External Audit
Chapter Exam Questions
Course Introduction
External Audit explores the fundamental principles, processes, and regulations surrounding independent audits of financial statements. The course covers the roles and responsibilities of external auditors, the standards and ethical considerations guiding audit practices, and the audit cycle planning, evidence collection, risk assessment, and reporting. Emphasis is placed on understanding audit objectives, materiality, internal controls, and methods for detecting fraud and errors. Through a blend of theoretical frameworks and practical case studies, students will gain insight into the challenges and best practices in conducting objective and reliable external audits in compliance with national and international standards.
Recommended Textbook
Auditing and Assurance Services A Systematic Approach 8th Edition by William F. Messier
Available Study Resources on Quizplus
21 Chapters
1545 Verified Questions
1545 Flashcards
Source URL: https://quizplus.com/study-set/3144 Page 2
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/62270
Sample Questions
Q1) An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor's unqualified report.From this,the investor may conclude that
A) Any disputes over significant accounting issues have been settled to the auditor's satisfaction.
B) The auditor is satisfied that Stankey will be highly profitable in the future.
C) The auditor is certain that Stankey's financial statements have been prepared accurately and that all account balances are precisely correct.
D) The auditor has determined that Stankey's management is not qualified to lead the company.
Answer: A
Q2) Assurance services may improve all of the following except A) Relevance.
B) Credibility.
C) Periodicity.
D) Reliability.
Answer: C
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Financial Statement Auditing Environment
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/62269
Sample Questions
Q1) Generally,the financial statements of U.S.companies must be prepared based on GAAP.
A)True
B)False
Answer: True
Q2) The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the
A) Financial Accounting Standards Board.
B) General Accounting Office.
C) Public Company Accounting Oversight Board.
D) Auditing Standards Board.
Answer: C
Q3) A CPA is most likely to refer to one or more of the three PCAOB general auditing standards in determining
A) The nature of the CPA's report qualification.
B) The scope of the CPA's auditing procedures.
C) Requirements for the review of the entity and its environment.
D) Whether the CPA should undertake an audit engagement.
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Audit Planning,Types of Audit Tests,and Materiality
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/62271
Sample Questions
Q1) If the internal auditor is competent and objective,the auditor may generally rely on the work of an internal auditor in certain areas to reduce the amount of external audit work in these areas.
A)True
B)False
Answer: True
Q2) Which of the following arranges the general types of audit tests in the order they are normally performed in an audit?
A) Substantive procedures, tests of controls, and risk assessment procedures.
B) Substantive procedures, risk assessment procedures, and tests of controls.
C) Risk assessment procedures, tests of controls, and substantive procedures.
D) Risk assessment procedures, substantive procedures, and tests of controls.
Answer: C
Q3) The engagement partner is typically responsible for doing the detailed audit testing. A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Risk Assessment
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/62268
Sample Questions
Q1) Stacey,the partner in charge of the audit of RIF Enterprises,sets the planned level of audit risk for the audit of accounts payable at .06.The risk of material misstatement is assessed at .65.What is the detection risk for this audit?
Q2) Which of the following is not a misstatement of the financial statements?
A) The client uses different inventory accounting methods for internal and external reporting.
B) A departure from GAAP.
C) The footnote for pensions is omitted.
D) A clerk incorrectly based the allowance for doubtful accounts on 31% of sales as opposed to 13% of sales as determined by the controller.
Q3) The combination of inherent risk and control risk is referred to as client risk. A)True B)False
Q4) During the course of the audit of FF Financial,you find that some accounting entries have been altered.You believe this may be the result of management fraud and you have determined that the effect of this could be material to the financial statements.What steps should you take in response to the accounting entries and your concern about management fraud?
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Evidence and Documentation
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/62267
Sample Questions
Q1) Which of the following is not a typical analytical procedure?
A) Study of relationships of the financial information with relevant nonfinancial information.
B) Comparison of the financial information with similar information regarding the industry in which the entity operates.
C) Comparison of recorded amounts of major disbursements with appropriate invoices.
D) Comparison of the financial information with budgeted amounts.
Q2) In deciding to implement analytical procedures,what are some factors the auditor will consider in determining a tolerable difference between the expectation and the recorded amount?
