Audit and Assurance
Final Test Solutions
Course Introduction
Audit and Assurance provides students with a comprehensive understanding of the principles and procedures of auditing, emphasizing both theoretical frameworks and practical applications. The course covers the regulatory environment, ethical considerations, risk assessment, internal controls, evidence collection, and the auditing process from planning to reporting. Students learn about different types of audits, including statutory, internal, and operational audits, and acquire skills to evaluate financial statements for fairness and compliance with accounting standards. The course also explores current challenges and developments in the field, including the impact of technology and evolving standards on audit practice.
Recommended Textbook
Auditing A Risk Based Approach to Conducting a Quality Audit 10th Edition by Karla Johnstone
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17 Chapters
1898 Verified Questions
1898 Flashcards
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Chapter 1: Auditing: Integral to the Economy
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Which phase of the audit opinion formulation process is most commonly thought of as auditing by the general public?
A) Performing risk assessment.
B) Obtaining evidence about internal controls.
C) Obtaining substantive evidence about accounts.
D) Making reporting decisions.
Answer: C
Q2) The PCAOB is a public board, appointed by Congress, to provide oversight of the firms that audit public companies registered with the SEC.
A)True
B)False
Answer: False
Q3) The FASB is responsible for creating International Financial Reporting Standards. A)True
B)False
Answer: False
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Chapter 2: The Auditors Responsibilities Regarding Fraud
and Mechanisms to Address Fraud: Regulation and Corporate Governance
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following facts should be communicated by the auditor to the audit committee?
A) The auditor's responsibilities under GAAP.
B) Significant difficulties they had with management during the conduct of the audit.
C) Significant accounting policies.
D) All are required communications.
Answer: D
Q2) Which of following best describes the audit committee's oversight responsibility?
A) Provide oversight of reporting outside the organization.
B) Provide oversight of internal auditing function.
C) Provide oversight of the external audit.
D) All of the above.
Answer: D
Q3) Management always uses journal entries to commit fraud because they are not reviewed by auditors.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Internal Control Over Financial Reporting:
Responsibilities of Management and the External Auditors
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Controls to monitor results of operations are considered to be transaction controls.
A)True
B)False
Answer: False
Q2) Which of the following is an example of a physical control to safeguard assets?
A) Hiring only trustworthy cashiers.
B) Separation of duties.
C) Locks on the warehouse doors.
D) Safety audits on the production-line.
Answer: C
Q3) Which component of COSO's internal control system concerns the process that provides feedback on the effectiveness of the other four components of internal control?
A) Information and communication.
B) Monitoring.
C) Control activities.
D) Risk assessment.
Answer: B
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Page 5
Chapter 4: Professional Liability, Auditor Judgment
Frameworks, and Professional Responsibilities
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) Rule 102, Integrity and Objectivity,of the AICPA Professional Code of Conduct, does not apply to a CPA who is a corporate CFO.
A)True
B)False
Q2) Professional Skepticism.
Explain why professional skepticism is important in making professional judgments. What are the types of actions that a professionally skeptical auditor will take?
Q3) Independence is required for which of the following types of services?
A) Audit work.
B) Tax work.
C) Consulting.
D) Independence is always required of the CPA.
Q4) Expectations Gap. What is the expectations gap?
Q5) Confidentiality is the cornerstone of the auditing profession.
A)True
B)False
Q6) The importance of independence. Why is "independence" referred to as the cornerstone of auditing?
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Chapter 5: Professional Auditing Standards and the Audit
Opinion Formulation Process
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) U.S. auditing standards recommend that a successor auditor on an initial audit obtain client permission to communicate with the predecessor auditor.
A)True
B)False
Q2) There are nine specific actions an auditor can undertake to collect evidence. Identify each action and provide an example.
Q3) The effectiveness of entity-wide controls may reduce the extent of testing of transaction controls.
A)True
B)False
Q4) Auditors are responsible for having the appropriate competence and capabilities to perform the audit, should comply with ethical requirements, and maintain professional skepticism throughout the audit.
A)True
B)False
Q5) Comparability is one of the five management assertions.
A)True
B)False
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Chapter 6: A Framework for Audit Evidence
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Which of the following is a factor that the auditor should consider as they affect the reliability and relevance of information produced by a management's specialist?
A) Competence, capabilities, and objectivity of that specialist.
