Auditing Exam Practice Tests
Course Introduction
Auditing is a course that introduces students to the principles, concepts, and procedures involved in examining financial statements and supporting records for accuracy and compliance with established standards. The course covers the auditors role, ethical and legal responsibilities, audit planning, evidence gathering techniques, internal control evaluation, risk assessment, and the preparation of audit reports. It emphasizes both theoretical foundations and practical application in real-world contexts, providing students with essential skills for careers in public accounting, corporate finance, 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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Page 2
Chapter 1: The Assurance Services Market
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47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/51813
Sample Questions
Q1) Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):
A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.
D) tax service.
Answer: B
Q2) Which of the following services provides the lowest level of assurance on a financial statement?
A) A review
B) An audit
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.
Answer: A
Q3) The criteria by which an auditor evaluates the information under audit may vary with the information being audited.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Audit Standards Setting Process
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Professional skepticism must be maintained only if the auditor suspects fraud.
A)True
B)False
Answer: False
Q2) When assessing the risk of material misstatements in the financial statements,
A) inadequate internal control procedures will mitigate client business risk.
B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain.
C) company management is responsible for determining materiality levels.
D) the auditor must have an understanding of the client's business and industry.
Answer: D
Q3) The "Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles" provides a framework to help auditors:
A) understand the ten GAAS standards.
B) obtain complete assurance that the financial statements are free from any error.
C) report on the financial statements.
D) prevent fraud.
Answer: C
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4
Chapter 3: Audit Reports
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) After the auditor determines whether any conditions exist which require a departure from a standard unqualified report,the next step in the decision process for audit reports is to:
A) write the report.
B) decide the materiality for each condition.
C) decide the appropriate type of report for the condition.
D) discuss the report with management.
Answer: B
Q2) Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances.
A)True
B)False
Answer: True
Q3) Client imposed restrictions on the audit always require a disclaimer of opinion. A)True
B)False
Answer: False
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Page 5
Chapter 4: Legal Liability Considerations for Auditors
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) In which case were auditors prosecuted for filing false financial statements for a client with the government?
A) United States v. Natelli
B) United States v. Simon
C) Escott et al. v. Bar Chris
D) ESM Government Securities v. Alexander Grant & Co.
Q2) Under the Securities Act of 1933:
A) any party who relies on the company's audited financial statements can recover from the auditors.
B) third-party users must prove that the auditor was negligent.
C) the burden of proof is on the defendant.
D) auditors face potential legal exposure for information contained in the Form 10-Q.
Q3) A CPA is subject to criminal liability if the CPA:
A) refuses to turn over requested audit documentation to a client.
B) performs an audit in a negligent manner.
C) is knowingly involved with false financial statements.
D) willfully breaches a contract with a client.
Q4) Define ordinary negligence,gross negligence,and constructive fraud.
Q5) Distinguish between what is meant by business failure and audit failure.
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Chapter 5: Ethics and the Audit Profession
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) A CPA firm may practice public accounting only in a form of organization permitted by federal law or regulation.
A)True
B)False
Q2) Each of the following situations involves a possible violation of the rule on independence.For each situation,(1)decide whether the Code of Professional Conduct has been violated,and (2)briefly explain how the situation violates (or does not violate)the Code of Professional Conduct.
a.Harry Brown is a partner in the Topeka office of Hedley & Co.,CPAs.Harry's brother is employed in an audit-sensitive position by Jensen Appliances,a publicly held company in Kansas.Jensen Appliances is one of Hedley & Co.'s audit clients.Neither Harry nor personnel from the Topeka office is involved in the audit of Jensen. Violation?
Yes No
Q3) The Conceptual Framework for AICPA Independence Standards can be used when making decisions on ethical matters not explicitly addressed in the Code.
A)True
B)False
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Chapter 6: Audit Responsibilities and Objectives
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Discuss the differences in the auditor's responsibilities for discovering (1)material errors,(2)material fraud (3)illegal acts having a direct effect on the financial statements,and (4)illegal acts that do not have a direct effect on the financial statements.
Q2) A questioning mindset:
A) means the auditor must prove every statement that management makes to them.
B) means the auditor should approach the audit with a "do not trust anyone" mental outlook.
C) assures that the auditor will only accept honest clients.
D) means the auditor should approach the audit with a "trust but verify" mental outlook.
Q3) One of the characteristics of professional skepticism is ________,which is the conviction to decide for oneself,rather than accepting the claims of others.
A) interpersonal understanding
B) autonomy
C) suspension of judgment
D) self-esteem
Q4) Briefly explain each management assertion related to presentation and disclosure.
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Chapter 7: Nature and Type of Audit Evidence
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which of the following is a correct statement regarding confirmations?
A) Confirmations can be in oral or written form.
