Advanced Auditing Test Questions
Course Introduction
Advanced Auditing delves into the complex concepts and practices underlying the external and internal audit process, focusing on risk assessment, audit planning, evidence collection, and advanced reporting techniques. The course explores audit methodologies, regulatory frameworks, ethical considerations, audit sampling, and contemporary issues such as fraud detection, forensic auditing, and the use of information systems in audits. Students will engage with case studies and real-world scenarios to critically analyze audit failures, apply professional judgment, and evaluate the effectiveness of internal controls. Emphasis is placed on developing analytical and communication skills needed for leadership roles in the auditing profession.
Recommended Textbook
Auditing and Assurance Services A Systematic Approach 10th Edition by William F Messier Jr
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1523 Verified Questions
1523 Flashcards
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Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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Sample Questions
Q1) Which of the following best describes the fundamental,underlying reason for why there is demand for an independent auditor to report on financial statements?
A) A management fraud may exist and it is more likely to be detected by auditors if they are independent.
B) Different interests may exist between the company preparing the statements and the parties using the statements.
C) A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated.
D) A poorly designed internal control system may be in place.
Answer: B
Q2) Conflicts of interest often occur between absentee owners and managers. A)True
B)False
Answer: True
Q3) Testing all transactions that occurred during the period is cost prohibitive. A)True
B)False
Answer: True
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Chapter 2: The Financial Statement Auditing Environment
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Sample Questions
Q1) The four PCAOB standards of reporting are concerned with all of the following except
A) The presentation of the financial statements based on GAAS.
B) The presentation of the financial statements based on GAAP.
C) Whether principles are consistently applied, whether all informative disclosures have been made, and the degree of responsibility the auditor is taking.
D) The degree of responsibility the auditor is taking.
Answer: A
Q2) An "in-charge" auditor typically holds the rank of A) Associate.
B) Senior.
C) Manager.
D) Partner.
Answer: B
Q3) PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.
A)True
B)False
Answer: False
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4
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
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Sample Questions
Q1) How would an auditor identify related parties and what is the importance of doing so?
Answer: Transactions between an entity and any related parties may not be made at "arm's length." Accordingly,the auditor must scrutinize such transactions and ensure proper disclosures regarding related parties are made in accordance with GAAP.The auditor can identify related parties by evaluating the client's procedures for identifying related parties,requesting a list of related parties from management and for publicly traded clients,and reviewing filings with the Securities and Exchange Commission and other regulatory agencies.It is important that the auditor attempts to identify all related parties during the planning phase of the audit so that the auditor can properly plan for evaluating transactions that may have occurred between the entity and any related parties.
Q2) Materiality is based only on a quantitative analysis of the financial statements.
A)True
B)False
Answer: False
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5
Chapter 4: Risk Assessment
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Sample Questions
Q1) The risk of material misstatement differs from detection risk in that it
A) Arises from the misapplication of auditing procedures.
B) May be assessed in either quantitative or qualitative terms.
C) Exists independently of the actions of the auditor.
D) Can be changed at the auditor's discretion.
Q2) Professional judgment must be used when evaluating business risk.
A)True
B)False
Q3) An auditor learns that a client's employee in control of inventory gets divorced and is responsible for paying a large amount of child support.All of the following for the audit of inventory likely are true except:
A) Fraud risk increases.
B) The risk of misappropriation of assets increases.
C) Risk of material misstatement increases.
D) Detection risk increases.
Q4) What is the difference between audit risk and engagement risk?
Q5) You are the senior on an audit of Two Be Gone,a large public company.The company recently completed an acquisition of its fifth largest competitor.What risks might this present? How will you,the auditor,respond to these risks (i.e.what actions should you take)?
Page 6
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Chapter 5: Evidence and Documentation
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Sample Questions
Q1) Stan is auditing First Financial Services and would like to use financial ratios to test the ability of First Financial Services to meet its current obligations.Identify two ratios that would help Stan in this task.Indicate how each ratio is calculated and what a high ratio would signify to Stan.
Q2) Which of the following best describes the primary purpose of audit procedures?
A) To detect all errors or fraudulent activities.
B) To comply with generally accepted accounting principles.
C) To gather corroborative evidence about management's assertions.