B) Work performed by that specialist.
C) Appropriateness of that specialist's work as audit evidence for the relevant assertion.
D) All of the above.
Q2) The auditor multiplies the quantity of inventory on the inventory ledger by the cost of the inventory to arrive at total inventory balance per product number. This is an example of recalculation by footing.
A)True
B)False
Q3) Vouching recorded transactions involves taking a sample entry from a journal and obtaining the original source documents to ensure the transaction occurred.
A)True
B)False
Q4) Audit program.
Discuss the purpose of the audit program and its importance to the auditor.
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8
Chapter 7: Planning the Audit: Identifying and Responding to the
Risks of Material Misstatement
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Which of the following risk factors suggests a heightened level of risk of material misstatement?
A) Having a stable product.
B) The departure of key personnel of a company.
C) Few immaterial related-party transactions.
D) Declining a merger with another company.
Q2) Which of the following are two frequently used preliminary analytical procedures?
A) Reasonableness tests and economic analyses.
B) Trend analyses and reasonableness tests.
C) Ratio analyses and economic analyses.
D) Ratio analyses and trend analyses.
Q3) Which of the following would be a reason that industry and client data were not directly comparable?
A) Broad industry.
B) Use of different accounting principles.
C) Neither of the above.
D) Both A & B are correct.
Q4) Brainstorming.
What are the steps of the brainstorming process?
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Chapter 8: Specialized Audit Tools: Sampling and
Generalized Audit Software
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Evaluating statistical sample results is one of the tasks that can be performed by GAS.
A)True
B)False
Q2) The tolerable misstatement is the confidence level needed to infer population values.
A)True
B)False
Q3) By using Generalized Audit Software (GAS), the auditor can potentially audit the whole population rather than taking a sample.
A)True
B)False
Q4) Which of the following is not considered to be non-sampling risk?
A) Misinterpretation of information.
B) Use of improper audit procedure.
C) The sample does not represent the population.
D) Carelessness of the auditor.
Q5) Advantages of MUS sampling. Discuss the advantages of monetary unit sampling over other sampling methods.
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Chapter 9: Auditing the Revenue Cycle
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The risk of material misstatement due to fraud relating to revenue recognition should be
A) approached in a manner that is identical to control risk assessment.
B) given lower priority to the risk of embezzlement.
C) ordinarily presumed by the auditor.
D) assumed to have been considered by the FASB.
Q2) Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables?
A) The auditor allows the client's staff to prepare the confirmation letters after the auditor has chosen the items to be confirmed.
B) The auditor allows the client to sign the confirmations after they are prepared.
C) The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters.
D) The auditor asks the addressee to return the confirmation to the audit firm's office.
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Chapter 10: Auditing Cash and Marketable Securities
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following procedures does the auditor typically perform when testing the existence of cash?
A) Counting cash at the depository institution.
B) Inquiry of management.
C) Sending a standard bank confirmation.
D) Tracing the bank reconciliation to the general ledger.
Q2) In assessing risk relating to fraud, auditors brainstorm about potential fraud risks.
A)True
B)False
Q3) Auditing marketable securities
List the common substantive procedures used to address the risks relating to fraud in investments:
Q4) Which of the following is not an internal control the auditor would expect to find in place for all cash processing systems?
A) Restrictive endorsement of checks.
B) Independent reconciliation.
C) Walkthrough.
D) Prenumbered cash receipt documents.
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Chapter 11: Auditing Inventory, Goods and Services, and
Accounts Payable: the Acquisition and Payment Cycle
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The cash account is not part of the acquisitions and payment cycle.
A)True
B)False
Q2) The auditor may discover that the recorded cost of inventory exceeds the designated market price when testing which assertion?
A) Existence.
B) Cutoff.
C) Valuation.
D) Rights.
Q3) In observing the client's inventory at year-end the auditor makes test counts that are later traced into the client's inventory compilation.
A)True
B)False
Q4) Valuation is the most complex assertion related to inventory.
A)True
B)False
Q5) Acquisition and payment processes. What are the five major phases of the acquisition and payment process?
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Chapter 12: Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) If preliminary analytical procedures identify some unexpected relationships, the auditor would conclude that there may be a heightened risk of material misstatements.
