Chap 1

Question 1

Auditing

Answer 1

The objective of a financial audit is to enable the auditor to express an opinion.

Question 2

Audit

Answer 2

Is a systematic process of objectively obtaining and evaluating evidence regarding assertion

Question 3

Auditing is a systematic process

Answer 3

Proceeds by means of an ordered and structured series of steps

Question 4

Are representations made by an entity about economic actions and events

Answer 4

Assertions

Question 5

Are needed to judge the validity of the assertions

Answer 5

Established criteria

Question 6

Is conducted to determine whether the financial statements of an entity are fairly presented in accordance with the applicable financial reporting framework

Answer 6

Financial Statements audit

Question 7

Involves a review of an organization procedures to determine whether the organization

Answer 7

Compliance Audit

Question 8

Is a study of a specific unit of organization for the purpose of measuring it’s performance

Answer 8

Operational Audit

Question 9

The ones who generally perform financial statement audits

Answer 9

External Auditors

Question 10

To assist the members of the organization in the effective discharge of the responsibilities

Answer 10

Internal Auditor

Question 11

Main concern is to determine whether persons or entity comply with government laws and regulations

Answer 11

Government Auditors

Question 12

To provide only reasonable assurance

Answer 12

Assurance provided by Auditor

Question 13

Persuasive rather than conclusive in nature

Answer 13

Nature of evidence

Question 14

Including those pertaining to independence relating to financial statements audit engagements

Answer 14

Ethical requirements

Question 15

Contain the basic principles and essential procedures which the auditor should follow

Answer 15

PSA

Question 16

Is essential to the proper conduct of the Audit

Answer 16

Apply professional judgement

Question 17

Is needed to support the opinion expressed in the auditor’s report.

Answer 17

Audit Evidence

Question 18

The auditor should plan and perform the audit with an attitude of

Answer 18

Professional Skepticism

Question 19

Financial statements may be viewed as the report by management

Answer 19

Conflict of interest between management and users financial statements

Question 20

Auditing requires expertise in verifying the quality of the financial information

Answer 20

Expertise

Question 21

Usually prevented from directly assessing the reliability of the information

Answer 21

Remoteness

Question 22

Could have substantial economic consequences for a decision maker

Answer 22

Financial consequences

Question 23

Is essential for ensuring the credibility of the auditor’s report

Answer 23

Independence

Question 24

What is employee fraud often accompanied by?

Answer 24

False or misleading financial statements

Employee fraud can lead to distorted financial reporting, impacting stakeholders’ decisions.

Question 25

What is lapping of accounts receivable?

Answer 25

A method of stealing cash from accounts receivable and covering it up by applying subsequent payments to previous accounts

This technique often involves manipulating financial records to conceal the theft.

Question 26

What does misappropriation of assets involve?

Answer 26

Theft of an entity’s assets

This can include stealing cash, inventory, or other resources from the organization.

Question 27

What is embezzling?

Answer 27

The act of wrongfully taking or misappropriating funds placed in one’s trust or belonging to one’s employer

Embezzlement often involves deceitful practices to hide the theft.

Question 28

Fill in the blank: Fraud involves motivation to commit the act and _______.

Answer 28

Opportunity

Both motivation and opportunity are crucial for fraud to occur.

Question 29

What are two types of fraud relevant to financial reporting?

Answer 29

• Misstatements resulting from misappropriation of assets
• Misstatements resulting from management fraud

These types of fraud can significantly affect the integrity of financial statements.

Question 30

What does intentional misapplication of accounting policies refer to?

Answer 30

Deliberately using incorrect accounting methods or principles

This can lead to misleading financial statements and affect decision-making.

Question 31

What is the result of manipulation, falsification, or alteration of documents?

Answer 31

Fraudulent financial reporting

This practice is intended to deceive users of financial statements regarding the true financial position of the entity.

Question 32

True or False: Employee fraud is always committed by external parties.

Answer 32

False

Employee fraud is typically perpetrated by individuals within the organization.

Question 33

What can fraudulent financial reporting involve?

Answer 33

Intentional misstatements or omissions of amounts or disclosures in financial statements

This type of fraud aims to mislead financial statement users.