Abby Mock Trial
Mastering Audit Practices
Test your knowledge on essential auditing principles with our comprehensive quiz! Designed for accounting professionals and students alike, this quiz covers a wide range of topics from assurance engagements to internal controls.
- 25 challenging questions
- Multiple choice format
- Instant feedback on your answers
In these engagements, the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users. The subject matter information is provided to the intended users in the assurance report.
Limited assurance engagements
Reasonable assurance engagements
Attestation engagements
Direct-reporting engagements
Which one of the following is not a key attribute needed to perform assurance?
Subject matter knowledge
Independence
Established criteria or standards
Accounting skills
Assurance services do not include which of the following?
Attesting to financial statements
Examination of the economy and efficiency of governmental operations
Evaluation of a division's performance for management
Tax preparation services
An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
Operational audit
Compliance audit
Financial statement audit
Production audit
The objective of an audit of the financial statements is an expression of an opinion on:
The fairness of the financial statements in all material respects.
The accuracy of the financial statements.
The accuracy of the annual report.
The accuracy of the balance sheet and income statement.
When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:
Include audit procedures which have a strong probability of detecting illegal acts.
Still include some audit procedures designed specifically to uncover illegalities.
Ignore the issue.
Make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.
An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:
Engage financial experts familiar with the nature of the business entity
Obtain a knowledge of matters that relate to the nature of the entity's business.
Refer a substantial portion of the audit to another CPA who will act as the principal auditor
First inform management that an unqualified opinion cannot be issued.
During audit planning, the auditor uses analytical procedures primarily to:
Identify weaknesses in internal control.
Determine if the company's financial statements appear reasonable and are free of material misstatement.
Determine the correspondence of the company's financial statements to the valuation and accuracy audit objectives.
Determine the nature, extent, and timing of audit procedures.
Which of the following best describes misstatements that are clearly trivial?
Misstatements in which the auditor is uncertain whether material or not material.
Matters that are of wholly different (smaller) order of magnitude than materiality will be mattersthat are clearly inconsequential, whether taken individually or in aggregate and whether judged by any criteria of size, nature or circumstances
Matters that are not material and are, therefore, misstatements that fall below the tolerable misstatement set by the auditor when performing variable sampling
Misstatements, including omissions, that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements
Which of the following would an auditor perform in order to develop an effective audit program?
Develop an understanding of the client's business and industry
Test specific financial statement accounts and balances
Obtain a management representation letter from the client management
Disregard related party transactions
Which of the following statements is most correct with respect to separation of duties?
A person who has temporary or permanent custody of an asset should account for that asset.
Employees who authorize transactions should not have custody of related assets.
Employees who open cash receipts should record the amounts in the subsidiary ledgers.
Employees who authorize transactions should have recording responsibility for these
An audit procedure that would most likely be used by an auditor in performing tests of control procedures in which the segregation of functions and that leaves no "audit" trail is:
Inspection
Observation
Reperformance
Reconciliation
Which of the following procedures would normally be performed by the auditor when making tests of payroll transactions?
Interview employees selected in a statistical sample of payroll transactions.
Trace number of hours worked as shown on payroll to time cards and time reports signed by the foreman
Confirm amounts withheld from employees' salaries with proper governmental authorities.
Examine signatures on paid salary checks
Two key concepts that underlie management's design and implementation of internal control are:
Costs and materiality
Absolute assurance and costs
Inherent limitations and reasonable assurance
Collusion and materiality
Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?
The auditor is responsible for the failure to detect fraud only when such failure clearly results from nonperformance of audit procedures specifically described in the engagement letter
The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud
The auditor is responsible for detecting material financial statement fraud, but not a material misappropriation of assets
The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued
The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must:
Be well documented and cross-referenced in the audit documents
Be based on sources that are external to company
Provide evidence that prove or disprove an audit objective/assertion.
Be persuasive enough to enable the auditor to issue an audit report.
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?
The auditor did not observe the entity's physical inventory and is unable to become satisfied about itsbalance by other auditing procedures
Conditions that cause the auditor to have substantial doubt about the entity's ability to continueas a going concern are not disclosed
There has been a change in accounting principles that has a material effect on the comparability of theentity's financial statements.
The auditor is unable to apply necessary procedures concerning an investor's share of an investee'searnings recognized on the equity method.
An auditor decides to issue a qualified opinion on an entity's financial statements because a major inadequacy in the entity's computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor's report should state that the qualification pertains to
A client-imposed scope limitation.
A departure from generally accepted auditing standards
The possible effects on the financial statements.
Inadequate disclosure of necessary information.
Which of the following is true with respect to a scope limitation?
The auditor can choose to issue an adverse opinion or disclaim an opinion
The auditor will generally issue a qualified opinion or disclaim an opinion
The auditor may not issue an unqualified opinion even if the auditor can compensate for the scope limitation by performing alternative procedures.
The auditor should withdraw from the engagement
Which of the following material events occurring after the issuance of an auditor's report would most likely cause the auditor to make further inquiries about the previously issued financial statements to determine if they may need to be restated?
An uninsured flood occurs that may affect the entity's ability to continue as a going concern
A major contingency is resolved that had been disclosed in the audited financial statements
New information is discovered leading the auditor to believe that lease transactions during the audit period should have been accounted for as capital rather than operating leases.
A subsidiary is sold that accounts for 25% of the entity's consolidated revenues.
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
Communications with the audit committee indicate a higher than normal rate of employee turnover
Usual trade credit from major suppliers has recently been restricted or denied
There are a significant number of related party transactions occurring
Plans to repurchase a large block of treasury stock have been delayed
Analytical procedures performed at the overall review stage of an audit appear to indicate that several accounts have unexpected balances and/or relationships. The result of these procedures most likely would indicate that
Internal control activities are not operating effectively.
The communications with the audit committee should be revised
Additional tests of account balances are necessary
Fraud exists among the relevant account balances involved.
When an auditor is faced with a material departure from GAAP that is so pervasive, the audit report should contain
An unqualified opinion
A qualified opinion with an explanatory paragraph
An adverse opinion
A disclaimer of opinion
An uncertainty regarding going concern but adequately disclosed would cause the auditor to issue:
Qualified opinion if the effect is not so material
Adverse opinion if the effect is so material
Unqualified opinion with emphasis of matter paragraph
Disclaimer of opinion if the effect is significantly material
Methods used to maintain an audit trail in a computerized environment include all of the following except
Transaction logs
Transaction Listings.
Data encryption
Log of automatic transactions
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