Audit Exam 1
Q17: Confirmations would normally be most likely used as a type of audit evidence in connection with which of the following? A) Accounts Receivable. B) Goodwill. C) Deferred Taxes. D) Machinery and Equipment.
A) Accounts Receivable.
Q24:Which of the following is true regarding audit evidence? A) Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported. B) Auditors typically gather audit evidence about one whole financial statement at a time rather than one account at a time. C) Auditors rarely gather audit evidence about one business process at a time. D) When audit evidence supports management's assertions, a qualified audit report can be issued.
A) Audit evidence is gathered to determine whether each relevant financial statement assertion is being supported.
Q20: Which of the following is true relating to audit work paper documentation? A) It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered. B) It should not include copies of any client-generated documents. C) It is generally examined and utilized by the client after the audit is completed. D) It must be destroyed once the audit is complete and the opinion is rendered.
A) It serves as the basis of review for audit supervisors to determine if sufficient, appropriate evidence has been gathered.
Which of the following can revoke the CPA's right to audit publicly traded companies? A) PCAOB. B) AICPA. C) ASB D) State Board of Accountancy .
A) PCAOB.
Given the following circumstances regarding an audit, please circle the answer choice that corresponds to the category of audit report that an audit firm should issue: • The audit firm is independent with respect to the client, both in fact and in appearance • The audit firm is not able to make a definitive determination as to whether or not the entire set of financial statements are in accordance with accounting principles generally accepted in the United States of America, as they were unable to obtain sufficient appropriate evidence regarding the carrying value of a material investment in another company or their share of the net income from that company • Despite the uncertainty associated with the above bulleted material item, overall, the financial statements are still fairly presented in all material respects A) Qualified B) Unqualified with Emphasis-of-matter Explanatory Paragraph C) Disclaimer D) Adverse
A) Qualified
Which of the following would most likely cause the auditor to decline to accept an audit engagement? A) The auditor discovers evidence that the prospective client's management may have been engaged in illegal acts at other companies that it controls. B) The prospective client's overall profitability is lagging behind that of other companies in its industry. C) Internal controls over the prospective client's processing over routine cash disbursements are poor. D) The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audittechniques.
A) The auditor discovers evidence that the prospective client's management may have been engaged in illegal acts at other companies that it controls.
Q5: Which of the following is not a valid reason for reducing the extent of detailed audit testing on an account? A) The auditor wants to make sure that the number of hours spent on the engagement does not go over budget. B) Analytical procedures results indicate that the likelihood of material misstatement is low. C) Internal control testing indicates a low level of control risk. D) The cost of obtaining additional evidence outweighs its usefulness.
A) The auditor wants to make sure that the number of hours spent on the engagement does not go over budget.
Which of the following circumstances would most likely result in a standard unqualified opinion with an explanatory paragraph? A) The auditor wishes to emphasize significant litigation pending against the client that is properly disclosed in the financial statements. B) The client refuses to book an accrual for a material legal settlement that was pending as of the balance sheet date, but settled before the end of fieldwork. C) The client's financial statements contain immaterial errors that were not corrected. D) The client's legal counsel is requested to advise whether the client's actions constitute material noncompliance with tax law but refuses to do so.
A) The auditor wishes to emphasize significant litigation pending against the client that is properly disclosed in the financial statements.
Which of the following appears first in the revised PCOAB audit opinion? A) The auditor's opinion on the financial statements. B) A reference to the internal control audit. C) Statements regarding management's and the auditor's responsibility. D) The scope paragraph.
A) The auditor's opinion on the financial statements.
Which of the following was not a huge implication for the audit profession from the passing of the Sarbanes-Oxley Act of 2002 (SOX)? Please circle the correct answer choice below A) The implementation of a peer review program to assess a firm's system of quality control for its private clients B) The requirement for the reporting and testing of internal controls (Section 404) C) he implementation of enhanced independence-related rules D) The establishment of the Public Company Accounting Oversight Board (PCAOB)
A) The implementation of a peer review program to assess a firm's system of quality control for its private clients
All accounts on the list arose from the normal course of business and are not due from related parties A) Valuation and Allocation B) Completeness C) Existence D) Rights and Obligations
A) Valuation and Allocation
Q13: A confirmation is used to A) Verify a representation from a third party. B) Verify the inventory count is correct. C) Verify that a control is being observed. D) Verify that a specific trend is correct.
