Assurance Services
Pre-Test Questions
Course Introduction
Assurance Services is a course that explores the theory and practice of providing independent professional services that improve the quality and reliability of information for decision-makers. Emphasizing audit and attestation engagements, the course covers the key principles, standards, and regulatory frameworks governing assurance practices. Students will examine risk assessment, evidence collection, internal controls, and reporting processes, gaining a comprehensive understanding of how assurance professionals add value through objective evaluation. The course also discusses emerging trends and ethical considerations in assurance, preparing students for various roles in public accounting and related fields.
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) Which of the following audits can be regarded as generally being a compliance audit?
A) IRS agents' examinations of taxpayer returns
B) GAO auditor's evaluation of the computer operations of governmental units
C) An internal auditor's review of a company's payroll authorization procedures
D) A CPA firm's audit of a public company
Answer: A
Q2) 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
Q3) Most public companies' audited financial statements are available on the SEC's EDGAR database.
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) Quality controls are established for the entire CPA firm whereas GAAS are applicable to the individual engagement.
A)True
B)False
Answer: True
Q2) The difference between the Securities Act of 1933 and the Securities Act of 1934 is that only the 1934 act requires audited financial statements.
A)True
B)False
Answer: False
Q3) Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures?
A) Considering audit risk and materiality
B) Using statistical sampling techniques
C) Assigning personnel to engagements
D) Complying with laws and regulations
Answer: C
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Page 4
Chapter 3: Audit Reports
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) 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
Q2) Auditing standards for public companies are established by the:
A) SEC.
B) FASB.
C) PCAOB.
D) IRS.
Answer: C
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Page 5
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) Which of the following resulted in a federal law passed in 1995 that significantly reduced potential damages in securities-related litigation?
A) Private Securities Litigation Reform Act
B) Public Securities Damages and Settlements Act
C) Racketeer Influenced and Corrupt Organization Act
D) U.S. Securities Claims Reform Act
Q3) Distinguish between "joint and several liability" and "separate and proportionate liability."
Q4) Privity of contract exists between:
A) auditor and the federal government.
B) auditor and third parties.
C) auditor and client.
D) auditor and client attorney.
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Chapter 5: Ethics and the Audit Profession
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Sample Questions
Q1) In determining independence with respect to any audit engagement,the ultimate decision as to whether or not the auditor is independent must be made by the: A) auditor.
B) client.
C) audit committee.
D) public.
Q2) Which of the following represents all of the ways a CPA firm can be organized under Rule 505?
A) Proprietorships and partnerships
B) Proprietorships, partnerships, and professional corporations
C) Proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law
D) Single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations
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.
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Chapter 6: Audit Responsibilities and Objectives
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Sample Questions
Q1) If several employees collude to falsify documents,the chance a normal audit would uncover such acts is:
A) very low.
B) very high.
C) zero.
D) none of the above.
Q2) When the auditor identifies or suspects noncompliance with laws and regulations,the auditor:
A) should discuss the matter with those whom they believe committed the illegal act.
B) begin communication with the FASB in accordance with PCAOB regulations.
C) may disclaim an opinion on the basis of scope limitations if he is precluded by management from obtaining sufficient appropriate evidence.
D) should withdraw from the engagement.
Q3) The annual reports of many public companies include a statement about management's responsibilities and relationship with the CPA firm.
A)True
B)False
Q4) List the four phases of a Financial Statement Audit
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8
Chapter 7: Nature and Type of Audit Evidence
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Sample Questions
Q1) 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.
Q2) Which of the following statements is most correct regarding the primary purpose of audit procedures?
A) To detect all errors or fraudulent activities as well as illegal activities
B) To comply with auditing standards promulgated by the PCAOB for publicly held clients
C) To gather corroborative audit evidence about management's assertions regarding the client's financial statements
D) To determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual
Q3) Audit documentation is the joint property of the auditor and the audit client.
A)True
B)False
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Page 9
Chapter 8: Audit Planning
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Sample Questions
Q1) Obtaining sufficient appropriate evidence is essential if the CPA firm is to minimize legal liability.
A)True B)False
Q2) Which of the following best expresses the understanding of the terms of the engagement that exist between the client and the CPA firm?
