Assurance Services Practice Questions
Course Introduction
Assurance Services is a course designed to provide students with an in-depth understanding of the principles and practices involved in offering independent professional services that improve the quality of information or its context for decision makers. The course explores the various types of assurance engagements, including audits, reviews, and agreed-upon procedures, with particular attention to the frameworks and standards that govern these services. Students will learn about the ethical and regulatory environment for assurance professionals, risk assessment, evidence gathering, and reporting processes. The course also examines current issues and emerging trends in the assurance field, preparing students to assess client needs and deliver high-quality, value-added assurance solutions in a dynamic business environment.
Recommended Textbook
Auditing and Assurance Services 7th Edition by Timothy J Louwers
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20 Chapters
1606 Verified Questions
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Page 2
Chapter 1: Auditing and Assurance Services
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Sample Questions
Q1) The audit objective that all the transactions and accounts presented in the financial statements represent real assets,liabilities,revenues,and expenses is related most closely to which of the PCAOB assertions?
A)Existence or occurrence
B)Rights and obligations
C)Completeness
D)Presentation and disclosure
Answer: A
Q2) An attestation engagement is one in which a CPA is engaged to
A)issue,or does issue,a report on subject matter or an assertion about the subject matter that is the responsibility of another party.
B)provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.
C)testify as an expert witness in accounting,auditing or tax matters,given certain stipulated facts.
D)assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.
Answer: A
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3
Chapter 2: Professional Standards
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Sample Questions
Q1) Which of the following is an example of the appropriate implementation of a system of quality control?
A)The firm requires all documents obtained during the audit to be destroyed immediately following the engagement to ensure the client's information remains confidential.
B)The firm's quality control policies have evolved through the performance of audit procedures but are not formally developed or communicated to staff members.
C)All firm employees must verbally confirm their compliance with the appropriate independence requirements before being assigned to an engagement.
D)The firm uses manuals and standardized forms for audit documentation to help ensure engagement performance objectives and quality standards are met.
Answer: D
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4
Chapter 3: Engagement Planning
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Sample Questions
Q1) In auditing accrued liabilities,an auditor's procedures most likely would focus primarily on management's assertion of A)existence or occurrence.
B)completeness.
C)presentation and disclosure.
D)valuation or allocation.
Answer: B
Q2) An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of A)rights and obligations. B)completeness.
C)presentation and disclosure.
D)existence or occurrence.
Answer: B
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Chapter 4: Management Fraud and Audit Risk
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Sample Questions
Q1) 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
Q2) In the planning stage,analytical procedures are used to
A)identify potential problem areas.
B)provide direct evidence about the balances in accounts.
C)determine the mathematical correctness of the financial statements.
D)perform all of these.
Q3) Auditors use brainstorming
A)to heighten the audit team's awareness of fraud potential.
B)to heighten management's awareness of fraud potential.
C)to determine detection risk.
D)to set materiality.
Q4) Why is it important for auditors to understand their clients' business risks?
Q5) Can an auditor place complete reliance on internal control to the exclusion of other audit procedures? Explain your answer using the audit risk model.
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Chapter 5: Risk Assessment: Internal Control Evaluation
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Sample Questions
Q1) An auditor is evaluating a client's internal controls.Which of the following situations would be the most difficult internal control issue for an auditor to detect?
A)The accounting staff neglects the control,due to increased transactions to be processed.
B)The technology department writes a program that does not properly implement the control,due to a lack of understanding.
C)Two employees,who work in different departments,are circumventing an internal control.
D)Someone erroneously disables edit checks in a software program designed to identify control exceptions.
Q2) 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.
Q3) What constitutes a material weakness?
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 auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion.The auditor need not perform this omitted procedure if A)the results of alternative procedures that were performed compensate for the omission.
B)the auditor's assessed level of detection risk is low.
C)the omission is documented in a communication with the audit committee.
D)no individual investment is material to the financial statements taken as a whole.
