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Advanced Auditing delves into the complex principles and techniques relevant to the modern audit environment, building on foundational auditing concepts. The course explores advanced topics such as risk assessment, audit planning, internal controls evaluation, forensic auditing, and auditing in IT environments. Emphasis is placed on auditing standards, ethical considerations, and regulatory frameworks affecting audit practice. Students will engage in case studies and practical scenarios to develop their analytical skills and judgement in addressing sophisticated auditing challenges, preparing them for professional roles in public accounting, internal auditing, and corporate governance.
Recommended Textbook
Auditing and Assurance Services 17th edition by Alvin A. Arens
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3526 Verified Questions
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Sample Questions
Q1) Which of the following audits can be regarded as generally being a compliance audit?
A) IRS agents' examinations of taxpayer returns
B) GAO auditor's evaluation of the computer operations of governmental units
C) an internal auditor's review of a company's payroll authorization procedures
D) a CPA firm's audit of a public company
Answer: A
Q2) 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
Q3) A high, but not absolute, level of assurance is called
A) probable assurance.
B) reasonable assurance.
C) limited assurance.
D) incomplete assurance.
Answer: B

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Sample Questions
Q1) Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures?
A) considering audit risk and materiality
B) using statistical sampling techniques
C) assigning appropriately experienced personnel to engagements
D) complying with laws and regulations
Answer: C
Q2) In 2017, the American Institute of CPAs joined with which of the following to form the Association of International Certified Public Accountants?
A) the Chartered Institute of Management Accountants
B) the Securities and Exchange Commission
C) the Public Accounting Oversight Board
D) the Japanese Institute of Certified Public Accountants
Answer: A
Q3) Many small, local accounting firms perform audits as their primary service to their clients.
A)True
B)False
Answer: False
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Sample Questions
Q1) If most or all users' decisions that are based on the financial statements are likely to be significantly affected, the materiality level is
A) unrestricted.
B) material.
C) pervasive.
D) risky.
Answer: C
Q2) Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a
A) disclaimer of opinion in all cases.
B) qualification of both scope and opinion in all cases.
C) disclaimer of opinion whenever materiality is in question.
D) qualification of both scope and opinion whenever materiality is in question.
Answer: C
Q3) Client imposed restrictions on the audit always require a disclaimer of opinion.
A)True
B)False
Answer: False
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Q1) The AICPA Code of Conduct includes a conceptual framework approach for the member to evaluate threats to compliance with the Code. List the three steps necessary to evaluate the threats.
Q2) Under the Sarbanes-Oxley Act, the audit committee of a public company
A) must meet on a monthly basis.
B) must be comprised entirely of financial experts.
C) is responsible for the oversight of the work of the independent auditor.
D) should have at least one independent member.
Q3) Which of the following is a prescribed set of moral principles or values?
A) codes of business ethics for professional groups
B) laws and regulations
C) codes of conduct within an organization
D) all of the above
Q4) Professionals are expected to conduct themselves at a higher level than most other members of society.
A)True
B)False
Q5) A CPA firm may use any name as long as it is not misleading.
A)True
B)False

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Sample Questions
Q1) The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the
A) prudent person concept.
B) common law doctrine.
C) constructive care concept.
D) vigilant person concept.
Q2) Under the laws of agency, partners of a CPA firm may be liable for the work of others on whom they rely. This would not include
A) employees of the CPA firm.
B) employees of the audit client.
C) other CPA firms engaged to do part of the audit work.
D) specialists employed by the CPA firm to provide technical advice on the audit.
Q3) If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of A) contract fraud.
B) breach of contract.
C) constructive fraud.
D) criminal neglect.
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Sample Questions
Q1) One of the characteristics of professional skepticism is ________, which is a desire to investigate beyond the obvious.
A) self-esteem
B) an interpersonal understanding
C) a search for knowledge
D) a questioning mindset
Q2) When an auditor is determining what information to include in the notes to the financial statements relating to bonds payable, he or she is concerned with the transaction-related audit objectives.
A)True
B)False
Q3) Recent academic research on the topic of professional skepticism suggests that there are six characteristics to skepticism. List and briefly describe each of these characteristics.
Q4) Auditors often convince themselves that they only accept clients they can trust and who have high integrity.
A)True
B)False
Q5) List the four phases of a financial statement audit.
