Auditing - Mid Term

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Auditing 416 - Mid-term Review - multiple choice from book

  
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  • 1. 
    Which of the following best describes why an indpendent auditor is asked to express an opinion on the fair presentation of financial statements?
    • A. 

      It is idfficult to prepare fincial statements that fairly present a company financial position, operations, and cash flows without the expertise of an independent auditor.

    • B. 

      It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.

    • C. 

      The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

    • D. 

      It is customary courtesy that all stockholders of a company receive and independent report on management's stweardship of the affairs of the business.


  • 2. 
    Independent auditing can best be described as
    • A. 

      A branch of accounting

    • B. 

      A discipline that attests to the results of acounting and other functional operations and data.

    • C. 

      A professional activity that measures and communicates financial and business data

    • D. 

      A regulatory function that prevents the issuance of improper financial information.


  • 3. 
    Which of the following professional services is an attestation engagements?
    • A. 

      A consulting service engagement to provide computer-processing advice to a client.

    • B. 

      An enagement to report on compliance with statutory requirements

    • C. 

      An income tax engagement to prepare federal and state tax returns

    • D. 

      The compilation of financial statements from a client's financial records.


  • 4. 
    In performing an attestation engagement, a CPA typically,
    • A. 

      Supplies litigation support services

    • B. 

      Assesses control risk at a low level

    • C. 

      Expresses a conclusion about an assertion

    • D. 

      Provides management consulting advise


  • 5. 
    Operational audits generally have been conducted by internal auditors and governmental audit agencies buy may be performed by certified public accountants.  A primary purpose of an operational audit is to provide
    • A. 

      A means of assurance that internal accounting controls are functioning as planned

    • B. 

      A measure of management performance in meeting organizational goals

    • C. 

      The results of internal examinations of financial and accounting matters to a company's top-level management

    • D. 

      Aid to the independent auditor, who is conducting the audit of the financial statements.


  • 6. 
    In comparison to the external auditor, an internal auditor is more likely to be concerned with
    • A. 

      Internal administrative control

    • B. 

      Cost accounting procedures

    • C. 

      Operational auditing

    • D. 

      Internal control


  • 7. 
    Which of the following best describes the operational audit?
    • A. 

      It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company

    • B. 

      It concentrates on implementing financial and accounting control in a newly organized company

    • C. 

      It attempts and is designed to verify the fair presentation of a company's results of operations

    • D. 

      It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls


  • 8. 
    Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, as well as
    • A. 

      Accuracy

    • B. 

      Evaluation

    • C. 

      Adherence to specific rules or procedures

    • D. 

      Internal control


  • 9. 
    The first general standard, which states in part that the audit must be performed by a person or persons having adequate technical training, requires that an auditor have
    • A. 

      Education and experience in the field of auditing

    • B. 

      Ability in the planning and supervision of the audit work

    • C. 

      Proficiency in business and financial matters

    • D. 

      Knowledge in the areas of finanial accounting


  • 10. 
    Which of the followig best describes what is meant by generallty accepted auditing standards?
    • A. 

      Acts to be performed by the auditor

    • B. 

      Measures of the quality of the auditor's performance

    • C. 

      Procedures to be used to gather eidence to suport financial statements

    • D. 

      Audit objectives generally determined on audit engagements.


  • 11. 
    The general goup of the generally accepted auditing standards includes a requirement that:
    • A. 

      Field work be adequately planned and supervised

    • B. 

      The auditor's report state whether or not the financial statements conform to GAAP

    • C. 

      Due professional care be exercised by the auditor

    • D. 

      Informative disclosures in the financial statements be reasonably adequate


  • 12. 
    What is the general character of the three GAAS classified as standards of field work?
    • A. 

      The competence, independence, and professional care of the persons performing the audit

    • B. 

      Criteria for the content of the auditor's report on financial statements and related footnote disclosures.

    • C. 

      The criteria of audit planning and evidence gathering

    • D. 

      The need to maintain an independence in mental attitude in all matters pertaining to the audit.


  • 13. 
    A CPA firm is reasonably assured of meeting its responsibility to provide services that conform with professional standards by
    • A. 

      Adhering to GAAS

    • B. 

      Having an appropriate system of quality control

    • C. 

      Joining professional societies that enforce ethical conduct

    • D. 

