This is a timed quiz.
You have 30 minutes to complete the 21 questions in this quiz.
In order to calculate a level of planning materiality, auditors will often take a range of values. Which of the following is correct?
Revenue: 5% to 10%
Total assets: 10% to 20%
Net assets: 2% to 5%
Profit after tax: 0.5% to 2%
Financial involvement with a client will affect independence and may lead a reasonable observer to conclude that independence has been impaired. Which of the following is not a form of financial involvement with a client?
Loans to or from the client
Financial interest resulting from being an administrator of any trust with a financial interest in the client
Financial interest in a joint venture with a client
Fees paid for audit engagement
In an agreed-upon procedures engagement what matters generally have to be agreed between auditor and management?
The skills of the audit team
Nature, timing and extent of the specific procedures to be applied
Identification of the corporate governance framework
The intended user of the report
How does the related services framework differ from the assurance framework?
Related services enhance the degree of confidence intended users can have
Related services claim compliance with ISAs
Related services engagements do not result in an opinion
Related services claim compliance with ISAEs
Quality control policies and procedures that are established to decide whether to accept a new client should provide the audit firm with reasonable assurance that:
The likelihood of associating with clients whose management lacks integrity is minimized.
The audit firm's duty to the public concerning the acceptance of new clients is satisfied
Sufficient corroborating evidence to support the financial statement assertions is available.
Client-prepared schedules that are necessary for the engagement are completed on a timely
Detection risk differs from both control risk and inherent risk in that detection risk
Arises from risk factors relating to fraud.
Exists independently of the financial statement audit
Should be assessed in non-quantitative terms
Can be changed at the auditor's discretion
Which of the following best represents a key control for ensuring sales are properly authorized when assessing control risks for sales?
The separation of duties between the billing department and the cash receipts approval department
The use of an approved price list to determine unit selling price.
Sales orders are sent to the credit department for approval
Copies of approved sales orders sent to the shipping, billing, and accounting departments.
When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued?
The standard compilation report may be issued, regardless of independence.
A compilation report may be issued if the engagement is upgraded to a review.
A compilation report with negative assurance may be issued.
A compilation report with special wording that notes the accountant's lack of independence may be issued.
Which of the following procedures would an accountant most likely perform during an engagement to review the financial statements of a client?
Communicate internal control deficiencies to senior management.
Review the predecessor accountant's working papers.
Inquire of management about related party transactions.
Corroborate litigation information with the entity's attorney.
Which of the following techniques does an auditor ordinarily select in assessing control risk?
Inquiry and analytical procedures
Inspection and verification.
Comparison and confirmation.
Observation and re-performance
The term 'scope of an audit' refers to the audit procedures deemed necessary in the circumstances:
In order to cover auditor liability
As required by IFRSs
As required by IASs
To achieve the objective of the audit
Which of the following is not a benefit of international auditing standards?
Investors can more readily comprehend a set of financial statements drawn up in another country
Foreign investors are more likely to channel funds into a developing country
Encourage and assist developing nations to adopt national standards
Financial statement disclosure is more consistent
Which of the following parties is responsible for establishing an entity’s internal controls?
Committee of Sponsoring Organizations
Management and auditors
Auditors
Management
Most auditors assess inherent risk as high for related parties and related-party transactions because:
A. Of the lack of independence between the parties
B. It is required by generally accepted accounting principles.
C. Of the accounting disclosure requirement
A and B
A and C
B and C
A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is:
Acceptable audit risk.
Control risk.
Inherent risk.
Statistical risk.
Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
To enable the auditor to obtain sufficient competent evidence.
To avoid misunderstandings with the client.
To help keep audit costs reasonable.
To enable proper on-the-job training of employees.
When an auditor calculates the gross margin as a percent of sales and compares it with previous periods, this type of evidence is called
Analytical review.
Physical examination.
Inquiry.
Observation.
After the preliminary judgment about materiality has been established, auditors may
Not adjust it.
Adjust it either downward or upward.
Adjust it downward only.
Adjust it upward only.
Why do auditors establish a preliminary judgment about materiality?
So that the client can know what records to make available to the auditor.
To determine what level of staffing is required for the audit.
To help the auditor plan the appropriate evidence to accumulate.
None of the available options
When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to in ISA 530 Audit Sampling as:
The materiality range.
Tolerable misstatement.
Tolerable materiality.
The error range.
If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of IAS 320 – Audit Materiality,
Insignificant.
Material.
Significant.
Relevant.
