Assurance Services Exam Preparation Guide
Course Introduction
Assurance Services is a course that explores the framework and practices of providing independent verification and evaluation services to enhance the reliability and credibility of information used by decision makers. Topics include the nature and types of assurance services, the role of auditors and other professionals in providing assurance, ethical and legal considerations, risk assessment, internal controls, evidence gathering, and the standards governing assurance engagements. The course emphasizes the importance of assurance in financial reporting, compliance, and operational contexts, and covers recent developments and challenges in the assurance profession.
Recommended Textbook
Auditing and Assurance Services 6th Edition by
Timothy J. Louwers
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20 Chapters
1618 Verified Questions
1618 Flashcards
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Page 2
Chapter 1: Auditing and Assurance Services
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Sample Questions
Q1) ABC Company had a major sale to XYZ Company.This sale accounted for 20% of the revenue of ABC Company.The auditors performed the audit procedures listed 1-3.For each audit procedure select the ASB transaction assertion that is most likely being tested.
A. Occurrence
B. Completeness
C. Cutoff
D. Accuracy
E. Classification
1. The auditor reviewed the shipping documents to check the date that product was shipped to XYZ Company.
2. The auditor reviewed the shipping documents to ensure that all product included in the sales revenue to XYZ had been shipped.
3. The auditor reviewed the invoice sent to XYZ Company to ensure that XYZ had been properly billed.
Answer: 1.C,2.B,3.D
Q2) What are the four basic requirements for becoming a CPA?
Answer: Education,the CPA Examination,experience,and a state certificate.
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Chapter 2: Professional Standards
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Sample Questions
Q1) Prior to,or in conjunction with,the information-gathering procedures for an audit,audit team members should discuss the potential for material misstatement due to fraud.Which of the following best characterizes the mindset that the audit team should maintain during this discussion?
A) Presumptive
B) Judgmental
C) Criticizing
D) Questioning
Answer: D
Q2) Firm A performs audits of 60 public entities,while firm B performs audits of 120 public entities.How often must each firm undergo a PCAOB inspection?
A) Both firm A and firm B will be inspected every other year.
B) Firm A will be inspected annually and firm B will be inspected every three years.
C) Firm A will be inspected every three years and firm B will be inspected annually.
D) Both firm A and firm B will be inspected annually.
Answer: C
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4
Chapter 3: Engagement Planning
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Sample Questions
Q1) An engagement letter is used primarily to
A) ensure a clear contractual understanding of the services to be provided by the CPA.
B) express an opinion on the financial statements.
C) provide management representations to be included in the audit evidence.
D) disclaim liability.
Answer: A
Q2) The independent auditors' audit design prepared prior to the start of fieldwork is appropriately considered documentation of A) planning.
B) supervision.
C) information evaluation.
D) quality assurance.
Answer: A
Q3) Which of the following is not one of the four major cycles?
A) Revenue and cash collection
B) Acquisition and expenditure
C) Cash receipts and disbursements
D) Financing and investing
Answer: C
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Page 5
Chapter 4: Management Fraud and Audit Risk
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Sample Questions
Q1) Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to A) identify the appropriate schedules to be prepared by the client.
B) identify the types of errors or frauds that can occur in transactions.
C) identify unusual conditions that deserve additional audit effort.
D) determine the existence of unrecorded liabilities or overstated assets.
Q2) Sources of financial and nonfinancial data in do not include
A) financial account information for comparable prior periods.
B) nonfinancial information such as physical production statistics.
C) company budgets and forecasts.
D) Bureau of Labor statistics.
Q3) Which of the following would not likely be found in the minutes of the board of directors?
A) Amount of dividends declared
B) Approval to pledge assets as security for debts
C) Authorization of officers' salaries
D) Approval of a new desktop computer for the controller
Q4) Why is it important for auditors to understand their clients' business risks?
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Chapter 5: Risk Assessment: Internal Control Evaluation
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Sample Questions
Q1) Control strengths and weaknesses should be documented in audit documentation,sometimes called
A) questionnaires, narratives, and flowcharts.
