Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BSA 31P > Chapter Exam (Chapters 4&5) > Flashcards

Chapter Exam (Chapters 4&5) Flashcards

1
Q

The standards given in ‘Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement’ (PSA 315) emphasizes:

a. Procedures for sampling audit tests
b. Obtaining an understanding of business risks and significant risks
c. Reports to federal regulators
d. Obtaining an understanding of control risk

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Listed below are the five types of tests that auditors use to determine whether financial statements are fairly stated or not. Which three are substantive tests?

I. procedures to obtain an understanding of internal control
II. tests of controls
III. tests of transactions
IV. analytical procedures
V. tests of balances

a. II, III, and V
b. I, II, and III
c. III, IV, and V
d. II, III, and IV

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

With respect to planning an audit, which of the following statements is always true?

a. An inventory count must be observed at year-end
b. An engagement should not be accepted after the client’s year-end
c. It is acceptable to perform a portion of the audit of a continuing audit client at interim dates
d. Final staffing decisions must be made prior to completion of the planning stage

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the

a. Timing of inventory observation procedures to be performed
b. Pending legal matters to be included in the inquiry of the client’s attorney
c. Evidence to be gathered to provide a sufficient basis for the auditor’s opinion
d. Procedures to be undertaken to discover litigation, claims, and assessments

A

A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Which of the following tests is not appropriate for purpose of testing the effectiveness of controls?

a. Make inquiries of client’s personnel
b. Observe control-related activities
c. Evaluate prior experience with the client
d. Re-perform client procedures

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which of the following matters would least likely appear in the audit program?

a. Specific audit objectives
b. Documentation of the accounting and internal control systems being reviewed
c. Estimated time that will be spent in performing certain procedures
d. Specific procedures that will be performed

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Each of the three parties involved in an audit who plays a role that contributes to its success

a. The client, the moderator, and the auditee
b. The client, the auditor, and the auditee
c. The client, the auditor, and the auditeer
d. The client, the auditor, and the audite

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been
issued is the

a. Inherent risk
b. Statistical risk
c. Acceptable audit risk
d. Financial risk

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

In developing written audit programs, an auditor should establish specific audit objectives that relate primarily to the

a. Selected audit techniques
b. Cost-benefit of gathering evidence
c. Timing of audit procedures
d. Financial statements assertions

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

During the planning stage of a grocery chain, Sarah Du tried to determine which procedures would be appropriate. Which of these procedures, if any, would you use in the planning phase of the audit?

a. Observation and inspection
b. Analytical procedures
c. Both a and b
d. None of the above

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

An audit program should be designed for each individual audit and should include audit steps and procedures to

a. Detect and eliminate all fraud
b. Increase the amount of management information available
c. Provide assurance that the objectives of the audit are met
d. Insure that only material items are audited

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

On an audit engagement performed by a CPA firm with one office, at the minimum, knowledge of the relevant professional accounting and auditing standards should be held by

a. All professionals working in the office
b. The auditor with final responsibility for the audit
c. All professionals working upon the audit
d. All professionals working upon the audit and the partner in charge of the CPA firm

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit:

a. in a timely manner
b. only after an adequate investigation of the management team
c. as effectively as reasonably possible
d. in accordance with generally accepted auditing standards

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Detection risk is:

a. The risk that an auditor’s substantive procedures will not detect a misstatement that exists and that could
be material.
b. The risk that a misstatement that could occur in an assertion, and that could be material, will not be
prevented, or detected and corrected, on a timely basis by the entity’s internal control.
c. The susceptibility of an assertion to misstatements that could be material, before consideration of any related
controls.
d. The risk that the auditor expresses an inappropriate audit opinion when the financial statements are
materially misstated.

A

A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Which of the following is not a procedure to obtain an understanding of risk in the planning stage?

a. Analytical procedures
b. Observation and inspection
c. Inquiries of management
d. Procedures for sampling audit tests.

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Risk assessment procedures that may indicate fraud include inquiries of management regarding:

a. If there is fraud elsewhere in their industry
b. Internal control effectiveness
c. Whether management knows of any fraud in the entity
d. If there are any relatives of the executives employed in the entity

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

A client’s corporate governance structure is assessed when planning an audit. T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The audit objectives remain the same from audit to audit, thus the evidence is also the same. T or F?
regardless of the change in circumstances.

