Quiz
MCQ5
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Questions in this quiz (30)
1Fair representation in the financial statements:
- ARest with the creditors
- BRests with the shareholder
- CRests with the auditors
- DRests with the management
2The underlying reason for a code of professional conduct for any profession is:
- AThe need for public confidence in the quality of service of the profession
- BIt provides a safeguard to keep unscrupulous people out
- CIt is required by federal legislation
- DIt allows licensing agencies to have a yardstick to measure deficient behavior
3Because of legal liability and loss of professional reputation most auditors are concerned about
- AStatus- quo auditing
- BUnder-auditing
- COver-auditing
- DNone of the other options
4Money Laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities, allowing them to maintain control over the proceeds. In which order is money laundered:
- APlacement, integration and layering
- BPlacement, layering and integration
- CLayering, integration and placement
- DIntegration, placement and layering
5The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:
- AIn accordance with generally accepted auditing standards.
- BAs effectively as reasonably possible.
- CIn a timely manner.
- DOnly after an adequate investigation of the management team
6Which of the following statements is the most correct regarding errors and fraud?
- AAn error is unintentional, whereas fraud is intentional.
- BFrauds occur more often than errors in financial statements.
- CErrors are always fraud and frauds are always errors
- DAuditors have more responsibility for finding fraud than errors.
7Which of the following statements is true with respect to audit committees?
- AAudit committee members should consist of members of the company's management.
- BAll members of the audit committee must be financial experts.
- CIncrease public confidence in the credibility and objectivity of financial statements.
- DAudit committees must have a minimum of ten members.
8The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to:
- AProvide reasonable assurance that material misstatements will be detected.
- BBe a guarantor of the fairness in the statements.
- CBe equally responsible with management for the preparation of the financial statements.
- DBe an insurer of the fairness in the statements.
9The members of a client's "audit committee" should be:
- AMembers of management.
- BDirectors who are not a part of company management.
- CNon-directors and non-managers.
- DDirectors and managers.
10When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership:
- AIn all circumstances.
- BOnly for direct ownership.
- COnly for indirect ownership.
- DUnder no circumstances.
11Relevant safeguard(s) against a financial interest in a client could be through:
- ADisposing of the client
- BRemoving the relevant individual from the assurance team
- CInforming the audit committee of the situation
- DAll of the above
12An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
- APlan and perform the engagement with an attitude of professional scepticism.
- BNot rely on internal controls that are designed to prevent or detect errors or fraud.
- CDesign audit tests to detect unrecorded transactions.
- DExtend the work to audit the majority of the recorded transactions and records of an entity.
13If an auditor discovers fraud, an auditor should:
- AConduct further investigations
- BApproach the appropriate level of management
- CConsider withdrawing from the audit if the fraud is significant
- DAll of the above
14When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor:
- AShould inquire of management about whether the entity is in compliance with such laws and regulations.
- BHas no responsibility to determine if any violations of these laws has occurred.
- CMust report all violations, including inconsequential violations, to the audit committee.
- DShould perform the same procedures as for violations having a direct effect on the financial statements.
15Which of these issues relating to good engagement performance should be addressed in an audit firm's procedures manual
- ADirection
- BSupervision
- CReview
- DAll of the above
16According to ISQC 1, when considering whether to accept an engagement with a new or existing client auditors, the auditors must consider whether a....................arises?
- AConflict of interest
- BSelf-review
- CIndependence issue
- DConfidentiality issue
17All of the following factors influence the continuance of an existing auditor-client relationship except:
- AThe balance of client fees owed
- BExcessive risk
- CPending litigation between client and auditor
- DInability to obtain a management representations letter
18Which of the following statements is usually true?
- AMateriality is easy to quantify.
- BFraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management.
- CReasonable assurance is a low level of assurance that the financial statements are free from material misstatement.
- DAn item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements.
19The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:
- ATests of controls.
- BTests of transactions.
- CUnderstanding the entity's internal control.
- DThe assessment of whether to accept the audit engagement.
20When an auditor believes that an illegal act may have occurred, the auditor should first:
- AObtain an understanding of the nature and circumstances of the act.
- BConsult with legal counsel or others knowledgeable about the illegal act.
- CDiscuss the matter with the audit committee.
- DWithdraw from the engagement.
21Which of the following is the auditor least likely to do when aware of an illegal act?
- ADiscuss the matter with the client's legal counsel.
- BObtain evidence about the potential effect of the illegal act on the financial statements.
- CContact the local law enforcement officials regarding potential criminal wrongdoing.
- DConsider the impact of the illegal act on the relationship with the company's management.
22Which of the following is a factor that relates to incentives to misappropriate assets?
- ASignificant accounting estimates involving subjective judgments.
- BSignificant personal financial obligations.
- CManagement's practice of making overly aggressive forecasts.
- DHigh turnover of accounting, internal audit and information technology staff.
23Auditor's need to exhibit professional scepticism when auditing a client. This auditing standard is best expressed by which of the following?
- AThe auditor neither assumes dishonesty or honesty of management
- BThe auditor assumes dishonesty of management
- CThe auditor assumes honesty of management
- DThe auditor assumes management lacks integrity
24While performing their audit, the audit team uncovers fraud that is likely to have an immaterial affect on the financial statements taken as whole. In this case the auditors should:
- APlan on additional audit procedures to determine the exact amount of the fraud.
- BCommunicate with legal authorities as to the identity of the fraudsters.
- CDisclose the fraud to the appropriate level of management or to the audit committee.
- DCall the whistleblower hotline and name the suspected individuals.
25Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?
- AExternal auditors
- BAudit committee members
- CManagement
- DCommittee of Sponsoring Organizations
26Qualitative factors can affect an auditor's assessment of materiality. Which of the following statements is true?
I. Misstatements that are otherwise immaterial may be material if they affect earnings trends.
II. Misstatements that are otherwise minor may be material if there are possible consequences arising from contractual obligations.- AI only
- BII only
- CI and II
- DNeither I nor II
27When dealing with audit risk:
- AAuditors accept some level of risk in performing the audit function.
- BMost risks that auditors encounter are relatively easy to measure.
- CThe audit risk model is only used for classes of transactions.
- DMost audit firms prefer to use a quantitative assessment for risk
28The major limitation of using the audit risk model is the:
- AObjective nature of its components
- BThere is no limitation to the model
- CApplication of the model
- DSubjective nature of its components
29Which of the following is least likely to uncover fraud?
- AExternal auditors
- BInternal auditors
- CInternal controls
- DManagement
30When a group auditor uses the work of a component auditor he must document:
- AThe professional qualifications, independence and professional competence of the other auditor
- BProcedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate is all the consideration necessary
- CThe impact of internal controls on the work of the other auditor
- DThe audit area in which the work was performed by the other auditor
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- Advanced Auditing Principles and Practice prectice in class test
- Author
- clara.azurmendi
- Language
- English
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