B) bridge working papers.
C) communications of significant deficiencies.
D) internal control letters.
Q2) Which of the following is a factor in the control environment?
A) Segregation of duties
B) Information processing
C) Performance reviews
D) Management's philosophy and operating style
Q3) A sales clerk enters a customer's six-number customer account.The computer program uses the first five numbers to calculate a sixth number.This resulting number is then compared to the sixth number entered by the sales clerk.This is an example of a A) a valid character test.
B) missing data test.
C) reasonableness test.
D) check digit.
Q4) List several elements of a company's control environment.
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Chapter 6: Employee Fraud and the Audit of Cash
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Sample Questions
Q1) An audit plan of substantive procedures for cash would not include
A) request a cutoff bank statement be mailed to the client.
B) request client to prepare bank reconciliations.
C) prepare a schedule of interbank transfers for a period of ten business days before and after year-end date.
D) obtain a written client representation concerning compensating balance agreements.
Q2) Which of the following management policies would increase the probability of fraud in a company?
A) Diversifying authority throughout divisions and subsidiaries in the organization
B) Measuring performance and awarding bonuses based on short-term operating results
C) Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work
D) Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts
Q3) List,and briefly describe,the three factors that increase the probability of fraud.
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8
Chapter 7: Revenue and Collection Cycle
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Sample Questions
Q1) The auditor selects a sample of recorded sales invoices and vouches them to shipping documents.This procedure is related to which of the following assertions?
A) Occurrence.
B) Completeness.
C) Accuracy.
D) Cutoff.
Q2) In the revenue and collection cycle,the order of the activities in the cycle is best illustrated by
A) delivering goods, billing customer, granting credit, and performing collection activities.
B) customer ordering, delivering goods, granting credit, and billing customers.
C) processing customer orders, granting credit, delivering goods, and billing customers.
D) granting credit, billing customers, delivering goods, and processing cash receipts.
Q3) Auditing the details of customer payments listed in bank deposits in comparison to details of customer payment postings can detect
Question also found in study guide
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Chapter 8: Acquisition and Expenditure Cycle
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Sample Questions
Q1) Proper separation of duties involves the purchasing department as the recordkeeping function.
A)True
B)False
Q2) Auditors ordinarily ascertain whether payroll checks are properly endorsed during the audit of
A) clock cards.
B) the voucher system.
C) cash in bank.
D) accrued payroll.
Q3) Purchases are requisitioned by a purchasing department that seeks the best prices and quality.
A)True
B)False
Q4) The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the A) human resources function from the controllership function.
B) administrative controls from the internal accounting controls.
C) authorization of transactions from the custody of related assets.
D) operational responsibility from the record keeping responsibility.
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Chapter 9: Production Cycle
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Sample Questions
Q1) Items held on consignment with another company should not be included in a company's inventory.
A)True
B)False
Q2) A comparison of the prior year's sales forecast with actual sales may provide an indication of slow moving inventory.
A)True
B)False
Q3) A production order usually includes a ________________________________.
Question also found in study guide
Q4) The sales forecast is the document that production uses to determine what to produce and when to produce it.
A)True
B)False
Q5) With a sample of open and closed production cost reports,vouching labor cost to ________________________________ is a test for ____________________________.
Question also found in study guide
Q6) Prepare an audit plan for inventory pricing and compilation.
Q7) Prepare an audit plan for the observation of an inventory count.
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Chapter 10: Finance and Investment Cycle
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Sample Questions
Q1) A related party is a person or entity that
A) has a family tie to a management member.
B) does business with the company.
C) can exert significant influence over or be influenced by the company.
D) is a member of the company's management.
Q2) Selecting a sample of notes payable transactions and vouching payments to canceled checks is a test of the ASB balance assertion of A) accuracy.
B) completeness.
C) existence.
D) presentation.
Q3) Which of the following is not an off-balance-sheet item?
