Quiz 1-4

Question 1

Which of the following services provides a moderate level of assurance about the​ client’s financial​ statements?

A.compliance
B.audit
C.review
D.forecasts and projections

Answer 1

c)

Question 2

Which of the following is an example of accounting rather than​ auditing?

a. entering sales transactions into the sales order system
b.gathering evidence about the quality of accounts receivable
C.comparing bank deposit documents to the recorded cash received
D.reviewing sales invoices to see if they have been calculated correctly

Answer 2

a)

Question 3

The Sarbanes-Oxley Act requires the auditor to attest to the

A. compliance of the company with the generally accepted accounting framework.
B. effectiveness of internal controls.
C.efficiency of the internal controls in financial reporting.
D. accuracy of the financial statements.

Answer 3

b)

Question 4

Which of the following terms best describes the increased likelihood that unreliable information will be provided to decision​ makers?

A. inherent risk
B. information risk
C.audit risk
D.business risk

Answer 4

b)

Question 5

Auditing should be done by a qualified

A.certified management accountant.
B.competent and independent person.
C.professional accountant.
D.chartered accountant.

Answer 5

b)

Question 6

Which of the following is not a cause of information​ risk?

A.voluminous data
B.biases and motives of the provider
C.simple exchange transactions
D.remoteness of information

Answer 6

c)

Question 7

In the audit of historical financial statements by PA​ firms, the criteria used are

A.relevant accounting frameworks.
B.generally accepted auditing standards.
C.regulations of the Canada Revenue Agency.
D.regulations of the provincial securities commissions.

Answer 7

a)

Question 8

The extent and the scope of the audits conducted by Auditors General are determined by

A.legislation in the Auditor​ General’s jurisdiction.
B.the Auditor General and​ his/her staff.
C.audit partner planning and audit program development.
D.the financial statement auditors of the client.

Answer 8

a)

Question 9

As part of its loan​ agreement, Big Bank requires that only accounts receivable less than 60 days old be used as collateral. An auditor has been engaged to provide assurance that the accounts receivable on the list provided to the bank are indeed less than 60 days old. What type of engagement is the auditor​ conducting?

A.review
B.financial statement
C.operational
D.compliance

Answer 9

d)

Question 10

Auditors General are responsible for auditing which types of​ organizations?

A.​ministries, departments, agencies that report to Government
B.public companies with shares issued to investors
C.any organization that submits tax returns to the tax authorities
D.private companies that have loans outstanding to banks or other creditors

Answer 10

a)

Question 11

Which of the following illustrates the definition of auditing with respect to the evidence analysis​ process?

A.learning about different types of computing​ technology, such as mainframes
B.making sure that the auditor is competent and understands evidence gathering
C.accumulation and evaluation of evidence regarding assertions
D.writing an operational audit report that is tailored to the​ client’s situation

Answer 11

c)

Question 12

Which of the following illustrates the definition of auditing with respect to the reporting​ process?

A.making sure that the auditor is competent and understands evidence gathering
B.reporting on the degree of correspondence between financial statements and​ ASPE/IFRS
C.accumulation and evaluation of evidence about balance sheet accounts
D.writing an operational audit report that is tailored to the​ client’s situation

Answer 12

b)

Question 13

How does a financial statement audit affect a bank​ manager’s decisions in providing loans to a corporate​ client?

A.The bank manager will lower the risk-free interest rate that applies to the corporation.

B.Information risk is reduced and the bank manager can lower the interest rate charged.

C.The business risk for the client will be​ increased, so the borrowing costs will be lowered.

D.The business risk for the client will be​ reduced, so the borrowing costs will decline.

Answer 13

b)

Question 14

Information risk can be reduced through any one of the following except

A.having the user share information risk with management.
B.having the chief financial officer certify and sign-off on the financial statements.
C.providing audited financial statements to users.
D.having the user verify the information.

Answer 14

b)

Question 15

Blader Ng. Inc. has recently placed new air-cleaning systems in their smokestacks to meet air quality regulations. An auditing firm has been engaged to assess air quality and compare results to legislated requirements. What type of audit or engagement is the auditor​ conducting?

A.compliance
B.financial statement
C.review
D.operational

Answer 15

a)

Question 16

The underlying conditions that create demand by users for reliable financial information include the fact that

A.there is a need for the expression of an opinion as to the fairness of financial statements.
B.governments rely on such information to create tax policies.
C.users are separated from accounting records by distance and time.
D.more reliable information will allow investors to calculate the rate of return on their investment.