Q2) At the end of each business day,Safe Company sends its bank a listing of all checks written during the day including the check number,payee,and amount.When a check is sent to the bank for payment the bank compares the payee and the amount with the listing provided by Safe Company.This system is called
A)PayChex.
B)Pay-As-You-Go.
C)Positive Pay.
D)Pay Master.
Q3) Describe how a lockbox works and indicate the advantages of such a system.
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Chapter 7: Revenue and Collection Cycle
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Sample Questions
Q1) Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?
A)Review the cash receipts journal for the month prior to the year-end.
B)Intensify the study of the internal control structure concerning the revenue cycle.
C)Increase the assessed level of detection risk for the existence assertion.
D)Inspect the shipping records documenting the merchandise sold to the debtors.
Q2) Favorite Soda Company distributes beverages in the Portland,Oregon area.Which of the following would be the test to determine that shipments made were actual sales?
A)Trace bills of lading to the sales journal.
B)Vouch entries made in the sales journal to the bills of lading.
C)Trace entries in the sales journal to accounts receivable subsidiary ledger.
D)Vouch bills of lading to the customer order documents.
Q3) Assertions related to account balances are
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Page 9
Chapter 8: Acquisition and Expenditure Cycle
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Sample Questions
Q1) Small Corporation uses a Wages Clearing Account for its payroll disbursements.At the end of February,a reasonably large debit balance remained in this account.The most likely reason for this is that
A)More labor cost had been assigned to the expense accounts than had been paid.
B)Some labor cost had not been properly classified in the expense accounts.
C)Some employees had not yet cashed their checks.
D)Not enough cash had been transferred to the bank account.
Q2) An audit plan for accounts payable would not include which of the following procedures?
A)Obtaining a trial balance of recorded accounts payable.
B)Sending confirmation to accounts with zero balances.
C)Reviewing cash receipts for the period after year-end.
D)Obtaining written client representations about related-party payables and pledges of assets as collateral for liabilities.
Q3) Changes to the payroll master file should be approved by human resources department.
A)True
B)False
Q4) ...
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Chapter 9: Production Cycle
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Sample Questions
Q1) Counting inventory on the warehouse floor and tracing the count to the inventory compilation provides evidence to support which management (PCAOB)assertion?
A)Existence or occurrence.
B)Completeness.
C)Rights and obligations.
D)Valuation or allocation.
Q2) When auditing inventories,an auditor would least likely verify that A)All inventory owned by the client is on hand at the time of the count.
B)The client has used proper inventory pricing.
C)The financial statement presentation of inventories is appropriate.
D)Damaged goods and obsolete items have been properly accounted for.
Q3) An auditor selected items for test counts while observing a client's physical inventory.The auditor then traced the test counts to the client's inventory listing.This procedure most likely obtained evidence concerning management's balance assertion of
A)Rights and obligations.
B)Completeness.
C)Existence.
D)Accuracy and valuation.
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Chapter 10: Finance and Investment Cycle
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Sample Questions
Q1) An audit team's purpose in reviewing the documentation concerning the renewal of a note payable shortly after the balance-sheet date most likely is to obtain evidence concerning management's assertions about A)existence.
B)valuation.
C)completeness.
D)classification.
Q2) In confirming with an outside agent,such as a financial institution,that the agent is holding investment securities in the client's name,an auditor most likely gathers evidence in support of ASB balance assertion of existence and A)valuation.
B)rights and obligations.
C)completeness.
D)accuracy.
Q3) Investment transactions list on the monthly statement from the broker should be vouched to the broker's advice,proper authorization,and the cash accounts. A)True
B)False
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12
Chapter 11: Completing the Audit
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Sample Questions
Q1) Why is it the client's decision to record adjustments to the financial statements?
A)Having auditors adjust the financial statements would impair independence with respect to the client.
B)The financial statements are the responsibility of the client's management.
C)Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements.
