risk assessment, the application of professional auditing standards, advanced sampling techniques, internal controls evaluation, fraud detection, ethical considerations, and the use of technology in auditing. Students will develop analytical and critical thinking skills required to address contemporary auditing issues, interpret audit evidence, and produce comprehensive audit reports. Case studies, practical examples, and emerging trends in the auditing profession will prepare students for real-world challenges and professional certification.
Recommended Textbook
Auditing and Assurance Services Global 15th Edition by Alvin Arens
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26 Chapters
2742 Verified Questions
2742 Flashcards
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Chapter 1: The Assurance Services Market
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) What is a WebTrust engagement?
What is a SysTrust engagement?
How do they differ?
Answer: WebTrust is a service provided by a CPA where the CPA provides assurance that the Web Site owner has met established criteria related to business practices,transaction integrity,and information processes. SysTrust is a service provided by a CPA to evaluate and test a system reliability in areas such as security and data integrity.There are five principles that must be addressed on a SysTrust engagement: security,availability,processing integrity,online privacy,and confidentiality.
WebTrust is primarily designed to provide assurance to third party users of a Web site.SysTrust provides assurance to management,the board of directors or third parties about the reliability of information systems used to generate real-time information.
Q2) The criteria by which an auditor evaluates the information under audit may vary with the information being audited.
A)True
B)False Answer: True
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Page 3
Chapter 2: The Audit Standards Setting Process
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67 Flashcards
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Sample Questions
Q1) If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter,the auditor should generally seek guidance from which of the following sources?
A) Statements on Auditing Standards
B) Statements on Standards for Accounting and Review Services
C) Regulations issued by the Securities and Exchange Commission
D) The AICPA Code of Professional Conduct
Answer: A
Q2) An auditor need not abide by a particular auditing standard if the auditor believes that:
A) the issue in question is immaterial in amount.
B) more expertise is needed to fulfill the requirement.
C) the requirement of the standard has not been addressed by the PCAOB.
D) any of the above three are correct.
Answer: A
Q3) All CPA firms registered with the PCAOB are required to undergo a peer review annually.
A)True
B)False
Answer: False
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Chapter 3: Audit Reports
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) The term "explanatory paragraph" was replaced in the AICPA auditing standards with:
A) going concern paragraph.
B) emphasis-of-matter paragraph.
C) departure from principles paragraph.
D) consistency paragraph.
Answer: B
Q2) No reference is made in the auditor's report to other auditors who perform a portion of the audit when:
I.The other auditor audited an immaterial portion of the audit.
II.The other auditor is well known or closely supervised by the principle auditor.
III.The principle auditor has thoroughly reviewed the work of the other auditor.
A) I and II
B) I and III
C) II and III
D) I, II and III
Answer: D
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Chapter 4: Legal Liability Considerations for Auditors
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Sample Questions
Q1) "Absence of reasonable care that can be expected of a person in a set of circumstances" defines:
A) pecuniary negligence.
B) gross negligence.
C) extreme negligence.
D) ordinary negligence.
Q2) Define ordinary negligence,gross negligence,and constructive fraud.
Q3) The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the:
A) prudent person concept.
B) common law doctrine.
C) constructive care concept.
D) vigilant person concept.
Q4) Under the federal securities acts,one significant result occurring directly due to the Escott et al.v.Bar Chris Construction Corporation case was that SAS was changed to require:
A) greater emphasis on subsequent events procedures.
B) new standards for unaudited statements.
C) a broader definition of third party beneficiaries.
D) more companies to file annual reports with the SEC.
Page 6
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Chapter 5: Ethics and the Audit Profession
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Sample Questions
Q1) A rationalization method that can easily result in unethical behavior is the argument that "everybody does it."
A)True
B)False
Q2) Which of the following statements best describes the enforceability of the Interpretations of the Rules of Conduct?
A) The Interpretations are not enforceable.
B) The Interpretations are enforceable.