B) Electronic confirmations are not acceptable under generally accepted auditing standards.
C) Confirmations are generally used in the audit of fixed asset additions.
D) Auditors consider alternative evidence available when determining if confirmations should be used.
Q2) You are auditing the company's purchasing process for goods and services.You are primarily concerned with the company not recording all purchase transactions.Which audit procedure below would be the most effective audit procedure in this case?
A) Vouching from the accounts payable account to the vendor invoices
B) Tracing vendor invoices to recorded amounts in the accounts payable account
C) Confirmation accounts payable recorded amounts
D) Reconciling the accounts payable subsidiary ledger to the accounts payable account
Q3) Confirmations are ordinarily used to verify account balances,but may be used to verify transactions.
A)True
B)False
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9
Chapter 8: Audit Planning
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Which of the following is a correct statement regarding analytical procedures?
A) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals.
B) Common-size financial statements display all items as a percentage change from a base year.
C) Auditors should investigate the most significant differences between budgeted and actual results.
D) In order to look for a misstatement in the allowance for bad debts, the auditor should divide gross sales by sales returns and allowances.
Q2) Management's philosophy and operating style influence the risk of material misstatements in the financial statements.
A)True
B)False
Q3) Transactions with related parties must be disclosed in the financial statements if they are deemed to be material.
A)True
B)False
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Chapter 9: Considering Materiality and Audit Risk
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) The measurement of the auditor's assessment of the likelihood that there are material misstatements due to error or fraud in a segment before considering the effectiveness of internal controls is defined as:
A) audit risk.
B) inherent risk.
C) sampling risk.
D) detection risk.
Q2) If the total misstatement of an account is known,a sampling error still needs to be determined.
A)True
B)False
Q3) When allocating performance materiality:
A) it is easy to predict in advance which accounts are mot likely to be misstated.
B) only overstatements need to be considered.
C) professional judgment is critical.
D) the sum of all the performance materiality levels cannot exceed the preliminary judgment about materiality.
Q4) Why do auditors use the audit risk model when planning an audit?
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11
Chapter 10: Considering Internal Control
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Internal controls can never be regarded as completely effective.Even if company personnel could design an ideal system,its effectiveness depends on the:
A) adequacy of the computer system.
B) proper implementation by management.
C) ability of the internal audit staff to maintain it.
D) competency and dependability of the people using it.
Q2) Audit evidence regarding the separation of duties is normally best obtained by:
A) preparing flowcharts of operational processes.
B) preparing narratives of operational processes.
C) observation of employees applying control activities.
D) inquiries of employees applying control activities.
Q3) When dealing with the documentation of internal control:
A) in a narrative, most questions simply require a "yes" or "no" response.
B) questionnaires offer useful checklists to remind the auditor of the many different types of internal controls that should exist.
C) questionnaires and flowcharts should not be used together.
D) flowcharts fail to show the segregation of duties in the company.
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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93 Verified Questions
93 Flashcards
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Sample Questions
Q1) Auditors may identify conditions during fieldwork that change or support a judgment about the initial assessment of fraud risks.Which of the following is not a condition which should alert an auditor that the initial assessment should be changed?
A) The subsidiary ledger agrees to the general ledger.
B) Discrepancies in the accounting records
C) Unusual relationships between the auditor and management
D) Missing or conflicting evidence
Q2) When analyzing accounts for fraud risk:
A) companies will generally attempt to overstate accounts payable and net income.
B) the inventory account is generally not susceptible to fraud since the auditor must verify the existence of the inventory.
C) payroll is rarely a significant risk for fraudulent financial reporting.
D) fixed assets are rarely stolen because of their large size.
Q3) Define fraud and distinguish between the two main categories of fraud.
Q4) Information and idea exchange sessions by the audit team are required by current auditing standards.
A)True
B)False
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Chapter 12: Implications of Information Technology for the Audit Process
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Discuss how the integration of IT into accounting systems enhances internal control.
Q2) General controls in smaller companies are usually less effective than in more complex IT environments.
A)True
B)False
Q3) IT controls are classified as either input controls or output controls.
A)True
B)False
Q4) Define control for general controls and application controls.Also list the categories of controls included under general controls and application controls.
Q5) The most important output control is:
A) distribution control, which assures that only authorized personnel receive the reports generated by the system.
B) review of data for reasonableness by someone who knows what the output should look like.
C) control totals, which are used to verify that the computer's results are correct.
D) logic tests, which verify that no mistakes were made in processing.
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Chapter 13: Developing the Overall Audit Plan and Audit Program
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94 Verified Questions
94 Flashcards
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Sample Questions
Q1) What type of test is used to obtain the most types of evidence?
