Audit Test

38 Questions | Total Attempts: 44

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Audit Quizzes & Trivia

Questions and Answers
  • 1. 
    An adverse opinion would most likely be issued for the following situation?
    • A. 

      The auditors were unable to attend the year end inventory count and the inventory balance is material.

    • B. 

      The allowance for doubtful accounts is understated by an amount that is material but not pervasive.

    • C. 

      The auditors are not independent from the audit client.

    • D. 

      The cost of goods sold is overstated by an amount that is material and pervasive.

    • E. 

      None of the above.

  • 2. 
    The auditor has determined that a Qualified Auditor's Report should be issued. Which of the following is true?
    • A. 

      The scope paragraph of the Auditor's report would be modified for a Qualified Opinion with a GAAP departure.

    • B. 

      The GAAP error found by the auditor must be material and pervasive.

    • C. 

      The introductory paragraph of the Qualified Auditor's Report would be different from the introductory paragraph of an Unqualified Auditor's Report.

    • D. 

      A third paragraph should be included in the Auditor's Report explaining the GAAP error identified.

    • E. 

      All of the above.

  • 3. 
    Which of the following best describes the Audit Report Date?
    • A. 

      The audit report date is the date that management approves the financial statements.

    • B. 

      The date represents when management and the auditors have agreed to the accounting adjustments.

    • C. 

      The date represents substantial completion of the audit work.

    • D. 

      The date represents when the auditors have completed all their audit work.

  • 4. 
    Which of the following is not a role of the Audit Committee?
    • A. 

      They typically review the entire Annual Report of the Company.

    • B. 

      They act as a liaison between the auditors and management.

    • C. 

      They typically review and approve the audit fee.

    • D. 

      They assist management with the preparation of the year-end Financial Statements.

    • E. 

      None of the above.

  • 5. 
    Which of the following is false?
    • A. 

      An error in the financial statements is considered material if the decision of a person who is relying on the financial statements would be changed.

    • B. 

      If an error in the financial statements is immaterial, it does not matter if it was due to fraud or illegal transactions.

    • C. 

      You can never have an Unqualified Auditor's Report if there is a material error in the Financial Statements.

    • D. 

      When calculating materiality, you could use total assets at the base to calculate the materiality amount.

    • E. 

      None of the above.

  • 6. 
    Which of the following is not included in the 5 key components of auditing?
    • A. 

      Criteria to audit against

    • B. 

      Reporting after the audit has been completed

    • C. 

      Must be performed by a Chartered Accountant

    • D. 

      Audit evidence must be gathered

    • E. 

      None of the above

  • 7. 
    A chartered Accountant has recently received his designation and has now opened his own accounting firm. He has a new client which has asked him to assist with their Corporate Tax Return. He has studied Corporate Tax as part of the CA program but has never completed a Corporate Tax Return. What is their potential violation?
    • A. 

      Independence

    • B. 

      Confidentiality

    • C. 

      Association with false and misleading information.

    • D. 

      Competency

    • E. 

      C and D above

  • 8. 
    Which of the following is not an example of a Scope Limitation?
    • A. 

      Auditors are selected after the client's year-end and therefore it was not possible for them to observe the year-end inventory count.

    • B. 

      Management refuses to allow you to confirm the receivables at year-end.

    • C. 

      Management refuses to increase their allowance for doubtful accounts for a customer that is now in bankruptcy and has no money.

    • D. 

      During your audit work, the client informed you that they purchased a new factory in Asia just before year-end which is material but it is now too late to audit that factory but the client would still like the Auditor's Report.

    • E. 

      None of the above.

  • 9. 
    A concise and comprehensive definition of independence is that an auditor
    • A. 

      Must not take on as an audit client a company owned by a member of his/her immediate family

    • B. 

      Must be independent in fact and in appearance

    • C. 

      Must not have a direct financial interest in a client

    • D. 

      Must have a license to practice as a public accountant

  • 10. 
    Prior to beginning the field work on a new audit engagement in which a CA does not possess expertise in the industry that the client operates in, the CA should 
    • A. 