Answer 16

c)

Question 17

What is the most appropriate method for an organization to lower information risk related to its financial​ statements?

A.Have an independent financial statement audit conducted.
B.Have an independent operational audit conducted on effectiveness.
C.Use a high quality software package to keep track of information.
D.Have good bookkeeping work completed on the accounts.

Answer 17

a)

Question 18

What impact is the presence of factors such as real-time information​ (such as via the​ Internet) expected to have upon the demand for assurance​ services?

A.Demand is expected to decline due to the lack of adequate resources.
B.Demand is expected to decline as small businesses use the Internet more.
C.Demand is expected to grow due to the need for forward-looking information.
D.Demand is expected to grow due to the increase in large corporations.

Answer 18

c)

Question 19

An example of a forensic accounting assignment might be

A.ensuring compliance with specific legislation.
B.determining whether overall financial statements are stated in conformity with IFRS.
C.evaluating the effectiveness of an internal process.
D.estimating the value of inventory lost in a warehouse theft.

Answer 19

d)

Question 20

Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making. Joe is performing

A.management consulting.
B.accounting.
C.review.
D.auditing

Answer 20

b)

Question 21

The third step of performance responsibility standard in the financial statement audit using a risk assessment approach is to

A.ensure adequate planning and supervision.
B.evaluate audit evidence.
C.determine and apply materiality levels.
D.identify risks of material misstatement

Answer 21

d)

Question 22

Farah is currently auditing Software​ Synx, a public company. After a long day of​ work, Farah goes for a drink with her friend John who mentions that he owns shares of Software Synx. Farah indicates that John should hold on to his shares as they will go up next week when the financial statements are released and show an increase of​ 12% for revenues. Which element of quality control is compromised by​ Farah?

A.relevant ethical requirements
B.human resources
C.independence
D.engagement performance

Answer 22

a)

Question 23

During which phases of the financial statement audit does the auditor​ “conduct quality​ control” when using a risk assessment​ approach?

A.the risk assessments
B.the reporting process
C.the risk responses
D.performance and reporting phases

Answer 23

d)

Question 24

When the CPA Canada Handbook is silent on an auditing​ issue, which of the following is the best of the other authoritative sources that the auditor could​ use?

A.
audit firm practice manuals 
B.
Assurance and Related Services Guidelines​ (AuG)
C.
past practice at the client
D.
the PA​ firm's audit standards partner

Answer 24

b)

Question 25

Who do the external auditors and the internal auditors usually report​ to?

A.
senior management
B.
chief executive officer
C.
audit committee
D.
director of internal audit

Answer 25

c)

Question 26

Canadian Auditing Standards​ (CASs) require that an audit be conducted using

A.
a risk-assessment approach.
B.
a controls-testing approach.
C.
a standard approach.
D.
a substantive approach.

Answer 26

a)

Question 27

Professional skepticism during the financial statement audit requires an appropriate state of​ mind: being impartial and objective and continuing to be throughout the whole audit engagement. Which of the following illustrates an appropriate state of​ mind?

A.
not having any ownership in the​ client’s shares or being a debt-holder
B.
matching documents to make sure that they are accurate and fair
C.
carefully assessing documents and not being the​ company’s advocate
D.
being aware that there could be material misstatements in the financial statements

Answer 27

d)

Question 28

According to Canadian Standards on Quality Control​ (CSQC), which of the following is not one of the elements of quality​ control?

A.
monitoring
B.
leadership responsibilities
C.
consistency with prior years
D.
engagement performance

Answer 28

c)

Question 29

Jessica is a summer junior at Branes​ & Castle, a PA firm. Jessica has only completed three accounting courses in university and has not yet taken her auditing class. A team of auditors from Branes​ & Castle are starting an audit and Jessica was sent to help them. Jessica

A.
can perform work for the audit engagement on cycles where risk was assessed as low.
B.
can perform work for the audit engagement as long as she is supervised and proper review of her work is performed.
C.
should be limited to assisting the audit team with support functions such as photocopying and file assembly.
D.
should not perform any work pertaining to the audit engagement since she​ doesn’t have sufficient knowledge.

