Corporate Governance and Auditing Solved Exam Questions
Course Introduction
This course provides an in-depth exploration of corporate governance principles and their practical applications in modern organizations, emphasizing the roles, responsibilities, and structure of corporate boards. Students examine the framework of governance, ethical considerations, regulatory requirements, and the internal and external mechanisms designed to ensure transparency and accountability. The auditing component covers fundamental auditing concepts, objectives, and processes, highlighting auditing's role in strengthening governance practices. Through case studies and real-world examples, students learn to analyze the relationship between strong governance systems, effective auditing, and overall organizational performance.
Recommended Textbook
Auditing and Assurance Services 16th Edition by Alvin A. Arens
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Chapter 1: The Demand for Audit and Other Assurance Services
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60 Verified Questions
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Sample Questions
Q1) In the audit of historical financial statements,management asserts that the financial statements are fairly stated in accordance with what standards?
A)regulatory accounting principles
B)applicable international accounting standards
C)applicable U.S.accounting standards
D)B and C
Answer: D
Q2) CPA firms are never allowed to provide bookkeeping services for clients.
A)True
B)False
Answer: False
Q3) 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)
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Chapter 2: The Cpa Profession
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Sample Questions
Q1) The overall purpose of the Securities and Exchange Commission is to assist in providing investors with reliable information upon which to make investment decisions.
A)True
B)False
Answer: True
Q2) The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to
A)provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities.
B)monitor the risk factors concerning misstatements that arise from the misappropriation of assets.
C)document objective criteria for the CPA firm's peer review.
D)minimize the likelihood of associating with a client whose management may lack integrity.
Answer: D
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Chapter 3: Audit Reports
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Sample Questions
Q1) If the scope restriction imposed by the client is so material that the overall fairness of the financial statements is in question,the auditor should issue a(n)
A)standard unmodified opinion.
B)disclaimer of opinion.
C)adverse opinion.
D)unmodified opinion with revised wording in the scope paragraph.
Answer: B
Q2) Examples of unmodified opinions which contain modified wording (without adding an explanatory paragraph)include
A)the use of other auditors.
B)the lack of consistent application of generally accepted accounting principles.
C)substantial doubt about the audited company (or the entity)continuing as a going concern.
D)lack of consistent application of GAAP.
Answer: A
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Chapter 4: Professional Ethics
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Sample Questions
Q1) The underlying reason for a code of professional conduct for any profession is A)the need for public confidence in the quality of service of the profession.
B)it provides a safeguard to keep unscrupulous people out.
C)it is required by federal legislation.
D)it allows licensing agencies to have a yardstick to measure deficient behavior.
Q2) Describe the methods used by the AICPA and State Boards of Accountancy to enforce the rules of conduct.
Q3) Under the AICPA's Code of Professional Conduct,CPAs are prohibited from offering audit clients a discount for referring a prospective client even if they are disclosed.
A)True B)False
Q4) What are the six Ethical Principles stated in the Code of Professional Conduct? Briefly discuss each principle.Are these principles enforceable?
Q5) Ethical frameworks help identify the ethical issues and will always lead to the appropriate course of action.
A)True
B)False
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Page 6
Chapter 5: Legal Liability
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Sample Questions
Q1) If an auditor fails to fulfill a certain requirement in the contract,they may be guilty of A)contract fraud.
B)breach of contract.
C)constructive fraud.
D)criminal neglect.
Q2) A broad interpretation of the rights of third-party beneficiaries holds that users the auditor should have been able to foresee as being likely users of financial statements have the same rights as those with privity of contract.This is known as the concept of A)foreseen users.
B)foreseeable users.
C)expected users.
D)four-party contracts.
Q3) A common way for a CPA firm to demonstrate a lack of duty to perform is by use of a(n)
A)expert witness' testimony.
B)engagement letter.
C)management representation letter.
D)confirmation letter.
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Chapter 6: Audit Responsibilities and Objectives
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Sample Questions
Q1) Direct,written communication with the client's customers to identify whether a receivable exists is an example of a(n)
A)substantive test of transactions.
B)test of controls.
C)analytical procedure.
D)test of details of balances.
Q2) Which of the following assertions is described as "this assertion addresses whether all transactions that should be included in the financial statements are in fact included"?
A)occurrence
B)completeness
C)rights and obligations
D)existence
Q3) The detail tie-in objective is not concerned that the details in the account balance
A)agree with related subsidiary ledger amounts.
B)are properly disclosed in accordance with GAAP.
C)foot to the total in the account balance.
D)agree with the total in the general ledger.
Q4) List the four phases of a financial statement audit.
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8
Chapter 7: Audit Evidence
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Sample
Questions
Q1) Audit documentation of the evidence gathered by the auditor should meet which of the following criteria?
