Advanced Auditing Exam Materials
Course Introduction
Advanced Auditing builds upon foundational auditing principles to explore complex topics and practices in the field of auditing. This course examines advanced audit techniques, contemporary audit issues, and the application of auditing standards to a variety of entities including public companies, governments, and nonprofit organizations. Emphasis is placed on risk assessment, internal controls, fraud detection, analytical procedures, and the use of technology in audits. Students will also analyze current developments in auditing regulations, ethical considerations, and case studies reflecting real-world challenges faced by auditors.
Recommended Textbook
Auditing and Assurance Services Global 15th Edition by Alvin Arens
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26 Chapters
2742 Verified Questions
2742 Flashcards
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Page 2
Chapter 1: The Assurance Services Market
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47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/51813
Sample Questions
Q1) An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):
A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.
Answer: B
Q2) What is an engagement to attest on internal control over financial reporting?
Answer: For an audit of internal control over financial reporting,management asserts that internal controls have been developed and implemented following well established criteria.Section 404 of the Sarbanes-Oxley Act requires public companies to report management's assessment of the effectiveness of internal control over financial reporting.The Act also requires auditors for larger public companies to attest to the effectiveness of internal control over financial reporting.This evaluation,which is integrated with the audit of financial statements,increases user confidence about future financial reporting,because effective internal controls reduce the likelihood of future misstatements in the financial statements.
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3
Chapter 2: The Audit Standards Setting Process
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Within the context of quality control,the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with:
A) technical training that assures proficiency as a valuation expert.
B) professional education that is required in order to perform with due professional care.
C) knowledge required to fulfill assigned responsibilities.
D) knowledge required to perform a peer review.
Answer: C
Q2) Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit?
A) Possess appropriate competence and capabilities
B) Comply with ethical requirements
C) Plan work and supervise assistants
D) Maintain professional skepticism and exercise professional judgment
Answer: C
Q3) Membership in the AICPA is mandatory for all licensed practicing CPAs.
A)True
B)False
Answer: False
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4
Chapter 3: Audit Reports
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) Auditing standards require that the audit report must be titled and that the title must:
A) include the word "independent."
B) indicate if the auditor is a CPA.
C) indicate if the auditor is a proprietorship, partnership, or corporation.
D) indicate the type of audit opinion issued.
Answer: A
Q2) When a client fails to follow GAAP,the audit report can be unqualified,qualified,or adverse depending on the materiality.What factors affect materiality that an auditor should consider?
A) The dollar amount in comparison to a base
B) If the misstatement can be measured
C) The nature of the item
D) All the above are factors an auditor should consider regarding materiality.
Answer: D
Q3) The audit report date is the date the auditor completed audit procedures in the field.
A)True
B)False
Answer: True
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5
Chapter 4: Legal Liability Considerations for Auditors
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Under the Securities Exchange Act of 1934,which type of organization is required to submit audited financial statements to the SEC?
A) Every company with securities traded on national and over-the-counter exchanges
B) Every corporation
C) Every company issuing new securities
D) Every corporation which is chartered by a state government
Q2) An example of auditor legal liability to third parties under common law would be the federal government prosecuting an auditor for knowingly issuing an incorrect audit report.
A)True
B)False
Q3) Three approaches to the application of the foreseen users' concept are (1)the Credit Alliance approach,(2)the restatement of torts approach,and (3)the foreseeable user approach.Summarize each of these three approaches.
Q4) An important concept in contract law for accountants to understand is the "third-party beneficiary doctrine." Explain and give an example.
Q5) Distinguish between constructive fraud and fraud.
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Page 6
Chapter 5: Ethics and the Audit Profession
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The provisions of the Sarbanes-Oxley Act of 2002 are most likely to allow which of the following non-audit services for audit clients?
A) Appraisal or valuation services (e.g., pension, post-employment benefit liabilities)
B) Financial information systems design and implementation
C) Internal audit outsourcing
D) Tax consulting
Q2) Which of the following circumstances impairs an auditor's independence?