      Maintaining an attitude of independence in its engagements


  • 14. 
    The nature and extent of a CPA firm's quality control policies and procedures depends on:CP Firm's Size      Nature of the CPA Firm's Practice     Cost-benefit Consideration
    • A. 

      Yes, yes, yes

    • B. 

      Yes, yes, no

    • C. 

      Yes, no, yes

    • D. 

      No, yes, yes


  • 15. 
    Which of the following is an element of a CPA firm's quality control system that should be considered in establising its quality control policies and procedures?Human Resources     Monitoring     Engagement Performance
    • A. 

      Yes, yes, no

    • B. 

      Yes, yes, yes

    • C. 

      No, yes, yes

    • D. 

      Yes, no, yes


  • 16. 
    Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?
    • A. 

      Complying with laws and regulations

    • B. 

      Using statistical sampling techniques

    • C. 

      Managing personnel

    • D. 

      Considering audit risk and materiality


  • 17. 
    Which of the following statements about combined report on the financial statements and internal control over financial reporting is correct?
    • A. 

      The auditor’s opinion on internal control is for the same period of time as the opinion on the financial statements.

    • B. 

      The report includes additional paragraphs for the definition and limitations of internal control.

    • C. 

      The introductory , scope, and opinion paragraphs are unchanged from a report for an audit of the financial statements only.

    • D. 

      GAAP is the framework used to evaluate internal control.


  • 18. 
    The date of the CPA’s opinion on the financial statements of the client should be the date of the
    • A. 

      Closing of the client’s books

    • B. 

      Receipt of the client’s letter of representation

    • C. 

      Completion of all important audit procedures

    • D. 

      Submission of the report to the client


  • 19. 
    If a principal auditor decides to refer in his or her report to the audit of another auditor, he or she is required to disclose the
    • A. 

      Name of the other auditor

    • B. 

      Nature of the inquiry into the other auditor’s professional standing and extent of the review of the other auditor’s work

    • C. 

      Portion of the financial statements audited by the other auditor

    • D. 

      Reasons for being unwilling to assume responsibility for the other auditor’s work


  • 20. 
    An entity changed from the straight-line method to the declining-balance method of depreciation for all newly acquired assets.  This change has no material effect on the current year's financial statements but is reasonably certain to have a substantial effect in later years.  If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a report with a(an)
    • A. 

      Qualified opinion

    • B. 

      Unqualified opinion with an explanatory paragraph

    • C. 

      Unqualified opinion

    • D. 

      Qualified opinion with explanatory paragraph regarding consistency


  • 21. 
    When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can coninue in existence, the auditor should issue a (an)
    • A. 

      Adverse opinion

    • B. 

      Qualified opinion only

    • C. 

      Unqualified opinion

    • D. 

      Unqualified opinion with explanatory paragraph


  • 22. 
    The introductory paragraph of an auditor's report contains the following " We did not audit the financial statements of EZ, Inc., a whollt owned subsidiary, which statements reflect total assets and revenues constituting 27% and 29%, respectively, of the consolidated totals.  Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ, Inc., is based soley on the report of the other auditors."  These sentences:
    • A. 

      Indicate a division of responsibility

    • B. 

      Assume responsibility for the other auditor

    • C. 

      Require a departure from an unqualified opinion

    • D. 

      Are an improper form of reporting


  • 23. 
    A CPA will issue and adverse auditor's opinion if
    • A. 

      The scope of the audit is limited by the client

    • B. 

      The exception to the fairness of presentation is so material that an "except" opinion is not justified

    • C. 

      The auditor did not perform sufficient auditing procedures to form an opinion on the financial statements taken as a whole

    • D. 

      Major uncertainities exist concerning the company's future


  • 24. 
    An auditor will most likely disclaim an opinion because of
    • A. 

      The client's failure to present supplementary information required by the FASB

    • B. 

      Inadequate disclosure of material information

    • C. 

      A client-imposed scope limitation

    • D. 

      The qualification of an opinion by the other auditor of a susidiary when responsibility has been divided.


  • 25. 
    The opinion paragraph of a CPA's report states: "In our opinion, except for the effects of not capitalizing certain lease obligations, as discussed in the preceeding paragraph, the financial statements present fairly" in allmaterial respects,....This paragraph expresses a(an)
    • A. 

      Unqualified opinion

    • B. 

      Unqualified opinion with explanatory paragraph

    • C. 