A) Verify a representation from a third party.
Q8: Which of the following contains a listing of unaudited account balances and adjusting entries? A) Working trial balance. B) Permanent file. C) Lead schedule. D) Bank reconciliation.
A) Working trial balance.
The Sarbanes-Oxley Act prohibited auditors from providing certain services to their audit clients including: a) Bookkeeping or related financial statement services b) Management functions or human resources c) Tax services A) a) and b) B) a) only C) b) and c) D) a), b), and c)
A) a) and b)
The Public Company Accounting Oversight Board does not: A) establish auditing standards that must be followed by all CPAs. B) perform inspections of the quality controls at audit firms that audit public companies. C) oversee auditors of public companies. D) perform any of the functions mentioned in the choices.
A) establish auditing standards that must be followed by all CPAs.
Q4: Which of the following procedures addresses the completeness assertion? A) Compare a sample of payroll transactions to supporting documentation. B) Compare a sample of shipping documents to related sales invoices. C) Confirm accounts receivable balances with the customers. D) Review bank statements for indications of kiting.
B) Compare a sample of shipping documents to related sales invoices.
Statements about Accounts Receivable There are no unrecorded receivables. For this statement about accounts receivable, identify the appropriate management assertion. A) Existence B) Completeness C) Valuation and Allocation D) Rights and Obligations
B) Completeness
Which of the following appears in the revised PCAOB audit opinion for public companies, but not in the ASB opinion for private companies? A) A description of management's and the auditor's responsibilities. B) Disclosure of the length of time that the public accounting firm has served as the company's auditors. C) The words "We have audited..." at the beginning of the audit opinion. D) The phrase "present fairly."
B) Disclosure of the length of time that the public accounting firm has served as the company's auditors.
Which of the following is a classified as a general standard in the PCAOB GAAS framework? A) Planning and supervision B) Due professional care C) Understanding of internal control D) Adequate presentation of financial statements
B) Due professional care
Which of the following best defines professional skepticism? A) Operating under the assumption that the client's financial statements contain material misstatement. B) Having an attitude that includes a questioning mind and a critical assessment of evidence. C) Assuming that very little of what the client tells the auditor is true. D) Collecting evidence that proves client assertions beyond a reasonable doubt.
B) Having an attitude that includes a questioning mind and a critical assessment of evidence.
What organization is responsible for setting auditing standards for audits of publicly traded companies in the US? A) AICPA B) PCAOB C) FASB D) GASB
B) PCAOB
What organization is responsible for setting auditing standards for audits of publicly traded companies in the US? A) AICPA B) PCAOB C) ISB D) IASB
B) PCAOB
Which of the following statements is true as it relates to limited liability partnerships? A) Only senior partners are liable for the partnership's debts. B) Partners are personally liable for the acts of those under their supervision. C) Partners have no liability in a limited liability partnership arrangement. D) All partners must be AICPA members.
B) Partners are personally liable for the acts of those under their supervision.
Q11: Which of the following types of audit evidence is the least reliable? A) Bank statements obtained from the client. B) Prenumbered sales invoices prepared by the client. C) Test counts of inventory performed by the auditor. D) Correspondence from the client's attorney about litigation.
B) Prenumbered sales invoices prepared by the client.
Q22: According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a high level of reliability is: A) Scanning. B) Recalculation. C) Observation. D) Confirmation.
B) Recalculation.
Given the following conditions, please circle the answer choice below that corresponds to the category of audit report that an audit firm should issue: • The financial statements include a balance sheet, income statement, statement of changes in stockholders' equity, and a statement of cash flows • The auditor has accumulated sufficient appropriate evidence and can conclude that the audit has been performed in accordance with auditing standards • The financial statements and footnotes are presented in accordance with U.S. generally accepted accounting principles • No circumstances have been identified that would cause any addition to or modification of the wording of the report A) Qualified B) Standard Unqualified C) Unqualified with Emphasis-of-matter Explanatory Paragraph D) Disclaimer
B) Standard Unqualified
Q16: Which of the following statements is correct with regard to the quality or appropriateness of evidential matter? A) Evidential matter must be either valid or relevant but need not be both. B) The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources. C) Internal accounting data alone may be considered sufficient appropriate evidential matter to issue an unqualified opinion on financial statements. D) Appropriateness of evidential matter refers to the amount of corroborative evidence to be obtained.