I.Litigation by a client against an audit firm claiming a deficiency in the previous audit
II.Litigation by a client against an audit firm related to tax services
III.Litigation by an audit firm against a client claiming management fraud or deceit
A) I and II
B) I and III
C) II and III
D) I, II, and III
Q3) Discuss Rule 301-Confidential Client Information,including the four exceptions to the rule.
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Chapter 6: Audit Responsibilities and Objectives
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
A) plan and perform the engagement with an attitude of professional skepticism.
B) not rely on internal controls that are designed to prevent or detect errors or fraud.
C) design audit tests to detect unrecorded transactions.
D) extend the work to audit the majority of the recorded transactions and records of an entity.
Q2) The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:
A) board of directors.
B) company management.
C) financial statement auditor.
D) company's internal audit department.
Q3) The term audit objective refers to all of the following except for:
A) transaction-related audit objectives.
B) presentation and disclosure-related audit objectives.
C) balance-related audit objectives.
D) cycle-related audit objectives.
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Chapter 7: Nature and Type of Audit Evidence
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) When using analytical procedures:
A) unusual fluctuations occur when significant unexpected differences between the current year's data and other data used in comparisons are found.
B) and no unusual fluctuations are noted, the possibility of material misstatement is increased.
C) "attention directing" indicates an area where fraud has occurred.
D) and no unusual fluctuations are noted, tests of details of balances can be eliminated,
Q2) To be considered reliable evidence,confirmations must be controlled by:
A) the client's employee responsible for accounts receivable.
B) the external auditor.
C) the client's internal audit department.
D) the client's controller or CFO.
Q3) Inspection consists of looking at a process or procedure being performed by others. A)True B)False
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9
Chapter 8: Audit Planning
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Auditors perform preliminary analytical procedures to better understand the client's business and to assess client business risk.
A)True
B)False
Q2) The auditor uses knowledge gained from the understanding of the client's business and industry to assess:
A) client business risk.
B) control risk.
C) inherent risk.
D) audit risk.
Q3) Management is the primary source for identifying client business risks. A)True
B)False
Q4) A 100 % audit risk is complete certainty.
A)True B)False
Q5) Many inherent risks are common to all clients in certain industries.
A)True
B)False
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Chapter 9: Considering Materiality and Audit Risk
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) The preliminary judgment about materiality and the amount of audit evidence accumulated are ________ related.
A) directly
B) indirectly
C) not
D) inversely
Q2) In a financial statement audit,inherent risk is evaluated to help an auditor asses which of the following?
A) The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee
B) The risk the internal control system will not detect a material misstatement of a financial statement assertion
C) The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion
D) The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls
Q3) Describe the audit risk model and each of its components.
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Chapter 10: Considering Internal Control
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) A company's size should have no impact on the nature of internal control and the controls that are implemented.
A)True
B)False
Q2) To issue an unqualified opinion on internal control over financial reporting,there must be no identified material weaknesses and no restrictions on the scope of the audit.
A)True B)False
Q3) When a company designs and implements internal controls,cost of the controls is not a valid consideration.
A)True
B)False
Q4) Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors.
A)True B)False
Q5) Certain principles dictate the proper design and use of documents and records.Briefly describe several of these principles.
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Chapter 11: Considering the Risk of Fraud
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93 Verified Questions
93 Flashcards
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Sample Questions
Q1) What types of inquiry techniques might an auditor use when making inquiries of client personnel?
What are the uses of each technique?
Q2) PCAOB Standard 5 states that fraud of any magnitude by senior management is at least a significant deficiency in internal controls.
A)True
B)False
Q3) Analytical procedures can be very effective in detecting inventory fraud.Which of the following analytical procedures would not be useful in detecting fraud?
A) Gross margin percentage
B) Inventory Turnover
C) Cost of sales percentage
D) Accounts receivable turnover
Q4) Auditors should rely on original,rather than duplicate,copies of documents.
