Auditing Test Questions
Course Introduction
Auditing is a comprehensive course that introduces students to the principles and practices of auditing in the context of modern business and financial environments. The course covers the theoretical foundations, legal framework, and ethical standards governing the audit process, focusing on both internal and external audits. Students will learn about the planning and execution of audit engagements, risk assessment, evidence gathering, internal controls, audit documentation, and reporting. Emphasis is placed on professional responsibility, detection of fraud and errors, and the application of auditing standards. By the end of the course, students will have a solid understanding of the role of auditors in ensuring the reliability and integrity of financial information.
Recommended Textbook Principles of Auditing and Other Assurance Services 19th Edition by Ray Whittington
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Chapter 1: The Role of the Public Accountant in the
Economy
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Q1) Operational auditing is primarily oriented toward:
A)Future improvements to accomplish the goals of management.
B)The accuracy of data reflected in management's financial records.
C)The verification that a company's financial statements are fairly presented.
D)Past protection provided by existing internal control.
Answer: A
Q2) Which of the following types of services is generally provided only by CPA firms?
A)Tax audits.
B)Financial statement audits.
C)Compliance audits.
D)Operational audits.
Answer: B
Q3) A typical objective of an operational audit is for the auditor to:
A)Determine whether the financial statements fairly present the entity's operations.
B)Evaluate the feasibility of attaining the entity's operational objectives.
C)Make recommendations for improving performance.
D)Report on the entity's relative success in attaining profit maximization.
Answer: C
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Chapter 2: Professional Standards
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Sample Questions
Q1) To present fairly in conformity with generally accepted accounting principles the financial statements should:
A)Be consistently applied.
B)Inform users of all matters that could materially affect a decision.
C)Reflect transactions and events within a range of reasonable limits.
D)Be considered preferable to the users of those financial statements.
Answer: C
Q2) The body that issues international pronouncements providing auditing procedural and reporting guidance is the:
A)International Federation of Auditors.
B)Multinational Reporting Commission.
C)International Auditing and Assurance Standards Board.
D)AICPA Auditing Standards Board.
Answer: C
Q3) Which of the following is one of the elements of AICPA quality control?
A)Assurance of proper levels of association.
B)Due professional care.
C)Engagement performance.
D)Supervision. Answer: C
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Chapter 3: Professional Ethics
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Sample Questions
Q1) The AICPA Code of Professional Conduct will ordinarily be considered to have been violated when the CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the:
A)Actual fee would be substantially higher.
B)Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.
C)Fee was a competitive bid.
D)CPA would not be independent.
Answer: A
Q2) A CPA should maintain objectivity and be free of conflicts of interest when performing:
A)Audits, but not any other professional services.
B)All attestation services, but not other professional services.
C)All attestation and tax services, but not other professional services.
D)All professional services.
Answer: D
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Chapter 4: Legal Liability of CPAS
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Q1) Which of the following is the best defense that a CPA can assert against common law litigation by a stockholder claiming fraud based on an unqualified opinion on materially misstated financial statements?
A)Lack of due diligence.
B)Lack of gross negligence.
C)Contributory negligence on the part of the client.
D)A disclaimer contained in the engagement letter.
Q2) The Securities Exchange Act of 1934 offers recourse against the auditors to a far greater number of investors than does the Securities Act of 1933.
A)True
B)False
Q3) Jones,CPA,is in court defending himself against a lawsuit filed under the 1933 Securities Act.The charges have been filed by purchasers of securities covered under that act.If the purchasers prove their required elements,in general Jones will have to prove that:
A)He is not guilty of gross negligence.
B)He performed the audit with good faith.
C)He performed the audit with due diligence.
D)The plaintiffs did not show him to be negligent.
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Page 6
Chapter 5: Audit Evidence and Documentation
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Sample Questions
Q1) The audit time budget is an example of:
A)A supporting schedule.
B)An administrative working paper.
C)A lead schedule.
D)A corroborative working paper.
Q2) When the risk of material misstatement for an account is high,the auditors may perform additional substantive procedures to restrict detection risk to a lower level.
A)True
B)False
Q3) Failure to detect material dollar errors in the financial statements is a risk which the auditors primarily mitigate by:
A)Performing substantive procedures.
B)Performing tests of controls.
C)Assessing control risk.
D)Obtaining a client representation letter.
Q4) In performing analytical procedures,the auditors may use dollar amounts,physical quantities,or percentages.