A)Workpapers are prepared in sufficient detail so that they can be given to the client for future reference.
B)The content is sufficient to provide support for the auditor's opinion,including the auditor's representation as to compliance with auditing standards.
C)Audit evidence is principally gathered to determine if the client's financial statements,as prepared by management,can be relied upon to make managerial decisions about the firm.
D)Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors.
Q2) Which financial ratio is computed by dividing current assets by current liabilities?
A)quick ratio
B)debt to equity
C)accounts receivable turnover
D)current ratio
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9
Chapter 8: Audit Planning and Analytical Procedures
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Sample Questions
Q1) List the five steps in applying materiality in an audit.
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) Which of the following would most likely not be classified as a related-party transaction?
A)an advance of one week's salary to an employee
B)sales of merchandise between affiliated companies
C)loans or credit sales to the principal owner of the client company
D)exchanges of equipment between two companies owned by the same person
Q4) Which of the following is part of planning?
A)Set materiality for the financial statements as a whole.
B)Estimate total misstatement in the segment.
C)Estimate the combined misstatement.
D)Compare the combined estimated with preliminary judgment.
Q5) There are three primary reasons for obtaining a thorough understanding of the client's industry and external environment.What are these reasons?
Q6) Discuss the essential activities involved in the initial planning of an audit.
Page 10
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Chapter 9: Materiality and Risk
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Sample Questions
Q1) Which of the following is True regarding audit risk for segments?
A)Control risk must be assessed at the same level for all accounts.
B)Factors affecting inherent risk do not differ from account to account.
C)Acceptable audit risk is ordinarily assessed by the auditor during the substantive test of balances phase and is held constant for each major cycle and account.
D)In some cases,a lower acceptable audit risk may be more appropriate for one account than for others.
Q2) The auditing profession has established guidelines for setting inherent risk.
A)True
B)False
Q3) The risk of material misstatement exists only at the overall financial statement level. A)True
B)False
Q4) The risk of fraud should be assessed for the entire audit as well as by cycle,account,and objective.
A)True
B)False
Q5) Describe the audit risk model and each of its components.
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Chapter 10: Fraud Auditing
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Sample Questions
Q1) When the allowance for doubtful accounts is understated,bad debt expense is understated and net income is also understated.
A)True
B)False
Q2) Which of the following is an accurate statement regarding assets and fraud risk?
A)Companies will often capitalize repairs as fixed assets.
B)Since fixed assets are often large,there is little theft of fixed assets.
C)Intangible assets are recorded at cost and valuation issues therefore are not a fraud risk.
D)Since companies have few fixed assets,there is no need for them to be periodically inventoried.
Q3) Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?
A)lack of controls related to the calculation and approval of accounting estimates
B)ineffective oversight of financial reporting by the board of directors
C)management's set of ethical values
D)high turnover of accounting,internal audit,and information technology staff
Q4) List and briefly describe the three conditions for fraud.
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Page 12
Chapter 11: Internal Control and Coso Framework
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Sample Questions
Q1) Who is responsible for establishing a private company's internal control?
A)senior management
B)internal auditors
C)FASB
D)audit committee
Q2) LANs link equipment within a single or small cluster of buildings and are used within a company.
A)True
B)False
Q3) A large portion of errors in IT systems result from data entry errors.
A)True
B)False
Q4) An example of a physical control is
A)a hash total.
B)a parallel test.
C)the matching of employee fingerprints to a database before access to the system is allowed.
D)the use of backup generators to prevent data loss during power outages.
Q5) List the four underlying principles of risk assessment per the COSO framework
Q6) Identify the six categories of general controls and give one example of each.
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Chapter 12: Assessing Control Risk and Reporting on
Internal Controls
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Sample Questions
Q1) The auditor's objective in determining whether the client's computer program correctly processes valid and invalid transactions is accomplished through the A)test data approach.
B)generalized audit software approach.
C)microcomputer-aided auditing approach.
D)generally accepted auditing standards.
Q2) In evaluating the operational effectiveness of internal controls,the auditor is likely to use four types of audit procedures.List the procedures below.
Q3) When there are a number of controls tested in prior audits that have not been changed,auditing standard require auditors to test some of those controls each year to ensure there is a rotation of controls testing throughout the three-year period.
A)True
B)False
Q4) The procedures to obtain an understanding of internal control are only applied when the assessed control risk is high.
A)True
B)False
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Chapter 13: Overall Audit Strategy and Audit Program
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Sample Questions
Q1) The ________ is the combination of the types of tests to obtain sufficient appropriate evidence for a cycle.There are likely to be variations in the mix from cycle to cycle depending on the circumstances of the audit.