A)True
B)False
Q5) Describe the sources of information gathered to assess fraud risks.
Q6) List and briefly describe the three conditions for fraud.
Q7) Define fraud and distinguish between the two main categories of fraud.
Page 13
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Chapter 12: Implications of Information Technology for the Audit Process
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Identify the three categories of application controls,and give one example of each.
Q2) What do auditing standards require when a company outsources some of their IT requirements to an independent computer service center?
Q3) Auditors should evaluate which of the following before evaluating application controls because of the potential for pervasive effects?
A) Input controls
B) Control environment
C) Processing controls
D) General controls
Q4) Controls which are designed to assure that the information processed by the computer is authorized,complete,and accurate are called:
A) input controls.
B) processing controls.
C) output controls.
D) general controls.
Q5) Describe three computer auditing techniques available to the auditor.
Q6) Discuss the advantages and benefits of using generalized audit software.
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Chapter 13: Developing the Overall Audit Plan and Audit Program
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94 Verified Questions
94 Flashcards
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Sample Questions
Q1) If tests of controls support the control risk assessment,then ________ in the audit risk model is increased.
A) planned detection risk.
B) planned inherent risk.
C) planned fraud risk.
D) planned assurance risk.
Q2) In accumulating final evidence upon which to base an audit opinion,the auditor should perform four activities.List the activities below.
Q3) Substantive tests of transactions and control tests are often conducted simultaneously.
A)True
B)False
Q4) A major part of the auditor's risk assessment procedures is done to obtain an understanding of internal control.
A)True
B)False
Q5) Discuss the purposes of (1)substantive tests of transactions,(2)tests of controls,and (3)tests of details of balances.Give an example of each.
Page 15
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Chapter
and Substantive Tests of Transactions
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) There should generally be correspondence in the client's file establishing the uncollectibility of their account.
A)True
B)False
Q2) When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger,purposefully enters cash received into the wrong customer's account that employee may be suspected of:
A) kiting.
B) lapping.
C) floating.
D) shorting.
Q3) Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?
A) Company personnel
B) Temporary employees in the town where the lockbox is located
C) Bank employees
D) Company controller
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Page 16
Chapter 15: Audit Sampling for Tests of Controls and
Substantive Tests of Transactions
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) An auditor plans to examine a sample of 40 canceled checks for a countersignature which is prescribed in the client's control procedures manual.Two of the checks in sample cannot be located by the company or the auditor.The auditor would most likely:
A) treat the missing checks as a deviation when evaluating the results of the sample.
B) draw a conclusion on a sample size of 38.
C) substitute two more checks to get to a sample size of 40.
D) recalculate the sample excluding the original 40 checks.
Q2) Directed sample selection,block sample selection,and haphazard sample selection are three types of probabilistic sample selection methods.
A)True
B)False
Q3) A sample of all items in a population will have a zero sampling risk.
A)True
B)False
Q4) What is the key advantage and disadvantage associated with systematic sample selection?
How must auditors address this disadvantage?
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Chapter 16: Completing the Tests in the Sales and
Collection Cycle: Accounts Receivable
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) The most important aspect of evaluating the client's method of obtaining a reliable cutoff is to:
A) perform extensive detailed testing of cutoff.
B) evaluate the client's control procedures around cutoff.
C) confirm a sample of transactions near period end with customers.
D) confirm transaction with customers.
Q2) Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable?
A) A review of the minutes of the board of directors' meetings
B) Discussions with the client
C) Confirmation of receivables
D) Examination of correspondence files
Q3) The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is:
A) confirmations.
B) recalculation of the aged receivables and uncollectible accounts.
C) tracing credit memos for returned merchandise to receiving room reports.
D) tracing from shipping documents to journals to the accounts receivable ledger.
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Chapter 17: Audit Sampling for Tests of Details of Balances
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Which of the following does not have to be considered in determining the initial sample size of a test of details?