D)The client will ultimately suffer any losses related to misstated financial statements.
Q2) An important method used by auditors to learn of material contingencies is
A)Examining documents in the client's possession concerning contingencies.
B)Inquiring and discussing them with management.
C)Obtaining responses to an attorney letter.
D)Confirming accounts receivable with the client's customers.
Q3) Define what is meant by the term "subsequent event".In addition,identify the two types of subsequent events and indicate how auditors should modify the engagement for the discovery of subsequent events.
Q4) Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.
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Chapter 12: Reports on Audited Financial Statements
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Sample Questions
Q1) Under which of the following circumstances would a disclaimer of opinion on the entity's financial statements not be appropriate?
A)The financial statements fail to contain adequate disclosure of related-party transactions.
B)The entity refuses to permit its attorney to furnish information requested in an attorney letter.
C)The auditors are engaged after the date of the financial statements and are unable to observe physical inventories or apply alternative procedures to verify their balances.
D)The auditors are unable to determine the amounts associated with illegal acts committed by the entity's management.
Q2) When an entity will not permit inquiry of outside legal counsel,the auditors' report on the entity's financial statements will ordinarily contain a(n)
A)Disclaimer of opinion.
B)Qualified opinion referencing a departure from generally accepted accounting principles.
C)Unmodified opinion with an additional paragraph.
D)Adverse opinion.
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Chapter 13: Other Public Accounting Services
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Sample Questions
Q1) Which of the following steps is NOT required in performing a compliance attestation engagement?
A)Assess planning materiality
B)Assess inherent risk
C)Confirm restrictions with applicable third-parties
D)Consider subsequent events
Q2) Delta Life Insurance Co.prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission.Wall,CPA,is Delta's auditor.If Wall discovers that the statements are not suitably titled,Wall should
A)disclose any reservations in an explanatory paragraph and qualify the opinion.
B)apply to the state insurance commission for an advisory opinion.
C)issue a special statutory basis report that clearly disclaims any opinion.
D)explain in the notes to the financial statements the terminology used.
Q3) Other Comprehensive Basis of Accounting (OCBOA)includes all of the following EXCEPT
A)statements that conform to a regulatory agency.
B)statements prepared on a tax basis.
C)statements that conform to accounting principles that are generally accepted.
D)statements prepared on a cash basis.
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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)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.
Q2) The Confidential Client Information Rule has been interpreted by the AICPA to explicitly allow a CPA to divulge confidential client information to A)The SEC.
B)The U.S.Department of Justice.
C)The AICPA Professional Ethics Division.
D)The Federal Trade Commission.
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16
Chapter 15: Legal Liability
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Sample Questions
Q1) Charlie Company is headquartered in Wisconsin.Charlie Company's auditors are headquartered in Minnesota.Bob lives in Bloomington,Indiana but works in Chicago,Illinois.Based on a tip from his boss,Bob calls his stockbroker (Jim,who offices in Chicago)and instructs him to purchase 1,000 shares of Charlie Company despite never having requested or reviewed Charlie Company's financial statements.Charlie Company is traded on the New York Stock Exchange and the transaction takes place 15 minutes later on the floor of the exchange.
Charlie Company declared bankruptcy three months later and Bob lost his entire investment.Bob sued Charlie Company's auditors for ordinary negligence. The trial is scheduled for hearing in Madison,Wisconsin.Before the opening of the trial,the attorney for the auditors objects to the trial being held in Wisconsin,since the transaction between Bob and Jim took place in Illinois.The attorney asks that the trial be moved to Illinois.
Required A.Why would the attorney ask for the trial to be moved?
B.What defense would you raise if you were the auditors' attorney?
Q2) Distinguish between the "due diligence" and the "causation" defenses available to auditors under section 11 of the Securities Act of 1933.
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) In an audit of a municipality the auditor is most important audit objective is
A)the municipality is in compliance with laws,regulations,and the municipality's policy and procedures.