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Sample Questions
Q1) Since confirmation replies and copies of client agreements are not considered schedules in the usual sense, they are not indexed and filed.
A)True
B)False
Q2) Financial ratios
A) are used during the planning and final review phases of the audit.
B) can be linked to the trial balance so that calculations are automatically updated as adjustments are made.
C) should be compared to previous years and industry averages.
D) all of the above.
Q3) The type of audit evidence known as inquiry requires the auditor to obtain oral or written information from the client in response to questions.
A)True
B)False
Q4) All evidence must have the same level of persuasiveness.
A)True
B)False
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Q1) When a successor auditor requests information from a company's previous auditor, and there are legal problems or disputes between the client and the predecessor auditor, the predecessor auditor's response to the new auditor may be limited to stating that no information will be provided.
A)True
B)False
Q2) There are three primary reasons for obtaining a thorough understanding of the client's industry and external environment. What are these reasons?
Q3) Materiality does not depend on the decisions of users who rely on the statements to make the decisions.
A)True
B)False
Q4) When selecting staff for the audit engagement,
A) only staff members who are CPAs should be assigned to the audit.
B) only managers and above need to have appropriate competence and capabilities to perform the audit.
C) continuity of staff members from year to year should not be a factor.
D) staff assigned to the audit must be knowledgeable about the client's industry.
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Sample Questions
Q1) The most important element of the audit risk model is control risk.
A)True
B)False
Q2) The risk of material misstatement is a combination of two client-controlled factors: inherent risk and control risk. What is inherent risk and why is it important? Give examples of inherent risk factors.
Q3) As management is responsible for the financial statements, failure to assess the risk of material misstatement is not detrimental to the auditor.
A)True
B)False
Q4) Performance materiality impacts inherent risk and control risk.
A)True
B)False
Q5) As control risk increases, the amount of substantive evidence the auditor plans to accumulate should increase.
A)True
B)False
Q6) Describe the audit risk model and each of its components.
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Sample Questions
Q1) With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?
A) PCAOB
B) audit committee
C) an appropriate level of management that is at least one level above those involved
D) the internal auditors
Q2) Upon discovering information that indicates a material misstatement due to fraud, the auditor must assume that the misstatement is an isolated incident.
A)True
B)False
Q3) Management, not the board of directors, is responsible for setting the "tone at the top" for ethical behavior in the company.
A)True
B)False
Q4) Most auditors will encounter a material fraud during their auditing careers.
A)True
B)False
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Sample Questions
Q1) Parallel testing can be used in combination with pilot testing to test new systems.
A)True
B)False
Q2) An auditor should consider two key issues when obtaining an understanding of a client's internal controls. These issues are
A) the effectiveness and efficiency of the controls.
B) the frequency and effectiveness of the controls.
C) the design and operating effectiveness of the controls.
D) the implementation and operating effectiveness of the controls.
Q3) It is possible, under certain circumstances, for financial statements to correctly reflect GAAP or IFRS even if internal controls over financial reporting are inadequate.
A)True
B)False
Q4) Even without an effective control environment, it is likely that the other four components of the COSO framework can result in effective internal controls.
A)True
B)False
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Sample Questions
Q1) The auditor will issue an unqualified opinion on internal control over financial reporting when
A) there are no identified material weaknesses as of the end of the fiscal year.
B) there have been no restrictions on the scope of the auditor's work.
C) both a and b
D) either a or b
Q2) When making a preliminary assessment of control risk, the starting point for most auditors is
A) IT assessment controls.
B) assessment of entity level controls.
C) transaction-related controls.
D) fraud controls.
Q3) The assessment of control risk does not impact the testing of controls.
A)True
B)False
Q4) Describe three computer auditing techniques available to the auditor.
Q5) Discuss the advantages and benefits of using generalized audit software.
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Q6) The text suggested a five-step approach to identify deficiencies, significant deficiencies, and material weaknesses. Describe this approach.

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Q1) For automated controls, the auditor's procedures to determine whether the automated control has been implemented may also serve as the test of that control.
A)True
B)False
Q2) Tests of controls should be performed after substantive tests of transactions.
A)True
B)False
Q3) Auditing standards require a written audit program.
A)True
B)False
Q4) Collectively, procedures performed to obtain an understanding of the entity and its environment, including internal controls, represent the auditor's
A) audit strategy.
B) tests of controls.
C) risk assessment procedures.
