K232-ind - Audit Applications
Please complete the following self-assessment quiz - Test your own knowledge but if necessary please refer back to the training materials, manuals and/or other relevant resources to complete the questions
Questions and Answers
- 1.
An audit is an unbiased examination and evaluation of the financial statements of an organization. True or false?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
An audit is indeed an unbiased examination and evaluation of the financial statements of an organization. It involves reviewing the financial records, transactions, and processes to ensure accuracy, compliance, and reliability. The purpose of an audit is to provide an independent assessment of an organization's financial position and performance, and to identify any potential errors, fraud, or irregularities. Therefore, the statement "An audit is an unbiased examination and evaluation of the financial statements of an organization" is true.Rate this question:
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- 2.
Which of the following are the reasons why a company would choose to do an external audit? (Choose 4)
- A.
If it is a large or publicly traded company, it is required by law
- B.
Review compliance with administrative regulations
- C.
Check for and uncover any malpractice, theft or fraud
- D.
Search for ways around regulations and determine how to avoid taxes
- E.
Maintain and enhance the organization's reputation
Correct Answer(s)
A. If it is a large or publicly traded company, it is required by law
B. Review compliance with administrative regulations
C. Check for and uncover any malpractice, theft or fraud
E. Maintain and enhance the organization's reputationExplanation
The reasons why a company would choose to do an external audit are:
1. If it is a large or publicly traded company, it is required by law to undergo external audits.
2. External audits help review compliance with administrative regulations.
3. They are conducted to check for and uncover any malpractice, theft, or fraud within the organization.
4. External audits are also done to maintain and enhance the organization's reputation by ensuring transparency and accountability in financial reporting.Rate this question:
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- 3.
The three typical stages of an audit are listed below; which two stages do Auditors find IBISWorld's information most valuable?
- A.
Planning and Risk Assessment
- B.
Substantive Procedures
- C.
Management Letter
Correct Answer(s)
A. Planning and Risk Assessment
C. Management LetterExplanation
During the planning and risk assessment stage of an audit, auditors rely on IBISWorld's information to gather industry-specific data and insights. This helps them understand the client's business environment, identify potential risks, and plan their audit procedures accordingly. The management letter stage is also valuable as it involves providing recommendations and suggestions to improve the client's internal controls and overall operations based on the findings of the audit.Rate this question:
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- 4.
IBISWorld data assists in the Planning and Risk Assessment stage by highlighting the weak points of the industry and related business environments on which the audit should focus. True or False?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
IBISWorld data provides valuable insights into the weak points of the industry and related business environments, which is beneficial during the Planning and Risk Assessment stage. By identifying these weak points, auditors can focus their efforts on assessing and mitigating the associated risks. Therefore, the statement is true.Rate this question:
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- 5.
During the Planning and Risk Assessment stage of an audit, which section of our report is BEST suited to help benchmark the client's growth, costs and key ratios against the industry's average in order to judge risks?
- A.
Industry Growth Rates
- B.
Barriers to Entry
- C.
Demand Determinants
- D.
Major Companies
Correct Answer
A. Industry Growth RatesExplanation
During the Planning and Risk Assessment stage of an audit, using the section on Industry Growth Rates in our report is the best approach to benchmark the client's growth, costs, and key ratios against the industry's average. This section provides information on the overall growth trends of the industry, which can help assess the client's performance in comparison to the industry as a whole. By analyzing the client's growth rates in relation to the industry average, auditors can identify potential risks and opportunities for the client's business.Rate this question:
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- 6.
During the Planning and Risk Assessment stage of an audit, which sections of our reports are BEST suited to help determine what an auditing firm's client is doing to protect and grow its market? Select the 4 most relevant sections that apply.
- A.
Industry Globalization
- B.
Capital Intensity
- C.
International Trade
- D.
Basis of Competition
- E.