A) Purchase commitment.
B) Capitalized lease.
C) Loan commitment.
D) Synthetic lease.
Q4) Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.
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Chapter 11: Completing the Audit
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Sample Questions
Q1) Analytical procedures performed near the end of an audit generally include A) considering unusual or unexpected account balances that were not previously identified.
B) performing tests of transactions to corroborate management's financial statement assertions.
C) gathering evidence concerning account balances that have not changed from the prior year.
D) retesting control activities that appeared to be ineffective during the assessment of control risk.
Q2) Auditors must complete various phases of an audit after the date of the financial statements.The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the
A) date of the auditors' report.
B) final review of the audit documentation.
C) audit report release date.
D) delivery of the auditors' reports to the client.
Q3) Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.
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13
Chapter 12: Reports on Audited Financial Statements
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Sample Questions
Q1) The auditors have determined that there is substantial doubt about an entity's ability to continue as a going concern.When considering the appropriateness of management's disclosures and severity of the uncertainty,all of the following reports could be issued,except
A) qualified opinion based on a material and pervasive uncertainty.
B) unmodified opinion with an emphasis-of-matter paragraph describing the uncertainty.
C) adverse opinion based on inadequate disclosure of the uncertainty.
D) disclaimer of opinion based on a material and pervasive uncertainty.
Q2) Management determined it was probable that a pending litigation claim would result in a material loss.The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement.If the auditors believe an accrual should be made,what type of report should be issued?
A) Standard (unmodified) report
B) Unmodified opinion with an emphasis-of-matter paragraph
C) Qualified opinion based on a circumstance-imposed scope limitation
D) Qualified or adverse opinion based on a departure from GAAP
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Page 14
Chapter 13: Other Public Accounting Services
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Sample Questions
Q1) The phrase "Trust services" refers to
A) WebTrust and SysTrust Services.
B) XBRL and SysTrust Services.
C) WebTrust and XBRL Services.
D) all AICPA designated assurance services.
Q2) Hamell Corporation is making a presentation to a prospective investor.The presentation includes a projection showing that the company's sales will be between $25,000,000 and $27,000,000 within the next three years.Hamell believes the information will be better received if its CPA provides an attestation report on the projection.In order to provide such a report the CPA must do all of the following EXCEPT
A) obtain knowledge about the client's business.
B) evaluate the assumptions used in preparing the projection.
C) confirm expected sales with customers.
D) identify key factors affecting the information.
Q3) In an agreed-upon procedures engagement,an accountant
A) follows all of the Fundamental Principles of GAAS.
B) restricts the report to specified users.
C) includes negative assurance in the report.
D) gives a qualified audit report.
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Page 15
Chapter 14: Professional Ethics
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Sample Questions
Q1) According to the ethical standards of the profession,which of the following acts is generally prohibited?
A) Purchasing a product from a third party and reselling it to a client
B) Writing a financial management newsletter promoted and sold by a publishing company
C) Accepting a commission for recommending a product to an audit client
D) Accepting engagements obtained through the efforts of third parties
Q2) According to the ethical standards of the profession,which of the following acts is generally prohibited?
A) Issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client
B) Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society
C) Accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent
D) Retaining client records after an engagement is terminated prior to completion and the client has demanded their return
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Page 16
Chapter 15: Legal Liability
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Sample Questions
Q1) Elliot Corp.is interested in purchasing Roger Corp.Prior to the purchase Elliot hired Adam & Co.to audit the financial statements of Roger.During the audit,Adam & Co.failed to discover a fraud that resulted in material misstatements in Roger's financial statements.After the acquisition,the fraud was discovered and Elliot Corp.suffered substantial losses.If Elliot sues Adam & Co.,Elliot must prove that Adam & Co
A) acted recklessly or with lack of reasonable grounds for belief.
B) knew of the instances of fraud.
C) failed to exercise the appropriate level of professional care.
D) demonstrated gross negligence.
Q2) Typical defenses for auditors in common law actions include all of the following,except
A) the plaintiff was foreseen.
