Auditing Solved Exam Questions
Course Introduction
Auditing is a comprehensive course that introduces students to the principles, procedures, and ethical considerations involved in the examination of financial statements and operational processes. The course covers the audit process from planning to completion, including risk assessment, evidence gathering, internal controls evaluation, and the issuance of audit reports. Students will learn about the regulatory framework governing auditing, the roles and responsibilities of auditors, and current trends in the field such as technology in auditing and fraud detection. Emphasis is placed on real-world applications, critical thinking, and the development of professional judgment necessary for conducting independent audits in a variety of business settings.
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
Source URL: https://quizplus.com/quiz/21875
Sample Questions
Q1) A bank using Milton Company's financial statements to determine the creditworthiness of a potential loan to Milton is a good example of the need for unbiased reporting.
A)True
B)False
Answer: True
Q2) Audit Quality.
What are three drivers of audit quality according to the Financial Reporting Council (FRC)'s "The Audit Quality Framework"?
Answer: There are five primary drivers of audit quality, including (1) audit firm culture, (2) the skills and personal qualities of audit partners and staff, (3) the effectiveness of the audit process, (4) the reliability and usefulness of audit reporting, and (5) factors outside the control of auditors that affect audit quality.
Q3) If the auditor has no reservations about management's financial statements then the auditor will issue a qualified opinion.
A)True
B)False
Answer: False
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3
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) Rationalization involves the mindset of the fraudster to justify committing the fraud.
A)True
B)False
Answer: True
Q2) Auditors are responsible to fraud even if it has an immaterial effect on the financial statements.
A)True
B)False
Answer: False
Q3) The landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related, unconsolidated entities.
A)True
B)False
Answer: True
Q4) Rationalization is one element of the Fraud Triangle.
A)True
B)False
Answer: True
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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) An organization's commitment to integrity is demonstrated through the tone set by the board and management.
A)True
B)False
Answer: True
Q2) Which one of the following is an example of an internal risk for an organization?
A) Changes in internal information technology.
B) Increases in substitute services or products.
C) Changes in the reliability of source goods.
D) Changes in regulation that make the business model unsustainable.
Answer: A
Q3) Which of the following is considered to be a transaction control?
A) Controls to monitor other controls.
B) Policies that address significant business control practices.
C) Centralized processing controls.
D) Physical controls to safeguard assets.
Answer: D
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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) What does utilitarian theory hold?
A) There is a decision that exists that is optimal for all people.
B) What is ethical is the action that achieves the least bad for the greatest number of people.
C) What is ethical is the action that achieves the greatest good for the greatest number of people.
D) What is ethical is the action that achieves the greatest good for all people.
Q2) There is a hierarchy of rights to consider when applying rights theory.
A)True
B)False
Q3) In which of the following situations would a CPA be considered independent?
A) A CPA's brother is the Vice-President of Sales at the CPA's audit client.
B) A CPA's father was a salesman at the CPA's audit client and now a major portion of the father's pension fund is invested in the audit client.
C) A CPA's cousin works as a web-site designer at the audit client.
D) A CPA's son works summers at the audit client and has earned 10 shares of stock in the audit client.
Q4) The importance of independence. Why is "independence" referred to as the cornerstone of auditing?
Page 6
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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) What does business risk include?
A) Economic factors.
B) Competitive factors.
C) Regulatory risk.
D) All of the above.
Q2) The standards of competence, independence, and due professional care are covered by which section of the generally accepted auditing standards?
A) General standards.
B) Standards of fieldwork.
C) Reporting standards.
D) None of the above.
Q3) For an integrated audit, the auditor's opinion about internal control effectiveness is based on control effectiveness at year-end as opposed to throughout the year.
A)True
B)False
Q4) The PCAOB does not currently have a mandate for convergence with other auditing standards.
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) Appropriateness of evidence is a measure of which of the following?
A) Quantity of evidence.
B) Quality of evidence.
C) Sufficiency of evidence.
D) Meaning of evidence.