C) The Interpretations may be enforceable if they have been reviewed and approved by the AICPA's Division of Professional Ethics.
D) The Interpretations are not enforceable, but a practitioner must justify departure from them.
Q3) Briefly describe the advantages and disadvantages of a code of conduct based on general statements of ideal conduct as opposed to specific rules that define unacceptable behavior.
Q4) Information obtained by a CPA from a client is legally privileged in federal court.
A)True
B)False
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Chapter 6: Audit Responsibilities and Objectives
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Sample Questions
Q1) The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.
A)True
B)False
Q2) Under the cycle approach to segmenting an audit,transactions recorded in different journals should never be combined with the general ledger balances that result from those transactions.
A)True
B)False
Q3) Although auditors need to consider the interrelationships between cycles,they typically treat cycles independently to the extent practical to manage complex audits effectively.
A)True
B)False
Q4) The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities,including but not limited to,law enforcement and the Securities and Exchange Commission.
A)True
B)False
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Chapter 7: Nature and Type of Audit Evidence
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105 Flashcards
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Sample Questions
Q1) Which of the following is a correct statement regarding confirmations?
A) Confirmations can be in oral or written form.
B) Electronic confirmations are not acceptable under generally accepted auditing standards.
C) Confirmations are generally used in the audit of fixed asset additions.
D) Auditors consider alternative evidence available when determining if confirmations should be used.
Q2) Given the economic and time constraints in which auditors can collect evidence about management assertions about the financial statements,the auditor normally gathers evidence that is:
A) irrefutable.
B) conclusive.
C) persuasive.
D) completely convincing.
Q3) The two characteristics of the appropriateness of evidence are:
A) relevance and timeliness.
B) relevance and accuracy.
C) relevance and reliability.
D) reliability and accuracy.
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Page 9
Chapter 8: Audit Planning
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Sample Questions
Q1) When an auditor decides there is higher inherent risk for an account,one potential effect is that more audit evidence will be required for that account.
A)True
B)False
Q2) Which of the following statements is true regarding communications between predecessor and successor auditors?
A) The burden of initiating the communication rests with the predecessor.
B) The predecessor's response can be limited to stating that no information will be provided.
C) The predecessor should communicate with the successor only if the client is public.
D) The predecessor auditor of a public company does not need permission from the client before communicating with the successor auditor.
Q3) Management's philosophy and operating style influence the risk of material misstatements in the financial statements.
A)True
B)False
Q4) Discuss four of the matters that should be specified in an engagement letter.
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Chapter 9: Considering Materiality and Audit Risk
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Sample Questions
Q1) When dealing with audit risk:
A) auditors accept some level of risk in performing the audit function.
B) most risks that auditors encounter are relatively easy to measure.
C) the audit risk model is only used for classes of transactions.
D) most audit firms prefer to use a quantitative assessment for risk.
Q2) Which is a true statement about audit risk?
A) Audit risk measures the risk that a material misstatement could occur and not be detected by internal control.
B) When auditors decide on a higher acceptable audit risk, they want to be more certain that the financial statements are not materially misstated.
C) Audit assurance is the complement of acceptable audit risk.
D) There is an inverse relationship between acceptable audit risk and planned detection risk.
Q3) Inherent risk is ________ related to detection risk and ________ related to the amount of audit evidence.
A) directly, inversely
B) directly, directly
C) inversely, inversely
D) inversely, directly
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Page 11
Chapter 10: Considering Internal Control
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Sample Questions
Q1) External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA)department if the external auditors intend to rely on IA's work?
A) Integrity
B) Objectivity
C) Competence
D) All of the above
Q2) Proper segregation of functional responsibilities calls for separation of:
A) authorization, execution, and payment.
B) authorization, recording, and custody.
C) custody, execution, and reporting.
D) authorization, payment, and recording.
Q3) The chart of accounts is helpful in preventing classification errors if it accurately describes which type of transaction should be in each account.
