Assurance Services
Exam Materials
Course Introduction
Assurance Services is a course that introduces students to the concepts and practices of providing independent assurance on various types of information, both financial and non-financial. The course explores the theoretical framework and professional standards underpinning assurance engagements, including audit, review, and other attestation services. Key topics include the nature and purpose of assurance, the roles and responsibilities of auditors and assurance providers, risk assessment, evidence gathering, reporting, and ethical considerations. Through case studies and practical exercises, students will develop the ability to critically analyze and communicate findings, ensuring the reliability and credibility of information for stakeholders.
Recommended Textbook
Auditing and Assurance Services 15th Edition by Alvin A Arens
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26 Chapters
2759 Verified Questions
2759 Flashcards
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Chapter 1: The Demand for Audit and Other Assurance Services
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) In "auditing" financial accounting data, the primary concern is with:
A)determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B)determining if fraud has occurred.
C)determining if taxable income has been calculated correctly.
D)analyzing the financial information to be sure that it complies with government requirements.
Answer: A
Q2) The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.
A)True
B)False
Answer: True
Q3) The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.
A)True
B)False
Answer: False
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Chapter 2: The Cpa Profession
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) The AICPA has authority to establish standards and rules in all but which of the following areas?
A)Auditing standards applicable to financial statements of private companies
B)Compilation and review standards
C)Professional conduct
D)Auditing standards applicable to financial statements of private and public companies
Answer: D
Q2) Generally Accepted Auditing Standards (GAAS)and Statements on Auditing Standards (SAS)should be looked upon by practitioners as:
A)ideals to work towards, but which are not achievable.
B)maximum standards that denote excellent work.
C)minimum standards of performance that must be achieved on each audit engagement.
D)benchmarks to be used on all audits, reviews, and compilations.
Answer: C
Q3) Membership in the AICPA is mandatory for all licensed practicing CPAs.
A)True
B)False
Answer: False
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Chapter 3: Audit Reports
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements.If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n):
A)disclaimer.
B)adverse opinion.
C)unqualified opinion.
D)qualified opinion.
Answer: D
Q2) After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:
A)write the report.
B)decide the materiality for each condition.
C)decide the appropriate type of report for the condition.
D)discuss the report with management.
Answer: B
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Chapter 4: Professional Ethics
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Sample Questions
Q1) Each state also has rules of conduct that are required for licensing by the state.
A)True
B)False
Q2) Companies are required to disclose in their proxy statement or annual filings with the SEC the total amount of audit and non-audit fees paid to the audit firm for the two most recent years.Which of the following is not one of the categories of fees that must be disclosed?
A)Tax fees
B)Consulting fees
C)Audit-related fees
D)All other fees
Q3) Under Rule 301, Confidential Client Information, permission is not required from the client to use the audit documentation relating to that client during an AICPA-authorized peer review program with another CPA firm.
A)True
B)False
Q4) Describe the methods used by the AICPA and State Boards of Accountancy to enforce the rules of conduct.
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Chapter 5: Legal Liability
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Sample Questions
Q1) Which of the following is an accurate statement regarding recent actions brought against accountants by clients and third parties?
A)Litigants will first seek state remedies because of the availability of class-action litigation.
B)Gross negligence by the auditor must be proven under the Securities Acts of 1933 and 1934.
C)The greatest growth in CPA liability litigation bas been under the federal securities laws.
D)The amount of damages that plaintiffs can receive is greater under common law than under the federal securities laws.
Q2) An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.
A)True
B)False
Q3) Discuss at least 3 steps the AICPA and the accounting profession as a whole can and are taking to reduce the practitioner's exposure to lawsuits.
Q4) Distinguish between constructive fraud and fraud.
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Chapter 6: Audit Responsibilities and Objectives
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Sample Questions
Q1) Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.
Q2) An audit must be performed with an attitude of professional skepticism.Professional skepticism consists of two primary components: a questioning mind and:
A)the assumption that upper-level management is dishonest.
B)a critical assessment of the audit evidence.
C)the assumption that all employees are motivated by greed.
D)verification of all critical information by independent third parties.
Q3) Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each class of transactions?
A)The specific audit objectives are applicable to every class of transactions.
B)The general audit objectives are applicable to every class of transactions.
C)Once the specific transaction-related audit objectives are established, they can be used to develop the general transaction-related objectives.
D)For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.
Q4) List the four phases of a Financial Statement Audit
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Chapter 7: Audit Evidence
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103 Flashcards
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Sample Questions
Q1) The permanent files included as part of audit documentation do not normally include:
A)a copy of the current and prior years' audit programs.
B)copies of articles of incorporation, bylaws and contracts.
C)information related to the understanding of internal control.
D)results of analytical procedures from prior years.