Q2) While inspecting documents, auditors should use original documents rather than copies, because copies are easy for management to falsify.
A)True
B)False
Q3) Inspection of tangible assets generally provides reliable evidence with the respect to the completeness of the assets, but not necessarily about the existence of the assets.
A)True
B)False
Q4) Internal documentation is more reliable to the auditor if the internal control surrounding the documentation is considered strong than if it is considered weak.
A)True
B)False
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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) A company's history of exactly meeting analyst estimates is a factor which could lead auditors to assess inherent risk at a higher level.
A)True
B)False
Q2) Which of the following best describes what is meant by the timing of risk response?
A) Where procedures are conducted.
B) When procedures are conducted.
C) How procedures are conducted.
D) Who conducts the procedures.
Q3) Which of the following statements is false?
A) Inherent risk is inversely related to the level of control risk.
B) Inherent risk is directly related to the amount of evidence required in account testing.
C) Inherent risk is the susceptibility of the financial statements to material misstatement, assuming no internal controls.
D) Inherent risk and control risk are assessed by the auditor and controlled by the client.
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9
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) Planning and documentation of an attribute sampling plan. What are the steps to implement an attribute sampling plan?
Q2) Sampling risk deals with which of the following?
A) Not carrying out the appropriate audit procedure.
B) Drawing an incorrect inference from the sample results.
C) Inappropriately diagnosing client's problems.
D) Both A and C.
Q3) Evaluating statistical sample results is one of the tasks that can be performed by GAS.
A)True
B)False
Q4) Sampling risk is defined as the risk that an inference drawn from a sample will be incorrect.
A)True
B)False
Q5) Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling.
A)True
B)False
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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) One of the benefits of establishing a formal credit policy for granting credit is that management is freed from the burden of monitoring accounts receivable.
A)True
B)False
Q2) According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?
A) On every audit engagement.
B) If the client agrees in writing to the procedure.
C) If the balance is material.
D) If environmental risk is low.
Q3) A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?
A) Use of prenumbered shipping, invoice and sales documents.
B) Use of prenumbered statements, inventory lists and credit memos.
C) Reconciliation of invoices with customer statements.
D) Use of pre-authorized price lists.
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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) Automated controls over cash eliminate the inherent risks associated with the cash account.
A)True
B)False
Q2) Which of the following best describes kiting?
A) Theft of cash for personal use and cover-up using the bank statement.
B) A fraudulent cash scheme to overstate cash assets at year end by manipulating year-end transfers between cash accounts.
C) Manipulation of financial reporting by increasing both cash and debt by the same amount.
D) Colluding to steal cash by wiring money to a fictional vendor and concealing it with customer payments.
Q3) Which of the following is not a common test of control for marketable securities?
A) Review the minutes of the board meetings.
B) Review broker's advice for accurate recording of security
C) Inquire of management about its process for reclassifications.
D) Review reports of internal audits.
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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) Which of the following is a reason why an automated purchasing system is beneficial?
A) It applies preloaded specifications and materials lists to the system.
B) It automatically flags invoices that do not reconcile with purchase orders.
C) It creates change orders and analyzes variances from purchase orders.
D) All of the above.
Q2) Centralized purchasing.
List the advantages for implementing a centralized purchasing function. What are the disadvantages (if any)?
Q3) A primary feature of automated control in the acquisition cycle includes which of the following?
A) That authorization is no longer required.
B) Limits as to the number of items that can be received by the warehouse.
C) Calculated order quantities based on set criteria.
D) Funds transfer at the request of the controller.
Q4) Most organizations use a perpetual inventory system to manage 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
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Sample Questions
Q1) It is not important for an organization to have controls to track the location, quantity, condition, maintenance, and deprecation status of their long-lived assets as the external auditor gathers evidence related to these issues.
A)True
B)False
Q2) The client should have methods in place to identify and account for intangible-asset impairments.
A)True
B)False
Q3) Which of the following controls is not a typical internal control over fixed assets?
A) Reconcile physical inventory with the property ledger.