D) To verify the accuracy of the balance sheet account balances.
Q3) Which of the following nonfinancial information would an auditor most likely consider in performing analytical procedures during the planning phase of an audit?
A) Turnover of personnel in the accounting department.
B) Objectivity of audit committee members.
C) Square footage of selling space.
D) Management's plans to repurchase stock.
Q4) According to the text,what are the two functions of working papers?
Q5) Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
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Chapter 6: Internal Control in a Financial Statement Audit
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Sample Questions
Q1) An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the
A) Efficiency of management's decision-making process.
B) Appropriate prices that the entity should charge for its products.
C) Methods of assigning production tasks to employees.
D) Entity's ability to accurately process and summarize financial data.
Q2) An entity's IT infrastructure refers to
A) Hardware components.
B) Programmers.
C) Software.
D) Data provided by the system.
Q3) A limit test is a
A) Test to ensure that a numerical value does not exceed some predetermined value.
B) Check to ensure that the value in a field falls within an allowable range of values.
C) Check to ensure that the data in a field have the proper arithmetic sign.
D) Check on a field to ensure that it contains either all numeric or alphabetic characters.
Q4) Why might an auditor decide to test controls at an interim date?
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Chapter 7: Auditing Internal Control Over Financial Reporting
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Sample Questions
Q1) To obtain an understanding of significant processes and relevant subprocesses,auditors would be least likely to use which of the following techniques?
A) Reviewing management documentation.
B) Inquiry.
C) Scanning.
D) Transaction walkthroughs.
Q2) The main goal of auditing internal control is
A) To allow the auditor to fix any internal control deficiencies.
B) To form an opinion on the ability of internal controls to prevent fraud.
C) To assure management that internal control is preventing all material misstatements on the financial statements.
D) To evaluate the effectiveness of controls over all relevant financial statement disclosures in the financial statements.
Q3) In a public company,management's report on internal control must be signed by the members of the audit committee.
A)True
B)False
Q4) 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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Sample Questions
Q1) An underlying feature of random-based selection of items is that each
A) stratum of the accounting population be given equal representation in the sample.
B) item in the accounting population be randomly ordered.
C) item in the accounting population should have an opportunity to be selected.
D) item must be systematically selected using replacement.
Q2) With a nonstatistical sampling application,the auditor relies on professional judgment rather than the laws of probability to reach a conclusion about the audit test.
A)True B)False
Q3) Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls?
A) Number of items in the population.
B) Total dollar amount of the items to be sampled.
C) Desired confidence level.
D) Risk of assessing control risk too high.
Q4) A Type I error is the risk of incorrect acceptance.
A)True B)False
Page 10
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Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
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Sample Questions
Q1) After a sample is drawn randomly,the allowance for sampling risk must be statistically quantified within a specified level of confidence.
A)True
B)False
Q2) When auditing accounts payable using classical variables sampling,Sue finds evidence indicating that the account may be materially misstated.What are Sue's options?
Q3) Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling?
A) An estimate of the standard deviation of the population's recorded amounts is not required.
B) The auditor rarely needs the assistance of a computer program to design an efficient sample.
C) Inclusion of zero and negative balances generally does not require special design considerations.
D) Any amount that is individually significant is automatically identified and selected.
Q4) Describe two advantages and two disadvantages of monetary-unit sampling (MUS).
11
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Chapter 10: Auditing the Revenue Process
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Sample Questions
Q1) Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger?
A) Daily sales summaries are compared to daily postings to the accounts receivable ledger.
B) Each sales invoice is supported by a prenumbered shipping document.
C) The accounts receivable ledger is reconciled daily to the control account in the general ledger.
D) Each shipment on credit is supported by a prenumbered sales invoice.
Q2) To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment,the auditor would select a sample of transactions from the population represented by the
A) customer order file.
B) bills of lading file.
C) open invoice file.
D) sales invoice file.
Q3) Order entry is the initial function in the revenue cycle.
A)True
B)False
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Chapter 11: Auditing the Purchasing Process
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Sample Questions
Q1) An examination of the balance in the accounts payable account is ordinarily not designed to
A) determine that the amounts represent obligations of the company.
B) verify that accounts payable were properly authorized.
