Audit (A1-A2) MCQ

Question 1

An Auditor of a non-issuer must conduct the audit in accordance with:

Answer 1

ASB standards,

could also follow PCAOB but not required.

Question 2

What provides the most authoritative guidance for the auditor of a nonissuer?

Answer 2

General guidance provided by a Statement on Auditing Standards

Question 3

The phrase “US GAAP” is an accounting term that:

Answer 3

Encompasses the conventions, rules, and procedures necessary to define US accepted accounting practice at a particular time.

Question 4

Which of the following terms used within standards indicates a presumptively mandatory requirement?

May/Might/Must/Should

Answer 4

Should is the correct answer.

Must indicates an unconditional requirement, which must be followed in all cases in which the requirement is relevant.

Question 5

Which of the following best describes what is meant by the term generally accepted auditing standards?

Answer 5

GAAS are measures of the quality of the auditor’s performance, and guide the auditor in the performance of a properly planned and executed audit.

Question 6

What is Reasonable Assurance?

Answer 6

Reasonable assurance is a high, but not absolute, level of assurance to allow auditor to detect a material misstatement.

Question 7

In order to express an opinion, the auditor obtains a level of assurance about whether the financial statements are free from material misstatements, whether due to error or fraud. What can auditors do to obtain Reasonable Assurance?

Answer 7

1. Plan the work and properly supervise any assistants.
2. Determine and apply appropriate materiality levels.
3. Identify and assess risks of material misstatement whether due to error or fraud
4. Obtain sufficient appropriate audit evidence.

Question 8

When forming an opinion on the FS, the auditor is least likely to evaluate whether:

Answer 8

Earnings forecasts by investors are met.

The auditors should evaluate:

• whether estimates are reasonable.
• FS have adequate disclosures to enable intended users to understands the effect of material events and transactions.
• the terminology used in the FS is appropriate.

Question 9

An auditor of a non-issuer should disclose the substantive reasons for expressing an adverse opinion in a basis for modification paragraph

Answer 9

Preceding the opinion paragraph

Question 10

A material change in accounting principle would result in

Answer 10

The addition of an emphasis of matter paragraph to the unmodified opinion

Question 11

When qualifying for an opinion because of an insufficiency of audit evidence in an audit of a non-issuer, an auditor should refer to the situation in the:

Answer 11

• Basis for Qualified Opinion paragraph

Question 12

An auditor of a non-issuer may not issue a qualified opinion when….

Answer 12

The auditor lacks independence with respect to the entity. Must issue “Disclaimer of opinion”.

Question 13

An unjustified change in accounting principle could result in a material misstatement of the FS that would result in…?

Answer 13

a qualified or adverse opinion

Question 14

When an auditor expresses a qualified opinion..

Answer 14

“in our opinion, except for [explanation of problem] as discussed in the preceding (non-issuer) / following (issuer) paragraph..”

Question 15

Which of the following would cause an auditor of an entity’s financial statements to issue either a qualified opinion or a disclaimer opinion?

a) The use of inappropriate accounting principles
b) Unreasonable accounting estimates
c) Inadequate disclosures of an uncertainty
d) Scope limitation involving a recorded uncertainty

Answer 15

Scope limitation involving a recorded uncertainty

Question 16

When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion on the prior year’s financial statements if the:

Answer 16

If, during the current audit, auditors become aware of circumstances or events that affect the FS of a period, they should consider such matters when updating the report on the financial statements on the prior period.

Question 17

If the auditor reissues the audit report at the client’s request, what date should the auditor use?

Answer 17

• Original report date if there’s no additional work.

- Subsequent date if has done additional work.

Question 18

Reference in a group engagement partner’s report to the fact that part of the audit was performed by another auditor most likely would be an indication of the:

Answer 18

Divided responsibility between the auditors who conducted the audits of the components of the overall financial statements.

Question 19

When a predecessor auditor’s report is not presented, the successor auditor should indicate the following items:

Answer 19

1. Statements were audited by predecessor auditor. Predecessor shouldn’t be named unless the practice of the predecessors was acquired by or merged with that of the successor.
2. The type of opinion expressed by the predecessor auditor and, if the opinion was modified by the reason for the mod.
3. The nature of any emphasis of matter, other matter, or explanatory paragraph included in the predecessor auditor’s report.
4. The date of the predecessor auditor’s report.