      Obtain knowledge of matters that related to the nature of the entity's business

    • B. 

      Design special substantive tests to compensate for the lack of industry expertise

    • C. 

      Engage financial experts familiar with the nature of the industry

    • D. 

      Reduce audit risk by lowering the preliminary levels of materiality

  • 11. 
    In spite of increased emphasis on marketing and more competitive pricing of services by CA firms, the quality of audit work has been kept high because of
    • A. 

      Existing legal exposure of CAs

    • B. 

      The potential for interference by the regional or provincial securities exchanges and government

    • C. 

      Peer review requirements

    • D. 

      All of the above

  • 12. 
    The confidential relationship required by Rule 210 of the Rules of Professional Conduct applies to
    • A. 

      All services provided by CA firms

    • B. 

      Audit and MAS services, but not tax services

    • C. 

      Only audit and attestation services

    • D. 

      Audit and tax services, but not MAS services

  • 13. 
    When a misstatement in the financial statements exists but is unlikely to affect the decisions of a reasonable user but is not pervasive to the entire financial statements, it would be appropriate to issue
    • A. 

      A qualified opinion

    • B. 

      A denial of opinion

    • C. 

      An adverse opinion

    • D. 

      An unqualified opinion

  • 14. 
    When a client will not allow the auditor to send an inquiry letter to the client's lawyer, the audit report will ordinarily contain a (an)
    • A. 

      Denial of opinion

    • B. 

      Adverse opinion

    • C. 

      Unqualified opinion with a separate reservation paragraph

    • D. 

      "except for" qualified opinion regarding a departure from generally accepted accounting principles

  • 15. 
    Three of the following conditions would, by themselves, require the auditor to issue a report other than an unqualified report. Which one would not require such a departure?
    • A. 

      The auditor is not independent during the fiscal period under audit

    • B. 

      The financial statements have not been prepared in accordance with generally accepted accounting principles

    • C. 

      The client company's financial statements show a significant net loss for each of the last three years, including the current fiscal period

    • D. 

      The scope of the auditor's examination has been restricted, although the cause of the restriction was not the client's fault

  • 16. 
    If an auditor recklessly performs an audit, he or she will be liable to third parties who were unknown and not foreseeable to the auditor for 
    • A. 

      Gross negligence

    • B. 

      Breach of contract

    • C. 

      Either negligence or gross negligence

    • D. 

      Strict liability for all damages incurred

  • 17. 
    The auditor would most likely issue a denial of opinion because of 
    • A. 

      A client-imposed scope limitation

    • B. 

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

    • C. 

      Inadequate disclosure of material information

    • D. 

      The qualifications of an opinion by the other auditor of a subsidiary where there is a division of responsibility

  • 18. 
    A CA who fraudulently performs an audit of a corporation's financial statements will 
    • A. 

      Be liable only to the corporation and to third parties who are members of a class of intended users of the financial statements

    • B. 

      Be liable only to third parties in privity of contract with the CA

    • C. 

      Probably be liable to any person who suffered a loss as a result of the fraud

    • D. 

      Probably be liable to the corporation even though its management was aware of the fraud and did not rely on the financial statements

  • 19. 
    Which of the following best describes the purpose of a financial statement audit? 
    • A. 

      To provide an opinion on whether the company is run effectively

    • B. 

      To assist management with the preparation of the year-end financial statements

    • C. 

      To assess whether the financial statements are fairly presented in accordance with GAAP, in all material respects

    • D. 

      To provide shareholders with a guarantee that there are no errors in the financial statements

    • E. 

      All of the above

  • 20. 
    Operational audits are generally performed by internal auditors or government auditors.  The primary purpose of an operational audit is to provide:
    • A. 

      To aid the independent auditors with the financial statement audit

    • B. 

      To assess whether the company’s processes are efficient and effective

    • C. 

      To review operational management to ensure they are complying with company policies

    • D. 

      To ensure that individuals are completing their tax returns properly

    • E. 

      None of the above

  • 21. 
    Which of the following would not be in compliance with the independence requirement of the General Standard (Qualifications and Conduct) of the Generally Accepted Auditing Standards (GAAS)?
    • A. 