Answer 29

b)

Question 30

When the criteria to be used in the financial statement audit are​ established, the​ auditor’s responsibility is to

A.
evaluate the reporting framework used.
B.
create and document the framework used.
C.
make a recommendation to management for selecting the framework.
D.
select the acceptable financial reporting framework

Answer 30

a)

Question 31

A PA firm has an organizational structure that assures the technical review of every engagement by a partner who has expertise in the​ client’s industry. This is an example of good

A.
quality controls.
B.
adherence to professional standards.
C.
business risk management.
D.
entity-level controls.

Answer 31

a)

Question 32

The reason for adopting the CASs is to

A.
be consistent with the international standards of auditing.
B.
respond to the increased litigation risks faced by auditors.
C.
comply with requirements in the Canada Business Corporations Act.
D.
simplify the auditing process.

Answer 32

a)

Question 33

Adequate technical training and proficiency in auditing is a requirement of which category of generally accepted auditing​ standards?

A.
personal
B.
examination
C.
reporting
D.
quality control

Answer 33

a)

Question 34

Which standards relate to public accounting​ firms’ systems of quality​ control?

A.
Canadian auditing standards.
B.
Assurance and related services guidelines.
C.
Provincial securities commissions standards.
D.
Canadian standards on quality control.

Answer 34

d)

Question 35

The most authoritative requirements for public accountants performing financial statement audits in Canada are the

A.
standards used by the client.
B.
industry specific standards.
C.
assurance guidelines.
D.
CPA Canada Handbook requirements.

Answer 35

d)

Question 36

For a CPA working as a sole practitioner or working in a small public accounting​ office, the provincial practice inspectors will likely come to review audit files

A.
every five years.
B.
every year.
C.
every three years.
D.
​never: files are not reviewed in person.

Answer 36

c)

Question 37

CAS 200 explains that as part of general qualifications and​ conduct, the auditor should be professionally competent. Which of the following help the auditor achieve​ competence?

A.
having an objective state of mind and independence from the client
B.
using due care in the performance of all aspects of auditing
C.
conducting the audit using a risk-based approach and being skeptical
D.
having formal education and practical​ experience, and pursuing continuing education

Answer 37

d)

Question 38

A PA firm is conducting an audit of a public company that has operations in both Canada and Finland. There is a conflict between ISAs​ (International Statements on​ Auditing) and CASs​ (Canadian Auditing​ Standards) for the foreign operations that will be consolidated with the Canadian operations. Which reporting standards should the PA firm​ follow?

A.
Canadian reporting standards
B.
the best of Canadian or international standards
C.
Finnish reporting standards
D.
international financial reporting standards

Answer 38

d)

Question 39

Communicating the findings of the audit in accordance with CASs is a requirement of which category of generally accepted auditing​ standards?

A.
general
B.
performance
C.
reporting
D.
quality

Answer 39

c)

Question 40

The implementation of the Sarbanes-Oxley requirements in the U.S. resulted in the creation of the PCAOB to oversee listed​ companies’ auditors and develop audit standards. The impact of this requirement in Canada was

A.
additional training requirements for becoming an auditor.
B.
the creation of the CPAB to oversee Canadian audit professionals.
C.
the creation of new auditing standards to ensure better quality control for audits.
D.
revision to the rules of professional conduct for CPAs.

Answer 40

b)

Question 41

The responsibility for adopting a sound and appropriate financial reporting framework and corresponding accounting​ policies, maintaining adequate internal​ controls, and making fair representations in the financial statements rests

A.
with the auditor.
B.
equally with management and the auditor.
C.
with the internal audit department.
D.
with management.

Answer 41

d)

Question 42

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

A.
be an insurer of the fairness in the statements.
B.
provide reasonable assurance that material misstatements will be detected.
C.
be equally responsible with management for the preparation of the financial statements.
D.
be a guarantor of the fairness in the statements.

Answer 42

b)

Question 43

Your PA firm has just obtained a new client and you have been assigned the task of preparing the knowledge of business section of the file. Which of the following best describes the process of gathering the knowledge of business for a​ client?

A.
gathering information about the industry and regulatory environment
B.
examining the legal expenses file for possible regulatory infractions
C.
understanding the​ client’s business,​ industry, and regulatory environment
D.
discussing processes and business objectives with company employees

Answer 43

c)

Question 44

What is one of the first things that an auditor would do upon discovering an illegal act at an audit​ client?

