Contemporary Issues in Auditing Exam Review
Course Introduction
This course explores current and emerging topics in auditing, focusing on the challenges and innovations impacting the profession today. Students will examine new standards, evolving regulatory environments, the effects of technological advancements such as data analytics and artificial intelligence, and the importance of professional skepticism and ethical responsibilities. Through case studies and analysis of real-world scenarios, the course develops critical thinking and problem-solving skills, equipping students to understand and respond to the dynamic landscape of modern audit practice.
Recommended Textbook Auditing and Assurance Services 15th Edition by Alvin A Arens
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26 Chapters
2759 Verified Questions
2759 Flashcards
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Page 2
Chapter 1: The Demand for Audit and Other Assurance Services
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) Most public companies' audited financial statements are available on the SEC's EDGAR database.
A)True
B)False
Answer: True
Q2) Evidence is paramount to audit and attestation engagements.List the four basic types of audit evidence.
Answer: The four types of audit and attestation evidence include:
1.Electronic and documentary data about transactions
2.Written and electronic communications with outsiders
3.Observations by the auditor
4.Oral testimony of the auditee (client)
Q3) A correct relationship among the auditor, the client, and the external users is:
A)management of a public company hires the independent auditor.
B)the audit committee of a private company hires the independent auditor.
C)the client provides capital to the external users.
D)the external users can rely upon the auditor's report to reduce information risk.
Answer: D
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Chapter 2: The Cpa Profession
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) Generally Accepted Auditing Standards (GAAS)and Statements on Auditing Standards (SAS)should be looked upon by practitioners as:
A)ideals to work towards, but which are not achievable.
B)maximum standards that denote excellent work.
C)minimum standards of performance that must be achieved on each audit engagement.
D)benchmarks to be used on all audits, reviews, and compilations.
Answer: C
Q2) If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources?
A)Statements on Auditing Standards
B)Statements on Standards for Accounting and Review Services
C)Regulations issued by the Securities and Exchange Commission
D)The AICPA Code of Professional Conduct
Answer: A
Q3) Professional skepticism must be maintained only if the auditor suspects fraud.
A)True
B)False
Answer: False
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Chapter 3: Audit Reports
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) In most audits, the auditor issues a:
A)qualified audit report.
B)unqualified audit report.
C)scope limited audit report.
D)adverse audit report.
Answer: B
Q2) The final step in the auditor's decision process for audit reports is to write the audit report.
A)True
B)False
Answer: True
Q3) 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
Q4) Client imposed restrictions on the audit always require a disclaimer of opinion.
A)True
B)False
Answer: False
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Chapter 4: Professional Ethics
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Sample Questions
Q1) Ethics are:
A)needed in the professions, but is not needed for society in general.
B)a set of moral principles or values.
C)not formed by life experiences.
D)always incorporated in laws.
Q2) When a member observes the profession's technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising:
A)due care.
B)integrity.
C)independence.
D)objectivity.
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
Q4) One of the main reasons people act unethically is that they choose to act selfishly.
A)True
B)False
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Chapter 5: Legal Liability
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) One of the changes in auditing procedure which was brought about as a result of the 1136 Tenants case was that auditors were encouraged to begin using:
A)letters of representation.
B)confirmation letters.
C)engagement letters.
D)billet doux letters.
Q2) Under the Securities Exchange Act of 1934, most of the litigation against the auditor has been generated because of the auditor's involvement with the:
A)8-K form.
B)10-K form.
C)10-Q form.
D)S-1 form.
Q3) Which of the auditor's defenses is ordinarily not available when lawsuits are filed by a third party?
A)Absence of causal connections
B)Contributory negligence
C)Non-negligent performance
D)Lack of duty
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Chapter 6: Audit Responsibilities and Objectives
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Which of the following statements is the most correct regarding errors and fraud?
A)An error is unintentional, whereas fraud is intentional.
B)Frauds occur more often than errors in financial statements.
C)Errors are always fraud and frauds are always errors.
D)Auditors have more responsibility for finding fraud than errors.
Q2) Which of the following is not one of the three categories of assertions?
A)Assertions about classes of transactions and events for the period under audit
B)Assertions about financial statements and correspondence to GAAP
C)Assertions about account balances at period end
D)Assertions about presentation and disclosure
Q3) The auditor is determining that the the correct selling price was used for billing and that the quantity of goods shipped was the same as the quantity billed.She is gathering evidence about which transaction related audit objective?