Substitute Goods
Correct Answer(s)
A. Industry Globalization
C. International Trade
D. Basis of Competition
E. Substitute GoodsExplanation
The four sections that are best suited to help determine what an auditing firm's client is doing to protect and grow its market are Industry Globalization, International Trade, Basis of Competition, and Substitute Goods. These sections provide insights into the client's position in the global market, their involvement in international trade, the factors that drive competition in their industry, and the presence of substitute goods that may affect their market share. By analyzing these sections, the auditing firm can assess the client's strategies for market protection and growth.Rate this question:
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- 7.
During the Planning and Risk Assessment stage of an audit, which sections of our reports are BEST suited to help determine whether an auditing firm's client is affected by things they can't control? Select the 3 most relevant sections that apply.
- A.
Key External Drivers
- B.
Key Success factors
- C.
Supply Chain
- D.
Market Segmentation
Correct Answer(s)
A. Key External Drivers
C. Supply Chain
D. Market SegmentationExplanation
The sections "Key External Drivers," "Supply Chain," and "Market Segmentation" are best suited to help determine whether an auditing firm's client is affected by things they can't control. Key External Drivers refer to external factors that can impact the client's business, such as economic conditions or government regulations. Supply Chain analysis helps identify vulnerabilities and risks within the client's supply chain, which may be influenced by factors beyond their control. Market Segmentation analysis examines how the client's target market is divided and affected by various factors, including those outside the client's control. These three sections provide valuable insights into external factors that can impact the client's business operations and risk assessment.Rate this question:
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- 8.
During the Management Letter stage of an audit, which sections of our reports are BEST suited to help determine whether an auditing firm's client is planning effectively for the future? Check all that apply.
- A.
5-Year Outlook
- B.
Capital Intensity
- C.
Changing levels and trends
- D.
Major Companies
- E.
Risk Scores
Correct Answer(s)
A. 5-Year Outlook
C. Changing levels and trends
E. Risk ScoresExplanation
The 5-Year Outlook section of the report provides information about the client's planned goals and objectives for the future, helping determine their effectiveness in planning. Changing levels and trends section provides insights into the client's ability to adapt to changing market conditions and industry trends, which is crucial for effective future planning. Risk Scores section helps identify potential risks and uncertainties that may impact the client's future plans, aiding in evaluating their planning effectiveness. Capital Intensity and Major Companies sections may provide some information, but they are not directly related to determining the client's planning effectiveness for the future.Rate this question:
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- 9.
In the 'Management Letter' stage of an Audit, an auditor wishes to benchmark a client against their industry. Which three sections of our Industry Reports would be BEST suited for industry benchmarking?
- A.
Industry Statistics
- B.
Major Markets
- C.
Barriers to Entry
- D.
Sector vs. Industry Costs
Correct Answer(s)
A. Industry Statistics
B. Major Markets
D. Sector vs. Industry CostsExplanation
In the 'Management Letter' stage of an Audit, benchmarking a client against their industry is important to assess their performance and competitiveness. The three sections of our Industry Reports that would be best suited for industry benchmarking are Industry Statistics, Major Markets, and Sector vs. Industry Costs. Industry Statistics provide key data and trends to compare the client's performance with industry averages. Major Markets help identify the client's market share and potential growth opportunities. Sector vs. Industry Costs allow for a comparison of the client's cost structure with industry benchmarks, highlighting areas of improvement or efficiency.Rate this question:
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- 10.
Sarbannes-Oxley is a regulation aimed at increasing financial reporting standards for listed companies. True or False?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The Sarbanes-Oxley Act (SOX) is a regulation that was enacted in response to major corporate scandals in the early 2000s, such as Enron and WorldCom. It aims to increase financial reporting standards for listed companies by requiring them to establish internal controls and procedures to ensure accurate and transparent financial reporting. Therefore, the statement that Sarbanes-Oxley is a regulation aimed at increasing financial reporting standards for listed companies is true.Rate this question:
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- 11.
A 'going concern' judgement in accounting refers to a company’s ability to continue functioning as a business entity over the coming 12 months. Which section of an IBISWorld report is the least likely to be used by an Auditor to assess a 'going concern' judgement?