B)the municipality's internal controls are operating effectively.
C)the municipality as sufficient documentation to support all purchases.
D)purchases made by the municipality have sufficient encumbrances.
Q2) The proper organizational role of internal auditing is to
A)assist external auditors in reducing external audit fees.
B)perform studies to assist in attaining more efficient operations.
C)serve as an investigative arm of senior management and the board of directors.
D)serve as an independent,objective assurance and consulting activity that adds value to the organization.
Q3) The IIA Performance Standards do not include the standard for
A)managing the internal audit activity.
B)nature of work.
C)compliance with policies,plans,procedures,laws and regulations.
D)engagement planning.
Q4) What are the different types of internal audits?
Q5) How do government auditors achieve objectivity?
Q6) Explain briefly the purpose and requirements under the Single Audit Act. Page 18
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Chapter 17: Overview of Sampling
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Sample Questions
Q1) The precision interval has a ____ percent probability of including the ____.
A)Sampling risk; adjusted sample estimate.
B)Sampling risk; true population value.
C)1 minus sampling risk; adjusted sample estimate.
D)1 minus sampling risk; true population value.
Q2) Below is a listing of major steps in the sampling process.Indicate,using the correct letter,the phase in which each step belongs.Each phase may be associated with more than one step.
A.Planning.
B.Performing.
C.Evaluating.1___.Determine the sample size.2___.Determine the objective of sampling.3___.Evaluate the sample results.4___.Define the population.5___.Measure sample items.6___.Select sample items.7___.Define the characteristic of interest.
Q3) Select the description that best illustrates sampling risk.
A)Applying audit procedures,which are inappropriate for the audit objectives.
B)Failing to recognize misstatements or deviations in the documents examined.
C)Arriving at incorrect statistical conclusions due to computational errors.
D)Choosing a sample which has proportionately more errors than the population.
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Chapter 18: Attributes Sampling
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Sample
Questions
Q1) On the basis of attributes sampling,an auditor decided to increase the assessed level of control risk from the level originally planned.To achieve an overall audit risk level that is substantially the same as the original planned level of audit risk,the auditor would:
A)Increase inherent risk.
B)Increase overall materiality levels.
C)Decrease substantive procedures.
D)Decrease detection risk.
Q2) The procedures for statistical evaluation of tests of controls with the AICPA Sample Evaluation Tables would not include the following step:
A)Identify the population deviation rate.
B)Identify the sample size in the left margin.
C)Identify the number of actual deviations for the sample size.
D)Identify the upper limit rate of deviation given the sample size and number of deviations.
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21
Chapter 19: Variables Sampling
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Sample Questions
Q1) A number of factors influence the sample size for a variables sampling application.All other factors held constant,which of the following would lead to a larger sample size?
A)A lower assessed level of risk of material misstatement.
B)Increased use of analytical procedures to obtain evidence about particular assertions.
C)Lower frequency and magnitude of misstatements.
D)Lower levels of tolerable misstatement.
Q2) What is the appropriate sampling interval?
A)$60.
B)$250.
C)$500.
D)$30,000.
Q3) Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10 percent),what is the incremental allowance for sampling risk?
A)$5,000.
B)$7,900.
C)$8,700.
D)$23,700.
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22
Chapter 20: Auditing and Information Technology
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Sample Questions
Q1) Which of the following statements best describes the impact on an audit when a client uses computerized processing of transactions?
A)The objective of the audit examination focuses on detection of fraud and theft through the computer.
B)The type of substantive procedures performed by the audit team change because of the use of computerized processing.
C)The effectiveness of computer controls implemented by the client over its computerized processing may need to be evaluated by audit teams.
D)Different independence standards are introduced for audit teams when clients utilize computerized processing.
Q2) Each of the following automated application controls are designed to ensure that the input of individual transactions and data is accurate except for
A)Check digits.
B)Valid sign tests.
C)Sequence tests.
D)Limit and reasonableness tests.
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