B) The auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.
All accounts on the list are expected to be collected within 1 year. For this statement about accounts receivable, identify the appropriate management assertion. A) Completeness B) Valuation and Allocation C) Existence D) Rights and Obligations
B) Valuation and Allocation
In performing an attest engagement, a CPA typically A) supplies litigation support services. B) expresses a conclusion about an assertion. C) assesses control risk at a low level. D) provides management consulting services.
B) expresses a conclusion about an assertion.
Send letters to a sample of accounts receivable customers to verify whether they have an outstanding balance at December 31, 2018. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Balance Existence
Send letters to a sample of accounts receivable customers to verify whether they have an outstanding balance at December 31, 2018. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Balance Existence
Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. This is a [Blank]-related assertion? Which assertion the auditor is testing for? Answer:
Balance Valuation and Allocation
Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. This is a [Blank}-related assertion? Which assertion the auditor is testing for? Answer:
Balance Valuation and Allocation
Discuss with credit department personnel the likelihood of collection of all accounts as of December 31, 2018 with a balance greater than $100,000 and greater than 90 days old as of year-end. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Balance Valuation and allocations
Which of the following does not indicate the need for an explanatory paragraph in an audit opinion? A) A change in accounting principle. B) Susbstantial doubt about the entity continuing as a going concern. C) A change in accounting estimate. D) A change in reporting entity.
C) A change in accounting estimate.
What type of opinion should an auditor give when the auditor is not independent? A) A standard unmodified opinion. B) An unmodified opinion with an explanatory paragraph. C) A disclaimer of opinion. D) A qualified opinion.
C) A disclaimer of opinion.
An auditor finds a misstatement that is material but not highly material. Which of the following types of audit opinion should be issued? A) An unqualified opinion with an emphasis-of-matter paragraph. B) A disclaimer of opinion. C) A qualified opinion. D) An adverse opinion.
C) A qualified opinion.
Q9: In testing the existence assertion for an asset, an auditor ordinarily works from the A) Potentially unrecorded items to the financial statements. B) Financial statements to the potentially unrecorded items. C) Accounting records to the supporting documents. D) Supporting documents to the accounting records.
C) Accounting records to the supporting documents.
Which of the following organizations affect the environment that CPAs work in? A) The American Institute of Certified Public Accountants [AICPA]. B) The Securities and Exchange Commission [SEC]. C) All choices D) The Public Company Accounting Oversight Board [PCAOB].
C) All choices
Q14: Discussions with the owner-manager of an entity under audit reveal to the auditor that the company is more concerned with minimizing its income tax payments than maximizing income. Based on this information, which management assertion will the auditor be most concerned about verifying with regard to sales revenue? A) Existence and occurrence B) Rights and obligations. C) Completeness. D) Valuation and Allocation.
C) Completeness.
A written understanding between the auditor and the entity concerning the auditor's responsibility for fraud is usually set forth in a(n) A) Management Letter. B) Internal control letter. C) Engagement letter. D) Letter of audit inquiry.
C) Engagement letter.
Q10: Which of the following procedures would provide the most reliable audit evidence? A) Inquiries of the client's internal accounting staff. B) Inspection of pre numbered client purchase orders filed in the accounts payable department. C) Inspection of bank statements obtained directly from the client's financial institution. D) Observation of procedures performed by the client's personnel to approve cash disbursements.
C) Inspection of bank statements obtained directly from the client's financial institution.
Q6: Which of the following statements about audit documentation is true? A) It is the property of the auditor, and client permission is not necessary to allow other parties to examine the documentation. B) It becomes the property of the client after completion of the audit. C) It is the property of the auditor, and client permission is generally required to allow other parties to examine the documentation. D) It is the property of the auditor, and there are no circumstances under which the auditor would be required to show the documentation to other parties.
C) It is the property of the auditor, and client permission is generally required to allow other parties to examine the documentation.
