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Auditing Theory Part 1

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Jona Rissa Carlos
Quiz by Jona Rissa Carlos, updated more than 1 year ago
Jona Rissa Carlos
Created by Jona Rissa Carlos over 9 years ago
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Resource summary

Question 1

Question
As an auditor which of the following would be classified as an error?
Answer
  • Intentional omission of the recording of a transaction to benefit a third party.
  • Misappropriation of assets for the benefit of management.
  • Misinterpretation by management of the facts that existed when the financial statements were prepared.
  • Preparation of records by employee to cover a fraudulent transactions.

Question 2

Question
Which of the following circumstances least likely indicate the possibility of fraud or error?
Answer
  • Unrealistic time deadlines for audit completion imposed by management.
  • Limitation in audit scope imposed by management.
  • Conservative application of accounting principles.
  • Significant difficult-to-audit figures in the accounts

Question 3

Question
Which of management’s concerns with respect to implementing internal controls is the auditor primarily concerned?
Answer
  • Efficiency of operations.
  • Reliability of financial reporting.
  • Effectiveness of operations.
  • Compliance with applicable laws and regulations

Question 4

Question
Which of the following statements is not correct?
Answer
  • The principal purpose in conducting a study and evaluation of the existing internal control system is for the independent auditor to maintain a state of independence in mental attitude in all matters related to the audit.
  • Working papers can be destroyed after corporate and statutory retention requirements are met.
  • The audit program contains the list of specific tasks to be performed and estimated time required.
  • An audit program would not contain the documentation of system being reviewed.

Question 5

Question
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
Answer
  • Cash flows from operating activities are negative.
  • Research and development projects are postponed.
  • Significant related party transactions are pervasive.
  • Stock dividends replace annual cash dividends.

Question 6

Question
Competence as an independent auditor includes all of the following except
Answer
  • Having the technical qualifications to perform the engagement
  • Possessing the ability to supervise and evaluate the quality of staff work
  • Warranting the infallibility of the work performed
  • Consulting others if additional technical information is needed

Question 7

Question
Which of the following engagements do not require independence?
Answer
  • Assurance
  • Compilation
  • Audit
  • Review

Question 8

Question
If permission from client to discuss its affairs with the proposed auditor is denied by the client, the predecessor auditor should:
Answer
  • Keep silent of the denial.
  • Disclose the fact that the permission to disclose is denied by the client.
  • Disclose adequately to proposed auditor all noncompliance made by the client.
  • Seek legal advice before responding to the proposed auditor

Question 9

Question
Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding
Answer
  • Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.
  • The predecessor’s evaluation of matters of continuing accounting significance.
  • The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer.
  • The predecessor’s assessments of inherent risk and judgments about materiality.

Question 10

Question
Tracing shipping documents to prenumbered sales invoices provides evidence that
Answer
  • No duplicate shipments or billings occurred.
  • Shipments to customers were properly invoiced.
  • All goods ordered by customers were shipped.
  • All prenumbered sales invoices were accounted for.

Question 11

Question
Which of the following is not a component of an entity’s internal control?
Answer
  • Control risk.
  • Control activities.
  • Monitoring.
  • Control environment.

Question 12

Question
The permanent file of an auditor’s working papers generally would not include
Answer
  • Bond indenture agreements.
  • Lease agreements.
  • Working trial balance.
  • Flowchart of internal control

Question 13

Question
The audit working paper that reflects the major components of an amount reported in the financial statements is the
Answer
  • Interbank transfer schedule.
  • Carry forward schedule.
  • Supporting schedule.
  • Lead schedule.

Question 14

Question
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 management’s assertion of
Answer
  • Presentation.
  • Completeness.
  • Rights.
  • Existence.

Question 15

Question
Which of the following is not an expert upon whose work an auditor may rely?
Answer
  • Actuary.
  • Appraiser.
  • Internal auditor.
  • Engineer.

Question 16

Question
A purpose of a management representation letter is to reduce
Answer
  • Audit risk to an aggregate level of misstatement that could be considered material.
  • An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.
  • The possibility of a misunderstanding concerning management’s responsibility for the financial statements.
  • The scope of an auditor’s procedures concerning related-party transactions and subsequent events.

Question 17

Question
The primary reason an auditor requests letters of inquiry be sent to a client’s attorneys is to provide the auditor with
Answer
  • The probable outcome of asserted claims and pending or threatened litigation.
  • Corroboration of the information furnished by management about litigation, claims, and assessments.
  • The attorneys’ opinions of the client’s historical experiences in recent similar litigation.
  • A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

Question 18

Question
When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
Answer
  • Need not consider the risk of assessing control risk too low.
  • Has committed a nonsampling error.
  • Will have to use discovery sampling to evaluate the results.
  • Should compare the deviation rate of the sample to the tolerable deviation rate.

Question 19

Question
The accounts payable department receives the purchase order form to accomplish all of the following except to
Answer
  • Compare invoice price to purchase order price
  • Ensure that the purchase had been properly authorized
  • Ensure that the goods had been received by the party requesting the goods
  • Compare quantity ordered to quantity purchased

Question 20

Question
When comparative financial statements are presented, the fourth standard of reporting, which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the
Answer
  • Periods presented plus the one preceding period
  • Current period only
  • Current period and those of the other periods presented
  • Current and immediately preceding period only
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