Q3) Analytical procedures may be classified as being primarily which of the following?
A) Tests of controls.
B) Substantive procedures.
C) Tests of ratios.
D) Detailed tests of balances.
Q4) Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Internal Control in a Financial Statement Audit
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/62266
Sample Questions
Q1) Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?
A) Incompatible duties.
B) Management override.
C) Mistakes in judgment.
D) Collusion among employees.
Q2) The normal sequence of documents and operations on a well-prepared systems flowchart is
A) Top to bottom and left to right.
B) Bottom to top and left to right.
C) Top to bottom and right to left.
D) Bottom to top and right to left.
Q3) If auditors conduct substantive procedures as of 10/31 for an entity with a 12/31 year-end
A) Additional tests are seldom conducted for the remaining period.
B) Additional control tests are required in the remaining period.
C) The client's controls likely are ineffective.
D) Additional tests likely will be performed in the remaining period.
Q4) Why might an auditor decide to test controls at an interim date?
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Auditing Internal Control Over Financial Reporting
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/62265
Sample Questions
Q1) When testing a computerized accounting system,which of the following is false regarding the test data approach?
A) The test data need to consist of only those valid and invalid conditions in which the auditor is interested.
B) Only one transaction of each type needs be tested.
C) Test data are processed by the client's computer programs under the auditor's control.
D) The test data must consist of all possible valid and invalid conditions.
Q2) Identify indicators of a material weakness in internal control over financial reporting.
Q3) Most public companies must follow the guidelines of AS5.
A)True
B)False
Q4) In a public company,management must assess and report on internal control over financial reporting.
A)True
B)False
Q5) Discuss entity-level controls and provide examples of these types of controls.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/62264
Sample Questions
Q1) Which of the following statements is correct concerning statistical sampling in compliance testing?
A) The population size has little or no effect on determining sample size except for very small populations.
B) The expected population deviation rate has little or no effect on determining sample size except for very small populations.
C) As the population size doubles, the sample size also should double.
D) For a given tolerable deviation rate, a larger sample size should be selected as the expected population deviation rate decreases.
Q2) A control is deemed to be more important than thought at the time that attributes sampling parameters were set.The auditor is most likely to respond by
A) Decreasing the risk of assessing control risk too high.
B) Increasing population size.
C) Decreasing the tolerable deviation rate.
D) Decreasing the expected deviation rate.
Q3) Define Type I and Type II errors.
Q4) Identify the types of audit evidence that are tested using audit sampling techniques.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/62263
Sample Questions
Q1) In monetary-unit sampling,population size is
A) The dollar balance in an account.
B) The number of items in an account.
C) Unrelated to sample size.
D) Included in the denominator of the formula to determine sample size.
Q2) Monetary-unit sampling should not be used if
A) The population includes several large items.
B) The auditor expects overstatement errors.
C) Many items in the account are expected to have errors.
D) No items in the account are expected to have errors.
Q3) Precision is a statistical measure of the maximum likely difference between the sample estimate and the true but unknown population total and is directly related to
A) Reliability of evidence.
B) Relative risk.
C) Confidence level.
D) Cost benefit analysis.
Q4) What is one advantage and one disadvantage of classical variables sampling?
Q5) Summarize the concept behind monetary-unit sampling (MUS).How does MUS use attribute-sampling theory?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Auditing the Revenue Process
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/62262
Sample Questions
Q1) To achieve good internal control,which department should perform the activities of matching shipping documents with sales orders and preparing daily sales summaries?
A) Billing.
B) Shipping.
C) Credit.
D) Sales Order.
Q2) When tracing a sample of shipping documents from throughout the year to the details of the sales invoices and to the sales journal and customers' accounts receivable subsidiary ledger,the auditor is testing the _____________ assertion.
A) Classification.
B) Cutoff.
C) Existence.
D) Completeness.
Q3) Explain how revenue recognition is important to the audit of the revenue process.
Q4) What inherent risk factors should an auditor consider when auditing the revenue process of a computer manufacturer?
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Auditing the Purchasing Process
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/62261
Sample Questions
Q1) An auditor wishes to perform tests of controls on a client's cash disbursements procedures.If the control activities leave no audit trail of documentary evidence,the auditor most likely will test the procedures by
A) Inquiry and analytical procedures.