A) Management asserts there are no errors, material or immaterial, in the general ledger.
B) Auditors assert that the primary audit goal is audit efficiency.
C) Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud.
D) Management asserts that they will provide the auditor with a risk assessment as to material misstatements due to errors or fraud in the company's financial statements.
Q3) Discuss four of the matters that should be specified in an engagement letter.
Q4) The most widely used profitability ratio is return on assets.
A)True
B)False
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Chapter 9: Considering Materiality and Audit Risk
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Sample Questions
Q1) Which of the following statements regarding inherent risk is correct?
A) Inherent risk is unaffected by the auditor's experience with client's organization.
B) Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect.
C) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company.
D) Inherent risk is dependent upon the strengths in client's internal control system.
Q2) As the risk of material misstatement increases,detection risk should:
A) medium increase.
B) decrease.
C) stay the same.
D) Is indeterminate.
Q3) Both overstatements and understatements must be considered when allocating materiality to balance sheet accounts.
A)True
B)False
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11
Chapter 10: Considering Internal Control
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Sample Questions
Q1) An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls.Which of the following would generally not be used?
A) Make inquiries of appropriate client personnel
B) Examine documents, records, and reports
C) Reperform client procedures
D) Inspect design documents
Q2) In developing an understanding of the client's accounting information system the auditor follows a sequential process.Describe the process below:
Q3) To issue a report on internal control over financial reporting for a public company,an auditor must:
A) evaluate management's assessment process.
B) independently assess the design and operating effectiveness of internal control.
C) evaluate management's assessment process and independently assess the design and operating effectiveness of internal control.
D) test controls over significant account balances.
Q4) Define the following terms:
control deficiency,significant deficiency,and material weakness.
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Chapter 11: Considering the Risk of Fraud
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Sample Questions
Q1) PCAOB Standard 5 states that fraud of any magnitude by senior management is at least a significant deficiency in internal controls.
A)True
B)False
Q2) Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?
A) The board of directors
B) The audit committee
C) Management of the company
D) The financial statement auditors
Q3) Management must recognize that almost any employee is capable of committing a dishonest act under the right circumstances.
A)True
B)False
Q4) List and briefly describe the three conditions for fraud.
Q5) The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts.What procedures could the company take to prevent this type of fraud?
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Chapter 12: Implications of Information Technology for the Audit Process
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Sample Questions
Q1) Parallel testing is more expensive than pilot testing.
A)True
B)False
Q2) The embedded audit module approach requires the auditor to insert an audit module in the client's application system to to identify specific types of transactions.
A)True
B)False
Q3) Control risk may be reduced for a company with a complex IT system when compared to a company that relies primarily on manual controls.
A)True
B)False
Q4) If a control total were to be computed on each of the following data items,which would best be identified as a hash total for a payroll IT application?
A) Gross wages earned
B) Employee numbers
C) Total hours worked
D) Total debit amounts and total credit amounts
Q5) Discuss the advantages and benefits of using generalized audit software.
Page 14
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Chapter 13: Developing the Overall Audit Plan and Audit Program
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Sample Questions
Q1) In the context of an audit of financial statements,substantive tests are audit procedures that:
A) may be eliminated under certain conditions.
B) are designed to discover significant subsequent events.
C) are designed to test for dollar misstatements.
D) will increase proportionately with the auditor's reliance on internal control.
Q2) In phase 4 of the audit,complete the audit and issue an audit report,there are five activities required.List below the activities.
Q3) Auditors use analytical procedures and tests of details of balances to satisfy planned detection risk.
A)True B)False
Q4) Tests of controls are performed to support a reduced assessment of detection risk. A)True B)False
Q5) Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.
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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) A document prepared to initiate shipment of the goods sold by an independent shipper is the:
A) sales order.
B) bill of lading.
C) sales invoice.
D) customer order.
Q2) You are part of the audit team that is auditing Hillsburg Hardware Co.and you have been assigned to the sales and collection business process.You are testing whether the cash received has been recorded in the cash receipts journal.(completeness objective /assertion).List two tests of controls and at least one test of transactions that you would do to satisfy yourself regarding the completeness assertion.
Q3) What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?