A.
call the police
B.
consult with a lawyer
C.
inform the Board of Directors
D.
resign from the audit

Answer 44

b)

Question 45

​Often, numerous classes of transactions affect the ending balance of a particular general ledger account. This is handled during the audit engagement by

A.
testing only the ending​ balance, as this is the significant amount on the financial statements.
B.
using a combination of assurance for each class of transactions and for the ending balance.
C.
obtaining a high level of assurance for at least one of the transaction types.
D.
ensuring that tests are conducted for each class of transactions.

Answer 45

b)

Question 46

The reason auditors accumulate evidence is to

A.
defend themselves in the event of a lawsuit.
B.
justify the conclusions they have otherwise reached.
C.
satisfy the requirements of the relevant provincial securities regulations.
D.
enable them to reach conclusions about the fairness of the financial statements and issue an appropriate audit report.

Answer 46

d)

Question 47

Which of the following is an example of fraudulent financial reporting​ (management fraud)?

A.
the purchasing manager submitting travel expenses twice​ (i.e. duplicate​ payment)
B.
intentional overstatement of sales to increase reported earnings
C.
managers or others taking bribes from accounts payable suppliers
D.
a clerk taking cash at the time a sale is made and not recording the sale

Answer 47

b)

Question 48

There is agreement within the auditing profession and the courts that the auditor is
A.
an insurer but not a guarantor of financial statements.
B.
a guarantor but not an insurer of financial statements.
C.
both a guarantor and an insurer of financial statements.
D.
not a guarantor or insurer of financial statements.

Answer 48

d)

Question 49

CAS​ 330, the​ auditor’s response to assessed​ risks, explains that the auditor needs to link completed audit work to the assessed risks at the assertion level and

A.
perform substantive procedures in areas where there is a high risk of fraud.
B.
ensure that they test the entire population for areas that are considered to have a high risk of errors.
C.
have the reviewing partner sign off on the assessed risk.
D.
document the conclusions and results of the audit procedures.

Answer 49

d)

Question 50

Auditing standards regarding the detection of illegal acts clearly state that the auditor provides

A.
no assurance that they will be detected.
B.
the same reasonable assurance provided for other items.
C.
assurance that they will be​ detected, if highly material.
D.
assurance that they will be​ detected, if material

Answer 50

a)

Question 51

The requirement for an attitude of skepticism means that the auditor should

A.
not be blind to evidence that suggests the​ documents, books, or records have been altered or are incorrect.
B.
perform additional tests of controls to increase the probability of discovering fraud or errors.
C.
plan and conduct the audit with an attitude of distrust in management.
D.
not consider​ management’s explanation as evidence on any subject.

Answer 51

a)

Question 52

During the audit process​ steps, when will the auditor conduct tests of​ controls?

A.
if the auditor plans to rely upon them
B.
when a substantive audit approach is selected
C.
when there are low risks of material error
D.
when there are poor internal controls

Answer 52

a)

Question 53

If the auditor were responsible for making certain that all the assertions of management in the statements were​ correct,

A.
audits would not be economically practical.
B.
audits would be much easier to complete.
C.
bankruptcies would be reduced to a very small number.
D.
bankruptcies could no longer occur.

Answer 53

a)

Question 54

The purpose of the financial statement audit is to express an opinion on

A.
the accuracy of the financial statements.
B.
the annual report.
C.
the balance sheet and income statement.
D.
the fairness of the financial statements.

Answer 54

d)

Question 55

The audit process has seven categories of audit​ phases: the first two categories of the audit process​ are?

A.
client risk profile and plan the audit
B.
client acceptance and audit planning
C.
preplanning and tests of control
D.
preplanning and further audit procedures

Answer 55

b)

Question 56

Independence is assessed in the eyes of external users and regulators. Which of the following is a tool that helps the auditor identify whether the auditor is independent for a particular audit​ engagement?

A.
an audit risk model assessment for each engagement
B.
professional skepticism when assessing control risks
C.
completion of independence forms at time of employment
D.
an independence threat analysis

Answer 56

d)

Question 57

An investor suing an auditor for not discovering that the financial statements of a company were materially misstated is an example of

A.
fiduciary duty.
B.
third party liability.
C.
liability to client under common law.
D.
criminal liability.

Answer 57

b)

Question 58

The confidential relationship will be violated​ if, without the​ client’s permission, the public accountant provides working papers about a client to

A.
an investigative or disciplinary body of the relevant provincial institute that is conducting a review of the public​ accountant’s practice.
B.
the relevant provincial institute as part of a practice inspection.
C.
a court of law that subpoenas them.
D.
another public accounting firm that has just purchased the public​ accountant’s entire practice

Answer 58

d)

Question 59

Which of the following lawsuits resulted in a decision that shareholders could not sue the auditors for the loss in the value of their​ shares?