A)Existence
B)Completeness
C)Accuracy
D)Cut-off
Q4) List the four phases of a Financial Statement Audit
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Page 8
Chapter 7: Audit Evidence
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Audit documentation is the joint property of the auditor and the audit client.
A)True
B)False
Q2) To be considered reliable evidence, confirmations must be controlled by:
A)the client's employee responsible for accounts receivable.
B)the external auditor.
C)the client's internal audit department.
D)the client's controller or CFO.
Q3) The SEC requires the auditors of public companies to retain e-mail correspondence related to the audit.
A)True
B)False
Q4) Which of the following best describes one of the primary objectives of audit documentation?
A)Defend against claims of a deficient audit.
B)Provide a basis for reviewing the work of subordinates.
C)Provide reasonable assurance that the audit was conducted in accordance with auditing standards.
D)Provide additional support of recorded amounts to the client.
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Chapter 8: Audit Planning and Analytical Procedures
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Discuss several reasons why an auditor may not wish to continue a relationship with an existing audit client.
Q2) When a successor auditor contacts a company's previous auditor, the predecessor auditor is required to respond fully and without limit to the request for information.
A)True
B)False
Q3) When performing planning analytical procedures for a client the auditor detected that the gross profit percentage had declined by 50% from the previous year to the year currently under audit.The auditor should:
A)investigate the possibility the client may have made an error in their cost of goods sold computation.
B)assist management in developing greater cost efficiencies in their product line.
C)prepare a going concern opinion for the client.
D)advise the client to have extensive disclosure to alleviate investor concerns.
Q4) Define business risk.List several factors that may impact the auditor's assessment of business risk.
Q5) Discuss the required communications between predecessor and successor auditors.
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Chapter 9: Materiality and Risk
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Sample Questions
Q1) The risk of material misstatement is a combination of two client controlled factors: inherent risk and control risk.What is inherent risk, why is it important and give examples of inherent risk factors.
Q2) There is a direct relationship between acceptable audit risk and planned detection risk.
A)True
B)False
Q3) Acceptable audit risk and the amount of substantive evidence required are inversely related.
A)True
B)False
Q4) The preliminary judgment on materiality is compared to the total estimated misstatement amount to determine if an account balance is materially misstated.
A)True
B)False
Q5) Inherent risk and control risk are directly related.
A)True
B)False
Q6) Why do auditors use the audit risk model when planning an audit?
Page 11
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Chapter 10: Internal Control, Control Risk, and Section 404
Audits
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:
A)provide reasonable protection against client fraud and defalcations by client employees.
B)assess control risk.
C)provide a basis for suggestions to the client for improving the accounting system.
D)provide a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies.
Q2) 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.
Q3) Separation of duties is essential in preventing errors and intentional misstatements on the financial statements.List below the four general guidelines.
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Page 12
Chapter 11: Fraud Auditing
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93 Verified Questions
93 Flashcards
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Sample Questions
Q1) Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.
A)income smoothing
B)cookie jar reserves
C)cash
D)sales
Q2) Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement?
A)Senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period.
B)Senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report.
C)Senior management emphasizes that job rotation is a worthwhile corporate objective. D)Senior management emphasizes that job evaluations are based on performance.
Q3) Briefly discuss the brainstorming session required by current auditing standards.Be sure to include a list of ideas that should be addressed in the session.
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13
Chapter 12: The Impact of Information Technology on the Audit Process
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105 Flashcards
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Sample Questions
Q1) Auditors normally link controls and deficiencies in general controls to specific transaction-related audit objectives.
A)True
B)False
Q2) Which of the following describes the process of implementing a new system in one part of the organization, while other locations continue to use the current system?
A)Parallel testing
B)Online testing
C)Pilot testing
D)Control testing
Q3) ________ is not a risk specific to the IT environments.
A)Reliance on the functioning capabilities of hardware and software
B)Increased human involvement
C)Loss of data due to insufficient backup
D)Unauthorized access
Q4) Parallel testing is more expensive than pilot testing.
A)True
B)False
Page 14
Q5) Discuss the advantages and benefits of using generalized audit software.
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Chapter 13: Overall Audit Strategy and Audit Program
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Sample Questions
Q1) Which of the following is true?
A)Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.