A) Determination of correct delivery address
B) Credit approval
C) Matching of shipping document with sales invoice
D) Receipt of sales order from the customer
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Page 16
Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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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) Sampling risk results from the auditor's failure to recognize exceptions in transaction data.
A)True
B)False
Q3) Acceptable risk of overreliance is the risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the estimated population exception rate.
A)True
B)False
Q4) One way to evaluate sampling risk when nonstatistical sampling is used is to:
A) subtract the sample exception rate from the tolerable exception rate.
B) add the sample exception rate and the tolerable exception rate.
C) subtract the sample exception rate from the acceptable risk of overreliance.
D) add the sample exception rate and the acceptable risk of overreliance.
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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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Generally accepted accounting principles require that revenue be reported net of sales returns and allowances:
A) if practical.
B) if required by industry practice.
C) if the amounts are material.
D) any of the above.
Q2) An auditor is performing a credit analysis of customers with balances over 60 days due.She is most likely obtaining evidence for which audit related objective?
A) Realizable value
B) Existence
C) Completeness
D) Occurrence
Q3) Confirmation is the most common test of details of balances for the accuracy of accounts receivable.
A)True
B)False
Q4) Describe the differences between positive and negative confirmations.Which type is generally viewed as more reliable?
Page 18
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Chapter 17: Audit Sampling for Tests of Details of Balances
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Sample Questions
Q1) Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.
Q2) As the amount of misstatements expected in the population approaches tolerable misstatement,the planned sample size will:
A) decrease.
B) increase.
C) vary based on characteristics of the population. D) be unaffected.
Q3) 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.
Q4) Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.
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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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Sample Questions
Q1) An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed.If the acquisition is included in accounts payable and purchases,but excluded from inventory,the result:
A) is an understatement of net earnings.
B) is an overstatement of net earnings.
C) is an overstatement of working capital.
D) is an overstatement of owner's equity.
Q2) The acquisition and payment cycle consists of one class of transactions.
A)True
B)False
Q3) Vendors' statements and vendors' invoices are both relatively reliable evidence because they:
A) come directly to the auditor without being in client's possession.
B) originate from a third party.
C) validate the effectiveness of the control system.
D) are compared to and reconciled with sales invoices.
Q4) Discuss the key internal controls that should be present in the processing purchase orders function in the acquisitions and payment cycle.
Q5) What are the three most important controls over cash disbursements? Page 20
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Page 21
Chapter 19: Completing the Tests in the Acquisition and Payment Cycle:
Verification of Selected Accounts
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Sample Questions
Q1) The emphasis in auditing manufacturing equipment is on the verification of current-period disposals and acquisitions.
A)True
B)False
Q2) Which of the following accounts is not associated with the acquisition and payment cycle?
A) Common stock
B) Property, plant and equipment
C) Accrued property taxes
D) Income tax expense
Q3) Which type of audit procedure would normally be sufficient for purposes of auditing prepaid expenses and deferred charges?
A) Tests of controls
B) Tests of transactions
C) Tests of details of balances
D) Analytical procedures
Q4) State four of the seven specific balance-related audit objectives for property,plant,and equipment additions and,for each objective,describe one common test of details of balances.
22
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Chapter 20: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) Controls which provide a means of ensuring that the physical counts are properly summarized,priced at the same amount as the unit records,correctly extended and totaled,and included in the general ledger at the proper amount are known as:
A) standard cost controls.
B) pricing internal controls.
C) compilation internal controls.
D) count quantity internal controls.
Q2) An approved purchase requisition form authorizes shipment of goods to customers. A)True
B)False
Q3) From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?
A) Observation of physical inventory counts
B) Written inventory representations from management
C) Confirmation of inventories in a public warehouse
D) Auditor's recomputation of inventory extensions
Q4) The audit of the inventory and warehousing cycle consists of five parts.State the five parts and,for each part,identify the cycle in which that part is tested by the auditor.
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Page 23
Chapter 21: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) Which of the following errors gives the auditor the least concern in auditing payroll transactions?
A) An error that indicates possible fraud
B) Computational errors in formulas when a computerized system is used
C) Classification errors in charging labor to inventory and job cost accounts
D) Each of the above gives the auditor significant concern.
