Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
d.
Presentation and Disclosure
b
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Financial Statement Assertions
62. Which assertion addresses whether all transactions and accounts that should be included in the financial
statements are included?
a.
Existence.
b.
Valuation.
c.
Completeness.
d.
Rights and Obligations
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Describe the Assertions Contained in Financial Statements
63. Which assertion addresses whether the financial statements items are properly classified in the financial
statements?
a.
Completeness.
b.
Existence.
c.
Valuation.
d.
Presentation and Disclosure.
d
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Describe the Assertions Contained in Financial Statements
64. Which of the following groups are committed to the convergence of the auditing standards?
a.
IAASB.
b.
PCAOB.
c.
AICPA.
d.
Both A and C.
e.
All of the above.
d
65. Which of the following is a procedure that requests a direct written response to the auditor form a third
party?
a.
Inquiry
b.
Confirmation
c.
Inspection
d.
Observation
b
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Audit Evidence and Audit Procedures
66. Which of the following is a procedure which analyzes plausible relationships among financial and
nonfinancial data?
a.
Analytical procedures.
b.
Scanning.
c.
Reviewing.
d.
Observation.
1
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Audit Evidence and Audit Procedures
67. What does the quality of the evidence an auditor collects depend upon?
a.
The nature of the procedures.
b.
The extent of the procedures.
c.
The timing of the procedures.
d.
Both A and C.
e.
All of the above.
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Audit Procedures
68. Which of the following terms describes procedures designed to detect material misstatements in accounts ?
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Generally Accepted Auditing Standards and IAASB Principles
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
a.
Substantive procedures.
b.
Control Tests
c.
Risk assessment procedures
d.
Business risk procedures.
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Audit Evidence and Audit Procedures
69. The proper supervision of audit assistants is a requirement found in which section of the Generally Accepted
Auditing Standards?
a.
General Standards.
b.
Standards of Fieldwork.
c.
Standards of Reporting.
d.
Standards of Quality Control.
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70. Which one of the following is a requirement pf the reporting standards included in the generally accepted
auditing standards?
a.
The auditor will state explicitly whether the financial statements are fairly presented in accordance
with the applicable financial reporting framework.
b.
The auditor will identify in the auditor’s report, those circumstances in which auditing principles
have not been consistently observed in the current period in comparison to the preceding period.
c.
The auditor will review adjusting journal entries for accuracy, and if the auditor concludes those
entries are not reasonable accurate, the auditor must so state in the auditor’s report.
d.
The auditor will express an unqualified opinion on the financial statements, or will conduct
additional audit procedures until such an opinion can be expressed.
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Generally Accepted Auditing Standards and IAASB Principles
71. Which of the following statements about the auditing standards issued by the AICPA is true?
a.
The auditing standards issued by the AICPA are no longer recognized by the PCAOB.
b.
The auditing standards issued by the AICPA are no longer recognized by the profession because the
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
AICPA voted itself out of existence.
c.
The auditing standards issued by the AICPA continue to be issued by that organization for audits of
public companies.
d.
The auditing standards issued by the AICPA were used by the PCAOB as a starting point.
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Generally Accepted Auditing Standards and IAASB Principles
72. Which of the following is a reason why an auditor needs an understanding of internal controls?
a.
To provide individual comments on internal control non-compliance.
b.
To become comfortable that the client will pay its audit bills.
c.
To assess materiality.
d.
To assess the risk of possible misstatements in the financial statements.
d
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Generally Accepted Auditing Standards and IAASB Principles
73. Which of the following is not a reason why an auditor obtains an understanding of internal controls?
a.
Understanding the entity’s internal control is a requirement of GAAS.
b.
The auditor must use the information to assess the risk of material misstatements arising from the
lack of internal control.
c.
It is the primary basis for the audit report.
d.
It assists the auditor in designing the nature, timing and extent of further audit procedures.
1
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Generally Accepted Auditing Standards and IAASB Principles
74. Which type of audit documentation is required by PCAOB standards?
a.
Flowcharts
b.
Narratives
c.
Questionnaires
d.
A specific form of documentation is not required.
d
75. Which of the following is not a typical accounting cycle?
a.
Revenue.
b.
Inventory.
c.
Cash.
d.
Internal Controls.
d
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Overview of the Audit Process: A Standards-Based Approach
76. Which of the following statements about assertions is true?
a.
All assertions are equally important for all accounts.
b.
The importance of an assertion depends upon the account.
c.
Assertions are not related to accounts.
d.
None of the above.
b
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Describe the Assertions Contained in Financial Statements
77. Which of the following assertions would the auditor usually consider most relevant for accounts payable?
a.
Existence.
b.
Valuation.
c.
Disclosure.
d.
Completeness.
d
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Describe the Assertions Contained in Financial Statements
78. Which of the following is a use of audit documentation?
a.
Assisting the engagement team in planning and performing the audit.
b.
Assisting members of the engagement team responsible for supervising and reviewing the audit
work.
c.
Retaining a record of matters of continuing significance to future audits of the same organization.
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Audit Documentation
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
d.
All of the above.
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Audit Procedures
79. Which of the following factors influence the risk of material misstatement?
a.
The business risks.
b.
Management incentives.
c.
IT risks.
d.
All of the above.
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Overview of the Audit Process: A Standards-Based Approach
80. What does business risk include?
a.
Economic factors.
b.
Competitive factors.
c.
Regulatory risk.
d.
All of the above.
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Overview of the Audit Process: A Standards-Based Approach
81. At what level does the auditor assess the risk of material misstatement?
a.
The financial statement level.
b.
The company level.
c.
The assertion level.
d.
Both A and C.
e.
All of the above.