Question 20

After issuing an auditor’s report, an auditor has no obligation to make continuing inquiries concerning audited financial statements unless:

Answer 20

Information that existed at the report date and may affect the report comes to the auditor’s attention.

Question 21

After issuing an auditor’s report, an auditor becomes aware of facts that existed at the report date that would have affected the report had the auditor known of the facts at the time. What is the first thing the auditor should do?

Answer 21

Determine whether there are persons currently relying on, or likely to rely on, the financial statements and whether those persons would attach importance to the info.

Question 22

When an auditor issues a report that is dual dated for a subsequent event occurring after the original date of the auditor’s report, but before issuance of the related financial statements, the auditor’s responsibility for events occurring subsequent to the original report date is..

Answer 22

limited to the specific event rendered

Question 23

The auditor’s responsibility stops on..

Answer 23

the date of the auditor’s report.

Question 24

What is an auditor’s responsibility for supplementary info which is outside the basic FS but required by FAS?

Answer 24

Auditors should apply certain limited procedures to the info and add an other matter paragraph to the FS audit report.

Question 25

If info accompanying the basic FS has been subjected to auditing procedures, the auditor may include tin the auditor’s report on the FS an opinion that the accompanying info is fairly stated in:

Answer 25

all material respected in relation to the FS as a whole.

Question 26

One of a CPA’s firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:

Answer 26

A system of quality control.

Question 27

What are the elements of Quality Control? (HELP ME)

Answer 27

H - Human Resources
E - Engagement/client acceptances and continuance
L - Leadership responsibilities
P - Performance of the engagement
M - Monitoring
E - Ethical requirements

Question 28

Factors affecting the nature and extent of audit documentation:

Answer 28

1. The risk of material misstatement.
2. The extent to which judgement was required in performing the work and evaluating the results.
3. The nature of the specific auditing procedures.
4. The significance of the evidence obtained.
5. The nature and extent of any problems identified.
6. The need to document conclusions that may not be obvious.

Question 29

Which of the following documents the procedures that are applied and the conclusions reached in the audit engagement?

Working papers
Management rep letter
Audit guide
Auditor’s report

Answer 29

Working papers

Question 30

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:

Answer 30

Reclassifications and adjustments.

Question 31

In order to reduce the risk that the aggregate of undetected misstatements in the group financial statements of a non-issuer exceeds the materiality for the group financial statements a s a whole, an auditor should establish a:

Answer 31

Component materiality that is lower than the materiality for the group financial statements.

Question 32

Which one of the below statements best describes the concepts of materiality?

Answer 32

Info that is likely to be viewed by a reasonable investor as altering the mix of available info.

Question 33

According to PCAOB standards, when would a company be least likely to reevaluate established materiality levels or tolerable misstatements?

Answer 33

The client has stated that it will not be able to respond to the auditor’s request for evidence within then prescribed timeframe.

Question 34

Overall materiality formula?

Answer 34

Overall materiality = profit before tax x applicable %

Question 35

Performance materiality formula?

Answer 35

Performance materiality = overall materiality x applicable %

Question 36

Financial statement assertions include:

Answer 36

Valuation
Allocation and accuracy
Completeness
Understandability and classification

Question 37

Before applying principal substantive tests to an entity’s accounts receivable at an interim date, an auditor should:

Answer 37

Asses the difficulty in controlling the incremental audit risk involved and determine whether sufficient alternative procedures exist to extend the interim conclusions to year-end.

Question 38

in designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to the:

Answer 38

Financial statement assertion.

Question 39

Which of the following factors would generally not be taken into account when determining the extent of supervision needed for the staff?

A. The fee to be paid by the client.
B. The knowledge, skill, and ability of each engagement team member.
C. The size and complexity of the company.
D. The risk of material misstatement in the audit.

Answer 39

The fee to be paid by the client. it should take into account the nature of the company, nature of work assigned to each engagement team member, risk of material misstatement, knowledge, skill and ability of each engagement team member.

Question 40

Which of the following factors would a CPA ordinarily consider in the planning stage of an audit engagement?

1. Financial statements accounts likely to contain a misstatement.
2. Conditions that require extension of audit tests.

Answer 40

Both I and II

Question 41

An auditor reviews a client’s accounting policies and procedures when considering which of the following planning matters?

A. Understanding the client’s operations and business
B. Method of sampling to be used.
C. Prelim judgements about materiality level
D. Nature of reports to be rendered.

Answer 41

A. Understanding the client’s operations and business. This understanding is important because it affects the design of internal control, which in turn impacts planned auditing procedures.