C) ascertain the reasonableness of recorded liabilities.
D) determine that all existing liabilities at the balance sheet date have been recorded.
Q2) Which of the following test(s)of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?
A) Test a sample of purchase requisitions for proper authorization.
B) Obtain selected vendors' statements and reconcile to vendor accounts.
C) Obtain listing of accounts payable and compare total to general ledger.
D) Review results of confirmations of selected accounts payable.
Q3) The auditor can often obtain sufficient appropriate evidence in the audit of a tax provision without the use of a specialist.However,several situations may indicate a need for the auditor to involve a tax specialist.Identify three of these situations.
Q4) The key inherent risk factors an auditor must consider when auditing the purchasing process are industry factors.Which two are most important and why?
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Chapter 12: Auditing the Human Resource Management Process
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Sample Questions
Q1) Tests of details of transactions are often conducted in conjunction with tests of controls.
A)True
B)False
Q2) Effective internal control over the payroll function would include which of the following?
A) Total time recorded on time-clock punch cards should be reconciled to job reports by employees responsible for those specific jobs.
B) Payroll Department employees should be supervised by the management of the Human Resource Department.
C) Payroll Department employees should be responsible for maintaining employee personnel records.
D) Total time spent on jobs should be compared with total time indicated on time clock punch cards.
Q3) 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
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Chapter 13: Auditing the Inventory Management Process
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Sample Questions
Q1) The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.
A)True
B)False
Q2) When the entity's perpetual inventory master files are inadequate,the auditor will probably choose to test the physical inventory prior to the balance sheet date.
A)True
B)False
Q3) The three components that make up the cost of producing a product include materials,direct labor,and indirect labor.
A)True
B)False
Q4) The auditor tests the quantity of materials charged to work in process by tracing these quantities to
A) cost ledgers.
B) perpetual inventory records.
C) receiving reports.
D) material requisitions.
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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) Which of the following is the most important control activity over acquisitions of property,plant,and equipment?
A) Establishing a written company policy distinguishing between capital and revenue expenditures.
B) Using a budget to forecast and control acquisitions and retirements.
C) Analyzing monthly variances between authorized expenditures and actual costs.
D) Requiring acquisitions to be made by user departments.
Q2) Property,plant,and equipment is often a significant portion of a company's assets.Describe the inherent risk factors that can affect the audit of this account.
Q3) If a periodic physical inventory of property,plant,and equipment is taken,the individual responsible for the inventory should be independent of the custodial and record-keeping functions.
A)True
B)False
Q4) An example of a prepaid account is prepaid interest.
A)True
B)False
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Q5) Identify the types of transactions that occur in the property management process.
Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders Equity, and Income
Statement Accounts
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Sample Questions
Q1) Identify the four major assertions made regarding stockholders' equity and describe one control activity for each.
Q2) Examining cancelled stock certificates addresses the assertion of A) occurrence.
B) disclosures.
C) valuation.
D) completeness.
Q3) The auditor gathers evidence about dividends that are declared and paid primarily because of A) concerns with violations of corporate bylaws or debt covenants.
B) the large dollar value of the transactions.
C) the ease with which the transactions can be audited. D) fraud concerns.
Q4) The repurchase of stock includes the reacquisition of stock (treasury stock),but not the retirement of stock.
A)True
B)False
A)True B)False Page 17
Q5) Notes receivable is a common type of long-term financing.
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Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
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Sample Questions
Q1) A company has additional temporary funds to invest.The Board of Directors decided to purchase marketable securities and assigned the future purchase and sale decisions to a responsible financial executive.The best person(s)to make periodic reviews of the investment activity authorized by that executive should be A) an investment committee of the Board of Directors.
B) the chief operating officer.
C) the corporate controller.
D) the treasurer.
Q2) What are the factors that must be considered to determine if a permanent decline in the value of an investment security has occurred?
Q3) Which of the following pairs of accounts would an auditor most likely analyze on the same working paper?
A) Notes receivable and interest income.
B) Accrued interest receivable and accrued interest payable.
C) Notes payable and notes receivable.
D) Interest income and interest expense.
Q4) Explain how cash plays a role in all business processes.
Q5) What should an auditor look for when testing for proper classification of securities?