Q2) When analytical procedures reveal unusual fluctuations in an account balance, the auditor will probably perform fewer tests of details for that account and increase the tests of controls related to the account.
A)True
B)False
Q3) Which of the following is not a correct combination of terms and related type of audit evidence?
A)Inquire - inquiries of client
B)Count - physical examination
C)Recompute - documentation
D)Read - documentation
Q4) Auditors use evidence to help them draw conclusions.
A)True
B)False
Page 9
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Chapter 8: Audit Planning and Analytical Procedures
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Sample Questions
Q1) In order to be meaningful, a company's ratios should be compared to their prior year's ratios, not industry benchmarks.
A)True
B)False
Q2) Define business risk.List several factors that may impact the auditor's assessment of business risk.
Q3) During audit planning, the auditor uses analytical procedures primarily to:
A)identify weaknesses in internal control.
B)determine if the company's financial statements appear reasonable and are free of material misstatement.
C)determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives.
D)determine the nature, extent, and timing of audit procedures.
Q4) For prospective clients that have previously been audited by another CPA firm, the predecessor auditor is required to communicate with the successor auditor.
A)True
B)False
Q5) Discuss the required communications between predecessor and successor auditors.
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Chapter 9: Materiality and Risk
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Sample Questions
Q1) If the preliminary judgment of materiality increases, the amount of audit evidence required will decrease.
A)True
B)False
Q2) The risk of fraud should be assessed for the entire audit as well as by cycle, account, and objective.
A)True
B)False
Q3) The risk of material misstatement is a combination of two client controlled factors: inherent risk and control risk.What is inherent risk, why is it important and give examples of inherent risk factors.
Q4) Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.
A)True
B)False
Q5) Why do auditors use the audit risk model when planning an audit?
Q6) A high detection risk equates to a low amount of audit evidence needed.
A)True
B)False
Page 11
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Chapter 10: Internal Control, Control Risk, and Section 404
Audits
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Sample Questions
Q1) Which of the following is responsible for establishing a private company's internal control?
A)Senior Management
B)Internal Auditors
C)FASB
D)Audit committee
Q2) Which of the following is most correct for audits of non-public companies?
A)An audit of internal control is required.
B)An audit of internal control is not required.
C)An audit of the design of internal controls is required.
D)An audit of the operational effectiveness of internal controls is required.
Q3) Authorizations can be either general or specific.Which of the following is not an example of a general authorization?
A)Automatic reorder points for raw materials inventory
B)A sales manager's authorization for a sales return
C)Credit limits for various classes of customers
D)A sales price list for merchandise
Q4) The internal control framework developed by COSO includes five so-called "components" of internal control.Discuss each of these five components.
Page 12
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Chapter 11: Fraud Auditing
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Sample Questions
Q1) A common incentive for companies to manipulate financial statements is a decline in the company's financial prospects.
A)True
B)False
Q2) To address heightened risks of fraud, the auditor can do all of the following except:
A)use specialists to assist in evaluating the accuracy and reasonableness of management's key estimates.
B)decrease the amount of substantive tests.
C)use CL or IDEA to search for fictitious revenue transactions.
D)use EXCEL to perform analytical procedures at the disaggregated level.
Q3) Explain professional skepticism and the need for maintaining professional skepticism during an audit.
Q4) Most frauds are discovered via a tip.
A)True
B)False
Q5) What types of inquiry techniques might an auditor use when making inquiries of client personnel?
What are the uses of each technique?
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Chapter 12: The Impact of Information Technology on the Audit Process
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Sample Questions
Q1) Which of the following statements is correct?
A)Auditors should evaluate application controls before evaluating general controls.
B)Auditors should evaluate application controls and general controls simultaneously.
C)Auditors should evaluate general controls before evaluating application controls.
D)None of these statements is correct.
Q2) Generalized audit software is used to test automated controls.
A)True
B)False
Q3) General controls include all of the following except:
A)systems development.
B)online security.
C)processing controls.
D)hardware controls.
Q4) Define control for general controls and application controls.Also list the categories of controls included under general controls and application controls.
Q5) Identify the six categories of general controls and give one example of each.
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Chapter 13: Overall Audit Strategy and Audit Program
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Sample Questions
Q1) Tests of controls are generally more costly to perform than analytical procedures.
A)True
B)False
Q2) Which of the following statements is not true?
A)Analytical procedures emphasize the overall reasonableness of transactions and balances.
B)Tests of controls are concerned with evaluating whether controls are sufficiently effective to justify reducing control risk and thereby reducing analytical review procedures.
C)Substantive tests of transactions emphasize the verification of transactions recorded in the journals and then posted in the general ledger.
D)Tests of details of balances emphasize the ending balances in the general ledger.