B) Confirmation and observation.
C) Observation and inquiry.
D) Analytical procedures and confirmation.
Q2) Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?
A) Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher?
B) Are purchase requisitions prenumbered and independently matched with vendor invoices?
C) Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions?
D) Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Auditing the Human Resource Management Process
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/62260
Sample Questions
Q1) When examining payroll transactions,an auditor is primarily concerned with the possibility of
A) Underpayments and properly authorized payments.
B) Posting of gross payroll amounts to incorrect salary expense accounts.
C) Misfootings of employee time records.
D) Excess withholding of amounts required to be withheld.
Q2) The proper use of prenumbered termination notice forms by the Payroll Department should provide assurance that all
A) Uncashed payroll checks were issued to employees who have not been terminated.
B) Personnel files are kept up to date.
C) Employees who have not been terminated receive their payroll checks.
D) Terminated employees are removed from the payroll.
Q3) The Hamster Stop has $93,650 in the Accrued Payroll account.Hamster's weekly payroll is $156,000 and the accrual represents payroll for 3 days.If controls are strong,determine whether additional audit work should be performed on this account.
Q4) Payroll-related expenses normally are not a material cost to the organization. A)True B)False
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 21: Assurance,Attestation,and Internal Auditing Services
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/62259
Sample Questions
Q1) Explain the importance of observing physical inventory during an audit.
Q2) Which of the following is the best audit procedure for the discovery of damaged merchandise in a client's ending inventory?
A) Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
B) Observe the condition of merchandise and raw materials during the client's physical inventory count.
C) Review the management's inventory representation letter for accuracy.
D) Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.
Q3) In an audit of inventories,an auditor would least likely verify that
A) All inventory owned by the client is on hand at the time of the count.
B) The client has used proper inventory pricing.
C) The financial statement presentation of inventories is appropriate.
D) Damaged goods and obsolete items have been properly accounted for.
Q4) Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.
A)True
B)False
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/62258
Sample Questions
Q1) Which of the following is the most important control activity 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.
Q2) How do accounting standards regarding accounting for the impairment or disposal of long-lived assets affect the audit of property,plant,and equipment?
Q3) The auditor may conclude that depreciation charges are insufficient by noting
A) Insured values greatly in excess of book values.
B) Large amounts of fully depreciated assets.
C) Continuous trade-ins of relatively new assets.
D) Excessive recurring losses on assets retired.
Q4) List two ways an auditor can test the existence and completeness of insurance policies.
Page 16
Q5) Describe the types of information that should be included in the schedule of prepaid insurance that is used by the auditor as the basis for auditing prepaid insurance.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders Equity, and Income
Statement Accounts
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/62257
Sample Questions
Q1) Reviewing notes paid or renewed after the balance sheet date to determine if there are unrecorded liabilities at year-end can be used to test the assertion of A) Existence.
B) Completeness.
C) Rights and obligations.
D) Valuation and allocation.
Q2) Before expressing an opinion concerning the results of operations,the auditor would most likely proceed with the examination of the income statement by
A) Applying a rigid measurement standard designed to test for understatement of net income.
B) Analyzing the beginning and ending balance sheet inventory amounts.
C) Making net income comparisons to published industry trends and ratios.
D) Examining income statement accounts concurrently with the related balance sheet accounts.
Q3) The registrar is responsible for preparing stock certificates and maintaining adequate stockholders' records.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/62256
Sample Questions
Q1) An auditor usually tests the reasonableness of dividend income from investments in stock of public companies by computing the amounts that should have been received by referring to
A) Dividend record books produced by investment advisory services.
B) Stock indentures published by corporate transfer agents.
C) Stock ledgers maintained by independent registrars.
D) Annual audited financial statements issued by the investee companies.
Q2) Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?
A) Notes receivable and interest income.
B) Accrued interest receivable and accrued interest payable.
C) Notes payable and notes receivable.
D) Interest income and interest expense.
Q3) What should an auditor look for when testing for proper classification of securities?
Q4) The auditor's use of analytical procedures for auditing cash is limited.