B) Periodically reassess the appropriateness of depletion categories.
C) Identify obsolete or scrapped equipment and write it down to scrap value.
D) Periodically review management strategy and systematically assess the impairment of assets.
Q4) Fraud Risks.
List potential fraud schemes related to long-lived assets.
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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 procedures would be included in the auditor's audit program for long-term debt?
A) Investigation of credits to the bond interest income account.
B) Inspection of the accounts payable master file.
C) Verification of the existence of the bondholders.
D) Review debt loan agreements.
Q2) If the auditor wants to obtain evidence as to whether the dividend payment was made to the stockholders who owned the stock as of the dividend record date, which of the following would the auditor do?
A) Recalculate the dividends per share.
B) Examine the minutes of the board of directors meetings for authorization.
C) Trace the payee's name on the canceled check to the dividend records.
D) Determine that dividend restrictions are adequately disclosed in the financial statements.
Q3) Which of the following statements about bonds is false?
A) They may be issued to finance major expansions.
B) They may be issued to refinance existing debt.
C) They account for many of the organization's transactions.
D) They are generally highly material to the financial statements.
Page 15
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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) On what information does the auditor base a going concern evaluation?
A) On separate procedures.
B) On the management discussion and analysis (MD&A).
C) On information obtained from normal audit procedures performed to test management's assertions.
D) On the statement of cash flows for the current period.
Q2) Which of the following is false regarding the use of an audit checklist for disclosures?
A) It is a convenient documentation format.
B) It reminds the auditor of matters that should be considered for disclosure.
C) It can be organized to include relevant professional guidance.
D) It covers all potential unusual circumstances.
Q3) If the auditor decides that steps should be taken to prevent further reliance on the financial statements and audit report due to subsequent events after issuance of the audit report, the auditor should not try to obtain client cooperation, but should immediately notify any regulatory agency having jurisdiction over the client, such as the SEC, that the audit report should no longer be associated with the client's financial statements.
A)True
B)False
Page 16
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Chapter 15: Audit Reports on Financial Statements
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) For a client with serious going concern issues the auditor has to make a choice between issuing an unqualified audit report with an explanatory paragraph or a disclaimer.
A)True
B)False
Q2) When financial statements contain generally accepted accounting principles in the current year that are different from the generally accepted accounting principles used in the preceding year, the auditor will typically make mention of it in the opinion.
A)True
B)False
Q3) For some engagements, the financial statements might be audited in accordance with multiple auditing standards.
A)True
B)False
Q4) The auditor should only provide an opinion on the financial statements if the opinion indicates that the financial statements are fairly stated in all material respects.
A)True
B)False
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Chapter 16: Advanced Topics Concerning Complex
Auditing Judgments
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) The discovery of an intentional misstatement, even if immaterial, could impact the auditor's opinion on the effectiveness of which of the following?
A) The client's external controls.
B) The client's interim financial statements.
C) The client's internal controls over financial reporting.
D) The client's segment reports.
Q2) 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
Q3) Level 1 assets is a broad category of assets and applies to financial instruments, property, or lower of cost or market considerations for inventory, loans, or receivables.
A)True
B)False
Q4) Determining materiality is based solely on quantitative factors.
A)True
B)False
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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) Star Appliance Corp. has requested that Malfie Thomas, CPA provide a report, including a debt compliance letter, to Great Northern Bank about the existence or nonexistence of certain loan conditions. The conditions to be reported on are the working capital ratio, dividends paid on preferred stock, aging of accounts receivable, and the competence of management. This is Malfie's first experience with Star appliance. Should Malfie accept this engagement? Provide justification for your answer.
Q2) A state insurance commission requires an insurance company to prepare its financial statements in accordance with Statutory Accounting Principles. This situation may prevent an auditor from issuing a special report on the financial statements as the Statutory Accounting Principles are not a recognized alternative comprehensive basis. A)True
B)False
Q3) A report on agreed-upon procedures issued by accountants provides a form of attestation assurance.
A)True
B)False
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