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MCQ1

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Advanced Audit Principles and Practice in class test
clara.azurmendi
Quiz by clara.azurmendi, updated more than 1 year ago
clara.azurmendi
Created by clara.azurmendi over 8 years ago
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Question 1

Question
In order to calculate a level of planning materiality, auditors will often take a range of values. Which of the following is correct?
Answer
  • Revenue: 5% to 10%
  • Total assets: 10% to 20%
  • Net assets: 2% to 5%
  • Profit after tax: 0.5% to 2%

Question 2

Question
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?
Answer
  • 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 3

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

Question 4

Question
How does the related services framework differ from the assurance framework?
Answer
  • Related services enhance the degree of confidence intended users can have
  • Related services claim compliance with ISAs
  • Related services engagements do not result in an opinion
  • Related services claim compliance with ISAEs

Question 5

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

Question 6

Question
Detection risk differs from both control risk and inherent risk in that detection risk
Answer
  • Arises from risk factors relating to fraud.
  • Exists independently of the financial statement audit
  • Should be assessed in non-quantitative terms
  • Can be changed at the auditor's discretion

Question 7

Question
Which of the following best represents a key control for ensuring sales are properly authorized when assessing control risks for sales?
Answer
  • The separation of duties between the billing department and the cash receipts approval department
  • The use of an approved price list to determine unit selling price.
  • Sales orders are sent to the credit department for approval
  • Copies of approved sales orders sent to the shipping, billing, and accounting departments.

Question 8

Question
When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued?
Answer
  • The standard compilation report may be issued, regardless of independence.
  • A compilation report may be issued if the engagement is upgraded to a review.
  • A compilation report with negative assurance may be issued.
  • A compilation report with special wording that notes the accountant's lack of independence may be issued.

Question 9

Question
Which of the following procedures would an accountant most likely perform during an engagement to review the financial statements of a client?
Answer
  • Communicate internal control deficiencies to senior management.
  • Review the predecessor accountant's working papers.
  • Inquire of management about related party transactions.
  • Corroborate litigation information with the entity's attorney.

Question 10

Question
Which of the following techniques does an auditor ordinarily select in assessing control risk?
Answer
  • Inquiry and analytical procedures
  • Inspection and verification.
  • Comparison and confirmation.
  • Observation and re-performance

Question 11

Question
The term 'scope of an audit' refers to the audit procedures deemed necessary in the circumstances:
Answer
  • In order to cover auditor liability
  • As required by IFRSs
  • As required by IASs
  • To achieve the objective of the audit

Question 12

Question
Which of the following is not a benefit of international auditing standards?
Answer
  • Investors can more readily comprehend a set of financial statements drawn up in another country
  • Foreign investors are more likely to channel funds into a developing country
  • Encourage and assist developing nations to adopt national standards
  • Financial statement disclosure is more consistent

Question 13

Question
Which of the following parties is responsible for establishing an entity’s internal controls?
Answer
  • Committee of Sponsoring Organizations
  • Management and auditors
  • Auditors
  • Management

Question 14

Question
Most auditors assess inherent risk as high for related parties and related-party transactions because:
Answer
  • A. Of the lack of independence between the parties
  • B. It is required by generally accepted accounting principles.
  • C. Of the accounting disclosure requirement
  • A and B
  • A and C
  • B and C

Question 15

Question
A measure of the auditor’s assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client’s internal control is:
Answer
  • Acceptable audit risk.
  • Control risk.
  • Inherent risk.
  • Statistical risk.

Question 16

Question
Which of the following is not one of the three main reasons why the auditor should properly plan engagements?
Answer
  • To enable the auditor to obtain sufficient competent evidence.
  • To avoid misunderstandings with the client.
  • To help keep audit costs reasonable.
  • To enable proper on-the-job training of employees.

Question 17

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

Question 18

Question
After the preliminary judgment about materiality has been established, auditors may
Answer
  • Not adjust it.
  • Adjust it either downward or upward.
  • Adjust it downward only.
  • Adjust it upward only.

Question 19

Question
Why do auditors establish a preliminary judgment about materiality?
Answer
  • So that the client can know what records to make available to the auditor.
  • To determine what level of staffing is required for the audit.
  • To help the auditor plan the appropriate evidence to accumulate.
  • None of the available options

Question 20

Question
When auditors allocate the preliminary judgment about materiality to account balances, the materiality allocated to any given account balance is referred to in ISA 530 Audit Sampling as:
Answer
  • The materiality range.
  • Tolerable misstatement.
  • Tolerable materiality.
  • The error range.

Question 21

Question
If it is probable that the judgment of a reasonable person would have been changed or influenced by the omission or misstatement of information, then that information is, by definition of IAS 320 – Audit Materiality,
Answer
  • Insignificant.
  • Material.
  • Significant.
  • Relevant.
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