- A.
Key Sensitivities
- B.
Number of establishments
- C.
5 year outlook
- D.
Risk Rating score
- E.
Changing Levels and Trends
Correct Answer
B. Number of establishments -
- 12.
Depending on the results of the planning and risk assessment stage the amount of substantive procedures may change. More risks mean a more thorough audit. By increasing industry knowledge at the planning stage, IBISWorld can make substantive procedures more efficient and effective?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Increasing industry knowledge at the planning stage can make substantive procedures more efficient and effective because it allows auditors to have a better understanding of the industry-specific risks and controls. With this knowledge, auditors can tailor their substantive procedures to focus on areas that are more likely to contain material misstatements, reducing the need for unnecessary testing and increasing the overall effectiveness of the audit. Additionally, having a deeper understanding of the industry can help auditors identify potential areas of fraud or non-compliance, allowing them to design more targeted substantive procedures to address these risks.Rate this question:
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- 13.
Which of the following 3 questions would you most likely discuss with the Head of Audit to understand their information needs?
- A.
How much time do you spend searching the Internet to gather industry information at the planning and assessment stage?
- B.
How important is it that you have an independent evaluation of industry conditions?
- C.
What industry factors do you consider when assessing a ‘going concern’ judgement?
- D.
Has your firm been sued after failing to provide a 'going concern' judgement for one of your audit clients?
Correct Answer(s)
A. How much time do you spend searching the Internet to gather industry information at the planning and assessment stage?
B. How important is it that you have an independent evaluation of industry conditions?
C. What industry factors do you consider when assessing a ‘going concern’ judgement?Explanation
The correct answer is: How much time do you spend searching the Internet to gather industry information at the planning and assessment stage?, How important is it that you have an independent evaluation of industry conditions?, What industry factors do you consider when assessing a ‘going concern’ judgement?
These questions are most likely to be discussed with the Head of Audit to understand their information needs because they are directly related to the audit process and the information required for making assessments and judgments. The first question addresses the time spent on gathering industry information, which is crucial for planning and assessment. The second question explores the importance of an independent evaluation, indicating the need for unbiased information. The third question focuses on the specific industry factors that are considered when making a 'going concern' judgment, highlighting the need for industry-specific knowledge.Rate this question:
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- 14.
According to IBISWorld in 2015 the Accounting services industry in the US generated close to $90 Billion in revenue. Select from the options below the percentage amount that best describes the proportion of this revenue that is generated from 'Financial Auditing' and "Financial Statement Review' services?
- A.
50%
- B.
30%
- C.
35%
- D.
40%
Correct Answer
C. 35%Explanation
In the given question, it is stated that the Accounting services industry in the US generated close to $90 Billion in revenue in 2015. The question asks for the percentage amount that best describes the proportion of this revenue that is generated from 'Financial Auditing' and 'Financial Statement Review' services. The correct answer is 35%. This means that approximately 35% of the $90 Billion revenue is generated from these specific services.Rate this question:
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- 15.
The goal of an audit by a company is to ensure that their cash flow, balance sheets and profit and loss statements are not materially misstated. Although private companies are not required by law to conduct an audit which of the following entities would benefit and/or request that the company performs a financial audit? If you are not sure watch the first minute of the following video - Note: Copy and paste the following link into a new browser window www.youtube.com/watch?v=pkKO9ZNyOIc
- A.
Banks
- B.
Key Stakeholders
- C.
Staff
- D.
Investors
Correct Answer(s)
A. Banks
B. Key Stakeholders
D. InvestorsExplanation
Banks, key stakeholders, and investors would benefit and/or request that the company performs a financial audit. Banks would want to ensure that the company has accurate financial statements before providing loans or credit. Key stakeholders, such as board members or shareholders, would want to have confidence in the company's financial health and performance. Investors would also want to assess the company's financial stability and profitability before making investment decisions.Rate this question:
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