Quiz by clara.azurmendi, updated more than 1 year ago
Created by clara.azurmendi over 4 years ago


Advanced Auditing Principles and Practice prectice in class test

Resource summary

Question 1

Fair representation in the financial statements:
  • Rest with the creditors
  • Rests with the shareholder
  • Rests with the auditors
  • Rests with the management

Question 2

The underlying reason for a code of professional conduct for any profession is:
  • The need for public confidence in the quality of service of the profession
  • It provides a safeguard to keep unscrupulous people out
  • It is required by federal legislation
  • It allows licensing agencies to have a yardstick to measure deficient behavior

Question 3

Because of legal liability and loss of professional reputation most auditors are concerned about
  • Status- quo auditing
  • Under-auditing
  • Over-auditing
  • None of the other options

Question 4

Money 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:
  • Placement, integration and layering
  • Placement, layering and integration
  • Layering, integration and placement
  • Integration, placement and layering

Question 5

The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:
  • In accordance with generally accepted auditing standards.
  • As effectively as reasonably possible.
  • In a timely manner.
  • Only after an adequate investigation of the management team

Question 6

Which of the following statements is the most correct regarding errors and fraud?
  • An error is unintentional, whereas fraud is intentional.
  • Frauds occur more often than errors in financial statements.
  • Errors are always fraud and frauds are always errors
  • Auditors have more responsibility for finding fraud than errors.

Question 7

Which of the following statements is true with respect to audit committees?
  • Audit committee members should consist of members of the company's management.
  • All members of the audit committee must be financial experts.
  • Increase public confidence in the credibility and objectivity of financial statements.
  • Audit committees must have a minimum of ten members.

Question 8

The 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:
  • Provide reasonable assurance that material misstatements will be detected.
  • Be a guarantor of the fairness in the statements.
  • Be equally responsible with management for the preparation of the financial statements.
  • Be an insurer of the fairness in the statements.

Question 9

The members of a client's "audit committee" should be:
  • Members of management.
  • Directors who are not a part of company management.
  • Non-directors and non-managers.
  • Directors and managers.

Question 10

When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership:
  • In all circumstances.
  • Only for direct ownership.
  • Only for indirect ownership.
  • Under no circumstances.

Question 11

Relevant safeguard(s) against a financial interest in a client could be through:
  • Disposing of the client
  • Removing the relevant individual from the assurance team
  • Informing the audit committee of the situation
  • All of the above

Question 12

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
  • Plan and perform the engagement with an attitude of professional scepticism.
  • Not rely on internal controls that are designed to prevent or detect errors or fraud.
  • Design audit tests to detect unrecorded transactions.
  • Extend the work to audit the majority of the recorded transactions and records of an entity.

Question 13

If an auditor discovers fraud, an auditor should:
  • Conduct further investigations
  • Approach the appropriate level of management
  • Consider withdrawing from the audit if the fraud is significant
  • All of the above

Question 14

When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor:
  • Should inquire of management about whether the entity is in compliance with such laws and regulations.
  • Has no responsibility to determine if any violations of these laws has occurred.
  • Must report all violations, including inconsequential violations, to the audit committee.
  • Should perform the same procedures as for violations having a direct effect on the financial statements.

Question 15

Which of these issues relating to good engagement performance should be addressed in an audit firm's procedures manual
  • Direction
  • Supervision
  • Review
  • All of the above

Question 16

According to ISQC 1, when considering whether to accept an engagement with a new or existing client auditors, the auditors must consider whether a....................arises?
  • Conflict of interest
  • Self-review
  • Independence issue
  • Confidentiality issue

Question 17

All of the following factors influence the continuance of an existing auditor-client relationship except:
  • The balance of client fees owed
  • Excessive risk
  • Pending litigation between client and auditor
  • Inability to obtain a management representations letter

Question 18

Which of the following statements is usually true?
  • Materiality is easy to quantify.
  • Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management.
  • Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement.
  • An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements.

Question 19

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:
  • Tests of controls.
  • Tests of transactions.
  • Understanding the entity's internal control.
  • The assessment of whether to accept the audit engagement.

Question 20

When an auditor believes that an illegal act may have occurred, the auditor should first:
  • Obtain an understanding of the nature and circumstances of the act.
  • Consult with legal counsel or others knowledgeable about the illegal act.
  • Discuss the matter with the audit committee.
  • Withdraw from the engagement.

Question 21

Which of the following is the auditor least likely to do when aware of an illegal act?
  • Discuss the matter with the client's legal counsel.
  • Obtain evidence about the potential effect of the illegal act on the financial statements.
  • Contact the local law enforcement officials regarding potential criminal wrongdoing.
  • Consider the impact of the illegal act on the relationship with the company's management.

Question 22

Which of the following is a factor that relates to incentives to misappropriate assets?
  • Significant accounting estimates involving subjective judgments.
  • Significant personal financial obligations.
  • Management's practice of making overly aggressive forecasts.
  • High turnover of accounting, internal audit and information technology staff.

Question 23

Auditor's need to exhibit professional scepticism when auditing a client. This auditing standard is best expressed by which of the following?
  • The auditor neither assumes dishonesty or honesty of management
  • The auditor assumes dishonesty of management
  • The auditor assumes honesty of management
  • The auditor assumes management lacks integrity

Question 24

While 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:
  • Plan on additional audit procedures to determine the exact amount of the fraud.
  • Communicate with legal authorities as to the identity of the fraudsters.
  • Disclose the fraud to the appropriate level of management or to the audit committee.
  • Call the whistleblower hotline and name the suspected individuals.

Question 25

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?
  • External auditors
  • Audit committee members
  • Management
  • Committee of Sponsoring Organizations

Question 26

Qualitative 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.
  • I only
  • II only
  • I and II
  • Neither I nor II

Question 27

When dealing with audit risk:
  • Auditors accept some level of risk in performing the audit function.
  • Most risks that auditors encounter are relatively easy to measure.
  • The audit risk model is only used for classes of transactions.
  • Most audit firms prefer to use a quantitative assessment for risk

Question 28

The major limitation of using the audit risk model is the:
  • Objective nature of its components
  • There is no limitation to the model
  • Application of the model
  • Subjective nature of its components

Question 29

Which of the following is least likely to uncover fraud?
  • External auditors
  • Internal auditors
  • Internal controls
  • Management

Question 30

When a group auditor uses the work of a component auditor he must document:
  • The professional qualifications, independence and professional competence of the other auditor
  • Procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate is all the consideration necessary
  • The impact of internal controls on the work of the other auditor
  • The audit area in which the work was performed by the other auditor
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