A)True
B)False
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Chapter
Risks, and Responding
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Sample Questions
Q1) Auditors must assess fraud risk on every audit and respond to the risks that are identified.Which of the following is not a procedure required to further address the fraud risk of management override of internal control?
A)Reviewing accounting estimates for biases.
B)Examining physical controls over assets.
C)Evaluating the business rationale for significant unusual transactions.
D)Examining journal entries and other adjustments for evidence of fraud.
Q2) Which of the following is not used by auditors to establish the completeness of recorded assets?
A)Assessing control risk.
B)Tracing from source documents to entries in the accounting records.
C)Performing analytical procedures.
D)Vouching transactions.
Q3) Which of the following is least likely to render material a quantitatively small misstatement material?
A)Affects the registrant's compliance with regulatory requirements.
B)Masks a change in earnings or other trends.
C)Arises from an item not capable of precise measurement.
D)The transaction involves a related party.
Page 8
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Chapter 7: Internal Control
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Sample Questions
Q1) At least what level of probability of a material misstatement is required for a control deficiency to be considered a material weakness?
A)More than remote.
B)Probable.
C)Reasonable possibility.
D)Sufficient.
Q2) A client's internal control appears strong,but the CPA has elected not to perform any tests of controls.The planned assessed level of control risk is at what level?
A)Zero.
B)Low.
C)Moderate.
D)Maximum.
Q3) Which of the following is least likely to be considered a risk assessment procedure?
A)Analytical procedures.
B)Inspection of documents.
C)Observation of the counting of inventory.
D)Observation of the performance of certain accounting procedures.
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Chapter 8: Consideration of Internal Control in an Information Technology Environment
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Q1) Generalized audit software may be used for substantive tests or for tests of controls.
A)True
B)False
Q2) For auxiliary storage when the computer is operating,personal computers use hard disk drives.
A)True
B)False
Q3) A data warehouse is an example of:
A)On-line analytical processing.
B)On-line transaction processing.
C)Essential information batch processing.
D)Decentralized processing.
Q4) General controls over IT systems are typically tested using:
A)Generalized audit software.
B)Observation, inspection, and inquiry.
C)Program analysis techniques.
D)Test data.
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Chapter 9: Audit Sampling
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Sample Questions
Q1) The auditors have audited a sample with a standard deviation of audited values larger than they had originally estimated.In this situation,to maintain the risk of incorrect acceptance at its predetermined level without increasing the size of the sample,which of the following statements is correct?
A)The adjusted allowance for sampling risk will be smaller than had been planned.
B)The adjusted allowance for sampling risk will be larger than had been planned.
C)The risk of incorrect rejection will necessarily decrease.
D)The size of the population must be decreased.
Q2) Which of the following situations will result in the auditors concluding that the risk of material misstatement is too high when using nonstatistical sampling for substantive tests?
A)The projected misstatement exceeds the tolerable misstatement.
B)The allowance for sampling risk exceeds the projected misstatement.
C)The risk of incorrect acceptance exceeds the risk of incorrect rejection.
D)The tolerable misstatement exceeds the sample net misstatement.
Q3) Statistical sampling cannot be used to test all control activities.
A)True
B)False
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Chapter 10: Cash and Financial Investments
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Sample Questions
Q1) Which of the following is correct relating to kiting?
A)It is ordinarily used to understate cash.
B)It is more difficult to accomplish in an electronic environment as contrasted to a non-electronic environment.
C)It is a lapping approach performed using receivable accounts.
D)It is seldom, if ever, used.
Q2) Mailroom personnel of a company should prepare a control listing of incoming cash receipts and deposit them intact daily.
A)True
B)False
Q3) A practical and effective audit procedure for the detection of lapping is:
A)Preparing an interbank transfer schedule.
B)Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.
C)Tracing recorded cash receipts to postings in customers' ledger cards.
D)Preparing a proof of cash.
Q4) Signed checks should be returned to the cash disbursements clerk for mailing.
A)True
B)False
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Chapter 11: Accounts Receivable, Notes Receivable, and Revenue
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Sample Questions
Q1) Fraudulent sales are occasionally recorded at year-end as a means of overstating financial results.As examples,companies may engage in inappropriate bill and hold transactions or channel stuffing.
a.Describe two conditions that might indicate the recording of fraudulent sales.
b.Define bill and hold transactions and describe the audit significance of such transactions.
c.Define channel stuffing and describe the audit significance of this practice.
Q2) Which of the following revenue related transactions is not linked to the accounts indicated?