Q21: According to the reliability hierarchy by evidence type as presented in the text, an example of audit evidence with a low level of reliability is: A) Reperformance. B) Inspection. C) Observation. D) Analytical procedures.
C) Observation.
Which of the following best describes the role of the Public Company Accounting Oversight Board? A) Conduct the final review of auditors' work before the auditor's opinion is issued. B) Conduct audits of governmental entities. C) Oversee the auditors of public companies in order to protect the interests of investors. D) Sanction auditors who fail to follow GAAS.
C) Oversee the auditors of public companies in order to protect the interests of investors.
Q3: You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Your audit supervisor instructs you to look at documentation to determine which items are held on consignment. Which audit assertion does this address? A) Completeness B) Existence C) Rights and obligations D) Valuation and allocation
C) Rights and obligations
Which of the following does not represent a difference between an audit report issued to a publicly-traded company and an audit report issued to a private company? Please circle the correct answer choice below. A) The existence of specific sub-headings regarding the content of the report's paragraphs B) The title indicating whether or not the public accounting firm is registered C) The differences between the responsibilities of management and the responsibilities of the auditors D) The indication of the specific standards which were used by the auditor in conducting the audit
C) The differences between the responsibilities of management and the responsibilities of the auditors
Why was the Sarbanes-Oxley Act passed? A) To better protect consumers from fraudulent lending practices. B) To ease some of the regulatory burden on the accounting profession. C) To restore investor confidence in the wake of a series of accounting scandals. D) To make it easier for investors to recover assets from failed firms.
C) To restore investor confidence in the wake of a series of accounting scandals.
Q18: One of the main objectives of performing analytical review procedures during the planning phase of the audit is to identify: A) Transactions that have not been properly authorized. B) Illegal acts undetected as a result of poor internal controls. C) Unusual changes that may signal possible account misstatements. D) Inefficient operations.
C) Unusual changes that may signal possible account misstatements.
Receivables that have become uncollectible have been written off. For this statement about accounts receivable, identify the appropriate management assertion. A) Completeness B) Existence C) Valuation and Allocation D) Rights and Obligations
C) Valuation and Allocation
Please circle the answer choice below that best completes the missing phrase at the end of the following definition of materiality - "A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of _____________________." A) the auditor B) management or the board of directors C) a reasonable user of the statements D) anyone
C) a reasonable user of the statements
Hawkins requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditor's working papers. The prospective client's refusal to permit this will bear directly on Hawkins' decision concerning the: A) adequacy of the preplanned audit program. B) ability to establish consistency in application of accounting principles between years. C) integrity of management. D) apparent scope limitation.
C) integrity of management.
When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining: A) whether the predecessor's work should be utilized. B) whether, in the predecessor's opinion, the financial statements are materially correct. C) whether the engagement should be accepted. D) whether, in the predecessor's opinion, the company's internal controls have been satisfactory.
C) whether the engagement should be accepted.
Which of the following best describes the roles of the American Institute of Certified Public Accountants [AICPA] and the Public Company Accounting Oversight Board [PCAOB] in establishing auditing standards? A) Auditing standards issued by the AICPA and the PCAOB are considered minimum standards of performance for auditors. B) The AICPA sets auditing standards for use in audits of nonpublic entities. C) The PCAOB sets auditing standards for use in audits of publicly held companies. D) All choices
D) All choices
In assessing whether to accept a client for an audit engagement, a CPA should consider: A) the current financial health of the prospective client. B) the integrity of management. C) the CPA's overall engagement risk. D) All of these choices are correct.
D) All of these choices are correct.
Q19: Which of the following presumptions is correct regarding the reliability of audit evidence? A) To be reliable, evidence should be convincing rather than simply persuasive. B) Information obtained directly from the company is considered to be the most reliable type of evidence. C) Reliability generally refers to the amount and relevance of corroborative audit evidence obtained. D) An effective internal control system provides increased assurance with regard to the reliability of audit evidence.
D) An effective internal control system provides increased assurance with regard to the reliability of audit evidence.
Which of the following best describes relationships among auditing, attest, and assurance services? A) Attest is a type of auditing service. B) Auditing and attest services represent two distinctly different types of services. C) Assurance is a type of attest service. D) Auditing is a type of assurance service.
