Audit Quiz - Chapter 6

Question 1

Establishing audit objectives is essential to planning an effective financial statements audit.

Answer 1

True

Question 2

Dividing a financial statements audit into audit cycles enhances audit effectiveness and efficiency.

Answer 2

True

Question 3

Among other management responsibilities, the CEO and CFO are required to certify the quarterly and annual financial statements submitted to SEC.

Answer 3

True

Question 4

The Auditors have primary responsibility over the fair presentation of financial statements.

Answer 4

False

Question 5

The Auditors have primary responsibility over ensuring the effectiveness of internal controls over financial reporting.

Answer 5

False

Question 6

Management of public companies is required to issue a report on the effectiveness of internal controls over financial reporting.

Answer 6

True

Question 7

Sarbanes Oxley Act provides for negligence penalties for knowingly falsify the certification of financial statements.

Answer 7

False

Question 8

If Management disagrees with the findings of the auditors, the auditor must either issue a qualified or adverse opinion (based on materiality) or withdraw from the engagement.

Answer 8

True

Question 9

The auditors’ knowledge of an audit client’s system of internal control is generally limited to such knowledge learned during the audit process.

Answer 9

True

Question 10

When the auditor reports on the effectiveness of internal control over financial reporting, the auditor is also responsible for identifying material weaknesses in internal control over financial reporting.

Answer 10

True

Question 11

“Reasonable Assurance” is a high, but not absolute, level of assurance that the financial statements are free of material misstatements.

Answer 11

True

Question 12

It is possible for Auditors to perform an audit pursuant to GAAS and SAS and still have uncovered material misstatements.

Answer 12

True

Question 13

The Auditors’ best defense against an audit client whose has material misstated audited financial statements is contributory negligence.

Answer 13

False

Question 14

An effective way to reduce audit failure throughout the audit is to maintain a questioning mind and to critically evaluate evidence.

Answer 14

True

Question 15

The risk of material misstatements in financials statements exists only in some audits.

Answer 15

False

Question 16

In exercising professional skepticism, it is ok to trust management assertions of a long time audit client with minimal to no follow-up.

Answer 16

False

Question 17

The three categories of management assertions are Transactions/Events, Account Balances, and Disclosures.

Answer 17

True

Question 18

Audit objectives must be aligned to address management’s assertions regarding the company’s financial statements.

Answer 18

True

Question 19

The non-existence of some accounts receivable is a matter of the classification audit objective.

Answer 19

False

Question 20

Performing analytical procedures and tests of details of balances is one of the four phases of the audit process.

Answer 20

True