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82. What does the effectiveness of internal controls influence?
a.
Inherent risk.
b.
Control risk.
c.
Risk of material misstatement.
d.
Both B and C.
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Overview of the Audit Process: A Standards-Based Approach
83. Which of the following is not a control that the PCAOB has identified that auditors should consider in
evaluating whether or not an organization has sufficiently addressed fraud risk?
a.
Controls over significant, unusual transaction.
b.
Controls over related-party transactions.
c.
Controls related to marketable securities.
d.
Controls related to significant management estimates.
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Phase II Performing Risk Assessment
84. Which statement is true concerning materiality?
a.
Misstatements are material if they could reasonably be expected to influence the decisions of users of
the financial statements.
b.
Materiality guidelines are specifically prescribed by the PCAOB.
c.
Materiality is not a useful concept in assessing internal control effectiveness.
d.
Materiality is a concept applied to financial statement presentation but not to disclosures.
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Phase II Performing Risk Assessment
85. Which document is used by auditors to formally accept a new client?
a.
Management representation letter.
b.
Audit Report.
c.
Engagement Letter.
d.
Audit Contract.
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
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Overview of the Audit Process: A Standards-Based Approach
86. Which of the following items is not included in the engagement letter?
a.
The responsibilities of the auditor.
b.
The responsibilities of management.
c.
The objective of the financial statements.
d.
Identification of the applicable financial reporting framework for the preparation of the financial
statements.
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Overview of the Audit Process: A Standards-Based Approach
87. With a substantive audit strategy, what is an auditor likely to do?
a.
Extensively tests internal controls.
b.
Limit the testing of internal controls.
c.
Not assess control risks.
d.
Issue an adverse opinion on the financial statements.
b
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Overview of the Audit Process: A Standards-Based Approach
88. Which of the following is not a question an auditor considers in deciding whether to pursue a lower control
risk approach prior to substantive testing?
a.
Is the design of the control effective?
b.
Does the control promote operational efficiency?
c.
Is it cost effective to test controls?
d.
Are controls operating effectively?
b
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89. Which of the following would not affect an auditor’s judgment concerning internal controls?
a.
The assertion being tested.
b.
The design of the control.
c.
The operation of the control.
d.
The level of inherent risk.
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Overview of the Audit Process: A Standards-Based Approach
90. With a dual purpose test, what is an auditor likely to do?
a.
Perform a substantive procedure concurrently with a test of a control.
b.
Perform a substantive procedure concurrently with a risk assessment test.
c.
Perform a risk assessment test concurrently with a test of a control.
d.
None of the above.
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Audit Procedures
91. Which statement is correct?
a.
Assertions affected by highly objective estimates usually require direct tests of balances.
b.
The materiality of the account totally dictates the substantive procedures to be performed.
c.
The evidence the auditor obtains from risk assessment procedures does not influence the substantive
procedures to be performed.
d.
The extent and results of control tests performed by the auditor will influence the substantive
procedures to be performed.
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Phase IV Obtaining Substantive Evidence about Accounts
92. Which of the following factors affect the substantive procedures performed in an audit?
a.
The subjectivity of accounting process.
b.
Size of the account.
c.
Effectiveness of the relevant controls.
d.
All of the above affect the substantive procedure that are performed.
93. If the auditor’s assessment of the materiality of the account balance is high, what would be the respective
effect on the extent of substantive testing and the nature of procedures performed?
Extent of Tests Nature of Procedures
a.
Less More rigorous
b.
Less Less rigorous.
c.
More Less rigorous
d.
More More rigorous
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Phase IV Obtaining Substantive Evidence about Accounts
94. An auditor gathers evidence on internal controls for which respective time periods for the purposes of
expressing an opinion on control effectiveness and for testing controls in the financial statement period?
Control Effectiveness Financial Statement
a.
As of year end As of year end
b.
As of year end Throughout the year
c.
Throughout the year As of year end
d.
Throughout the year Throughout the year
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Audit Example: Assessing Control Design Effectiveness
95. Which of the following would not be a factor in whether a control weakness would be considered to be a
material weakness as opposed to a significant deficiency?
a.
The materiality of the related balance.
b.
The volume of transactions affected.
c.
The subjectivity of the account balance.
d.
The nature of the client’s industry.
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Audit Procedures
96. Which of the following statements is correct concerning the auditor’s opinion on internal control
effectiveness?
a.
The report describes any material weaknesses and discusses actions taken by management to
remediate the problems.
b.
The report does not discuss whether the control weaknesses were first identified by management or
the auditor.
c.
The report does not recognize the integrated nature of the audit and the affect of the material
weakness on the planning of the financial statement audit.
d.
The report identifies management’s actions to remedy the prior year’s control weaknesses.
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Phase V Completing the Audit and Making Reporting Decisions
97. The auditing standards
Under the clarified auditing standards, what is the structure of each auditing standard issued by the ASB? What
is the purpose of each section?
requirements and provide further guidance for applying the requirements of the
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Generally Accepted Auditing Standards and IAASB Principles
98. What are the AICPA’s fundamental principles?
1. The purpose of an audit is to enhance the degree of confidence that users can
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Audit Example: Assessing Control Effectiveness
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
99. Audit phases
Identify at least five steps involved in an audit.
100. PCAOB Assertions
Discuss the five management financial statement assertions identified in the PCAOB Standards. Provide
examples.
7. The auditor expresses an opinion as to whether the financial statements are free
expressed.
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
101. Write the three general auditing standards of the PCAOB.
102. Explain the meaning of due professional care.
103. What are the three broad types of audit procedures? What is the purpose of each test?
104. There are nine specific actions an auditor can undertake to collect evidence. Identify each action and
provide an example.
