Accounting Information Systems Auditing Exam Practice Tests
Course Introduction
Accounting Information Systems Auditing focuses on the principles, procedures, and practices involved in auditing computerized accounting systems. This course covers the assessment of risks, controls, and compliance in electronic data environments, emphasizing internal controls over financial reporting and information integrity. Students learn to evaluate system security, data accuracy, and transaction processing, while applying auditing frameworks and standards specific to information systems. Through case studies and hands-on exercises, students gain practical skills in using audit software and performing audits of accounting information systems to ensure reliability and safeguard organizational assets.
Recommended Textbook
Auditing Assurance Services A Systematic Approach 11th Edition by William F Messier Jr
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Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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Q1) The cost of capital can be generally defined as the rate of return expected by anyone who provides capital to a company (e.g., an investor or a bank). How can a financial statement audit reduce the cost of capital for a company?
Answer: An audit adds credibility to a company's financial statements. The audit reduces information risk, or the risk that information circulated by a company's management will be False or misleading. With reduced risk of poor information, anyone providing capital will have better information on which to base their capital decisions. This will lead to a lower cost to the company for obtaining capital.
Q2) Why do auditors generally use a sampling approach to evidence gathering?
A)Auditors are experts and do not need to look at much to know whether the financial statements are correct or not.
B)Auditors must balance the cost of the audit with the need for precision.
C)Auditors must limit their exposure to their auditee to maintain independence.
D)The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company.
Answer: B
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Chapter 2: The Financial Statement Auditing Environment
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Q1) The audit committee generally includes senior executives of the organization.
A)True
B)False
Answer: False
Q2) Describe the organizations involved in standard setting for auditors in the United States and what their respective roles are in setting current auditing standards for companies in the United States.
Answer: Most auditing standards were developed by the AICPA's Accounting Standards Board (ASB). At that time, the profession was self-regulated. However, the Sarbanes-Oxley Act of 2002 transferred the authority to set auditing standards for public company audits to the Public Company Accounting Oversight Board (PCAOB), which is overseen by the Securities and Exchange Commission (SEC). However, the PCAOB adopted the ASB's auditing standards on an interim basis. CPAs must still abide by the AICPA's Code of Professional Conduct at all times. They must also follow auditing standards set by the ASB when performing audits of private companies and other nonpublic entities. The ASB has replaced the 10 GAAS with a more comprehensive and coherent description of the principles underlying an audit conducted in accordance with generally accepted auditing standards.
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Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
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Sample Questions
Q1) BDK Accounting is auditing a new client, A La Carte Catering. BDK could save audit time by using work from A La Carte's internal audit staff. The staff consists of three accountants with public accounting experience and certification. A La Carte requires every member of its accounting department to spend two out of every five years on the internal audit staff. Then, the employee is rotated back into the accounting department for a couple of years. What factors should BDK consider when determining whether or not it can use work of the internal audit staff? In this case, what should BDK decide? Answer: The major issue for BDK is the competence and objectivity of the internal audit function and the effect of their work on the audit. A La Carte's internal audit staff seems competent, as all of its auditors are certified. However, BDK should seriously question how objective the audit staff is. All of the internal auditors are also associated with other positions within the company. Further, all of the auditors are from the accounting department, so none of them could objectively audit the accounting area they worked in. To maintain independence, BDK would not be able to use the work of the internal audit staff in place of BDK's work.
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Chapter 4: Risk Assessment
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Sample Questions
Q1) When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are:
A)susceptible to bias.
B)consistent with prior periods.
C)insensitive to variations.
D)similar to industry guidelines.
Q2) The objectives of the engagement partner's communication with the audit team include:
A)maintaining an adversarial atmosphere between the auditor and management.
B)complying with SEC rules.
C)complying with FASB rules.
D)emphasizing the importance of professional skepticism.
Q3) Engagement risk can be eliminated by:
A)establishing policies for client acceptance and continuance.
B)lowering audit risk.
C)lowering materiality.
D)Engagement risk cannot be eliminated.
Q4) What is the difference between audit risk and engagement risk?
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Chapter 5: Evidence and Documentation
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Q1) Which of the following types of documentary evidence should the auditor consider to be the most reliable?
A)A sales invoice issued by the entity and supported by a delivery receipt from an outside trucker.
B)Confirmation of an account payable balance mailed by and returned directly to the auditor.