Page 19
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Chapter 17: Completing the Audit Engagement
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Sample Questions
Q1) When considering the use of management's written representations as audit evidence about the completeness assertion,an auditor should understand that such representations
A) complement, but do not replace, substantive procedures designed to support the assertion.
B) constitute sufficient evidence to support the assertion when considered in combination with reliance on internal controls.
C) are not part of the evidential matter considered to support the assertion.
D) replace reliance on internal controls as evidence to support the assertion.
Q2) The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with
A) a description and evaluation of litigation, claims, and assessments that existed at the date of the balance sheet.
B) an expert opinion as to whether a loss is possible, probable, or remote.
C) the opportunity to examine the documentation concerning litigation, claims, and assessments.
D) corroboration of the information furnished by management concerning litigation, claims, and assessments.
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Chapter 18: Reports on Audited Financial Statements
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Sample Questions
Q1) Discuss the conditions that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit.
There are three circumstances that may require a departure from an unqualified/unmodified audit report:
1.Scope limitation.A scope limitation results from an inability to collect sufficient appropriate evidence,such as when management prevents the auditor from conducting an audit procedure considered necessary.
2.Departure from GAAP.The financial statements are affected by a departure from GAAP.
3.Lack of auditor independence.The auditor must comply with the second general standard and the Code of Professional Conduct in order to issue an unqualified/unmodified opinion.
Q2) Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?
A) Additional emphasis.
B) Lack of consistency in the financial statements due to accounting changes.
C) Going concern.
D) Opinion based in part on the report of another auditor.
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Chapter 19: Professsional Conduct,Independence,and Quality Control
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Sample Questions
Q1) The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to A) enable the CPA firm to attest to the reliability of the client. B) satisfy the CPA firm's duty to the public concerning the acceptance of new clients. C) minimize the likelihood of association with clients whose management lacks integrity. D) anticipate before performing any fieldwork whether an unqualified opinion can be expressed.
Q2) The rules contained in Section 1.100 cover issues relating to independence,integrity,and auditing standards.
A)True
B)False
Q3) Which professional and regulatory bodies establish the ethical and professional rules for auditors of: (1)public companies and (2)private companies?
Q4) Interpretations of Rules of Conduct are enforceable.
A)True
B)False
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Chapter 20: Legal Liability
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Sample Questions
Q1) The Sarbanes-Oxley Act of 2002 is considered the most sweeping securities law since the 1933 and 1934 Acts.Which item in the list below was not part of the Sarbanes-Oxley Act of 2002?
A) Enhances prosecutorial tool available in fraud cases.
B) Legislates new guidelines for ethics and integrity for public accounting firms.
C) Expands statutory prohibitions against fraud and obstruction of justice.
D) Increases authorized penalties for securities and financial fraud.
E) Strengthens the legal protections accorded whistleblowers.
Q2) An auditor,using the same degree of due care as other members of the profession,fails to identify an inadequate allowance for bad debts.This occurrence is an example of
A) negligence.
B) fraud.
C) an error in judgment.
D) constructive negligence.
Q3) An auditor can be sued by a third party under statutory law for willful violation of federal statutes.
A)True
B)False
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Chapter 21: Assurance,Attestation,amd Internal Auditing
Services-professional Judgement Module
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Sample Questions
Q1) An accountant's standard report on a compilation of a projection should not include
A) a statement that he or she does not express an opinion on the statements or assumptions.
B) a statement that a compilation of a projection is limited in scope.
C) a disclaimer of responsibility to update the report for events occurring after the report's date.
D) a statement that the accountant expresses only limited assurance that the results may be achieved.
Q2) Which set of standards was created by the AICPA to cover services relating to unaudited financial statements?
A) Standards on Selective Audits and Review Services (SSARS).
B) Statement on Auditing Standards (SAS).
C) Statements on Compilation and Review Standards (SCRS).
D) Statements on Standards for Accounting and Review Services (SSARS).
Q3) How has the advancement in technology led to the creation of the Trust Services?
Q4) In your own words,describe how the Institute of Internal Auditors (IIA)defines internal auditing?
Q5) Explain each of the three PrimePlus Services typically offered by practitioners.
Page 24
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