A.
Haig v. Bamford et al.​(1976)
B.
Hercules Management Ltd. v. Ernst​ & Young​ (1997)
C.
Ultramers Corporation v. Touche​ (1931)
D.
United States v. Anderson​ (2002)

Answer 59

b)

Question 60

When should a PA assess the five threats to independence with respect to an audit​ engagement?

A.
after a discussion with the Board of Directors
B.
after the completion of this​ year’s audit, before starting the next engagement
C.
after signing the engagement letter and before commencing field work
D.
when deciding to accept a client or whether to continue an existing engagement

Answer 60

d)

Question 61

PA was engaged by Microcomputer Distributor Limited​ (MDL) to conduct a review engagement. The financial statements are used primarily by the​ shareholders, management, and by the bank.​ Recently, an employee was fired for stealing computer​ parts, primarily chips and boards that could easily be placed in a pocket. MDL is suing PA because they believed that audit​ procedures, such as counting​ inventory, would have detected this fraud. What is​ PA’s best​ defence?

A.
contributory negligence
B.
absence of causal connection
C.
lack of negligence
D.
duty of care not required

Answer 61

d)

Question 62

When the users of financial statements have confidence in the independence of the public​ accountant, it is referred to as independence in

A.
fact.
B.
total.
C.
conduct.
D.
appearance.

Answer 62

d)

Question 63

The leading precedent-setting case in third-party liability was a 1931 U.S.​ case, Ultramares v. Touche. What is the key aspect of this​ case?

A.
There is no general auditor liability to​ shareholders, since the loss of equity was suffered by the company.
B.
To​ succeed, claimants must be foreseeable users of the audited financial statements that are part of the claim process.
C.
Ordinary negligence is insufficient for liability to third parties because of lack of privity of contract.
D.
The auditor must have actual knowledge of the users of the financial statements to establish privity.

Answer 63

c)

Question 64

A bank sues an auditor after having lost a significant amount of money from a loan granted to a client based on the financial statements that contained a material error. The source of the legal liability is

A.
liability under provincial securities law.
B.
known third party liability.
C.
criminal liability.
D.
client liability.

Answer 64

b)

Question 65

Formal frameworks have been developed to help people resolve ethical dilemmas. After obtaining the relevant facts and identifying the ethical issues from the​ facts, what is the next step in the five-step ethical framework described in the​ chapter?

A.
Identify who is affected and how each is affected.
B.
Identify the alternatives available to the person who must resolve the dilemma.
C.
Decide on the appropriate action to be taken in resolving the ethical dilemma.
D.
Identify the likely consequences of actions that will be taken.

Answer 65

a)

Question 66

​”Independence” in auditing means

A.
not being financially dependent on the client.
B.
being an advocate for the client.
C.
impartiality in performing professional services.
D.
remaining aloof from the client.

Answer 66

c)

Question 67

When public accountants are able to maintain an independent attitude in fulfilling their​ responsibility, it is referred to as independence in

A.
total.
B.
conduct.
C.
appearance.
D.
fact.

Answer 67

d)

Question 68

A public accountant would be facing an ethical dilemma when deciding whether or not to

A.
accept an invitation from the client to go golfing in order to maintain a good client relationship.
B.
participate in a charitable activity organized by the client.
C.
overlook a nonminusmaterial error in the financial statements.
D.
overlook a material overstatement of revenues to maintain a good client relationship.

Answer 68

d)

Question 69

Ethical dilemmas occur when

A.
a choice must be taken about appropriate behaviour.
B.
you know what you want to do but the rules say otherwise.
C.
a person chooses to act in​ his/her own interest.
D.
businesses disregard the laws and engage in illegal behaviour.

Answer 69

a)

Question 70

The Ultramares doctrine is that ordinary negligence is insufficient for liability of auditors to third parties because of the lack of privity of contract between the third party and the auditor. What type of behavior on the part of an auditor would result in liability to more general third parties according to this​ doctrine?

A.
completing work in accordance with a contract that was signed with the client.
B.
fraud or constructive fraud with respect to the working papers.
C.
conducting an audit engagement when a review engagement had been contracted.
D.
deliberate misstatement of the financial statements by management remaining undetected.

Answer 70

b)