A)testing mix
B)evidence mix
C)audit process mix
D)procedures mix
Q2) 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.
Q3) List each of the five types of audit tests.
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Chapter 14: Audit of the Sales and Collection Cycle: Tests of Controls
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Sample Questions
Q1) If a company uses a periodic inventory system,the shipping records are used to update the inventory quantities.
A)True
B)False
Q2) The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on A)bad debt expense.
B)the analytical tests to be performed.
C)the confirmation of accounts receivable.
D)the impact of processing cash receipts.
Q3) The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected.The primary control for preventing this fraud is
A)examining authorized credit memos.
B)examining the uncollectible account authorization form.
C)examining debit memos.
D)examining the vouchers payable register.
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Page 16
Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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Sample Questions
Q1) The most serious shortcoming of the haphazard sample selection method is
A)it is not subject to statistical sampling methods.
B)it is time consuming to use.
C)it is costly to use.
D)it is difficult to remain completely unbiased in the selection.
Q2) The auditor must use the same TER and ARO levels for all attributes of an audit test.
A)True
B)False
Q3) To determine if a sample is truly representative of the population,an auditor would be required to
A)conduct multiple samples of the same population.
B)never use sampling because of the expense involved.
C)audit the entire population.
D)use systematic sample selection.
Q4) The use of haphazard sample selection is encouraged under professional auditing standards.
A)True B)False
Q5) Discuss what is meant by "sampling risk" and "nonsampling risk."
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Chapter 16: Completing the Tests in the Sales and Collection
Cycle: Accounts Receivable
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Sample Questions
Q1) Which of the following is an accurate statement regarding the risk assessment process of phase I of the audit process for the sales and collection cycle?
A)Auditors must perform substantive tests related to assertions deemed to have significant risks.
B)The auditor must relate control risk for transaction-related audit objectives to balance-related audit objectives in deciding planned inherent risk.
C)The realizable value balance-related audit objectives are affected by assessed control risk for classes of transactions.
D)All of the above are accurate statements.
Q2) Stratification of accounts receivable is desirable when using confirmations.
A)True
B)False
Q3) Cutoff misstatements occur
A)either by error or fraud.
B)by error only.
C)by fraud only.
D)randomly without causes related to errors or fraud.
Q4) Describe how the auditor tests the accuracy objective for accounts receivable.
Page 18
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Chapter 17: Audit Sampling for Tests of Details of Balances
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Sample Questions
Q1) Which of the following is an accurate statement regarding how the acceptable risk of overreliance (ARO)and the acceptable risk of incorrect acceptance (ARIA)interact to affect evidence accumulation?
A)If internal controls are likely to be effective,preliminary control risk can be increased. B)A lower control risk requires a lower ARO in testing the controls,which requires a smaller sample size.
C)If controls are found to be effective,control risk can remain low,which permits the auditor to increase ARIA,thereby requiring a smaller sample size in the substantive tests of details of balances.
D)If misstatements are considered unlikely,ARIA will decrease,and the sample size will also decrease.
Q2) An estimate of the largest likely overstatement in a population at a given ARIA,using monetary unit sampling is the A)point estimates. B)precision intervals.
C)confidence intervals. D)misstatement bound.
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Page 19
Chapter 18: Audit of the Acquisition and Payment Cycle:
Tests of Controls,
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Q1) Which of the following is not one of the classes of transactions in the acquisition and payment cycle?
A)acquisition of common stock
B)acquisition of goods and services
C)cash disbursements
D)purchase returns and allowances and purchase discounts
Q2) Vendors' statements and vendors' invoices are both relatively reliable evidence because they
A)come directly to the auditor without being in client's possession.
B)originate from a third party.
C)validate the effectiveness of the control system.
D)are compared to and reconciled with sales invoices.
Q3) The overall objective in the audit of accounts payable is to determine whether accounts payable
A)are fairly stated and properly disclosed.
B)are overstated.
C)are understated.
D)are accurately stated.
Q4) Describe the methodology for designing tests of details of balances for accounts payable.
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Chapter 19: Completing the Tests in the Acquisition and Payment
Cycle:
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Q1) Depreciation expense results from the allocation of accounting data rather than discrete transactions.
A)True
B)False
Q2) 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
Q3) When an auditor recomputes the unexpired portion of prepaid insurance,they are satisfying which audit objective?
A)completeness
B)existence
C)accuracy and detail tie-in
D)rights
Q4) One of the auditor's primary objectives when auditing manufacturing equipment is completeness.
A)True
B)False
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Chapter 20: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) Which of the following best describes effective internal control over payroll?
A)The preparation of the payroll must be under the control of the personnel department.
B)The confidentiality of employee payroll data should be carefully protected to prevent fraud.