A)True
B)False
Q5) Identify 3 of the 6 tests an auditor uses on the bank reconciliation.
Q6) Explain how cash plays a role in all business processes.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Completing the Audit Engagement
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/62255
Sample Questions
Q1) Define the term "contingent liability" and discuss the criteria used to classify these events or conditions.Provide some examples of contingent liabilities.
Q2) An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against a client except the:
A) Period in which the underlying cause for legal action occurred.
B) Probability of an unfavorable outcome.
C) Jurisdiction in which the matter will be resolved.
D) Existence of a situation indicating an uncertainty as to the possible loss.
Q3) Auditors often request that the audit client send a letter of inquiry to those attorneys who have been consulted with respect to litigation,claims,and/or assessments.The primary reason for this request is to provide the auditor with
A) An estimate of the dollar amount of the probable loss.
B) An expert opinion as to whether a loss is possible, probable, or remote.
C) Information concerning the progress of cases to date.
D) Corroborative inquiries made of the client by the auditor.
Q4) Identify the two primary types of subsequent events that require consideration by management and evaluation by the auditor and give two examples of each type.
To view all questions and flashcards with answers, click on the resource link above.
19
Chapter 18: Reports on Audited Financial Statements
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/62254
Sample Questions
Q1) Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements?
A) First standard.
B) Second standard.
C) Third standard.
D) Fourth standard.
Q2) Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A) Inspecting title documents to verify whether any assets are pledged as collateral.
B) Confirming with third parties the details of arrangements to maintain financial support.
C) Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
D) Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Professional Conduct,Independence,and Quality Control
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/62253
Sample Questions
Q1) PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee.
A)True
B)False
Q2) According to the ethical standards of the profession,which of the following acts is generally prohibited?
A) Purchasing a product from a third party and reselling it to a client.
B) Writing a financial management newsletter promoted and sold by a publishing company.
C) Accepting a commission for recommending a product to an audit client.
D) Accepting engagements obtained through the efforts of third parties.
Q3) Which of the following is not an element of quality control as defined by Statement of Quality Control Standards No.8?
A) Monitoring.
B) Independence.
C) Human resources.
D) Relevant ethical requirements.
Q4) Identify the primary purposes of Rules 201-203 of the Rules of Conduct.
To view all questions and flashcards with answers, click on the resource link above. Page 21
Q5) When can a CPA disclose confidential information without the client's consent?
Chapter 20: Legal Liability
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/62252
Sample Questions
Q1) When performing an audit,a CPA
A) Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.
B) Must strictly adhere to generally accepted accounting principles.
C) Is strictly liable for failing to discover client fraud.
D) Is not liable under any legal standard unless the CPA commits gross negligence or intentionally disregards generally accepted auditing standards.
Q2) The Sarbanes-Oxley Act of 2002 is considered the most sweeping securities law since the 1933 and 1934 Acts.Which item in the list below was not part of the Sarbanes-Oxley Act of 2002?
A) Enhances prosecutorial tool available in fraud cases.
B) Legislates new guidelines for ethics and integrity for public accounting firms.
C) Expands statutory prohibitions against fraud and obstruction of justice.
D) Increases authorized penalties for securities and financial fraud.
E) Strengthens the legal protections accorded whistle-blowers.
Q3) Auditors can be held liable under two classes of law when sued by clients,investors,creditors,or the government.Identify and briefly explain both classes of law.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Assurance,Attestation,and Internal Auditing Services
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/62251
Sample Questions
Q1) This concept,while used by both internal and external auditors,is typically assessed quite differently for each.
A) Competence.
B) Objectivity.
C) Integrity.
D) Materiality.
Q2) Assurance services are independent professional services that improve the quality of information specifically for internal decision makers.
A)True
B)False
Q3) How has the advancement in technology led to the creation of the Trust Services?
Q4) Which of the following procedures is usually included in a review engagement of a nonpublic entity?
A) The confirmation of accounts receivable.
B) A study and evaluation of internal control.
C) An inquiry concerning subsequent events.
D) The observation of physical inventory counts.
Q5) Explain each of the three PrimePlus Services typically offered by practitioners.
Page 23
To view all questions and flashcards with answers, click on the resource link above.