B)Tests of details of balances focus on the transactions during the period for both balance sheet and income statement accounts.
C)Tests of details of balances focus on the auditor's understanding of internal controls.
D)Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor.
Q2) When controls are deemed ineffective and assessed control risk is at the maximum for a private company, which of the following would normally be true?
A)No emphasis is placed on the controls.
B)Relatively little emphasis is placed on the controls.
C)Moderate emphasis is placed on the controls.
D)Heavy emphasis is placed on the controls.
Q3) In phase 4 of the audit, complete the audit and issue an audit report, there are five activities required.List below the activities.
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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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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.
A)True
B)False
Q2) You are an audit manager for Rodgers & Co.and have recently taken on a new client, Manufacturing Company.You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business.List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.
Q3) A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:
A)accounts receivable subsidiary ledger.
B)monthly statement.
C)remittance advice.
D)sales invoice.
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Page 16
Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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118 Verified Questions
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Sample Questions
Q1) Acceptable risk of overreliance is the risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the estimated population exception rate.
A)True
B)False
Q2) 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.
Q3) Place the following steps in their proper order: 1.Analyze exceptions
2)Select the sample
3)Define attributes and exception conditions
4)State the objectives of the audit test
5)Specify the tolerable exception rate
A)1, 3, 2, 4, 5.
B)4, 3, 1, 2, 5.
C)4, 3, 5, 2, 1.
D)1, 2, 3, 4, 5.
Page 17
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Chapter 16: Completing the Tests in the Sales and Collection Cycle:
Accounts Receivable
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years.A possible misstatement this procedure could uncover is:
A)overstatement or understatement of sales.
B)overstatement or understatement of accounts receivable.
C)overstatement or understatement of bad debt expense.
D)overstatement or understatement of sales returns and allowances.
Q2) Briefly describe the circumstances in which it is acceptable to use negative confirmation requests.
Q3) Describe each of the following types of confirmations:
Positive confirmation
Blank confirmation
Invoice confirmation
Negative confirmation
Q4) List three of the major factors affecting sample size for confirming accounts receivable.
Q5) Tests of detail tie-in are normally conducted last in the audit of the sales and collections cycle.
A)True
B)False
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Chapter 17: Audit Sampling for Tests of Details of Balances
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Sample Questions
Q1) There are 14 steps to audit sampling for details of balances, divided into three sections: plan the sample, select the sample and perform the audit procedures, and evaluate the results.Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.
Q2) Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.
Q3) In estimating the population misstatement, the first step in projecting from the sample to the population is to:
A)make a point estimate.
B)revise the upper error bound.
C)calculate the precision interval.
D)determine the population mean.
Q4) The purpose of stratification is to permit auditors to emphasize certain aspects of a population and deemphasize others.
A)True
B)False
Q5) Explain why monetary unit sampling, or probability proportional to size sampling, is not useful for detecting understatements.
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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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Sample Questions
Q1) When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate.The controls over the acquisitions included in the records are normally tested as a part of the:
A)tests of controls for acquisitions.
B)tests of controls and substantive tests of transactions for acquisitions.
C)tests of details of balances for acquisitions.
D)analytical procedures and tests of controls for acquisitions.
Q2) To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year-end to related vendors' invoices to make sure they are not recorded as accounts payable.
A)True
B)False
Q3) After a purchase requisition is approved, a ________ must be initiated to purchase the goods or services.
A)purchase order
B)vendor order
C)call order
D)vendor invoice
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Chapter 19: Completing the Tests in the Acquisition and Payment Cycle:
Verification of Selected Accounts
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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) One of the primary objectives in examining the repairs and maintenance accounts is to obtain evidence that:
A)expenditures of equipment have not been charged to expense.
B)the actual amount recorded is the same as the budgeted amount.
C)expenditures for equipment have been recorded in the proper period.
D)revenue expenditures made on behalf of equipment have been recorded in the proper period.
Q3) The emphasis in auditing manufacturing equipment is on the verification of current-period disposals and acquisitions.
A)True
B)False
Q4) State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.
Page 21
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Chapter 20: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) The ________ has the responsibility for approving the number of hours worked for each employee.
A)employee's supervisor
B)human resources department
C)chief financial officer
D)budgeting supervisor
Q2) No individual with access to time cards, payroll records, or checks should also be permitted access to:
A)the computer.
B)job time tickets.