D) Auditing is a type of assurance service.
Q12: Which of the following is the most persuasive type of audit evidence? A) Bank statements obtained from the client. B) Prenumbered client sales invoices. C) Vendor's invoices included in the client's files. D) Bank statements obtained directly from the bank.
D) Bank statements obtained directly from the bank.
Q7: Which of the following items would be included in an auditor's permanent file documentation? A) Documentation regarding the assessed level of control risk. B) Board of Directors' minutes. C) An analysis of which account balances are likely to be materially misstated. D) Excerpts of the corporate charter and bylaws
D) Excerpts of the corporate charter and bylaws.
Q 15: Which of the following primary assertions is satisfied when an auditor observes the entity's physical count of inventory? A) Rights and obligations. B) Valuation and Allocation. C) Completeness. D) Existence.
D) Existence.
The risk to investors that a company's financial statements may be materially misleading is called A) Moral hazard. B) Business risk. C) Investment risk D) Information risk.
D) Information risk.
Which of the following is NOT a performance principle of auditing? A) Supervision of assistants. B) Assessing risk of material misstatement. C) Obtaining sufficient appropriate audit evidence. D) Maintaining professional skepticism.
D) Maintaining professional skepticism.
Which of the following bears ultimate responsibility for the financial statements? A) Management of the organization equally with the external auditor. B) Management and shareholders of the organization. C) The external auditor. D) Management of the organizaton.
D) Management of the organizaton.
If a company's external auditor expresses an unmodified opinion as a result of the audit of the company's financial statements, readers of the audit report can assume that A) The external auditor found no fraud B) The company is financially sound and the financial statements are accurate. C) Internal control is effective. D) Material issues about the aplication of accounting principles were resolved to the satisfaction of the external auditor.
D) Material issues about the aplication of accounting principles were resolved to the satisfaction of the external auditor.
Q2: An auditor finds that the client's gross profit percentage has declined from 25% in the prior year to 20% in the current year. Which of the following should the auditor do next? A)Consider issuing an audit opinion with a going concern explanatory paragraph. B) Require the client to research the reason for the discrepancy. C) Require the client to make an adjustment so that gross profit is consistent from year to year. D)Consider issuing an audit opinion with a going concern explanatory paragraph. D) Perform additional audit procedures to determine why the fluctuation occurred
D) Perform additional audit procedures to determine why the fluctuation occurred
Receivables have not been sold or discounted. For this statement about accounts receivable, identify the appropriate management assertion. A) Completeness B) Existence C) Valuation and allocation D) Rights and Obligations
D) Rights and Obligations
Which of the following can revoke the CP A's license to practice? A) AICPA. B) SEC. C) PCAOB D) State Board of Accountancy
D) State Board of Accountancy
Which of the following statements appears in the scope paragraph of the audit report for a non-accelerated filer, but does not appears in the scope paragraph of the audit reports for an accelerated filer and/or large accelerated filer? A) Auditing standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatment. B) The financial statements are presented fairly, in all material respects. C) Management is responsible for the preparation and fair presentation of the financial statements. D) The auditor does not express an opinion on the effectiveness of the company's internal controls.
D) The auditor does not express an opinion on the effectiveness of the company's internal controls.
Q23: According to the text, each of the following is a main purpose for performing audit procedures except: A) To obtain an understanding of the entity and its environment. B) To test the operating effectiveness of controls. C) To detect material misstatements in the financial statements. D) To develop recommendations for the control system.
D) To develop recommendations for the control system.
An auditor was engaged to audit the financial statements of a company after its fiscal year had ended. The timing of the auditor's appointment made it infeasible to confirm accounts receivable by the date the audited financial statement's were to be delivered to the company's principal lender. However, the auditor was able to perform other procedures and was satisfied as to the reasonableness of the accounts receivable balances, as well as the other items in the client's financial statements. Which of the following types of audit opinions should be issued? A) Unqualified opinion with an emphasis-of-matter paragraph B) Qualified opinion. C) Disclaimer of opinion. D) Unqualified opinion.
D) Unqualified opinion.