C)A check issued by the company and bearing the payee's endorsement that is included with the bank statement mailed directly to the auditor.
D)A working paper prepared by the entity's controller and reviewed by the entity's treasurer.
Q2) The permanent audit file usually includes:
A)Working trial balance.
B)Organizational chart.
C)Audit plan.
D)Audit programs.
Q3) Auditors obtain evidence about the inventory account through, among other procedures, observing the counting of inventory. What are some limitations "observation" has as an audit procedure?
Q4) For an auditor, how are management assertions useful?
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Chapter 6: Internal Control in a Financial Statement Audit
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Q1) The concept of reasonable assurance in the context of an entity's internal controls recognizes that:
A)auditors may fail to detect material misstatements.
B)proper internal controls guarantee that material misstatements will not occur.
C)proper internal controls preclude fraud.
D)the costs of some controls may be too high to implement in relation to potential benefits.
Q2) Internal control includes monitoring of controls.
A)True
B)False
Q3) Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal controls?
A)Incompatible duties.
B)Management override.
C)Mistakes in judgment.
D)Collusion among employees.
Q4) Internal control consists of six components.
A)True
B)False
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Chapter 7: Auditing Internal Control Over Financial Reporting
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Q1) Which of the following audit procedures would an auditor be least likely to perform using a generalized audit software?
A)Searching records of accounts receivable balances for credit balances.
B)Investigating inventory for possible damaged goods.
C)Selecting accounts receivable for positive and negative confirmations.
D)Listing of unusually large inventory balances.
Q2) Most public companies must follow Sarbanes-Oxley requirements.
A)True
B)False
Q3) A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is:
A)a material weakness.
B)a significant deficiency.
C)an insignificant deficiency.
D)a probable deficiency.
Q4) Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency-likelihood and magnitude.
Q5) Discuss entity-level controls and provide examples of these types of controls.
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Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
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Q1) Which of the following best describes the distinguishing feature of statistical sampling?
A)It requires the examination of a smaller number of supporting documents.
B)It permits the auditor to use the most efficient sample size and to quantify the sampling risk to reach a statistical conclusion about the population.
C)It reduces the problems associated with the auditor's judgment concerning materiality.
D)It is evaluated in terms of two parameters: statistical mean and random selection.
Q2) Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical sampling helps the auditor:
A)measure the sufficiency of the evidential matter obtained.
B)eliminate the cost of training auditors in the proper use of sampling techniques.
C)reduce the level of tolerable misstatement to a relatively low amount.
D)minimize the failure to detect a material misstatement due to nonsampling risk.
Q3) Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?
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Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
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Q1) Haphazard selection allows the auditor to select items with bias.
A)True
B)False
Q2) What is one advantage and one disadvantage of classical variables sampling?
Q3) MUS Upper misstatement limit
A)an individual dollar
B)the total of the projected misstatement plus the allowance for sampling risk
C)the difference between monetary amounts in the entity's records and amounts supported by audit evidence
D)the account or transaction that contains the selected dollar
Q4) Which one of the following statements is true regarding two random samples, drawn in the same way, from the same population, one of size 30 and one of size 300?
A)The two samples are expected to have the same sample mean.
B)The larger sample is more likely to produce a large sample mean.
C)The smaller sample will have a smaller 95% confidence interval for the mean.
D)The smaller sample will, on average, produce a lower estimate of the variance of the population.
Q5) Summarize the concept behind monetary-unit sampling (MUS). How does MUS use attribute-sampling theory?
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Chapter 10: Auditing the Revenue Process
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Sample Questions
Q1) Which of the following is a test of controls for the transaction assertion of completeness for revenue?
A)Test a sample of sales invoices for authorized customer orders.
B)Review sales orders for proper credit approval.
C)Trace shipping documents to sales invoices and the sales journal.
D)Examine reconciliation of subsidiary ledger to general ledger control account.
Q2) What inherent risk factors should an auditor consider when auditing the revenue process of a computer manufacturer?
Q3) Assume an account receivable confirmation is returned with a note to the auditor describing a difference between your client's records and the customer's records. Clearly describe below two potential non-misstatement timing differences that could cause a discrepancy between a client's receivable records and his/her customer's records. The timing differences you describe should be such that after investigation you would determine that your client's receivable balance is not misstated due to these differences.
Q4) Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.
