Advanced Auditing Test Questions
Course Introduction
Advanced Auditing explores the complex procedures and concepts beyond basic auditing principles, focusing on contemporary challenges and developments in audit practice. Students engage with advanced topics such as risk assessment, forensic accounting, integrated auditing of information systems, and the evaluation of internal controls in diverse business environments. The course emphasizes the application of auditing standards, ethical considerations, regulatory frameworks, and the use of audit tools and technologies. Through case studies and real-world scenarios, students develop analytical and critical-thinking skills necessary for addressing emerging issues in auditing and assurance services.
Recommended Textbook
Auditing The Art and Science of Assurance Engagements 14th Canadian Edition by Alvin A Arens
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Chapter 1: The Demand for Audit and Other Assurance Services
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Q1) An example of a forensic accounting assignment might be
A)determining whether overall financial statements are stated in conformity with IFRS.
B)estimating the value of inventory lost in a warehouse theft.
C)evaluating the effectiveness of an internal process.
D)ensuring compliance with specific legislation.
Answer: B
Q2) One of the reasons that an auditor must be competent is so that they can
A)understand the engagement risks and the criteria used by the client.
B)explain to staff how the bookkeeping should be done.
C)record the transactions properly for the underlying records.
D)capture the information properly in the computer files.
Answer: A
Q3) A reason for a not-for-profit organization to be audited is to
A)comply with the laws requiring them to be audited.
B)meet requirements of lenders or funding sources.
C)have a professional accountant perform their bookkeeping.
D)ensure that their financial statements do not contain errors.
Answer: B
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Chapter 2:The Public Accounting Profession and Audit Quality
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Q1) There are many elements of quality control at the firm level.Which element does the statement "a firm should establish a formal code of conduct that includes procedures for individuals to disclose differences of opinion and any inappropriate conduct" fall under?
A)leadership responsibilities within the firm
B)general ethical requirements
C)general human resource policies
D)engagement quality control review
Answer: A
Q2) There are many elements of quality control at the firm level.Which element does "policies in place should include use of second or independent partner review,technical review,documentation,and compliance with quality control processes" relate to?
A)leadership responsibilities
B)engagement performance
C)documentation
D)human resources
Answer: B
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Chapter 3: Professional Ethics and Legal Liability
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Sample Questions
Q1) When an auditor issues an erroneous opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards,it results in A)business failure.
B)audit failure.
C)audit risk.
D)business risk.
Answer: B
Q2) Individuals who accept fees (or property)and know or are willfully blind to the fact that the property was obtained illegally can be charged with money laundering,a criminal offence.Which of the following techniques will help a PA prevent such charges?
A)Ensure that the financial statements are in accordance with an acceptable reporting framework.
B)Require that clients carefully document the sources of their funds.
C)Carefully assess management integrity.
D)Obtain a detailed letter of representation from management confirming the sources of their funds.
Answer: C
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Chapter 4: Audit Responsibilities and Objectives
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Sample Questions
Q1) The factor that distinguishes an error from fraud or other irregularities is A)materiality.
B)intent.
C)whether it is a dollar amount or a process.
D)whether it is a caused by the auditor or the client.
Q2) When comparing the auditor's responsibility for detecting employee fraud and for detecting errors,the profession has placed the responsibility
A)more on discovering errors than employee fraud.
B)more on discovering employee fraud than errors.
C)equally on discovering either one.
D)on the senior auditor for detecting errors and on the manager for detecting employee fraud.
Q3) When applying professional judgment,auditors are required to justify their decision based on seven criteria.List the criteria within the auditor's professional judgment framework.
Q4) Outline the specific areas that auditors responsibilities are focused upon.
Q5) List and explain the assertions that are relevant to presentation and disclosures.
Q6) What are the common judgement traps and how can they be avoided?
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Chapter 5: Audit Evidence
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Sample Questions
Q1) Those procedures specifically outlined in an audit program are primarily designed to A)prevent litigation.
B)detect errors or irregularities.
C)test internal controls.
D)collect evidence.
Q2) Which of the following types of evidence is most appropriate in the audit of fixed assets?
A)recalculation of the amortization schedule provided by the client
B)auditor inspection of recently acquired fixed assets
C)reperformance of the posting of depreciation expenses to the general ledger
D)analytical review to assess the reasonableness of depreciation expense
Q3) An important benefit of industry comparisons is as
A)an aid to understanding the client's performance.
B)an indicator of errors.
C)an indicator of irregularities.
D)a least-cost indicator for audit procedures.
Q4) List and describe the process of developing substantive analytical procedures as per CAS 520.
Q5) Identify and explain the three determinants of the persuasiveness of evidence.
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Chapter 6: Client Acceptance,Planning,and Materiality
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Sample Questions
Q1) External auditor Mary Smith may not rely on the work of internal auditor Ray Jones unless
A)Jones is certified (CPA,CA;CPA,CGA;or CPA,CMA).
B)Jones is independent of the client.
C)Jones is supervised by Smith.
D)Smith obtains evidence that supports the competence,integrity,and objectivity of Jones.
Q2) What are the responsibilities of an external auditor when a specialist is used in an audit?