A)Recognize revenues too early--accounts receivable and revenue.
B)Understate allowance for doubtful accounts--Bad debt expense, allowance for doubtful accounts.
C)Don't write off uncollectible receivables--sales returns, sales discounts.
D)Don't record discounts given to customers--Cash, sales discounts, accounts receivable.
Q3) An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts.
A)True
B)False
Page 13
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Chapter 12: Inventories and Cost of Goods Sold
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Q1) The client's physical count of inventories is lower than the inventory quantities in the perpetual records.This could be the result of a failure to record:
A)Purchases.
B)Purchase discounts.
C)Sales.
D)Sales discounts.
Q2) Which of the following is an auditor least likely to consider a departure from U.S.generally accepted accounting principles?
A)Valuing inventory at cost.
B)Including in inventory items that are consigned out to vendors, but not yet sold.
C)Using standard cost as the measure of inventory cost.
D)Including in inventory items shipped subsequent to year-end, but for which valid orders did exist at year-end.
Q3) The examination of warehouse receipts is not sufficient verification of a material amount of goods stored in public warehouses.
A)True
B)False
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Chapter 13: Property Plant and Equipment: Depreciation and Depletion
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Sample Questions
Q1) When comparing an initial audit with a subsequent year audit for a particular client,the scope of audit procedures for which of the following accounts would be expected to decrease the most?
A)Accounts receivable.
B)Cash.
C)Marketable securities.
D)Property, plant and equipment.
Q2) Which of the following is the most important control procedure over acquisitions of property,plant,and equipment?
A)Establishing a written company policy distinguishing between capital and revenue expenditures.
B)Using a budget to forecast and control acquisitions and retirements.
C)Analyzing monthly variances between authorized expenditures and actual costs.
D)Requiring acquisitions to be made by user departments.
Q3) Idle equipment will generally need to be reclassified as a current asset.
A)True
B)False
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Page 15
Chapter 14: Accounts Payable and Other Liabilities
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Q1) With properly designed internal control,the same employee should not be permitted to:
A)Sign checks and cancel supporting documents.
B)Receive merchandise and prepare a receiving report.
C)Prepare disbursement vouchers and sign checks.
D)Initiate a request to order merchandise and approve merchandise received.
Q2) Auditors generally consider the evidence regarding accounts payable in the client's possession as more reliable than that for accounts receivable.
A)True
B)False
Q3) Which of the following is an example of an accrued liability?
A)Accounts payable.
B)Notes payable.
C)Prepaid Insurance.
D)Product warranty liability.
Q4) Most of the audit work on accounts payable is typically performed:
A)Before the balance sheet date.
B)At the balance sheet date in conjunction with inventory cutoff tests.
C)After the balance sheet date.
D)Simultaneously with the audit of accrued liabilities.
Page 16
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Chapter 15: Debt and Equity Capital
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Q1) Which of the following most likely would approve the issuance of notes payable?
A)Controller.
B)Payroll.
C)Personnel.
D)Treasurer.
Q2) Which of the following statements is correct relating to common stock certificates of a publicly traded company that uses the services of a transfer agent?
A)Stock certificates should exist for all outstanding stock and be held by the owner of the stock.
B)Stock certificates should exist for all outstanding stock and be held either by the owner of the stock or a representative of the owner (e.g., brokerage firm).
C)A lack of stock certificates is ordinarily considered a material weakness in internal control.
D)Stock certificates often are not issued in today's electronic environment.
Q3) The formal documentation creating bond indebtedness is called the indenture.
A)True
B)False
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Chapter 16: Auditing Operations and Completing the Audit
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Q1) Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?
A)Sale of long-term debt or capital stock.
B)Loss of a plant as a result of a flood.
C)Major purchase of a business which is expected to double the sales volume.
D)Settlement of litigation in excess of the recorded liability.
Q2) With respect to issuance of an audit report which is dual dated for a subsequent event occurring after the completion of field work but before issuance of the auditors' report,the auditors' responsibility for events occurring subsequent to the date of the audit report:
A)Extended to include all events occurring until the date of the last subsequent event referred to.
B)Limited to the specific event referred to.
C)Limited to all events occurring through the date of issuance of the report.
D)Extended to include all events occurring through the date of submission of the report to the client.
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Chapter 17: Auditors Report
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Q1) It is not appropriate for the auditors' report to refer a reader to a financial statement note for details regarding a(an):
A)Change in accounting principle.