A)True
B)False
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Chapter 11: Auditing the Purchasing Process
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Q1) Identify whether the following tests are substantive analytical procedures, tests of details of transactions, or tests of details of account balances:
1)Test a sample of purchase requisitions for proper authorization.
2)Test transactions around year-end to determine if they are recorded in the proper period.
3)Review results of confirmation of selected accounts payable.
4)Compare payables turnover to previous years' data.
5)Obtain selected vendors' statements and reconcile to vendor accounts.
6)Compare purchase returns and allowances as a percentage of revenue or cost of sales to industry data.
Q2) An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all:
A)merchandise received.
B)vendors' invoices.
C)canceled checks.
D)receiving reports.
Q3) Describe three categories of expenses outlined in FASB Concept Statement No. 5.
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Chapter 12: Auditing the Human Resource Management Process
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Q1) If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.
A)True
B)False
Q2) A substantive test of transactions to test the completeness assertion includes:
A)tracing a sample of time sheets to the payroll register.
B)testing a sample of payroll checks for the presence of an authorized time sheet.
C)testing postings to the payroll register for a sample of payroll checks.
D)recomputing the accuracy of a sample of payroll checks.
Q3) An auditor would consider internal control over an entity's payroll procedures to be ineffective if the payroll department supervisor is responsible for:
A)hiring subordinate payroll department employees.
B)having custody over unclaimed paychecks.
C)updating employee earnings records.
D)applying pay rates to time tickets.
Q4) Give an example of a test of controls that could be used by an auditor to test for the following assertions: Occurrence, Accuracy, and Cutoff.
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Chapter 13: Auditing the Inventory Management Process
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Sample Questions
Q1) You are auditing SBT, which has a December 31 year-end. On December 24 , the person responsible for processing receiving reports and recording the receipt of inventory became very ill and was out of the office for a week. Due to the company's small staff and the holiday season, a number of the receiving reports were not processed on a timely basis. As an auditor, on which assertion would you place a high importance for this entity and how would you test for it?
Q2) For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?
A)Materials requisitions.
B)Production schedules.
C)Receiving documents.
D)Purchase orders.
Q3) Obsolete inventory should be written down to its current market value.
A)True
B)False
Q4) List five things an auditor should do during the observation of the physical count of inventory.
Q5) Explain the importance of observing physical inventory during an audit.
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Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
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Sample Questions
Q1) Excess of purchase price over identifiable assets
A)Artistic
B)Goodwill
C)Customer
D)Marketing
E)Technology
F)Contract
Q2) The auditor is most likely to seek information from the plant manager with respect to the:
A)adequacy of the provision for uncollectible accounts.
B)appropriateness of physical inventory observation procedures.
C)existence of obsolete machinery.
D)deferral or procurement of certain necessary insurance coverage.
Q3) Disposition of capital assets through sale, exchange, retirement, or abandonment are transactions that occur in the property management process.
A)True
B)False
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Q4) How do accounting standards regarding accounting for the impairment or disposal of long-lived assets affect the audit of property, plant, and equipment?
Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders' Equity, and Income
Statement Accounts
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Q1) Overall analysis of income statement accounts may bring to light errors, omissions, and inconsistencies not disclosed in the overall analysis of balance sheet accounts. The income statement analysis can best be accomplished by comparing:
A)income statement ratios to balance sheet ratios.
B)revenue and expense account balances to the monthly reported net income.
C)income statement ratios to published industry averages.
D)revenue and expense account totals to the corresponding figures of the preceding years.
Q2) Which of the following is an important consideration of an auditor when examining the stockholders' equity section of an entity's balance sheet?
A)Changes in the capital stock account are verified by an independent stock transfer agent.
B)Stock dividends and/or stock splits during the year under audit were approved by the stockholders.
C)Stock dividends are capitalized at par or stated value on the dividend declaration date.
D)Entries in the capital stock account can be traced to a resolution in the minutes of the board of directors' meetings.
Page 17
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Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
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Q1) The least crucial element of internal control over cash is:
A)separation of cash record-keeping from custody of cash.
B)preparation of the monthly bank reconciliation.
C)batch processing of checks.
D)separation of cash receipts from cash disbursements.
Q2) Of the following, which is the most efficient audit procedure for verification of interest earned on bond investments?
A)Tracing interest declarations to an independent record book.
B)Recomputing interest earned using the interest rate and bond amount.