      The audit is not adequately planned

    • B. 

      The auditor did not have time to complete all the audit procedures but did not inform anyone and an audit opinion was issued

    • C. 

      The auditor did not obtain an understanding of the company’s business

    • D. 

      All of the above

    • E. 

      None of the above

  • 22. 
    1. Which of the following is a key element in the quality control at a firm level?
    • A. 

      Adequate hiring policies that ensure competence and integrity of personnel

    • B. 

      Organizational culture that provides audit quality

    • C. 

      Supervision of auditing team members and review of their work

    • D. 

      Ongoing adequate training of staff

    • E. 

      All of the above

  • 23. 
    Which of the following services would be considered an attestation engagement?
    • A. 

      A public accountant working with the Company to prepare their year-end financial statements

    • B. 

      A public accountant providing tax advice to assist the company in reducing their corporate taxes

    • C. 

      Review of historical financial statements

    • D. 

      Reviewing the company’s operations and providing management consulting advice

    • E. 

      None of the above

  • 24. 
    Which of the following would be a violation of an auditor’s independence due to familiarity threat? 
    • A. 

      The auditor is owed $100K from the client who has been a client for 2 years

    • B. 

      The auditor has gone to court for the client to support the client’s accounting position

    • C. 

      The client has decided to reduce the audit fee by 50% without discussing with the auditor

    • D. 

      It is the auditor’s fourth year auditing the client and he feels management has integrity and are very competent. This is one reason he decides that auditing certain balance sheet accounts is not required and may not be efficient

    • E. 

      None of the above

  • 25. 
    Which of the following is typically not a key activity of the Audit Committee?
    • A. 

      To act as a liaison between the financial statement auditors and management

    • B. 

      To decide who will be the financial statement auditors

    • C. 

      To work in the internal audit department to help complete the internal audit work when required

    • D. 

      To review the annual report

    • E. 

      All of the above are key activities of the Audit Committee

  • 26. 
    1. Johnny Vee, a CA articling student, is preparing the tax return he has been assigned and realizes that the tax return is for an old friend from high school who has started his own business.   His friend has a very good income.  Johnny looks on the internet to learn more about his friend’s company.  Johnny is very envious and wishes he had started his own business as well.  Which of the following rules of professional conduct has been violated? 
    • A. 

      Confidentiality rule

    • B. 

      Competency rule

    • C. 

      Integrity rule

    • D. 

      Reputation of the profession

    • E. 

      None

  • 27. 
    1. Which of the following is one of the key reasons for the rule that requires new external auditors communicate with predecessor auditors prior to accepting a new audit client?
    • A. 

      To inform the predecessor auditors that their client is not satisfied with their audit services

    • B. 

      To ensure the predecessor auditor hands over all the audit files to the new auditor

    • C. 

      To protect the successor auditors from getting involved with undesirable clients

    • D. 

      To confirm the audit fee that was being charged to the client

    • E. 

      All of the above

  • 28. 
    Which of the following advertising would be considered in compliance with the Rules of Professional Conduct?
    • A. 

      Advertising that states “We have the best and brightest auditors

    • B. 

      Advertising that promises a “clean” auditor’s report every audit

    • C. 

      Advertising that includes a list of all audit fees for every client of the public accounting firm

    • D. 

      Advertising that has photos of the partners of the firm, their office phone numbers and their backgrounds

    • E. 

      None of the above

  • 29. 
    A company has recently gone bankrupt and the shareholders are suing the auditors for negligence.  The shareholders must prove all of the following to be successful, except for:
    • A. 

      Shareholders suffered a loss

    • B. 

      Auditors owed duty of care to shareholders

    • C. 

      Shareholders contacted the auditors prior to the audit

    • D. 

      There was connection between auditor's negligence and shareholders' loss

    • E. 

      Auditor was negligent

  • 30. 
    Which of the following was the significance of the Hedley Byrne case?  
    • A. 

      First time that financial statement auditors could be sued by third parties

    • B. 