A)True
B)False
Q4) Auditors of private companies may rely on prior periods' tests of controls.
A)True
B)False
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Chapter 11: Considering the Risk of Fraud
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Sample Questions
Q1) Which of the following is the best reason for management to emphasize fraud prevention and deterrence?
A) It is often more effective and economical for companies to focus on fraud prevention and deterrence rather than on fraud detection.
B) Collusion is impossible to detect.
C) The AICPA requires management to implement a fraud prevention program.
D) All of the above are equally valid reasons.
Q2) Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.
A) income smoothing
B) cookie jar reserves
C) cash
D) sales
Q3) Define fraud and distinguish between the two main categories of fraud.
Q4) Briefly discuss the brainstorming session required by current auditing standards.Be sure to include a list of ideas that should be addressed in the session.
Q5) Explain professional skepticism and the need for maintaining professional skepticism during an audit.
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Chapter 12: Implications of Information Technology for the Audit Process
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Sample Questions
Q1) Many clients have outsourced their IT functions.The difficulty the independent auditor faces when a computer service center is used is to:
A) gain the permission of the service center to review their work.
B) find compatible programs that will analyze the service center's programs.
C) determine the adequacy of the service center's internal controls.
D) try to abide by the Code of Professional Conduct to maintain the security and confidentiality of client's data.
Q2) The audit approach in which the auditor runs his or her own program on a controlled basis to verify the client's data recorded in a machine language is:
A) the test data approach.
B) called auditing around the computer.
C) the generalized audit software approach.
D) the microcomputer-aided auditing approach.
Q3) ________ is not a risk specific to the IT environments.
A) Reliance on the functioning capabilities of hardware and software
B) Increased human involvement
C) Loss of data due to insufficient backup
D) Unauthorized access
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Chapter 13: Developing the Overall Audit Plan and Audit Program
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Sample Questions
Q1) When controls are deemed ineffective and assessed control risk is at the maximum for a private company,which of the following would normally be true?
A) No emphasis is placed on the controls.
B) Relatively little emphasis is placed on the controls.
C) Moderate emphasis is placed on the controls.
D) Heavy emphasis is placed on the controls.
Q2) A system walkthrough is primarily used to help the auditor:
A) test the ending account balances.
B) test the details of transactions.
C) determine whether internal controls are in place.
D) determine whether the audit engagement should be accepted.
Q3) When designing tests of controls and substantive tests an auditor is gathering evidence to satisfy the transaction related audit objectives.What are the four steps the auditor would normally follow to reduce assessed control risk?
Q4) The results of tests of controls and substantive tests of transactions affect the design of tests of details of balances.
A)True
B)False
Page 15
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Chapter 14: Audit of the Sales and Collection Cycle: Tests of
Controls and Substantive Tests of Transactions
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?
A) Granting of credit
B) Shipment of goods
C) Determination of discounts
D) Selling of goods for cash
Q2) Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders,granting credit,shipping goods,billing customers,and recording sales.
A)True
B)False
Q3) When assessing planned control risk for sales,the auditor is concerned about proper authorization at three key points.Discuss each of these three points.
Q4) If a company uses a periodic inventory system,the shipping records are used to update the inventory quantities.
A)True
B)False
Page 16
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Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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119 Verified Questions
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Sample Questions
Q1) When the SER exceeds the TER,the auditor should decide whether to increase sample size or to revise assessed control risk on the basis of cost versus benefit.
A)True
B)False
Q2) In systematic sample selection,the population size is divided by the number of sample items desired in order to determine the:
A) sampling interval.
B) tolerable exception rate.
C) computed upper exceptions rate.
D) mean.
Q3) Which of the following is the risk that audit tests will not uncover existing exceptions in a sample?
A) Sampling risk
B) Nonsampling risk
C) Audit risk
D) Detection risk
Q4) One way to control sampling risk is to increase sample size.