A)True
B)False
Q2) An inherent risk associated with intangible assets such as a patent is the accounting for research and development costs
A)True
B)False
Q3) To identify any possible impairment of manufacturing equipment, the auditor can tour the facility during operations to determine if any of the machines are idle.
A)True
B)False
Q4) Audit approach for leases.
Describe the substantive procedures typically used to test leases.
Q5) Relevant assertions for long-lived assets
List the five management assertions relevant for long-lived assets and explain how each one is relevant.
Page 14
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Chapter 13: Auditing Debt Obligations and Stockholders
Equity Transactions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following is not an inherent risk typically associated with recording debt transactions?
A) Interest expense not being properly recorded.
B) Failure to accrue interest expense.
C) Debt not being properly classified.
D) Debt not being properly authorized.
Q2) Which of the following would the auditor consider as part of the control environment related to debt obligations?
A) Inquiry of trustee regarding the registration of current bondholders and distribution of interest payments.
B) Recalculation of the underwriter's commission.
C) Independence of the board of directors with respect to long-term financing.
D) Inspection of documentation to confirm refinancing of debt.
Q3) Normally, an auditor can gain an understanding of internal controls by means of a walkthrough of the process, inquiry, observation, and review of the client's documentation.
A)True
B)False
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Chapter 14: Activities Required in Completing a Quality Audit
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) If a lawyer refuses to furnish the requested information about the client's contingencies to the auditor, the auditor should issue an unqualified audit opinion.
A)True
B)False
Q2) Most audit firms use a schedule to accumulate the known and projected misstatements and the carryover effects of prior-year uncorrected misstatements. Which of the following statements regarding this process is false?
A) Adjustments made to correct the financial statements are referred to as booked. B) Possible adjustments to the financial statements that are left uncorrected are referred to as waived.
C) Tax effects are not shown on schedules of correcting errors.
D) The nature of the misstatement, as well as the quantitative amount, is considered in the judgment of materiality.
Q3) Audit firm portfolio management decisions are not important in achieving audit quality.
A)True
B)False
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Page 16
Chapter 15: Audit Reports on Financial Statements
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) If the auditor believes that there is a remote probability that resolution of an uncertainty will have a material effect on the financial statements, which of the following would the auditor issue?
A) A disclaimer of opinion.
B) A standard unqualified opinion.
C) An adverse opinion.
D) An unqualified opinion with explanatory paragraphs.
Q2) An emphasis of a matter may result in which of the following?
A) A disclaimer of an audit opinion.
B) A qualified audit opinion.
C) An adverse opinion.
D) An unqualified audit opinion with an explanatory paragraph either before or after the opinion paragraph.
Q3) A client that treats a material lease transaction as an operating lease when it is in fact a capital lease has deviated from GAAP and will receive a qualified or adverse opinion.
A)True
B)False
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17
Chapter 16: Advanced Topics Concerning Complex
Auditing Judgments
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132 Verified Questions
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Sample Questions
Q1) The significant judgments of "Assets of Held-for-Sale Operations" are subject to impairment testing based on the most likely sale or disposal price.
A)True
B)False
Q2) Under which of the following approaches is the client expected to estimate fair value based on a model of the future cash flows associated with the instrument or the asset?
A) Mark to market model.
B) Replacement model.
C) Mark to model.
D) Historical cost model.
Q3) The SEC's position is generally that if management refuses to correct a material misstatement, then the auditor is obligated to issue a qualified or an adverse opinion on the financial statements.
A)True
B)False
Q4) The auditor considers materiality only at the overall financial statement level.
A)True
B)False
Page 18
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Chapter 17: Other Services Provided by Audit Firms
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107 Verified Questions
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Sample Questions
Q1) Which one of the following statements is false regarding a review?
A) A review involves assessing fraud risk.
B) A review does not involve obtaining an understanding of the entity's internal control.
C) A review does not involve testing accounting records by obtaining sufficient appropriate evidence through inspection, observation, confirmation, or examining source documents.
D) A review does not involve a practitioner obtaining assurance that he or she will become aware of all significant matters that would be investigated in an audit.
Q2) A special purpose framework can use a cash basis financial reporting framework.
A)True
B)False
Q3) Which of the following engagements is sometimes referred to as bookkeeping services?
A) Reviews.
B) Special reports.
C) Compilations.
D) Audits.
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Page 19