Q1: An auditor may physically inspect new additions listed on the summary of plant and equipment transactions for the year. Which assertion does this address? Existence Valuation and Allocation Completeness Cutoff
Existence
Four weeks after the year-end date, a major-customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents 10% of accounts receivable and 20% of net earnings before taxes. First, Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable: Second, suppose this issue is highly material, state the type of audit report that should be issued:
Failure to follow GAAP Adverse
You complete the audit of Munich Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Munich First, Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable: Second, state the type of audit report that should be issued:
Lack of Independence Disclaimer
One of your audit clients has a material investment in a privately- held bio-sciences company. Your audit firm engaged in a business valuation specialist to assist in evaluating the client's estimation of the investment's fair value. You conclude that the valuation specialist's work provides sufficient and appropriate audit evidence. First, Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable: Second, state the type of audit report that should be issued:
No conditions are applicable Unqualified-standard wording
Determine whether all risks related to accounts receivable are adequately disclosed. This is a [blank] - related assertion? Which assertion the auditor is testing for? Answer:
Presentation and disclosure Completeness
Determine whether all risks related to accounts receivable are adequately disclosed. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Presentation and disclosure Completeness
During your audit of Raceway.com, Inc., you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. First, Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable: Second, suppose this issue is highly material, state the type of audit report that should be issued:
Scope of the audit has been restricted Disclaimer
You are auditing Deep Clean Services for the first time. Deep Clean has been in business for several years but over the last two years has struggled to stay afloat given the economic conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in business by the end of its next fiscal year First, Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable: Second, suppose this issue is material but not highly material, state the type of audit report that should be issued:
Substantial doubt about going concern Unqualified-explanatory paragraph
For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct account in the receivable sub ledger. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Transaction Accuracy
For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct account in the receivable subledger. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Transaction Accuracy
Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached. This is a [blank]- related assertion? Which assertion the auditor is testing for? Answer:
Transaction Occurance
Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached. This is a [blank]-related assertion? Which assertion the auditor is testing for? Answer:
Transaction Occurence
One type of audit evidence is noted in our previous class as having several purposes that it can or can help fulfill through its use. These include "Understand the Client's Industry and Business," "Assess the Entity's Ability to Continue as a Going Concern," "Indicate the Presence of Possible Misstatements in the Financial Statements," and "Reduce Detailed Audit Tests." Which of the following answer choices best names this type of audit evidence? a. Analytical procedures b. Inquires of the Client c. Inspection d. Observation
a. Analytical procedures
The auditor owns a $100 investment in Herbalife (This is a publicly traded company). His audit firm provides audit service to Herbalife. But this auditor does not participate in Herbalife's auditing engagement. During the auditing engagement period, this auditor provides tax compliance services to Herbalife, over 20 hours within the fiscal year. The materiality level at the audit firm is $500. Does this auditor violate the independent rule based on AICPA/PCAOB rule of conduct? a. Yes b. No
a. Yes
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph: a. is appropriate and would not negate the unqualified opinion. b. is considered an "except for" qualification of the opinion. c. violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements. d. necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
a. is appropriate and would not negate the unqualified opinion.
The auditor owns a $3,000 investment in a mutual fund that spreads its holdings evenly across companies listed in the Russell 3000 index. One of the auditor's audit client is a company include in Russell 3000 index. The materiality level at the audit firm is $100. Does this auditor violate the independent rule based on AICPA/PCAOB rule of conduct? a. Yes b. No
b. No
Please circle the answer choice below (please note that each word is separated by a semi-colon) that correctly completes the missing phrases from the following definition-"Appropriateness of evidence is a measure of the quality of evidence, meaning its ______________ and ______________ in meeting audit objectives for classes of transactions, account balances, and related disclosures" a. sufficiency; reliability b. relevance; reliability c. sufficiency; persuasiveness d. relevance; persuasiveness
b. relevance; reliability
Which of the following is not a reason why an auditor only provides reasonable assurance (not absolute assurance or a guarantee) of detecting material misstatements? Please circle the best answer choice below. a. An audit involves sampling b. Professional judgment is a significant part of an audit c. Evidence can be difficult to obtain d. Fraud can be difficult to find because of concealment
c. Evidence can be difficult to obtain