A) Tolerable misstatement
B) Acceptable risk of incorrect rejection
C) Estimate of misstatements in the population
D) Acceptable audit risk
Q2) The method used to measure the estimated total error amount in a population when there is both a recorded value and an audited value for each item in the sample is:
A) difference estimation.
B) mean-per-unit estimation.
C) ratio estimation.
D) monetary unit sampling.
Q3) When dealing with variables sampling and sampling risk,it is important to understand that:
A) for variables sampling, auditors uses ARIA but not ARIR.
B) ARIR is of serious concern to the auditor because of potential legal implications.
C) ARIA is a one-tailed statistical test.
D) the confidence coefficients for ARIA are the same as the confidence level.
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19
Chapter 18: Audit of the Acquisition and Payment Cycle:
Tests of Controls, Substantive Tests of Transactions, and Accounts Payable
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Which one of the following duties should not be assigned the purchases department?
A) Finding the lowest cost vendor
B) Reviewing vendors' catalog descriptions and prices for standardized items
C) Designing the purchase order form
D) Authorizing the acquisition of goods
Q2) You are the in-charge auditor and are designing audit procedures for accounts payable.Which of the following management assertions would you normally be most concerned about?
A) Occurrence
B) Accuracy
C) Completeness
D) Existence
Q3) When an acquisition is on an FOB origin basis,the inventory and related accounts payable must be recorded in the current period if the goods were:
A) received prior to the balance sheet date.
B) shipped on or before the balance sheet date.
C) both shipped and received prior to the balance sheet date.
D) paid for in advance.
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Chapter 19: Completing the Tests in the Acquisition and Payment
Cycle: Verification of Selected Accounts
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following tests are typically not necessary when auditing a client's schedule of recorded disposals?
A) Footing the schedule
B) Tracing schedule totals to the general ledger
C) Tracing cost and accumulated depreciation of the disposals to the property master file
D) All of the above are necessary.
Q2) Which of the following is an analytical procedure to determine if there is idle equipment or equipment that was disposed of but not written off?
A) Compare depreciation expense divided by gross equipment cost with previous years.
B) Compare gross manufacturing cost divided by some measure of production with previous years.
C) Compare accumulated depreciation divided by gross equipment cost with previous years.
D) Compare annual repairs and maintenance accounts with previous years.
Q3) Describe the audit procedures used to verify the accuracy and detail tie-in objectives for prepaid insurance.
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Chapter 20: Audit of the Inventory and Warehousing Cycle
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Assume that the client's valuation of an inventory item is $10 per unit for 1,000 units,using first-in,first-out (FIFO).If the most recent acquisition of inventory was for 600 units at $10 per unit and the immediately preceding acquisition was for 700 units at $9 per unit,the inventory item is in error and it is:
A) understated $400.
B) understated $300.
C) overstated $400.
D) overstated $700.
Q2) Discuss the key control procedures relating to the client's physical count of inventory.
Q3) McKesson & Robbins Company is a well-known audit case involving auditor responsibility.What occurred at the McKesson & Robbins Company to change the way in which auditors audit inventory?
A) The company recorded nonexistent inventory.
B) The auditor did not perform any audit tests of the inventory.
C) The auditor and company colluded to overstate inventory balances.
D) The company counted inventory three months prior to year-end.
Q4) Discuss the auditor's responsibilities for inventory maintained in public warehouses or with other outside custodians.
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Page 22
Chapter 21: Audit of the Payroll and Personnel Cycle
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113 Verified Questions
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Sample Questions
Q1) A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period.This fraud would be detected if other controls were in place,such as having an independent party:
A) distribute paychecks.
B) recompute hours worked from time cards.
C) foot the payroll journal and trace postings to the general ledger and the payroll master file.
D) compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.
Q2) State the purpose and the information contained on the W-2 Form and on the payroll tax returns.
Q3) Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll?
