Auditing The Art and Science of Assurance Engagements, Canadian Eleventh Edition with GradeTracker, 11E By Alvin A. Arens
Email: richard@qwconsultancy.com
Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the audit of historical financial statements by PA firms, the criteria used are 1) _______ A) generally accepted accounting principles. B) generally accepted auditing standards. C) regulations of the provincial securities commissions. D) regulations of the Canada Revenue Agency.
2) Auditing should be done by A) a professional accountant. C) a chartered accountant.
2) _______ B) a competent and independent person. D) a certified management accountant.
3) A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the financial statements were generally accepted accounting principles. A high level of assurance was obtained. The type of engagement conducted was: A) review B) compilation C) audit D) management consulting
3) _______
4) George had a conversation with the accounting personnel and documented information about how the accounting systems function. He has also placed copies of accounting forms in his files. George is performing which task? A) accounting procedures B) tax audit C) evidence gathering D) audit report preparation
4) _______
5) The auditor and the entities should agree on the criteria to be used in the audit A) at the end of the audit. B) after the audit planning has been done. C) before the audit starts. D) as they progress with the audit as they can determine which criteria is more suitable.
5) _______
6) Because an external auditor is paid a fee by a client company, he or she A) may be sufficiently independent to conduct an audit. B) must receive approval of the relevant provincial securities commission before conducting an audit. C) is never considered to be independent. D) is absolutely independent and may conduct an audit.
6) _______
7) It is important for the auditor to be independent because A) the auditor would not charge a fair rate to the client. B) the Canadian Tax Authorities require that the auditor be independent. C) the audit conclusions cannot be relied upon if the auditor was biased in accumulating and evaluating evidence. D) the auditor might not be as knowledgeable of the subject matter and the criteria.
7) _______
8) The auditor's report is A) the report presented to management about the possible improvements. B) the communication of audit findings to users. C) the set of audited financial statements. D) the invoice of the auditor detailing the work they have performed.
8) _______
9) In the audit of an individual's tax return, the criteria used would be A) GAAP. B) the auditor's judgement. C) the Income Tax Act. D) the client's policies for taxable income.
9) _______
10) Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making. Joe is doing A) review. B) management consulting. C) auditing. D) accounting.
10) ______
11) In "auditing" accounting data, the concern is with A) analyzing the financial information to be sure that it complies with government requirements. B) determining whether recorded information properly reflects the economic events that occurred during the accounting period. C) determining if taxable income has been calculated correctly. D) determining if fraud has occurred.
11) ______
12) What type of organizations use auditing services? A) Businesses C) Governments
12) ______ B) Non-for-profit organizations D) All of the above
13) An accountant records information. When conducting an audit, the distinguishing abilities are the A) requirement to possess education beyond the bachelor's degree. B) ability to interpret generally accepted accounting principles. C) organize and summarize economic events. D) accumulation and interpretation of evidence.
13) ______
14) In Canada, publicly traded company A) are not required to have an audit. B) are not required to have an audit if they have a review. C) are required to have audits. D) are strongly encouraged to have audits.
14) ______
15) A shareholder of a public Canadian firm can have access to the audited financial statements A) by calling the accounting department of the company. B) on the internet.
15) ______
C) if he holds more than 1% of the shares of the company. D) requesting a copy from the auditors.
16) A reason for private companies to be audited is A) facilitating access to capital. B) complying with the laws requiring them to be audited. C) having a professional accountant perform their bookkeeping. D) ensuring that their financial statement do not contain errors.
16) ______
17) The Sarbanes-Oxley Act requires the auditor to attest to A) the compliance of the company with the generally accepted accounting principles. B) the accuracy of the financial statements. C) the effectiveness of internal controls. D) the efficiency of the internal controls in financial reporting.
17) ______
18) There is an increasing demand for assurance about computer controls surrounding financial information transacted electronically and the security of the information related to the transaction. This is in large part due to A) the many transactions and information shared online and in real time by companies. B) the use of computer assisted auditing tools. C) client's uncertainty about the proper functioning of their computer system. D) the increasing presence of internet sales in many businesses.
18) ______
19) The WebTrust principle of processing integrity refers to A) providing assurance that the information designated as confidential is protected. B) providing assurance that the transactions are processed completely and accurately. C) providing assurance that the systems and data will be available to the users when they need it. D) providing assurance that access to the system and data is restricted to authorized individuals.
19) ______
20) The WebTrust principle of security refers to A) providing assurance that the systems and data will be available to the users when they need it. B) provides assurance that the information designated as confidential is protected. C) providing assurance that access to the system and data is restricted to authorized individuals. D) providing assurance that the transactions are processed are completely and accurately.
20) ______
21) The auditor must have a thorough understanding of the entity and its environment. The auditor must also consider the client's business strategies, processes, and measurement indicators for critical success factors related to those strategies. This analysis helps the auditor A) identify risks associated with the client's strategy that could affect the financial statements. B) identify the potential for fraud in the financial reporting process. C) assess the level of materiality that is appropriate for the audit. D) decide if they want to accept the engagement.
21) ______
22) Blader Ng. Inc. has recently placed into production new air-cleaning systems in their smoke-stacks to meet clean-air quality regulations. PA has been engaged to assess air quality and compare results to legislated requirements. What type of audit or engagement is PA conducting? A) financial statement B) operational C) compliance D) review
22) ______
23) A review of any part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n) A) production audit. B) audit of financial statements. C) operational audit. D) compliance audit.
23) ______
24) Which one of the following is more difficult to evaluate objectively? A) presentation of financial statements in accordance with Canadian generally accepted accounting principles B) efficiency and effectiveness of operations C) compliance with government regulations D) All three of the above are equally difficult.
24) ______
25) A typical objective of an operational audit is for the auditor to A) evaluate the feasibility of attaining the entity's operational objectives. B) report on the entity's relative success in attaining profit maximization. C) make recommendations for improving performance. D) determine whether the financial statements fairly present the entity's operations.
25) ______
26) Which of the following audits can be regarded as being solely "compliance" audits? A) Canada Revenue Agency's examinations of the returns of taxpayers B) the Auditor General's evaluation of the computer operations of governmental units C) a public accounting firm's audit of the local school district D) an internal auditor's review of his employer's payroll authorization procedures
26) ______
27) The predominant type of assurance service performed by large public accounting firms is A) review. B) management consulting. C) audit. D) compilation.
27) ______
28) The No-Name Advertising Rating Agency conducts independent surveys to determine the sources of purchases by consumers (e.g. newspaper ad, magazine ad, television ad). This information is then used by those media (i.e. newspapers, magazines, and television broadcasters) to indicate to purchasers of advertising the breadth of coverage that they have. For example, Small Local Newspaper can say that 10% of the purchasers of soap products made their decisions based upon their ads. This helps in selling advertising. What type of service is No-Name providing? A) Assurance B) Compilation C) Review D) Attest
28) ______