D) tests of transactions.
Q5) Inherent risk can be extended to individual balance-related audit objectives. A)True
B)False
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Q1) Tracing from source documents to the journal is useful for testing the existence objective.
A)True
B)False
Q2) The preparation of a sales invoice is the final step in the sales and collection cycle.
A)True
B)False
Q3) Which of the following is not one of the five classes of transactions included in the sales and collection cycle?
A) sales returns and allowances
B) write-off of uncollectible accounts
C) bad debt expense
D) interest income
Q4) When auditing sales returns and allowances, tests performed by the auditor are usually focused on whether the returns and the allowances were appropriately authorized and approved, internally, by proper personnel working.
A)True
B)False
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Sample Questions
Q1) Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?
A) Review sales transactions for large and unreasonable amounts.
B) Observe whether the duties of the accounts receivable clerk are separate from handling cash.
C) Examine a sample of duplicate sales invoices for credit approval by the credit manager.
D) Review the aged schedule of accounts receivable to determine if receivables from officers are included.
Q2) Which of the following is one of the main differences between attributes sampling and nonstatistical sampling?
A) the number of steps involved
B) the calculation of the initial sample sizes
C) determining the objectives of the audit test
D) defining the population
Q3) Tolerable exception rate (TER) is inversely related to sample size.
A)True
B)False
Q4) List the two ways auditors can control sampling risk.
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Q1) For most audits, a proper cash receipts cutoff is less important than either the sales or the sales returns and allowances cutoff since cash only affects the balance sheet, and not earnings.
A)True
B)False
Q2) Auditors must maintain control of confirmations until they are returned from the customer.
A)True
B)False
Q3) When determining the timing of the accounts receivable confirmations, A) the receivables cannot be confirmed at an interim date.
B) if accounts receivable are confirmed before year-end, the auditor typically prepares a roll-forward schedule.
C) if the receivables are confirmed at an interim date, they must also be confirmed at year-end.
D) if internal controls are adequate, the accounts receivable must be confirmed at year-end.
Q4) List three of the major factors affecting sample size for confirming accounts receivable.
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Sample Questions
Q1) Estimated misstatement in the population and sample size are inversely related; that is, as estimated misstatement increases, sample size decreases.
A)True
B)False
Q2) When errors are found in a sample, auditors in practice generally assume
A) that the population errors cannot be determined.
B) that the population errors are larger than the sample errors.
C) that the population errors are smaller than the sample errors.
D) that the actual sample errors are representative of the population errors.
Q3) The auditor is concerned with the audited value rather than the misstatement amount of each item in the sample when using
A) difference estimation.
B) mean-per-unit estimation.
C) ratio estimation.
D) monetary unit sampling.
Q4) In stratified sampling, a maximum of four stratum can be used.
A)True
B)False
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Q1) Which of the following is not one of the classes of transactions in the acquisition and payment cycle?
A) acquisition of common stock
B) acquisition of goods and services
C) cash disbursements
D) purchase returns and allowances and purchase discounts
Q2) At what point in the acquisition and payment cycle do most companies first recognize the acquisition and related liability on their records?
A) when the purchase requisition is received by the accounting department
B) when the purchase order is prepared
C) when the company receives the invoice from the vendor
D) when the company receives the goods or services from the vendor
Q3) An auditor is using audit sampling to test transactions in the acquisition and payment cycle. She would normally set the tolerable exception rate at what level?
A) Low
B) Medium
C) High
D) Indeterminate

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Questions
Q1) Which of the following accounts is not associated with the acquisition and payment cycle?
A) common stock
B) property, plant and equipment
C) accrued property taxes
D) income tax expense
Q2) The auditor should keep in mind that the amount in insurance expense is a residual amount.
A)True
B)False
Q3) The audit procedure that requires an auditor to "foot the acquisition schedule" relates to which balance-related audit objective?
A) classification
B) detail tie-in
C) existence
D) cut-off
Q4) State four of the seven specific balance-related audit objectives for property, plant, and equipment additions and, for each objective, describe one common test of details of balances.
21
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Sample Questions
Q1) If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?
A) Account for a sequence of payroll checks.
B) Examine the procedures manual and observe the recording of transactions.
C) Examine the payroll records for indication of pay rate approval.
D) Reconcile the payroll bank account.
Q2) Most companies, with the exception of small ones, have effective controls over the payroll cycle.