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Auditors accumulated evidence to defend themselves in the event of lawsuit. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Auditors must gain an understanding of their client at the outset of every audit. T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Management assertions are stated in the footnotes to the financial statements. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

An audit is usually conducted in three steps:
(1) A pre-examination or opening meeting with the auditee marks the beginning of the process.
(2) involves a suitability audit of the documented procedures against the selected reference standard.
(3) the auditor examines in depth the implementation of the quality system

T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Observation is the process of obtaining a representation of information or of an existing condition directly from a third party. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

An engagement letter is one means of informing the client that the auditor is not responsible for the discovery of all acts of fraud. T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Engagement letter that documents and confirms the auditor’s acceptance of the engagement would normally be sent to
the client at the end of the fieldwork. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

The purpose of an engagement letter is to document the terms of the engagement in order to minimize misunderstandings. T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

The planning stage of an audit involves the performance of detailed tests of controls and substantive testing of transactions and accounts. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

During strategic planning, the auditor is concerned with understanding the overall business of the organization. T or F?

A

TRUE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Inquiry alone is sufficient audit procedure to test the operating effectiveness of controls. T or F?

A

FALSE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Assertions about presentation and disclosure deal with whether the accounts have been included in the financial statements at appropriate amounts. T or F?

A

FALSE

30
Q

To establish a level of materiality, auditors rely on rules of thumb and professional judgment. T or F?

A

TRUE

31
Q

Judgments about materiality are made in light of surrounding circumstances, and are affected by the ______________ of a misstatement, or a combination of both.

a. significance or nature
b. size or characteristics
c. significance or size
d. size or nature

A

A

32
Q

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

a. company management
b. board of directors
c. company’s internal audit department
d. financial statement auditor

A

A

33
Q

Information acquired during the planning phase about business operations may include all of the following except:

a. Nature of revenue resources
b. Acquisition and disposals of business divisions
c. Market
d. Employment

A

B

34
Q

Mr. A was at a client’s offices and was preparing his work for the following day. He was considering the risk that a material misstatement due to significant error or fraud could occur in the client’s financial statements. Which of the three main stages of the audit was he performing?

a. Planning stage
b. Performing stage
c. Reporting stage
d. None of the above

A

A

35
Q

If the auditor believes that the financial statement are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

a. Should notify regulators of the circumstances
b. Has the responsibility of notifying financial statement users through the auditor’s report
c. Should request an increase in audit fees so that more resources can be used to conduct the audit
d. Should withdraw from the engagement

A

B

36
Q

Which of the following procedures would an auditor least likely perform while obtaining an understanding of a client in a financial statement audit?

a. Coordinating the assistance of entity personnel in data preparation
b. Reading the current year’s interim financial statements
c. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the
entity
d. Selecting a sample of vendors’ invoices for comparison to receiving reports

A

D

37
Q

The use of an audit engagement letter is the best method of assuring the auditor will have which of the following?

a. Cooperation from other auditors
b. Auditor will obtain sufficient appropriate audit evidence
c. Management representation letter
d. Access to all books, accounts and vouchers required for audit purpose

A

D

38
Q

PSAs require that ________________________ discuss the susceptibility of the entity’s financial statements to material misstatement.

a. the engagement partner and an outside partner
b. key engagement team members
c. auditee management and the engagement partner
d. the engagement partner and other key engagement team members

A

D

39
Q

“Tolerable misstatement” is the term used to indicate materiality at the

a. Balance sheet level
b. Account balance level
c. Income statement level
d. All of the above
e. None of the above

A

B

40
Q

Inquiries of management and personnel include discussion of all the following except:

a. Expectations
b. Objectives
c. Audit procedures needed
d. Reports

A

C

41
Q

Kobe Durant was meeting with his manager to plan audit strategy in order to determine the amount of time to spend testing the client’s internal controls and conducting detailed testing of transactions and account balances. Determining the audit strategy occurs during which phase of the audit?

a. Planning stage
b. Reporting stage
c. Client acceptance stage
d. Performing stage

A

A

42
Q

To obtain an understanding of a continuing client’s business, an auditor most likely would

a. Reevaluate the client’s internal control environment
b. Review prior year working papers and the permanent file for the client
c. Perform tests of details of transactions and balances
d. Read current issues of specialized industry journals

A

B

43
Q

Which of the items listed are the phases or steps in audit engagement planning?

a. Process understanding
b. Risk identification
c. Risk prioritization
d. Risk-control matching
e. Audit program development
f. All of the above

A

F

44
Q

When Ms. Copes audited a new client, she asked questions about what the client does, how the client functions, the ownership structure of the client and its sources of financing. She was getting an understanding of the client at the

a. entry level
b. industry level
c. economy level
d. All of the above

A

A

45
Q

When investigating the company’s legal position, the auditor should look at:

a. Minutes of the board of directors and stockholders’ meetings
b. Customs import documents
c. The auditee’s website
d. Attorney billings