Q3) Which audit tests involve physical examination and confirmation?
A)Tests of controls
B)Tests of transactions
C)Tests of balances
D)Analytical procedures
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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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Sample Questions
Q1) The transaction-related audit objectives and the client's methods of controlling misstatements are essentially the same for credit memos as for sales with the exception of two differences.What are the two differences from the auditor's perspective?
Q2) The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.
A)True
B)False
Q3) Explain each of the following types of documents and indicate the class of transactions in which they are commonly used.
1.Customer order
2.Shipping document
3.Remittance advice
4.Sales returns and allowance journal
5.Uncollectible account authorization form
Q4) When auditors evaluate sales returns and allowances, a primary emphasis is on the objective of occurrence.
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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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Which of the following results in a larger sample size?
A)Decrease the estimated population exception rate and decrease the tolerable exception rate.
B)Increase the estimated population exception rate and decrease the tolerable exception rate.
C)Decrease the estimated population exception rate and increase the tolerable exception rate.
D)Increase the estimated population exception rate and increase the tolerable exception rate.
Q2) The auditor must use the same TER and ARO levels for all attributes of an audit test.
A)True
B)False
Q3) Although systematic sample selection is easy to use, its primary disadvantage is that it is not a probabilistic sampling method.
A)True
B)False
Q4) List the two ways auditors can control sampling risk.
Q5) Briefly explain why auditors utilize audit sampling.
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Chapter 16: Completing the Tests in the Sales and Collection
Cycle: Accounts Receivable
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Sample Questions
Q1) The positive (as opposed to the negative)form of receivables confirmation may be preferred when:
A)internal control surrounding accounts receivable is considered to be effective.
B)there is reason to believe that a substantial number of accounts may be in dispute.
C)a large number of small balances are involved.
D)the auditor believes that the recipients of the confirmations will give the requests adequate consideration.
Q2) Most tests of accounts receivable are based on what schedule, file, or listing?
A)Sales master file
B)Aged accounts receivable trial balance
C)Accounts receivable master file
D)Accounts receivable general ledger account
Q3) Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable, and explain why this objective is ordinarily tested before any other objectives for accounts receivable.
Q4) Assuming the client's internal controls are adequate, describe how the auditor can verify proper cutoff of sales transactions.
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Chapter 17: Audit Sampling for Tests of Details of Balances
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Sample Questions
Q1) How might auditors include negative balances when using monetary unit sampling to evaluate a population?
Q2) Which of the following is not a disadvantage of monetary unit sampling?
A)It may be difficult to select samples from large population without computer assistance.
B)The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor.
C)The total misstatement bounds resulting when misstatements are found may be too high to be useful to the auditor.
D)Each of the above is a disadvantage.
Q3) An important statistic to consider when using a statistical sampling audit plan is the population variability.The population variability is measured by the: A)sample mean.
B)standard deviation.
C)standard error of the sample mean.
D)estimated population total minus the actual population.
Q4) Discuss the advantages and disadvantages of monetary-unit sampling over other sampling methods.
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Page 19
Chapter 18: Audit of the Acquisition and Payment Cycle:
Tests of Controls, Substantive Tests of Transactions, and Accounts Payable
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Q1) Which of the following business functions is not considered to be part of the acquisitions class of transactions?
A)Processing purchase orders
B)Recognizing liabilities
C)Receiving goods and services
D)Processing cash disbursements
Q2) The audit procedure "Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files" is used to test the posting and summarization objective for acquisitions.
A)True
B)False
Q3) The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of:
A)occurrence.
B)completeness.
C)accuracy.
D)posting and summarization.
Q4) List the four business functions in the acquisition and payment cycle.
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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 audit tests both have the effect of simultaneously verifying balance sheet and income statement accounts?
A)Analytical procedures and substantive tests of transactions
B)Tests of controls and substantive tests of transactions
C)Tests of details of balances and substantive tests of transactions
D)Tests of controls and analytical procedures
Q2) Which of the following accounts would normally not be a part of the acquisition and payment cycle of Prepaid Insurance?
A)Cash
B)Insurance Payable
C)Insurance Expense
D)Prepaid Insurance
Q3) The failure to capitalize a permanent asset, or the recording of an asset acquisition at the improper amount, affects the balance sheet:
A)forever.
B)for the current period.
C)for the depreciable life of the asset.
D)until the firm disposes of the asset.
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Chapter 20: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) There is inherent risk of payroll fraud because most transactions involve:
A)expense accounts.
B)accrued liabilities.
C)estimates.
D)cash.
Q2) Internal control over payroll is normally highly structured and well controlled.
A)True
B)False
Q3) It would be appropriate for the payroll department to be responsible for which of the following functions?