C)personnel records.
D)the canceled check file.
Q3) An imprest payroll account limits the client's exposure to payroll fraud.
A)True
B)False
Q4) The job time ticket indicates the starting and stopping times of work during the pay period.
A)True
B)False
Q5) What events initiate and terminate the payroll and personnel cycle?
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Chapter 21: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:
A)acquisition and payments cycle.
B)payroll and personnel cycle.
C)inventory and warehousing cycle.
D)sales and collection cycle.
Q2) The most important part of the observation of inventory is to determine whether:
A)all counts are accurate.
B)the inventory-takers are qualified.
C)obsolete inventory has been identified.
D)the physical count is being taken in accordance with the client's instructions.
Q3) The test of details of balance procedure which requires the auditor to account for unused inventory tag numbers to make sure none have been deleted is associated with the audit objective of:
A)accuracy.
B)existence.
C)detail tie-in.
D)completeness.
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) The audit of owners' equity of public and private companies is very different.Which of the following is not one of these differences?
A)The number of transactions (private companies have fewer transactions)
B)Payment of dividends (public companies rarely pay dividends)
C)Complexity of transactions (public companies generally have more complex transactions)
D)Type of noncurrent debt (public companies issue more bonds)
Q2) If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock:
A)surrendered and canceled during the year.
B)authorized at the balance sheet date.
C)issued and outstanding at the balance sheet date.
D)sold at a price above par during the year.
Q3) The three most important balance-related audit objectives for notes payable are existence, realizable value, and accuracy.
A)True
B)False
Q4) Discuss the four key controls over notes payable.
Page 24
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) The auditor is testing for the balance-related audit objective of detail tie-in when they:
A)prove the schedule of investment activity as to additions and subtractions.
B)perform a physical inspection of the security.
C)verify the quoted market prices.
D)test management's assumptions related to valuation.
Q2) Examples of cash equivalents include time deposits, certificates of deposit, and marketable securities.
A)True
B)False
Q3) The auditors test the client's monthly bank reconciliation to verify whether the client's recorded bank balance is the same amount as the actual cash in the bank.Which of the following would not explain a difference between the company's cash balance and the bank's balance for the client?
A)Deposits in transit
B)Checks are written by the client in the same month the checks clear the bank.
C)Other reconciling items
D)Outstanding checks
Q4) What should be audited on an interbank transfer schedule?
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Chapter 24: Completing the Audit
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Sample Questions
Q1) Which of the following statements regarding the letter of representation is not correct?
A)It is prepared on the client's letterhead.
B)It is addressed to the CPA firm.
C)It is signed by high-level corporate officials, usually the president and chief financial officer.
D)It is optional, not required, that the auditor obtain such a letter from management.
Q2) If an auditor discovers that previously issued financial statements are misleading, the most desirable approach to follow is to request that the client issue an immediate revision of the financial statements containing an explanation of the reasons for the revision.
A)True
B)False
Q3) Subsequent discoveries of facts requiring the reissuance of financial statements arise from events occurring after the date of the auditor's report.
A)True
B)False
Q4) State the three purposes of the client letter of representation.
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26
Chapter 25: Other Assurance Services
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Sample Questions
Q1) When the accountant has performed a review and has determined that no material changes to the financial statements are needed, the first paragraph of the review report:
A)expresses positive assurance about the financial statements.
B)notes the accountant's responsibility to conduct the review.
C)identifies the entity and the period of financial statements subject to the review.
D)specifies that management is responsible for the financial statements.
Q2) WebTrust services are performed under the direction of the SSARS.
A)True
B)False
Q3) The auditor must obtain evidence that the interim financial information agrees or reconciles with the accounting records for a public company interim review.
A)True
B)False
Q4) Auditors of the financial statements of public companies must follow the guidelines in the SSAEs.
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) Which of the following groups could be involved in an operational audit?
A)CPA firms
B)Internal auditors
C)Government auditors
D)All of the above could be involved.
Q2) The professional organization which is responsible for providing guidance for internal auditors is the:
A)APA.
B)IIA.
C)ABA.
D)AIA.
Q3) The "Red Book" specifies all auditing standards issued by the U.S.General Accounting Office.
A)True
B)False
Q4) Discuss each of the three phases of an operational audit.
Q5) One disadvantage of functional auditing is the failure to evaluate interrelated functions.
A)True
B)False
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