C)Confirming the interest rate with the issuer of the bonds.
D)Vouching the receipt and deposit of interest checks.
Q3) An interbank transfer schedule:
A)is another name for the proof of cash.
B)helps the auditor test for kiting.
C)is on a standard bank confirmation.
D)is used to examine entity bank reconciliations.
Q4) Explain how cash plays a role in all business processes.
Q5) What should an auditor look for when testing for proper classification and presentation of securities?
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Chapter 17: Completing the Audit Engagement
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Q1) Communications between the auditor and those charged with governance should include all of the following except:
A)a summary of specific audit procedures used.
B)a summary of uncorrected misstatements.
C)consultations with other accountants.
D)major issues discussed with management before the auditor was retained.
Q2) From the list below, select the procedures that an auditor would use to test for contingent liabilities.
a. Inquire of SEC officials regarding reported violations by the entity that create claims.
b. Read the entity's contracts, loan agreements, leases, and other documents.
c. Read the entity's minutes of meetings of shareholders, directors, and committees.
d. Request a representation letter from all the entity's employees.
e. Read the legal briefs of all suits filed against the entity's competitors.
f. Request the entity's management to prepare a letter of inquiry to the entity's attorney regarding pending litigation against the entity.
Q3) What is the difference between a contingent liability and a commitment?
Q4) State the two primary purposes of the management representation letter.
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Chapter 18: Reports on Audited Financial Statements
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Q1) A going concern issue requires an explanatory paragraph to be added to the standard unqualified audit report (public company).
A)True
B)False
Q2) When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover:
A)both years.
B)only the current year.
C)only the current year, but the prior year's report should be presented.
D)only the current year, but the prior year's report should be referred to.
Q3) When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n):
A)"subject to" qualified opinion.
B)disclaimer of opinion.
C)adverse opinion.
D)unqualified opinion with a separate explanatory/emphasis-of-matter paragraph.
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Chapter 19: Professional Conduct, Independence, and Quality Control
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Q1) Why do professions establish codes of conduct that define ethical behaviors for members of the profession?
Q2) What is a purpose of the acceptance and continuance of client relationships and specific engagements element of quality control?
A)Guarantee that firms do not associate with clients whose management lacks integrity.
B)Provide reasonable assurance that firms do not associate with clients whose management lacks integrity.
C)Guarantee that firms will not be sued as a result of association with a client.
D)Provide reasonable assurance that firms will not be sued as a result of association with a client.
Q3) A CPA firm would be reasonably assured of meeting its overall responsibility to provide services that conform with professional standards by:
A)adhering to generally accepted accounting principles.
B)implementing an appropriate system of quality control.
C)joining professional societies that enforce ethical conduct.
D)maintaining an attitude of independence in its engagements.
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Chapter 20: Legal Liability
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Q1) An auditor can be sued by a third party under statutory law for willful violation of federal statutes.
A)True B)False
Q2) To prevail in a suit alleging negligence, a third party must prove that the auditor had a duty to the auditor's client to exercise due care.
A)True B)False
Q3) West & Company, CPAs, was engaged by Sand Corporation to audit its financial statements. West issued an unqualified opinion on Sand's financial statements. Sand has been accused of making negligent misrepresentations in the financial statements that Reed relied upon when purchasing Sand's stock. West was not aware of the misrepresentations and was not negligent in performing the audit. If Reed sues West for damages based on Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934, West will:
A)lose, because the statements contained negligent misrepresentations.
B)lose, because Reed relied upon the financial statements.
C)prevail, because some element of scienter must be proved.
D)prevail, because Reed was not in privity of contract with West.
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Chapter 21: Assurance, Attestation, and Internal Auditing Services
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Q1) Which of the following are prospective financial statements upon which an accountant may appropriately report for general use?
A)Pro forma financial statements.
B)Financial projections.
C)Partial presentations.
D)Financial forecasts.
Q2) In performing an attestation engagement, a CPA typically:
A)supplies litigation support services.
B)assesses control risk at a low level.
C)expresses a conclusion about an assertion.
D)provides management consulting advice.
Q3) How has the advancement in technology led to the creation of the Trust Services?
Q4) The International Professional Practices Framework developed by the IIA includes all of the following types of guidance, except:
A)International Standards for the Professional Practice of Internal Auditing.
B)Interpretations of Standards.
C)Code of Ethics.
D)Implementation Guidance.
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