A)Approval of employee time records
B)Maintain records of employment, firings, and raises
C)Temporary retention of unclaimed employee paychecks
D)Preparation of governmental reports as to employees' earnings and withholding taxes
Q4) Auditors typically test details of account balances in the audit of payroll.
A)True
B)False
Q5) Discuss the two circumstances under which auditors would extend their procedures considerably in the audit of payroll.
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Chapter 21: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) Auditors test the quantity of materials charged to work-in-process by tracing these quantities to:
A)cost ledgers.
B)perpetual inventory records.
C)receiving reports.
D)material requisitions.
Q2) The audit of cost accounting begins with the internal transfer of assets from raw materials to work-in-process to:
A)manufacturing overhead.
B)finished goods inventory.
C)the perpetual inventory master files.
D)retail sales.
Q3) An auditor selects a random sampling of tag numbers and identifies the tag with that number attached to the actual inventory.The purpose of the procedure is to:
A)obtain proper cutoff information.
B)uncover the inclusion of nonexistent items as inventory.
C)to determine if the client has adequately priced the inventory item.
D)to verify that the client has not changed the recorded counts after the auditor left the premises.
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock:
A)surrendered and canceled during the year.
B)authorized at the balance sheet date.
C)issued and outstanding at the balance sheet date.
D)sold at a price above par during the year.
Q2) 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?
Q3) Public companies whose stock is listed on a stock exchange must employ an independent registrar.
A)True
B)False
Q4) Discuss the internal controls related to owners' equity that are of concern to the auditor.
Q5) The starting point for the audit of notes payable is a schedule of notes payable and accrued interest.Discuss the information typically included in the schedule.
Page 24
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) Auditors will often prepare a proof of cash when the client has material internal control weaknesses in cash receipts and cash disbursements.The purpose of the proof of cash is to determine the client's accounting records for cash are reliable.List below the four requirements the proof of cash is designed to provide for the auditor.
Q2) Which is not an important objective for financial instruments?
A)existence
B)cutoff
C)accuracy
D)realizable value
Q3) A proof of cash is not an effective procedure for identifying which of the following types of misstatements?
A)All recorded disbursements were paid by the bank.
B)All recorded cash receipts were deposited.
C)All amounts that were paid by the bank were recorded.
D)Some checks were written for incorrect amounts.
Q4) Explain kiting, and discuss how it is performed.
Q5) What should be audited on an interbank transfer schedule?
Q6) Explain the purpose of testing the client's bank reconciliation, and discuss the major audit procedures involved.
Page 25
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Chapter 24: Completing the Audit
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Sample Questions
Q1) Which event that occurred after the end of the fiscal year under audit but prior to issuance of the auditor's report would not require disclosure in the financial statements?
A)Sale of a bond or capital stock issue
B)Loss of plant or inventories as a result of fire or flood
C)A significant decline in the market price of the corporation's stock
D)A merger or acquisition
Q2) Auditing standards require auditors to evaluate whether there is a substantial doubt about a client's ability to continue as a going concern.One of the most important audit procedures to perform to assess the going concern question is:
A)analytical procedures.
B)confirmations from creditors.
C)statistical sampling procedures.
D)inquiries of client and its legal counsel.
Q3) At the completion of the audit, management is typically asked to make a written statement as a part of the engagement letter that it is aware of no undisclosed contingent liabilities.
A)True
B)False
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Chapter 25: Other Assurance Services
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Q1) The quarterly reports submitted to the SEC by the client:
A)have to be audited and the CPA firm must be identified.
B)do not have to be audited, but the CPA firm which does the annual audit must be identified.
C)have to be audited, but the CPA firm does not have to be identified.
D)do not have to be audited, but the CPA firm which does the annual audit must review the quarterly statements before they are submitted to the SEC.
Q2) General use statements are prepared for use by ________.
A)known contractual parties
B)any third party
C)regulators
D)internal auditor
Q3) Professional standards prohibit which one of the following types of engagements for prospective financial statements from being undertaken?
A)A compilation
B)A review
C)An examination
D)An agreed-upon procedures engagement
Q4) Briefly describe a SysTrust engagement.
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Chapter 26: Internal and Governmental Financial Auditing and
Operational Auditing
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Q1) The "Red Book" specifies all auditing standards issued by the U.S.General Accounting Office.
A)True
B)False
Q2) Internal auditors are expected to provide value to the organization through improved operational effectiveness.
A)True
B)False
Q3) The Internal Auditing Standards Board issues Statements on Internal Auditing Standards.
A)True
B)False
Q4) Effectiveness refers to the degree to which costs are reduced without reducing efficiency.
A)True
B)False
Q5) Extensive professional development is necessary for auditors doing governmental audits.
A)True
B)False
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