A

A

46
Q

An auditor obtains knowledge about a new client’s business and its industry to

a. Understand the events and transactions that may have an effect on the client’s financial statements
b. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated
c. Make constructive suggestions concerning improvements to the client’s internal control
d. Develop an attitude of professional skepticism concerning management’s financial statement

A

A

47
Q

The one that is also expected to provide the resources needed and select staff members to accompany the auditors

a. Internal Auditor
b. Auditee
c. Client
d. Auditor

A

B

48
Q

Which of the following is one of the procedures in the planning phase?

a. Determine need for other professionals
b. Prepare proposal
c. Determine materiality
d. Select staff to perform the audit

A

C

49
Q

The audit engagement letter, generally, should include a reference to each of the following except

a. limitations of auditing
b. expectation of receiving a written management representation letter
c. a description of the auditor’s method of sample selection
d. responsibilities of management with respect to audit work

A

C

50
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

The level of this risk could be increased from transactions between related entities because of a chance of overstatement or understatement of the value of the asset involved in any financial deal.

A

INHERENT RISK

51
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It could occur when documents are approved without management review

A

CONTROL RISK

52
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It happens because of the limitations of a company’s internal control system

A

CONTROL RISK

53
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It occurs when the supplier selection process is not transparent

A

CONTROL RISK

54
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

An auditor wanted to make sure a particular sale took place, he tested for its occurrence, not for whether the invoice is
mathematically correct.

A

DETECTION RISK

55
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It occurs when staff is working quickly to a tight deadline imposed by client.

A

DETECTION RISK

56
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It occurs when a financial misstatement results from a lack of proper accounting controls in the firm

A

CONTROL RISK

57
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It could occur when the company trades overseas and transactions in foreign currency may not be translated at the
correct rate

A

INHERENT RISK

58
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

The risk of wrong or misleading information appearing in financial statements that have occurred for reasons other
than the failure of controls

A

INHERENT RISK

59
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It could occur when a company is engaging in complex work, that is collecting data from several subsidiaries with the
intention of combining that information later, which could include material misstatements.

A

INHERENT RISK

59
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It can be increased because of the lack of integrity of a company’s management

A

INHERENT RISK

60
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

A right audit procedure is used but a wrong decision was made when evaluating the results.

A

DETECTION RISK

61
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

Considered the most pernicious of the major audit risk components as it can’t be easily avoided through increased
auditor training or creating controls in the auditing process

A

INHERENT RISK

62
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It can never be eliminated because an auditor most likely never look at each and every transaction, but to keep it at an
acceptable minimum.

A

DETECTION RISK

63
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

Arises because an organization does not have adequate controls in place to prevent and detect fraud and error.

A

CONTROL RISK

64
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

Occurs when an auditor is using ratios to determine if a financial account balance is at face value accurate
(reasonable), and he uses the wrong ratio

A

DETECTION RISK

65
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It happens when the entity does not verify its transactions

A

CONTROL RISK

65
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It may result from lack of cumulative audit knowledge and experience on a new audit client

A

DETECTION RISK

66
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

Occurs when an auditor does not use the right audit procedures or does not use them correctly

A

DETECTION RISK

67
Q

For each statement below, identify whether it refers to an Inherent Risk, a Control Risk, a Detection Risk, or No Risk.

It most likely to surface in the form of fraud or lazy accounting practices.

A

CONTROL RISK

68
Q

In engagement planning, what are the steps in process risk assessment?

a. Risk identification
b. Risk prioritization
c. Risk-control mapping
d. All of the above
e. A and B only

A

D

69
Q

Auditors accumulate evidence to:

a. defend themselves in the event of a lawsuit.
b. enable them to reach conclusions about the fairness of the financial statements
c. satisfy the requirements of the Securities Acts of 1933 and 1934
d. justify the conclusions they have otherwise reached

A

B

70
Q

An auditor should design the written audit program so that

a. Each account balance will be tested under tests of controls or tests of transactions
b. Substantive tests prior to the balance sheet data will be minimized
c. All material transactions will be selected for substantive testing
d. The audit procedures selected will achieve specific audit objectives

A

D

71
Q

Business operations, types of investments, capital structure and financing, and ownership structures are areas that are considered when obtaining an understanding of:

a. Objectives and strategies
b. Measurement and review of financial performance.
c. Accounting policies
d. The nature of the entity

A

C

BSA 31P (26 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions