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Auditing Test 1

Auditing - Chapters 1, 2, 3, 4, 5

QuestionAnswer
The audit objective that all transactions and accounts that should be presented in the financial statements are in fact included is related to which of the PCAOB assertions? Completeness
The audit objective that all the transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions? Existence or Occurrence
The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB) transaction assertions? Cutoff
The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transactions assertions? Classification
The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions? Rights and Obligations
The audit objective that all balances include all items that should be recorded in the account is related most closely to which one of the ASB balance assertions? Completeness
The engineering dept.at Omni Co.built a piece of equip.in the company's own ship for use in the company's ops.The auditor reviewed all work orders that were capitalized as part of the equip.costs.Which of the following is the ASB TA most closely related? Classification
Built a piece of equip. in the company's own ship for use in their operations.Examined all work orders, purchased materials, labor cost reports, and applied o/h that were capitalized as part of equip costs.What ASB bal. asst.? Valuation
Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of: Completeness
Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of: Valuation
The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's financial statement assertion about: (refer to: 01-38) Valuation and Allocation
When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which mgmt assertion? Cutoff
Which of the following types of auditors' reports does not require an explanatory paragraph to support the opinion? Unqualified Opinion
Which of the following presumptions does not relate to the reliability of audit evidence? The auditors' opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
An important role of the Public Company Accounting Oversight Board (PCAOB) is to oversee the: Regulation of firms that audit public companies.
Audit evidence is usually considered sufficient when: There is enough quantity to afford a reasonable basis for an opinion on financial statements.
An audit of the financial statements of Camden Corporation is being conducted by external auditors. The external auditors are expected to: Give an opinion of the fair presentation of Camden's financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS).
Auditors try to achieve independence in appearance in order to: Maintain public confidence in the profession.
The independent auditors' plan prepared prior to the start of field work is appropriately considered documentation of: Planning
Which of the following procedures would provide the most reliable audit evidence? Inspection of bank statements obtained directly from the client's financial institution.
Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards? An auditor on the engagement owns a financial interest in the stock of the client.
A vendor's invoice received and held by the client would be considered what type of evidence? External-internal
Which of the following statements is generally correct about the appropriateness of audit evidence? Auditors' direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly from independent outside sources.
Internal evidence: Consists of documents that are produced, used, and stored within the client's information system.
Which of the following presumptions is correct about the reliability of audit evidence? An effective system of internal control provides more assurance about the reliability of audit evidence.
Which of the following is not a concept from the performance principle under generally accepted auditing standards? The auditor must express an opinion in accordance with the auditor's findings.
The major emphasis in GAAS related to consideration of fraud in a financial statement audit (SAS 99) is on: Management Fraud
External auditors are responsible: For reporting immaterial frauds to a level of management at least one level above the people involved.
Which of the following statements concerning illegal acts by clients is correct? An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and frauds.
The probability that an audit team will give an inappropriate opinion on financial statements best describes: Audit Risk
Inherent risk is the: Probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements.
If control risk increase, and all other risks in the audit risk model stay constant except the one referred to below, which of the following statements is correct? Detection risk will decrease.
If fictitious credit sales were recorded, and the fictitious accounts receivable were later directly written off as bad debt expense, Income would not be misstated.
Looking at vendors' invoices for particular information is an example of: Inspection of documents.
In testing the existence assertion for an asset, an auditor ordinarily works from the: Accounting records to the supporting evidence.
In determining whether transactions have been recorded, the direction of the audit testing should be from the: Original source documents.
In designing written audit plans, an auditor should establish specific audit objective that relate primarily to the: Financial statement assertions.
The risk of material misstatement differs from detection risk in that it: Exists independently of the financial statement audit.
Based on audit evidence gathered and evaluated,an auditor decides to increase the assessed level of control risk from that originally planned.To achieve an overall audit risk level that is substantially the same as the planned auditrisk level,the A would: Decrease detection risk.
The acceptable level of detection risk is inversely related to the: Assurance provided by substantive tests.
Auditing standards do not require auditors of financial statements to: Report all finding of errors and frauds to police authorities.
The evaluation of financial statement accounts by studying and comparing relations among financial and non-financial data is known as an - -. Analytical Review
_ _ are composed of independent, outside members of the board of directors(those not involved in the company's day-to-day operations)who can provide a buffer btw the public accounting firm and management. Audit Committees
Procedures used to detect material misstatements in dollar amounts and disclosures in financial statements are known as _ _ _. TABS/TOTS Substantive Procedures
Explain why: inventory turnover increased substantially from the prior year. Items shipped on consignment during the last month of the year were recorded as sales.
Explain why: long term debt increased from the prior year, but interest expense increased a larger than proportionate amount than long term debt. Short term borrowing was refinanced on a long-term basis at higher interest rates.
Explain why: operating income increased from the prior year although the entity was less profitable than in the prior year. The effective income tax rate increased, as compared to the prior year.
Which of the following accounts tends to be most predictable for purposes of analytical procedures? Interest Expense
In the planning stage, analytical procedures are not used to: Review the overall quality of the audit.
Explain why: if the current year accounts receivable are larger than last year but the allowance for doubtful accounts is the same. Understatement of allowance for doubtful accounts/bad debt expense.
Explain why: if the current year inventory is larger than last year and the current year gross margin (profit) is larger. Overstatement of inventory.
Explain why: if current year long-term liabilities are larger than last year and the interest expense is the same. Understatement of interest expense.
Explain why: if current year fixed assets are larger and current depreciation expense is the same as last year. Understatement of depreciation expense.
An audit team's responsibility would not include: Designing client's internal controls.
The appropriate separation of duties does not include: Data preparation
After obtaining an understanding of the entity's internal control and assessing control risk, and auditor of a non public company decided not to perform additional tests of controls. The auditor most likely concluded that the: Internal control structure was properly designed and justifiably may be relied on.
Regardless of the assessed level of control risk, an auditor of a non public company would perform some: Substantive tests to restrict detection risk for significant transactions classes.
The "obtaining an understanding" work phase (Phase 1) of internal control evaluation would not give auditors an overall acquaintance with the client's: Monitoring Activities.
Control strengths and weaknesses should be documented in audit documentation, sometimes called: Bridge Working Papers
Created by: Abagail Joy Phillips Abagail Joy Phillips on 2012-03-03



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