Question 42

Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess:

Answer 42

The difficulty in accounting the incremental audit risk.

Question 43

The primary objective of an auditor when considering the acceptance of an initial audit engagement of a non-issuer is to:

Answer 43

The primary objective of an auditor when considering the acceptance of an initial audit engagement of a non-issuer is to establish whether the preconditions for an audit are present.

Question 44

An auditor is required to establish an understanding with a client regarding the service to be performed for each engagement. This understanding generally includes:

Answer 44

The auditor’s responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal control that come to the auditor’s attention.

Question 45

In obtaining an understanding of the entity and its environment, including its internal control, an auditor is required to obtain knowledge about the:

Answer 45

Design of relevant internal control pertaining to financial reporting in each of the five internal control components.

Question 46

Elements of Control Environment:

Answer 46

1. Communication and enforcement of integrity and ethical values.
2. Commitment to competence.
3. Participation of those charged with governance.
4. Management’s philosophy and operating style.
5. Organization structure.
6. Assignment of authority, responsibility, and accountability.
7. Human resource policies and practices.

Question 47

In an audit of financial statements, an auditor’s primary consideration regarding internal control is whether the control:

Answer 47

Affects management’s financial statement assertions.

Question 48

An auditor would most likely be concerned with internal controls that provide reasonable assurance about the:

A. Methods of assigning production tasks to employees
B. Entity’s ability to process and summarize financial data.
C. Efficiency of management’s decision making process.
D. Appropriate prices the entity’s should charge for its products.

Answer 48

B. Entity’s ability to process and summarize financial data.

Question 49

To obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the FS, an auditor would most likely perform which of the following procedures

Answer 49

Risk assessment procedures to evaluate the design of relevant controls.

Question 50

Internal control over safeguarding of assets may include controls relating to:

Answer 50

Financial reporting objectives

Operations objectives

Question 51

If an auditor is obtaining an understanding of an issuer’s info and communication component of internal control, which of the following factors should the auditor assess?

A. The oversight responsibility over financial reporting and internal control by the board or audit committee.

B. The classes of transactions in the issuer’s operations that are significant to the issuer’s financial statements

C. The philosophy and operating style of management to promote effective internal control over financial reporting.

D. The integrity and ethical values of top management.

Answer 51

B. The classes of transactions in the issuer’s operations that are significant to the issuer’s financial statements

All the other choices are typically assessed when the auditor is obtaining an understanding of the control environment component of internal control.

Question 52

Which of the following types of control best describes procedures to ensure appropriate systems software acquisition?

A. General
B. Physical
C. Application
D. Monitoring

Answer 52

A. General.
General controls are policies and procedures that relate to many applications and support the effective functioning and proper operation of the information system. General controls includes procedures to ensure appropriate systems software acquisition.

Physical relates to safeguarding assets, such as using security devices to limit access to programs and restricted areas.

Application control applies to processing of individual transactions and help to ensure that transactions occurred are authorized, and are completely and accurately processed and reported.

Monitoring controls help assess the quality of internal control.

Question 53

In obtaining an understanding of an entity’s internal control, and audit is required to obtain knowledge about…

Operating effectiveness of controls
Design of controls

Answer 53

Yes - Operating effectiveness of controls

No - Design of controls

Question 54

The monitoring of internal control excludes:

Answer 54

Eliminating controls that is not operating effectively

Question 55

An auditor should obtain sufficient knowledge of an entity’s info system relevant to financial reporting to understand the:

Answer 55

Process used to prepare significant accounting estimates.

Question 56

Which of the following components of internal control contributes most to a strong environment?

Answer 56

Management adheres to internal control policies. This provides evidence of a strong tone at the top.

Question 57

An auditor who wishes to capture an entity’s data as transaction are processed and continuously test the entity’s computerized info system most likely would use what system?

Answer 57

Embedded audit module.

Question 58

What kind of computer assisted auditing technique processed client input data on a controlled program under the auditor’s control to test controls in the computer system?

Answer 58

Parallel simulation.

Question 59

Advantage of using parallel simulation:

Answer 59

• The size of the sample can be greatly expanded at relatively little additional costs.

Question 60

Primary reason that many auditors hesitate to use embedded audit module?

Answer 60

Embedded audit modules are sections of the application program code that collect transaction data for the auditor. Embedded audit modules are usually built into the application program when the program is developed. This would required that the auditors be involved in the system design of the application to be monitored.