A)True
B)False
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Chapter 16: Completing the Tests in the Sales and Collection
Cycle: Accounts Receivable
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101 Verified Questions
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Sample Questions
Q1) Blank confirmations are considered less reliable than standard positive confirmations.
A)True
B)False
Q2) For sales,the occurrence transaction-related audit objective affects which of the following balance-related audit objective?
A) Existence
B) Completeness
C) Rights
D) Detail tie-in
Q3) An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:
A) no reply to a positive confirmation request is received.
B) no reply to a negative confirmation request is received.
C) collectability of the receivables is in doubt.
D) pledging of the receivables is probable.
Q4) List three of the major factors affecting sample size for confirming accounts receivable.
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Q5) Describe how the auditor tests the accuracy objective for accounts receivable.
Chapter 17: Audit Sampling for Tests of Details of Balances
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Sample Questions
Q1) The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:
A) inverse.
B) direct.
C) proportional.
D) indeterminate.
Q2) An increased sample size will always cause the population to be accepted.
A)True
B)False
Q3) The client's trial balance has a balance of $410,000 for merchandise inventory.As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance.You compute a 95% confidence interval of $395,000 to $425,000.You could therefore:
A) reject the trial balance amount.
B) accept the trial balance amount.
C) increase the sample size to assure more precision.
D) use alternative audit procedures to satisfy yourself as to the correct balance.
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Chapter 18: Audit of the Acquisition and Payment Cycle:
Tests of Controls, Substantive Tests of Transactions, and Accounts Payable
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Sample Questions
Q1) The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of:
A) accuracy.
B) existence.
C) completeness.
D) posting and summarization.
Q2) In searching for unrecorded liabilities the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to:
A) uncover liabilities on the balance sheet which should not have been recorded until a subsequent period.
B) find the documentation relating to a cash disbursement.
C) uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.
D) uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.
Q3) The cash account is not part of the acquisitions and payment cycle.
A)True B)False
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Chapter 19: Completing the Tests in the Acquisition and Payment Cycle:
Verification of Selected Accounts
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Sample Questions
Q1) Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?
A) Compare depreciation expense divided by gross equipment cost with previous years.
B) Compare gross manufacturing cost divided by some measure of production with previous years.
C) Compare accumulated depreciation divided by gross equipment cost with previous years.
D) Compare annual repairs and maintenance accounts with previous years.
Q2) Controls over the acquisition and recording of insurance are a part of which of the following transaction cycles?
A) Inventory and warehousing cycle
B) Capitalization cycle
C) Treasury cycle
D) Acquisition and payment cycle
Q3) Explain the audit objective allocation and why it is important to have accurate allocation within the financial statements,particularly for property,plant,and equipment
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21
Chapter 20: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) An auditor must inquire about consigned or customer inventory included on the client's premises to satisfy the balance-related audit objective of:
A) cutoff.
B) classification.
C) rights.
D) completeness.
Q2) The auditor's tour of the client's inventory facilities should be led by:
A) a member of the audit committee.
B) the CFO.
C) a plant supervisor.
D) the company president.
Q3) Auditing standards recommend that auditors observe physical inventory counts by the client.
A)True
B)False
Q4) In process cost systems,costs are accumulated by individual jobs.
A)True
B)False
Q5) What are two factors affecting the complexity of the audit of inventory?
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Chapter 21: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) Which of the following is a major balance-related audit objective in testing payroll liabilities?
A) Payroll tax expense is properly recorded.
B) Transactions in the payroll and personnel cycle are recorded in the proper period.
C) Accrual of salaries is the same as the amounts paid on the payroll tax returns.
D) Time records are recorded by supervisors.
Q2) Which of the following is a substantive test of transactions?
A) Review personnel policies.
B) Account for a sequence of payroll checks.
C) Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.
D) Examine printouts of transactions rejected by the computer as having invalid employee IDs.
Q3) An auditor is verifying that the recorded payroll payments are for work actually performed by existing employees,the occurrence transaction-related audit objective.List three key internal controls that a company should have in place in this area.