A) Tests of controls
B) Tests of transactions
C) Analytical procedures
D) Tests of details of balances
Q4) How do auditors commonly verify sales commission expense?
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Which of the following is not an objective of the auditor's examination of notes payable?
A) To determine whether internal controls are adequate
B) To determine whether client's financing arrangements are effective and efficient
C) To determine whether transactions regarding the principal and interest of notes are properly authorized
D) To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated
Q2) A shareholders' capital stock master file is a record of the issuance and repurchase of capital stock over the life of the corporation.
A)True
B)False
Q3) The record of the outstanding shares at any given time is maintained in the:
A) corporate directory.
B) stock certificate books.
C) schedule of stock owners.
D) shareholders' capital stock master file.
Q4) Identify three analytical procedures commonly performed for notes payable.
Page 24
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) The starting point for the verification of the balance in the general bank account is to obtain:
A) a bank reconciliation from the client.
B) the client's cash account from the general ledger.
C) a cutoff bank statement directly from the bank.
D) the client's year-end bank statement.
Q2) Which of the following verifications would generally not be performed by the auditor in the month subsequent to the balance sheet date?
A) Foot the lists of all canceled checks, debit memos, deposits, and credit memos.
B) Verify the bank statement balances when the footed totals are used.
C) Verify the book statement balances tie to the cash receipts and disbursements journals for the year under audit.
D) Review the items included in the footings to make sure that they were cancelled by the bank
Q3) The three most important audit objectives for cash are accuracy,existence,and classification.
A)True
B)False
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Chapter 24: Audit Completion
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Sample Questions
Q1) Auditors,as part of completing the audit,will request the client to send a letter of inquiry to those attorneys the company has been consulting with during the year under audit regarding legal matters of concern to the company.The primary reason the auditor requests this information is to:
A) determine the range of probable loss for asserted claims.
B) corroborate of information supplied by management concerning litigation, claims, and assessments.
C) outside opinion of probability of losses in determining accruals for contingencies.
D) outside opinion of probability of losses in determining the proper footnote disclosure.
Q2) If the client refuses to prepare and sign a letter of representation,the auditor would be required to issue either a qualified opinion or a disclaimer of opinion.
A)True
B)False
Q3) Define the term contingent liability and discuss the criteria accountants and auditors use to classify these accounting events.
Q4) State the three purposes of the client letter of representation.
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Chapter 25: Other Assurance Services
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Sample Questions
Q1) Reports on agreed-upon procedures are intended to be distributed:
A) to only the involved parties, who would have the requisite knowledge about those procedures and the level of assurance resulting from them.
B) to only the involved parties, who would have the requisite knowledge about those procedures but not the level of assurance resulting from them.
C) to any party to whom the client wishes.
D) only to the stockholders of the client.
Q2) When performing an attestation engagement a CPA is required to adhere to the Statements on Standards for Attestation Engagements.Describe below the Standards of Field Work for attestation engagements.
Q3) In a WebTrust attestation engagement the client engages a CPA to provide what level of assurance that the company's website complies with Trust Services principles? A) absolute B) reasonable C) limited D) moderate
Q4) Briefly describe each of the five Trust Services principles.
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Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Sample Questions
Q1) A typical objective of an operational audit is to determine whether an entity's:
A) internal control is adequately operating as designed.
B) financial statements present fairly the results of operations.
C) specific operating units are functioning efficiently and effectively.
D) operational information is in accordance with generally accepted government auditing standards.
Q2) Internal auditors are responsible to:
A) the board of directors.
B) management.
C) both A and B.
D) neither A nor B.
Q3) Which of the following is most correct with regard to the comparison of the financial auditing standards of the Yellow Book with the principles of the AICPA auditing standards?
A) The same as
B) Quite different from C) Incompatible with
D) Consistent with
Q4) Discuss each of the three phases of an operational audit.
Page 28
Q5) Discuss each of the three broad categories (types)of operational audits.
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