      Introduced the notion of the auditor having a duty of care to foreseeable third parties

    • C. 

      Narrowed the responsibility for duty of care by the auditor to the limited class whom the auditor actually knew would use and rely on the financial statements

    • D. 

      Limited the auditor’s liability for negligence to parties being in privity with the auditor

    • E. 

      None of the above

  • 31. 
    There are many different things individual auditors or accounting firms can do to try and reduce auditor exposure to legal liability.  Which of the following is generally not one of them?  
    • A. 

      Maintain independence when performing audits

    • B. 

      Understand the client’s business and industry

    • C. 

      Set appropriate auditing standards and rules for the profession

    • D. 

      Perform quality audits consistently

    • E. 

      Document the audit work properly and maintain the audit files

  • 32. 
    1. Your accounting friend asks you “What is the difference between audit failure and audit risk?”  Which of the following best explains this in simple English?
    • A. 

      Audit failure is when both management and the auditors made mistakes and audit risk is the risk that businesses may not succeed

    • B. 

      Audit risk is the risk that the auditors found mistakes but did not say anything and audit failure is when the auditors did not do their job properly

    • C. 

      Audit failure is when the auditors did not do their job properly and audit risk is the risk that the auditors may not find every material error even though they did everything properly

    • D. 

      Audit risk is the risk that the audit will not find all the material errors and audit failure is the auditors not finding all errors in the financial statements

    • E. 

      None of the above

  • 33. 
    Which of the following scenarios would be best suited for the auditor defense of “no damage”?  The financial statements were found to be materially misstated after the audited financial statements were released and.....
    • A. 

      The share price decreased significantly once this news reached investors

    • B. 

      The company had to file for bankruptcy

    • C. 

      The company is privately held and the owners did not indicate any change in their wealth

    • D. 

      Another company planning to purchase the company at a 20% premium decided to withdraw the purchase offer

    • E. 

      None of the above

  • 34. 
    Under which of the following circumstances should an auditor issue an adverse opinion? 
    • A. 

      The financial statements have a material misstatement which is not considered pervasive

    • B. 

      The financial statements do not include a cashflow statement

    • C. 

      The client does not allow the auditor to attend the year-end inventory count and the inventory is material

    • D. 

      The auditors are appointed after year-end and therefore were unable to count the cash on hand at year-end.

    • E. 

      None of the above

  • 35. 
    Which of the following is one of the primary purposes of the introductory statement of an unqualified auditor’s report
    • A. 

      Outlines in detail, management’s responsibility for the financial statements

    • B. 

      Indicates that an audit has been completed

    • C. 

      Identifies the scope of the audit

    • D. 

      States that the audit is designed to provide reasonable assurance

    • E. 

      All of the above

  • 36. 
    Which of the following is an example of a scope limitation imposed by the client  
    • A. 

      The client has recorded a capital lease as an operating lease and the amount is material

    • B. 

      The financial statement presentation is not consistent with the previous year

    • C. 

      The auditors were hired after year-end as the previous auditor had to resign due to independence issues

    • D. 

      The client informed the auditor about the year-end inventory count but the auditor missed the year-end count as they wrote down the wrong date

    • E. 

      None of the above

  • 37. 
    1. An auditor will express an “except for” opinion if?
    • A. 

      Client refuses to record a income tax liability that is material and pervasive

    • B. 

      The client is likely to go bankrupt and a disclosure has not been made in the financial statements

    • C. 

      The auditor is relying on secondary auditors to audit the company’s subsidiary in another country

    • D. 

      The auditor was unable to audit the inventory account at year-end which was material but not significant to the overall financial statements as the company is a consulting firm.

    • E. 

      None of the above

  • 38. 
    1. During an audit, which of the following is false with regards to materiality
    • A. 

      Professional judgment is very important when determining materiality

    • B. 

      If an auditor finds accounting errors that are not material, they do not need to track them

    • C. 

      If an accounting error is immaterial but is due to fraud, the auditor must investigate further

    • D. 

      Immaterial errors identified in the previous year audit should be tracked and considered when performing the current year audit

    • E. 

      None of the above