Q4) How do auditors commonly verify sales commission expense?
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) The two most important balance related audit objectives for notes payable are:
A) completeness and detail tie-in.
B) completeness and valuation.
C) accuracy and valuation.
D) accuracy and completeness.
Q2) Independent registrars commonly disburse cash dividends to shareholders.
A)True
B)False
Q3) What are the two most important balance-related audit objectives in notes payable?
Q4) Which of the following statements regarding the capital acquisition and repayment cycle is most correct?
A) Relatively few transactions affect the cycle, and most are smaller amounts.
B) Large numbers of transactions affect the cycle, and most are smaller amounts.
C) Relatively few transactions affect the cycle, and most are highly material.
D) Large number of transaction affect the cycle, and most are highly material.
Q5) What are two important internal control procedures that companies should implement to prevent misstatements in owners' equity when a company maintains its own records of stock transactions and outstanding stock?
Q6) Discuss the overall objectives of the audit of notes payable. Page 24
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Page 25
Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) Auditors are likely to prepare a proof of cash when the client has:
A) material control weaknesses in cash receipts and cash disbursements.
B) material control weaknesses in accounts receivable and revenue.
C) material control weaknesses in accounts payable and inventory.
D) material control weaknesses in payroll.
Q2) The majority of financial instruments are valued using:
A) cost.
B) fair value estimates.
C) lower of cost or market.
D) realizable value.
Q3) What should be audited on an interbank transfer schedule?
Q4) Explain what is meant by a cutoff bank statement,and discuss the purpose of the cutoff bank statement in the audit of cash.
Q5) Presentation and disclosure objectives are important when auditing financial instruments.
A)True
B)False
Q6) Securities and contracts will typically be held by the broker-dealer.
A)True
B)False
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Chapter 24: Audit Completion
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Q1) Current professional auditing standards make it clear that management,not the auditor,is responsible for identifying and deciding the appropriate accounting treatment for contingent liabilities.
A)True
B)False
Q2) After performing all audit procedures in each area,the auditor must integrate the results into an overall conclusion about the financial statements.
A)True
B)False
Q3) If an attorney refuses to provide the auditor with information about material existing lawsuits or unasserted claims,current professional standards require that the auditor consider the refusal as a scope limitation.
A)True
B)False
Q4) List four specific matters that should be included in a client representation letter.
Q5) State the two primary types of subsequent events that require consideration by management and evaluation by the auditor,and give two examples of each type.
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Chapter 25: Other Assurance Services
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Sample Questions
Q1) When performing compilation services,the accountant is not required to obtain an understanding of the client's internal control.
A)True
B)False
Q2) Auditors should provide debt compliance letters only for clients for whom the auditor has done an audit of the overall financial statements.
A)True
B)False
Q3) Of the three types of attestation engagements,examination engagements provide a higher level of assurance than agreed-upon procedures engagements but less than review engagements.
A)True
B)False
Q4) When performing a review of interim information for a public company,the accountant ordinarily does not perform tests of the accounting records,independent confirmations,or physical examinations.
A)True
B)False
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Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Sample Questions
Q1) Which of the following is not a purpose of a program audit as performed by government auditors?
A) Determination of the extent to which the desired results established by the legislature are being achieved
B) Determination of the causes of inefficiencies in sponsored programs
C) Determination of the effectiveness of organizations, programs and activities
D) Determination as to whether the entity has complied with laws and regulations applicable to the program
Q2) Discuss each of the three phases of an operational audit.
Q3) Operational auditing is the review of an organization for efficiency and effectiveness.Discuss what is meant by the terms "effectiveness" and "efficiency."
Q4) Internal auditors are responsible to:
A) the board of directors.
B) management.
C) both A and B.
D) neither A nor B.
Q5) Discuss three major differences between operational and financial auditing.
Q6) List the three purposes of a program audit.
Q7) What are three similarities between internal and external auditors?
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