A) Substantive tests of transactions
B) Tests of controls
C) Risk assessment tests
D) Tests of details of balances
Q2) Which audit tests involve physical examination and confirmation?
A) Tests of controls
B) Tests of transactions
C) Tests of balances
D) Analytical procedures
Q3) Many auditors perform extensive analytical procedures on audits because:
A) they are required by GAAS.
B) they pinpoint errors in accounts.
C) they indicate areas of potential risk and misstatement.
D) they are required for tests of controls.
Q4) The auditor's understanding of internal control performed as part of risk assessment procedures provides the basis for the auditor's initial assessment of control risk.
A)True
B)False
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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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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) A sales invoice is a document that usually indicates credit approval.
A)True
B)False
Q2) An audit procedure that compares the name,amount,and dates shown on remittance advices,either paper of electronic via direct deposit,with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting: A) kiting.
B) lapping.
C) illicit write-offs of customers as uncollectible accounts.
D) sales without proper credit authorization.
Q3) When auditors evaluate sales returns and allowances,a primary emphasis is on the objective of occurrence.
A)True
B)False
Q4) In converting from a design format audit program to a performance format audit program,procedures are combined.
A)True
B)False
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Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) When defining the population:
A) it may be necessary to define separate populations for different audit procedures.
B) the auditor may generalize only about the population that has been sampled.
C) auditors can define the population to include any items they want.
D) all of the above.
Q2) Briefly explain why auditors utilize audit sampling.
Q3) In nonstatistical sampling,the calculated sampling error is the difference between the tolerable exception rate and the sample exception rate.
A)True
B)False
Q4) Auditors often use the ________ to determine the estimated population exception rate.
A) current year's audit results
B) tolerable exception rate
C) preceeding year's audit results
D) estimated computed by management
Q5) A sample of all items in a population will have a zero sampling risk.
A)True
B)False
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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) Audit procedures designed to uncover credit sales made after the client's fiscal year end that relate to the current year being audited provide evidence for which of the following audit objective?
A) Realizable value
B) Accuracy
C) Cutoff
D) Existence
Q2) Blank confirmations are considered less reliable than standard positive confirmations.
A)True
B)False
Q3) List three of the major factors affecting sample size for confirming accounts receivable.
Q4) When an auditor uses negative confirmations,several factors must be considered.What are those factors?
Q5) The criterion used by most merchandising and manufacturing clients for determining when revenue recognition takes place is whether title to the goods has passed.
A)True
B)False
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Chapter 17: Audit Sampling for Tests of Details of Balances
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Acceptable risk of incorrect acceptance is directly affected by acceptable audit risk.
A)True
B)False
Q2) If the misstatement in a population is larger then tolerable misstatement without considering sampling error,the population will be considered unacceptable.
A)True
B)False
Q3) Consider the steps in sampling for tests of details and for tests of controls.Explain the differences in applying sampling to these two types of tests.
Q4) If the auditor believes that there will be more than just a few exceptions discovered,and desires an accurate estimate of the dollar value of the exceptions,he or she will use:
A) attributes sampling.
B) monetary unit sampling.
C) block sampling.
D) variables sampling.
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Chapter 18: Audit of the Acquisition and Payment Cycle:
Tests of Controls, Substantive Tests of Transactions, and Accounts Payable
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Failure to record the acquisition of goods is a violation of which audit objective?
A) Accuracy
B) Occurrence
C) Authorization
D) Completeness
Q2) Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.
Q3) Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence?
A) Examine documents in voucher package for occurrence.
B) Examine supporting documents for indication of approval.
C) Account for sequence of vouchers.
D) Attempt to input transactions with valid and invalid vendors.
Q4) Describe the audit procedures typically used to test for out-of-period liabilities (also referred to as the search for unrecorded accounts payable).
Q5) Describe purchase requisitions and purchase orders.What is a key difference between the two documents?
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Chapter 19: Completing the Tests in the Acquisition and Payment
Cycle: Verification of Selected Accounts
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101 Verified Questions
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Sample Questions
Q1) Depreciation expense is normally verified as a part of tests of details of balances rather than as part of tests of controls or substantive tests of transactions.
A)True
B)False
Q2) You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts.Which of the following audit procedures is most likely to achieve your objective?
A) Examine vendor invoices and receiving reports.
B) Physically examine assets.
C) Examine vendor invoices of closely related accounts such as repairs and maintenance.
D) Trace individual acquisitions to the fixed asset master file.
Q3) The estimated unpaid obligations for services or benefits that have been received before the balance sheet date are:
A) accounts payable.
B) accounts receivable.
C) unearned liabilities.
D) accrued liabilities.
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Chapter 20: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) Handling the receipt of ordered goods is a part of the ________ cycle.