A)True
B)False
Q3) When the auditor compares the cancelled check or direct deposit with the payroll journal for amount, they are concerned with the transaction-related audit objective of A) occurrence.
B) accuracy.
C) classification.
D) timing.
Q4) How do auditors commonly verify sales commission expense?
Q5) What events initiate and terminate the payroll and personnel cycle?
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Sample Questions
Q1) Explain why the audit of work in process and finished goods inventory is generally more complex than the audit of purchased inventory.
Q2) Which of the following is an accurate statement regarding perpetual inventory master files?
A) When perpetual inventory master files are accurate, auditors can test the physical inventory after the balance sheet date.
B) It is a difficult procedure for the auditor to test the accuracy of the perpetual inventory master files.
C) Auditors test the perpetual records for reductions in finished goods for sale as part of the sales and collection cycle.
D) All of the above are accurate statements.
Q3) Inventory items such as jewels, chemicals, and electronic parts are easy for auditors to observe and to value.
A)True
B)False
Q4) Accounting standards require disclosure of inventory valuation methods.
A)True
B)False
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Q1) Name some of the auditing procedures the auditor should consider in auditing hybrid financial instruments.
Q2) Most closely held corporations have numerous transactions during the year for capital stock accounts.
A)True
B)False
Q3) The capital acquisition and repayment cycle does not include
A) payment of interest.
B) payment of dividends.
C) payment of vendor invoices.
D) acquisition of capital through interest-bearing debt.
Q4) If a legal relationship exists between the client and the holder of bonds, the auditor must determine if the client has met the requirements of the bondholder agreement.
A)True
B)False
Q5) List the four characteristics of the capital acquisition and repayment cycle that make it unique from other cycles.
Page 24
Q6) Discuss the overall objectives of the audit of notes payable.
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Sample Questions
Q1) Completeness is an important objective for derivative financial instruments.
A)True
B)False
Q2) The process of transferring money from one bank account to another and improperly recording the transaction is referred to as A) kiting.
B) lapping.
C) scamming.
D) embezzling.
Q3) The audit procedure which requires the auditor to record the last check number used on the last day of the year and subsequently trace to the outstanding checks and the cash disbursements records is performed to satisfy the audit objective of A) detail tie-in.
B) existence.
C) completeness.
D) cutoff.
Q4) Tests for kiting are performed using only a schedule of intrabank transfers.
A)True
B)False
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Sample Questions
Q1) Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least
A) one quarter beyond the balance sheet date.
B) one quarter beyond the date of the auditor's report.
C) one year beyond the balance sheet date.
D) one year beyond the date of the auditor's report.
Q2) With what types of contingencies might an auditor be concerned?
Q3) The Securities and Exchange Commission has established regulations about the presentation of non-GAAP financial measures included in financial statements which include such measures should be relevant and reliable measures that do not mislead investors.
A)True
B)False
Q4) Accounting standards generally require the financial statements to be prepared on the assumption an entity will continue its operations for a reasonable amount of time.
A)True
B)False
Q5) State the three purposes of the management representation letter.
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Q1) As a CPA you have been asked to examine an entity's financial projections. Acceptance of the engagement would be appropriate if distribution is limited to
A) stockholders of record as of the date of the report.
B) potential investors and creditors by posting on the company's website.
C) general public by posting on the company's website.
D) a financial institution for which the company is negotiating a loan.
Q2) CPAs must be independent to issue a review report.
A)True
B)False
Q3) Current professional standards prohibit accountants from performing engagements to review forecasts or projections.
A)True
B)False
Q4) Because reviews, compilations, and preparation services provide the accountant with less assurance than audits, the accountant should establish an understanding with the client about the services to be performed through a written engagement letter.
A)True
B)False
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Q1) Companies employ their own internal auditors to perform operational auditing, but not financial auditing.
A)True
B)False
Q2) Professional guidelines for performing internal audits for companies are not as well-defined as for external audits.
A)True
B)False
Q3) Which of the following groups could be involved in an operational audit?
A) CPA firms
B) internal auditors
C) government auditors
D) All of the above could be involved.
Q4) Which one of the following is not a major difference between operational and financial auditing?
A) purpose of the audit
B) distribution of the report
C) testing the effectiveness of internal controls
D) inclusion of nonfinancial areas
Q5) Discuss three major differences between operational and financial auditing.
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