      Qualified opinion

    • D. 

      Adverse opinion


  • 26. 
    Which of the following best describes the reason why an independent auditor reports on financial statements?
    • A. 

      A misappropriation of assets may exist, and it is more likely to be detected by independent auditors.

    • B. 

      Different interests may exist between the company preparing the statements and the persons using the statements.

    • C. 

      A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.

    • D. 

      Poorly designed internal controls may be in existence.


  • 27. 
    An independent audit aids in the communication of economic data because the audit
    • A. 

      Confirms the accuracy of management’s financial representations.

    • B. 

      Lends credibility to the financial statements

    • C. 

      Guarantees that financial data are fairly represented

    • D. 

      Assures the readers of financial statements that any fraudulent activity has been corrected.


  • 28. 
    The major reason an independent auditor gathers audit evidence is to
    • A. 

      Form an opinion on the financial statements

    • B. 

      Detect fraud

    • C. 

      Evaluate management

    • D. 

      Assesses control risk


  • 29. 
    An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?
    • A. 

      Misappropriation of an assets or a group of assets.

    • B. 

      Clerical mistakes in the accounting data underlying the financial statements

    • C. 

      Mistakes in the application of accounting principals

    • D. 

      Misinterpretation of facts that existed when the financial statements were prepared.


  • 30. 
    What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected?Errors     Fraud     Direct-Effect Illegal Acts
    • A. 

      Limited, Negative, Limited

    • B. 

      Reasonable, Reasonable, Reasonable

    • C. 

      Limited, Limited, Reasonable

    • D. 

      Reasonable, Limited, Limited


  • 31. 
    Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud?
    • A. 

      Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion

    • B. 

      An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud

    • C. 

      The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements

    • D. 

      The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.


  • 32. 
    Which of the following types of documentary evidence should the auditor consider to be the most reliable?
    • A. 

      A sales invoice issued by the client and supported by a delivery receipt from an outside trucker.

    • B. 

      Confirmation of an account payable balance mailed by and returned directly to the auditor.

    • C. 

      A check issued by the company and bearing the payee's endorsement which is included with the bank statement mailed directly to the auditor.

    • D. 

      An audit schedule prepared by the client's controller and reviewed by the client's treasurer.


  • 33. 
    The most reliable type of audit evidence that an auditor can obtain is
    • A. 

      Physical examination by the auditor

    • B. 

      Calculations by the auditor from company records

    • C. 

      Confirmations received directly from third parties.

    • D. 

      External documents


  • 34. 
    Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?
    • A. 

      Vendor’s invoice

    • B. 

      Bank statement obtained from the client

    • C. 

      Computations made by the auditor

    • D. 

      Prenumbered sales invoices


  • 35. 
    Which of the following presumptions is correct about the reliability of audit evidence?
    • A. 

      Information obtained indirectly from outside sources is the most reliable audit evidence.

    • B. 

      To be reliable, audit evidence should be convincing rather than merely persuasive.

    • C. 

      Reliability of audit evidence refers to the amount of corroborative evidence obtained.

    • D. 

      Effective internal control provides more assurance about the reliability of audit evidence.


  • 36. 
    Which of the following is not a primary purpose of audit documentation?
    • A. 

      To coordinate the audit.

    • B. 

      To assist in preparation of the audit report.

    • C. 

      To support the financial statements.

    • D. 

      To provide evidence of the audit work performed.


  • 37. 
    During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be
    • A. 

      A client-owned record of conclusions reached by the auditors who performed the engagement.

    • B. 

      Evidence supporting financial statements.

    • C. 

      Support for the auditor’s representations as to compliance with auditing standards

    • D. 

      A record to be used as a basis for the following year’s engagement.


  • 38. 
    Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will include the
    • A. 

      Copies of those client records examined by the auditor during the course of the engagement.

    • B. 

      Evaluation of the efficiency and competence of the audit staff assistants by the partner responsible for the audit.

    • C. 

      Auditor’s comments concerning the efficiency and competence of client management personnel.

    • D. 

      Auditing procedures followed and the testing performed in obtaining evidential matter


  • 39. 
    The permanent file of an auditor’s working papers most likely would include copies of the
    • A. 

      Lead schedule

    • B. 

      Attorney’s letters

    • C. 

      Bank statements.

    • D. 

      Debt agreements.


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