A) purchasing
B) acquisition and payment
C) inventory
D) inventory and warehousing
Q2) The first step in verifying the valuation of purchased inventory is in determining the valuation method used by the client.The next step is:
A) determining that all inventory that is purchased is expensed through cost of goods sold.
B) determining which costs should be included in the valuation of an item of inventory.
C) determining that all inventory on hand reconciles to the perpetual inventory records.
D) determining that cut-off procedures have been adhered to prior to counting inventory.
Q3) Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.
Q4) Discuss the key control procedures relating to the client's physical count of inventory.
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22
Chapter 21: Audit of the Payroll and Personnel Cycle
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Which of the following is not one of the business functions for the payroll and personnel cycle?
A) Payment of payroll
B) Timekeeping and payroll preparation
C) Reconciliation of payroll account
D) Human resources and employment
Q2) Auditors should determine whether the client has fulfilled its legal obligation in submitting payments of all payroll withholdings as part of their payroll tests.
A)True
B)False
Q3) Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount:
A) in the expense account.
B) used in the prior period.
C) authorized in the minutes of the board.
D) paid in the subsequent period.
Q4) What types of audit procedures are typically emphasized during the audit of the payroll cycle?
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) The two most important balance related audit objectives for notes payable are:
A) completeness and detail tie-in.
B) completeness and valuation.
C) accuracy and valuation.
D) accuracy and completeness.
Q2) State the four most important audit objectives for capital stock and describe how the auditor typically verifies each of the four objectives.
Q3) All of the following are owners' equity accounts except for:
A) common stock.
B) paid-in-capital in excess of par.
C) sales.
D) retained earnings.
Q4) Examining the minutes of the board of directors' meetings for proper authorization ordinarily tests the occurrence objective for capital stock transactions.
A)True
B)False
Q5) Discuss the four characteristics of the capital acquisition and repayment cycle that make it unique from other cycles.
24
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) Explain what is meant by a cutoff bank statement,and discuss the purpose of the cutoff bank statement in the audit of cash.
Q2) Tracing outstanding checks to subsequent period bank statements tests the cutoff audit objective.
A)True
B)False
Q3) A proof of cash is not an effective procedure for identifying which of the following types of misstatements?
A) All recorded disbursements were paid by the bank.
B) All recorded cash receipts were deposited.
C) All amounts that were paid by the bank were recorded.
D) Some checks were written for incorrect amounts.
Q4) As part of their internal control procedures,management needs to have procedures in place to properly classify financial instruments as trading,available-for-sale,or held-to-maturity,based on:
A) cost.
B) intent.
C) maturity.
D) probable future gain or loss.
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Chapter 24: Audit Completion
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Sample Questions
Q1) Which of the following is correct regarding supplementary information?
A) The auditor must express an opinion on the supplementary information.
B) When reporting on supplementary information, the auditor uses a different materiality threshold from that used in forming an opinion on the basic financial statements.
C) If the auditor's report on the audited financial statements contains an adverse opinion, the auditor can still issue an unqualified opinion on the supplementary information.
D) The auditor can issue a separate report on the supplementary information; it does not need to be part of the report on the financial statements.
Q2) List four specific matters that should be included in a client representation letter.
Q3) If the client refuses to prepare and sign a letter of representation,the auditor would be required to issue either a qualified opinion or a disclaimer of opinion.
A)True
B)False
Q4) State the three purposes of the client letter of representation.
Q5) Distinguish between contingent liabilities and commitments.
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Chapter 25: Other Assurance Services
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Sample Questions
Q1) Practitioners who perform reviews and compilations are referred to in the SSARS standards as:
A) bookkeepers.
B) accountants.
C) auditors.
D) CPAs.
Q2) CPAs must be independent to issue a compilation report.
A)True
B)False
Q3) As a CPA,you have been engaged to perform an attestation engagement.You would typically:
A) express a conclusion about an assertion.
B) provide management consulting services.
C) prepare financial forecasts to secure in preparation for receiving debt funding.
D) compile financial statements for the client.
Q4) Define forecast and projection.
Q5) Review reports are normally dated as of the client's balance sheet date. A)True B)False
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Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Sample Questions
Q1) Effectiveness is concerned with whether defined goals are achieved,whereas efficiency is concerned with whether the goals are achieved with a minimum use of resources.
A)True B)False
Q2) One disadvantage of functional auditing is the failure to evaluate interrelated functions.
A)True B)False
Q3) Extensive professional development is necessary for auditors doing governmental audits.
A)True
B)False
Q4) The two most important qualities for an operational auditor are:
A) personality and appearance.
B) independence and competence.
C) competence and technical training.
D) academic background and sufficient experience.
Page 28
Q5) How do the risk and materiality thresholds change in a government audit compared to a financial statement audit of a public company?
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