C)The duties of hiring,payroll computation,and payment to employees should be segregated.
D)The payment of cash to employees should be replaced with payment by checks.
Q2) There are several key internal controls over the payment of payroll function that should be present.For example,the payroll should be distributed by someone who is not involved in the other payroll functions.Discuss other key internal controls over the payment of payroll function as it relates to the physical control over assets and records.
Q3) What key separation of duties should the auditor expect to find within the payroll and personnel cycle?
Q4) While most cycles include at least two classes of transactions,the payroll and personnel cycle includes only one class of transactions.
A)True
B)False
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Chapter 21: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) Cost of goods sold is generally a residual of beginning inventory less acquisitions plus ending inventory.
A)True B)False
Q2) The physical observation of the inventory and the acquisition of raw materials are part of the inventory and warehousing cycle.
A)True B)False
Q3) The receipt of raw materials is a part of the acquisition and payment cycle.
A)True
B)False
Q4) The audit procedure "Foot the inventory listing schedules for raw materials,work-in-process,and finished goods" provides assurance mainly for the accuracy objective for inventory pricing and compilation.
A)True B)False
Q5) Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.
Q6) What are two factors affecting the complexity of the audit of inventory?
Page 23
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) Why are substantive analytical procedures essential for notes payable?
Q2) The authorization of an issuance of capital stock normally includes all but which of the following?
A)type of stock to be issued
B)number of shares to be issued
C)date shares are to be issued
D)amount of dividend to be paid on shares issued
Q3) The emphasis in the audit of dividends is on the ending balance rather than the transactions.
A)True
B)False
Q4) When conducting the audit of stockholders' equity,it is normal practice to verify all capital stock transactions
A)only when the client is small.
B)that are in excess of a material amount.
C)if there aren't very many during the year.
D)regardless of the controls in existence,because of their materiality and permanence in the records.
Q5) Discuss the overall objectives of the audit of notes payable.
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Chapter 23: Audit of Cash and Financial Instruments
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Q1) Explain the purpose of testing the client's bank reconciliation,and discuss the major audit procedures involved.
Q2) The test of details of balances procedure that requires the auditor to foot the outstanding check and electronic payment list and deposits in transit is an attempt to satisfy which audit objective?
A)cutoff
B)presentation and disclosure
C)detail tie-in
D)completeness
Q3) Which of the following statements is correct?
A)Auditors must obtain bank confirmations for audits of nonpublic entities.
B)Auditors are required to obtain bank confirmations under international auditing standards.
C)Auditing standards do not address specific requirements regarding bank confirmations.
D)Auditing standards do not require bank confirmations.
Q4) The majority of financial instruments are valued at the lower of cost or market.
A)True
B)False
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Chapter 24: Completing the Audit
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Sample Questions
Q1) Management furnishes the independent auditor with information concerning litigation,claims,and assessments.Which of the following is the auditor's primary means of initiating action to corroborate such information?
A)Request that client lawyers undertake a reconsideration of matters of litigation,claims,and assessments with which they were consulted during the period under examination.
B)Request that client management send a standard inquiry to the client's attorney letter to those lawyers with whom management consulted concerning litigation,claims,and assessments.
C)Request that client lawyers provide a legal opinion concerning the policies and procedures adopted by management to identify,evaluate,and account for litigation,claims,and assessments.
D)Request that client management engage outside attorneys to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation,claims,and assessments.
Q2) List the three reasons why an experienced member of the audit firm must thoroughly review audit documentation at the completion of the audit.
Q3) With what types of contingencies might an auditor be concerned?
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Chapter 25: Other Assurance Services
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Q1) What is the best reason that standards prohibit accepting an engagement on a projection for general use?
A)The CPA's procedures would violate SSARS.
B)Reports on projections are not well understood by the general public.
C)Underlying hypothetical assumptions are difficult to interpret without obtaining additional information.
D)The CPA is not qualified to report on the use of GAAP in the projected financial statement.
Q2) Practitioners who perform preparation,compilation,or review engagements are referred to in the Statements on Standards for Accounting and Review Services (SSARS)standards as
A)bookkeepers.
B)accountants.
C)auditors.
D)CPAs.
Q3) Statements on Standards for Accounting and Review Services (SSARS)are issued by the SEC.
A)True
B)False
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Page 27
Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Sample Questions
Q1) 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.
Q2) Operational audits are often categorized as functional,organizational,or special assignments.
A)True
B)False
Q3) Internal auditing standards are included in the Blue Book.
A)True
B)False
Q4) 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.
Q5) The International Standards for the Professional Practice of Auditing list seven performance standards.List three.
Q6) Discuss three major differences between operational and financial auditing. Page 28
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