Q2) Firing personnel terminates the payroll and personnel cycle.
A)True
B)False
Q3) Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle?
A) Payroll transactions are properly disclosed and presented in the notes to the financial statements.
B) Payroll transactions are processed by an outside service provider.
C) Recorded transactions represent valid payments.
D) Recorded transactions are recorded in the proper accounting period.
Q4) Internal control over payroll is normally highly structured and well controlled.
A)True B)False
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) When a company has treasury stock certificates on hand,a year-end count of the certificates by the auditor is:
A) always required.
B) not required if treasury stock is a deduction from stockholders' equity.
C) required when the company classifies treasury stock with other assets.
D) required when the company had treasury stock transactions during the year.
Q2) An auditor is determining whether an issuance of notes payable for cash was correctly recorded.Her best course of action would be to:
A) confirm with the bond trustee as to the amount of bonds issued.
B) confirm with the underwriter as to the appropriate market yield on the bonds.
C) trace the cash received from the proceeds to the accounting records.
D) verify that the amount was included in a footnote disclosure.
Q3) The tests of details of balances procedure which requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the audit objective of:
A) accuracy.
B) existence.
C) detail tie-in.
D) completeness.
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) When auditing financial instruments:
A) the auditor usually performs more extensive substantive testing to reduce reliance on controls.
B) analytical procedures are critical in assessing the year-end balances for financial instruments.
C) the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective.
D) tests of transactions are generally not performed.
Q2) The audit and accounting concern addressed in a monthly proof of cash is with:
A) adjusting account balances.
B) reconciling the amounts recorded in the books with the amounts included in the bank statement.
C) determining the month-end balance.
D) identifying cash transfers.
Q3) When auditing financial instruments,analytical procedures can be used to:
A) test the reasonableness of interest and dividend income.
B) test the year-end balance.
C) determine if the financial instruments were properly valued.
D) determine if the gain or loss on the sales were properly computed.
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Page 26
Chapter 24: Audit Completion
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Sample Questions
Q1) Auditing standards require the auditor's assessment of going-concern issues.
A)True
B)False
Q2) An attorney is responding to an independent auditor as a result of the client's letter of inquiry.The attorney may appropriately limit the response to:
A) asserted claims and litigation.
B) asserted, overtly threatened, or pending claims and litigation.
C) items which have an extremely high probability of being resolved to the client's detriment.
D) matters to which the attorney has given substantive attention in the form of legal consultation or representation.
Q3) Which of the following is not a common audit procedure used to search for contingent liabilities?
A) Examine letters of credit.
B) Examine payroll reports.
C) Review internal revenue agent reports.
D) Analyze legal expense.
Q4) State three items that should be included in a standard "inquiry of attorney" letter.
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Chapter 25: Other Assurance Services
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Sample Questions
Q1) Each page of the financial statements reviewed for a nonpublic entity should include the reference:
A) "These financial statements are unaudited."
B) "We express no assurance on these financial statements."
C) "See independent accountant's review report."
D) "See the audit opinion for the review procedures performed."
Q2) One of the first steps that should be performed for a review of a nonpublic entity's financial statements is to:
A) read the financial statements.
B) obtain knowledge of the accounting principles and practices of the client's industry.
C) inquire whether management has omitted substantially all of the disclosures required by applicable accounting standards.
D) apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.
Q3) Draft a report that would be appropriate when an independent accountant has performed a compilation of financial statements with disclosures in accordance with accounting principles generally accepted in the United States of America.
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Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Sample Questions
Q1) An operational auditor may use "engineered standards" as an evaluation criteria. A)True
B)False
Q2) In addition to an opinion on whether the financial statements are in accordance with GAAP,identify four other reports required by the OMB Circular A-133.
Q3) Extensive professional development is necessary for auditors doing governmental audits.
A)True
B)False
Q4) Which of the following is most correct with regard to the comparison of the financial auditing standards of the Yellow Book with the principles of the AICPA auditing standards?
A) The same as B) Quite different from C) Incompatible with D) Consistent with
Q5) Discuss each of the three phases of an operational audit.
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Q6) The Institute of Internal Auditors has established Ethical Principles for its members.List each of the principles.