B) the plaintiff contributed to the failure to detect material misstatements.
C) the financial statements were not materially misstated.
D) the audit was conducted in accordance with generally accepted auditing standards.
Q3) What are the legal liabilities of auditors under common law?
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Chapter 16: Internal Audits governmental Audits and Fraud
Examinations
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Sample Questions
Q1) The standards of the Institute of Internal Auditors (IIA)are grouped under two broad categories.Identify and briefly explain each of the categories.Each category has special standards written for specific types of audits.Identify the two types of special standards for each category.
Q2) Prosecution of fraud perpetrators is advisable because if not prosecuted,they _______________________________,and failure to do so
Question also found in study guide
Q3) When considering the competence of internal auditors,external auditors should obtain evidence about the
A) educational and experience qualifications of the internal auditors.
B) organizational status of the internal auditors.
C) lines of communication within the entity of the internal auditors.
D) the size of the internal audit department.
Q4) Internal audit reports are usually considered "____________________" until a _________________________ is performed.
Question also found in study guide
Q5) What are the different types of government audits?
Q6) How do government auditors achieve objectivity?
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Chapter 17: Overview of Sampling
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Sample Questions
Q1) Which of the following would typically result in nonsampling risk?
A) Selecting a nonrepresentative sample
B) Making a mistake in recording sample results
C) Intentionally omitting several items in the population from examination
D) None of these result in nonsampling risk
Q2) Which of the following sampling activities is not performed during the planning stage of the audit?
A) Define the population.
B) Determine the sample size.
C) Determine the objective of sampling.
D) Define the characteristic of interest.
Q3) The probability that an auditor's conclusion based on a sample might be different from the conclusion based on the entire population identifies the concept of A) confidence levels.
B) nonsampling risk.
C) nonstatistical sampling.
D) sampling risk.
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Chapter 18: Attributes Sampling
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Sample Questions
Q1) An auditor is testing control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers.If a random number matches the number of a voided voucher,that voucher ordinarily should be replaced by another voucher in the random sample if the voucher
A) constitutes a deviation.
B) has been properly voided.
C) cannot be located.
D) represents an immaterial dollar amount.
Q2) Lincoln,CPA,selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100.With a random start,she then selected every 1,000<sup>th</sup> invoice.This selection process is referred to as
A) unrestricted random selection.
B) nonstatistical selection.
C) systematic random selection.
D) judgmental selection.
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Chapter 19: Variables Sampling
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Sample Questions
Q1) Under monetary unit sampling,the sampling interval is determined by dividing the _____ by the _____.
A) sample size; population size
B) population size; sample size
C) tolerable misstatement; population size
D) population size; tolerable misstatement
Q2) Indicate how each of the following conditions affect sample size in a monetary unit sampling application by using the letters I (increase),D (decrease),or N (no effect),assuming that all other factors are held constant.
___ 1.An increase in the expected misstatement from $5,000 to $10,000.
___ 2.A decrease in the population size from $1,500,000 to $1,350,000.
___ 3.An increase in the tolerable misstatement from $25,000 to $35,000.
___ 4.An increase in the risk of incorrect rejection from 5 percent to 10 percent.
___ 5.A decrease in the risk of incorrect acceptance from 5 percent to 1 percent.
Q3) You are planning to use monetary unit sampling to evaluate accounts receivable for
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Chapter 20: Auditing and Information Technology
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Sample Questions
Q1) An audit team's approach to evaluating computerized processing systems that compares source documents to the computer output is known as auditing
A) around the computer.
B) through the computer.
C) without the computer.
D) with the computer.
Q2) Which of the following is not a control included as part of the systems development life cycle?
A) Ensuring that all software acquisition and program development efforts are consistent with the organization's needs and objectives
B) Testing and validating new programs and developing proper implementation plans
C) Requiring that all programming efforts take place under the control of the requesting user department
D) Ensuring that data are converted completely and accurately for use in the new systems
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