B)Limitation in the scope of the audit.
C)Uncertainty.
D)Related party transaction.
Q2) If the predecessor auditors do not reissue their audit report on comparative financial statements the successor auditors should:
A)Express a qualified opinion on the comparative financial statements audited by the predecessor auditors.
B)Reproduce the predecessor auditors' report and include it with the new set of financial statements.
C)Have the client omit the comparative financial statements.
D)Refer to the report of the predecessor auditors.
Q3) The term "except for" in an audit report is:
A)Used in an adverse opinion.
B)No longer considered appropriate.
C)Used in a qualified opinion
D)Used for an unmodified opinion when an emphasis-of-matter paragraph is added.
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Page 19
Chapter 18: Integrated Audits of Public Companies
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Q1) Which of the following must be included in management's report internal control under section 404 of the Sarbanes/Oxley Act of 2002?
A)It is management's responsibility to eliminate or publicly report on significant deficiencies in internal control.
B)A detailed description of the COSO criteria.
C)Management's assessment of the operating effectiveness for the period from the beginning to the end of the fiscal year under audit.
D)Identification of the framework used for evaluating internal control.
Q2) An auditor identified a material weakness in internal control in December.The client was informed and the client corrected the material weakness shortly after year-end (December 31); the auditor agrees that the correction eliminates the material weakness as of January 31.The appropriate audit report on internal control under PCAOB standards on reporting on internal control is:
A)Adverse.
B)Unqualified.
C)Unqualified with explanatory language relating to the material weakness. D)Qualified.
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Page 20
Chapter 19: Additional Assurance Services: Historical Financial Information
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Q1) Financial statements that are developed from and summarize the overall information presented in audited financial statements are referred to as
A)Agreed-upon procedure financial statements.
B)Compiled financial statements.
C)Summary financial statements.
D)Reviewed financial statements.
Q2) The auditors must issue a compilation report if they prepare a client's financial statements and submit them to a client who intends to use them for external purposes.
A)True
B)False
Q3) Which of the following is an auditor least likely to inquire about when performing a review of a nonpublic company?
A)Significant transactions near the end of the period.
B)Communications with regulatory agencies.
C)That financial statements are prepared in conformity with a special basis of accounting.
D)Questions that have arisen in applying review procedures.
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Page 21
Chapter 20: Additional Assurance Services: Other Information
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Q1) The party responsible for assumptions identified in the preparation of prospective financial statements is usually:
A)A third-party lending institution.
B)The client's management.
C)The reporting accountant.
D)The client's independent auditor.
Q2) To accept an engagement to examine a client's MD&A for annual financial statements,the practitioners ordinarily must have:
A)Audited the most recent financial statement period to which the MD&A applies.
B)Determined that the client reports to the Securities and Exchange Commission.
C)Performed a detailed analysis of the client's controls over decision making.
D)Reviewed the quarterly MD&A information.
Q3) Which of the following is least likely to be structured as an attest engagement?
A)An elder care engagement.
B)A SysTrust engagement.
C)An examination of internal control over financial reporting for a nonpublic company.
D)A review of management's discussion and analysis.
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Page 22
Chapter 21: Internal, Operational, and Compliance Auditing
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Q1) In an audit in accordance with Government Auditing Standards,the auditors are required to perform tests beyond those of an audit in accordance with generally accepted auditing standards relating to internal control over major federal assistance programs.
A)True
B)False
Q2) According to the IIA's Standards,an internal auditor's working papers should be reviewed by the:
A)Management of the department being audited.
B)Management of the internal auditing department.
C)Audit committee of the board of directors.
D)Management of the organization's security division.
Q3) Internal auditors are an important part of the internal control structures of all types of organizations.
a.Describe the objectives of an internal auditing function.
b.Explain two ways that internal auditors may maintain independence with respect to the activities that they audit.
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Chapter 22: Probability-Proportion-To-Size Sampling
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Q1) Probability-proportional-to-size sampling is especially efficient for populations with high misstatement rates.
A)True
B)False
Q2) In a probability-proportional-to-size sample with a sampling interval of $10,000,an auditor discovered that as selected account receivable with a recorded amount of $12,000 had an audited amount of $9,000.If this were the only misstatement discovered by the auditor,the projected misstatement of this sample would be:
A)$2,000.
B)$2,500.
C)$3,000.
D)$10,000.
Q3) Increasing the expected misstatement for a probability-proportional-to-size sample increases the required sample size.
A)True
B)False
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