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- 1. Multiple ChoiceWhich of the following statements best describes a relationship between sample size and other elements of auditing?
If materiality increases, so will the sample size.
If the desired level of assurance increases, samplesizes can be smaller.If materiality decreases, sample size will need to increase.
There is no relationship between sample size and materiality or the desired level of assurance. - 2. Multiple ChoiceWhich of the following best describes the concept of audit risk?The risk of the auditor being sued because of association with an auditee.The risk that the auditor will provide a "clean" opinion on financial statements that are, in fact, materially misstatedThe overall risk that a material misstatement exists in the financial statements.The risk that auditors use audit procedures that are inappropriate.
- 3. Multiple ChoiceAn auditor who accepts an audit engagement and does not possess expertise with respect to the business entity's industry, shouldEngage financial experts familiar with the nature of the business entity.
Obtain a knowledge of matters that relate to the nature of the entity's business.
Refer a substantial portion of the audit to another CPA, who will act as the principal auditor.First inform management that an unqualified opinion cannot be issued. - 4. Multiple ChoiceDuring the first phase of an audit, a CPA most likely wouldIdentify specific internal control activities that are likely to prevent fraud.Evaluate the reasonableness of the company's accounting estimates.Evaluate the integrity of management.Inquire of the company's attorney as to whether any unrecorded claims are probable or asserted
- 5. Multiple ChoiceWhich of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?It is difficult to prepare financial statements that fairly present a company's financial position and changes in cash flows without the expertise of an independent auditor.It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statementsC. The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial statements.It is a customary courtesy that all stockholders of a company receive an independent report on management's stewardship in managing the affairs of the business
- 6. Multiple ChoiceWhich of the following best describes the fundamental, underlying reason for why there is demand for an independent auditor to report on financial statements?A management fraud may exist and it is more likely to be detected by auditors if they are independent.Different interests may exist between the company preparing the statements and the parties using the statementsA misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstatedA poorly designed internal control system may be in place
- 7. Multiple ChoiceWhich of the following best describes why publicly-traded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?
To promote an adversarial relationship between the auditor and the corporation's management.To enhance auditor independence from the management of the corporationTo encourage a policy of rotation of the independent auditors.To give management more leverage over the auditor's decisions - 8. Multiple ChoiceAuditing is defined as a "systematic process of objectively obtaining and evaluating evidence regarding assertions..." What is meant by "systematic process"?All audits involve obtaining the same evidenAll audits involve evaluating evidence in the same manner.There should be a well-planned approach for obtaining and evaluating evidence.All assertions are equally important for all audits.
- 9. Multiple ChoiceWhich of the following would best be described as an assurance servicePreparing a report representing a client's position during an IRS auditWorking with a company to develop a more efficient method of processing financial transactionsOffering an opinion concerning the accuracy of statements made on an entity's website relating to its online privacy policies
Assisting a company in identifying potential sources of capital for potential acquisitions. - 10. Multiple ChoiceWhich of the following statements is not true with respect to assurance, attest, and audit services?
These services are applied only to financial statements and financial statement accounts.These services all involve obtaining and evaluating evidence
These services all involve determining the correspondence of some information to a set of criteria.These services all involve issuing a report - 11. Multiple ChoiceAuditors are most likely to use the most rigorous audit procedures to examineRoutine transactionsManagement assertions that are deemed to be of low riskOnly the rights and obligations assertionManagement assertions that are deemed to be of high risk
- 12. Multiple ChoiceWhen obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily toIdentify areas of relatively high risk of misstatement and plan the audit accordingly.Provide suggestions for improvement to the companyServe as a basis for setting audit risk and materialityDecide whether to perform an audit for the company
- 13. Multiple ChoiceWhich one of the following statements best describes the concept of materiality?
Materiality is determined by reference to specific quantitative guidelines established by the AICPA.Materiality depends only on the dollar amount of an item relative to other items in the financial statements.
Materiality depends on the nature of an item but not on the dollar amount of the item.Materiality is largely a matter of professional judgment. - 14. Multiple ChoiceBefore accepting an engagement to audit a new entity, an auditor is required toMake inquiries of the predecessor auditorTell the company whether or not the auditor is willing to issue a "clean" opinion.Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.Become a member of the entity's board of directors
- 15. Multiple ChoiceAn 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
Any disputes over significant accounting issues have been settled to the auditor's satisfaction.The auditor is satisfied that Stankey will be highly profitable in the futureThe 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. - 16. Multiple ChoicePreliminary engagement activities includeEvaluating internal controlsAssessing audit risk at the account balance levelSetting materiality
Performing background checks on top management. - 17. Multiple ChoiceAn auditor would issue an adverse opinion ifThe auditor encounters adverse attitudes toward the auditor on the part of company management.A qualified opinion cannot be given because the auditor is not qualified to do so.
An immaterial misstatement is present.The statements taken as a whole do not fairly present the financial condition and results of operations of the company - 18. Multiple ChoiceWhich of the following is not a concept that is included in the scope paragraph of the auditor's report?
The conformance of the financial statements with generally accepted accounting principles.
The audit was conducted in accordance with applicable auditing standards.
The audit was planned and performed to obtain reasonable, rather than absolute, assurance.An audit involves examining items on a test (i.e. sampling) basis. - Answer choicesTagsAnswer choicesTags