Mock In class test

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


Advanced Audit Principles and Practice Mock In class test

Resource summary

Question 1

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 2

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 3

The following stages comprise a typical money laundering process. What is the right sequence of the process ? Creating layers of financial transactions 2. Breaking up large amounts of cash into smaller sums and placing them into the financial system 3. Integrating the money into the economic system as if it is "clean" and comes from legitimate sources
  • 1,2 and 3
  • 1, 3 and 2
  • 2, 1 and 3
  • 3, 1 and 2

Question 4

Which of the following considerations of fraud and error by the auditor is not required by ISA 240?
  • When the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should inform regulatory institutions
  • Based on the risk assessment the auditor should design audit procedures to obtain reasonable assurance that material misstatements arising from fraud and error are detected
  • The auditor should be satisfied that those charged with governance have been informed of any material weaknesses in internal control related to the prevention and detection of fraud
  • The auditor should communicate to management any material weaknesses in internal control related to the prevention or detection of fraud and error

Question 5

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 6

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

Question 7

Which of the following matters is not ordinarily included in a management representation letter?
  • Amount of potential loss from litigation, including court costs
  • Management's acknowledgment of its responsibility for the fair presentation of financial statements
  • Disclosure of compensating balances and other arrangements involving restrictions on cash balances
  • Plans or intentions that may affect the carrying value or classification of assets

Question 8

Which of the following would be considered a 'self-interest threat'?
  • Potential employment with an assurance client
  • Acting as the client's advocate in a legal proceeding
  • When a member of the assurance team was previously a director or officer of the assurance client
  • A member of the assurance team has a close family member who is a director or officer of the assurance client

Question 9

Which of the following is not a duty of the audit committee?
  • Special Investigations
  • Review of internal controls
  • Monitor the effectiveness of external auditor
  • Liaison with external controls

Question 10

When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:
  • Include audit procedures which have a strong probability of detecting illegal acts.
  • Still include some audit procedures designed specifically to uncover illegalities.
  • Ignore the issue.
  • Make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities

Question 11

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 12

Important determinants of audit fees all of the following except:
  • The size of the audit firm
  • The type of client - whether the auditee is an existing client or not
  • The size of the auditee and the geographical dispersion
  • The quality of the auditee's internal control system

Question 13

Advertising and promotional material by auditors:
  • Could include exact fees
  • Should not discredit the services offered by other firms
  • Could fall short of requirement of UK Advertising Standard Agency
  • Could be misleading either directly or by implication

Question 14

In evaluating engagement risks, the auditor should be aware of items such as:
  • The client's previous year's profits
  • The client's method of financing growth
  • The client's liquidity position
  • All of the above

Question 15

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 16

The three main elements of risk in a business are:
  • Financial risk, Operational risk; Compliance risk
  • Financial risk, Control, Operational risk,
  • Control risk, Operational risk, Compliance risk
  • Control risk, Financial risk, Compliance risk

Question 17

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 18

When an auditor calculates the gross margin as a percent of sales and compares it with previous periods, this type of evidence is called
  • Physical examination
  • Analytical review
  • Observation
  • Inquiry

Question 19

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 audit firm's duty to the public concerning the acceptance of new clients is satisfied.
  • The likelihood of associating with clients whose management lacks integrity is minimized.
  • Client-prepared schedules that are necessary for the engagement are completed on a timely
  • Sufficient corroborating evidence to support the financial statement assertions is available.

Question 20

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 21

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

Question 22

Procedures to obtain sufficient appropriate audit evidence that the work of the other auditor is adequate is all the consideration necessary
  • A. Direction and supervision of the audit group
  • B. Provision of essential technical information
  • C. Participation in the policy making process
  • All of the above
  • A and B
  • A and C
  • B and C

Question 23

In the context of group audit, if a component is significant due to its nature or circumstances, the auditor:
  • Must carry out a full audit of the component using the component materiality
  • Must carry out an audit of specified account balances related to identified significant risks
  • Must carry out specified audit procedures related to identified significant risks
  • All of the above

Question 24

What is the type of assurance engagement that has as its subject matter non-historical financial information?
  • Prospective financial information
  • Review of financial statements
  • Special purpose engagement
  • Agreed-upon procedures

Question 25

In an agreed-upon procedures engagement what matters generally have to be agreed between auditor and management?
  • Nature, timing and extent of the specific procedures to be applied
  • The intended user of the report
  • The skills of the audit team
  • Identification of the corporate governance framework
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