Q3) What are the preliminary engagement activities performed by the auditor before planning the audit?
Q4) What are the possible scope limitations that would cause the auditor to decline an audit engagement?
Q5) Silka is in the process of performing an audit.During the audit,Silka decided to change materiality.A valid reason for this would be
A)a new user of the financial statements was identified.
B)a fraud was discovered in the accounts payable section.
C)materiality required the auditors to perform too many tests.
D)too many errors were found during testing.
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Chapter 7: Assessing the Risk of Material Misstatement
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Sample Questions
Q1) All other factors held constant,if the auditor decreases acceptable audit risk then
A)there will be less documentation in the audit file.
B)total audit evidence and audit costs will increase.
C)it will also be necessary to decrease either control risk or inherent risk.
D)less supervision of the audit team will be required.
Q2) If acceptable audit risk is increased,what happens to detection risk?
A)It stays the same.
B)It increases.
C)It changes based upon the audit procedures conducted.
D)It decreases.
Q3) If from last year to the current year's audit,inherent risk has stayed constant but control risk is higher (it is more likely that controls do not detect material errors),what is the likely effect on detection risk?
A)Detection risk will increase.
B)Detection risk will decrease.
C)Detection risk will stay the same.
D)Detection risk will need less documentation.
Q4) What are the components of risk of material misstatement at the assertion level?
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Chapter 8: Internal Control and COSO Framework
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Sample Questions
Q1) An employee who communicates improprieties is called a A)spy.
B)tipster.
C)informer.
D)whistleblower.
Q2) Distinguish between entity level controls and transactional controls.Give an example of each.
Q3) External auditor Maryann Smith may not rely on the work of internal auditor Raymond Jones unless
A)Jones is certified (CA,CGA,or CMA).
B)Jones is independent of the client.
C)Jones is supervised by Smith.
D)Smith obtains evidence that supports the competence,integrity,and objectivity of Jones.
Q4) An important type of protective measure for safeguarding assets and records is A)adequate segregation of duties among personnel.
B)proper authorization of transactions.
C)the use of physical precautions.
D)adequate documentation.
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Chapter 9: Assessing Control Risk and Designing Test of Controls
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Sample Questions
Q1) Describe a five-step approach that is used for identifying significant or material internal control weaknesses.
Q2) A secondary objective of the auditor's study and evaluation of internal control is that the study and evaluation provide
A)a basis for constructive suggestions concerning improvements in internal control.
B)a basis for reliance on the accounting system.
C)an assurance that the records and documents have been maintained in accordance with existing company policies and procedures.
D)an indication that management and employees are trustworthy.
Q3) The auditor may identify some risks that cannot be effectively tested by substantive tests alone,for example,when there are paperless transactions (perhaps using EDIelectronic data interchange).To address these risks,the auditor is required to
A)assess the design effectiveness of relevant controls and test them.
B)obtain an understanding of the controls and test them if reliance is intended.
C)obtain an understanding of the controls and assess their design effectiveness.
D)test the controls that address the paperless aspects of the transactions.
Q4) What are the two types of reports service auditors issue?
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Chapter 10: Develop Risk Response: Audit Strategy and Audit Program
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Sample Questions
Q1) The auditor selects several transactions in each functional area and traces them through the entire accounting system,paying special attention to evidence about whether or not the control features are in operation.This is an example of a
A)sequence test.
B)test of controls.
C)substantive test.
D)functional test.
Q2) When does the auditor normally conduct tests of controls?
A)prior to the completion of the tests of details
B)after the completion of all analytical review
C)prior to the preparation of the client risk analysis
D)prior to the finalization of the audit risk model
Q3) A PA has designed an audit approach where she places maximum possible reliance on controls.This means that she will be
A)conducting only tests of controls.
B)using analytical review and tests of controls.
C)following a combined audit approach.
D)setting control risk at 100%.
Q4) Describe a substantive audit strategy.
Page 12
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Chapter 11: Audit Sampling Concepts
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Sample Questions
Q1) A statistical method used to estimate the proportion of items in a population containing a characteristic of interest is
A)population-proportional-to-size sampling.
B)attribute sampling.
C)variables sampling.
D)estimation sampling.
Q2) What are the advantages and disadvantages of monetary unit sampling?
Q3) When errors are found,a common and standard assumption in practice is to assume
A)a 100% assumption for all errors.
B)that the actual sample errors are representative of the population errors.
C)that the population errors are larger than the sample errors.
D)that the population errors are smaller than the sample errors.
Q4) An underlying feature of the random-based selection of items is that each
A)stratum of the population is given equal representation in the sample.
B)each item in the population must be randomly ordered.
C)each item in the population should have an equal opportunity to be selected.
D)each item must be systematically selected using replacement.
Q5) What are the different sample selection types that fall under probabilistic and nonprobabilistic sampling?
Page 13
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Chapter 12: Audit of the Revenue Cycle
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Q1) Confirmation of individual accounts receivable balances directly with debtors will,of itself,normally provide evidence concerning the
A)collectability of the balances confirmed.
B)ownership of the balances confirmed.
C)existence of the balances confirmed.
D)internal control over balances confirmed.
Q2) Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.
Q3) For each control on which the auditor plans to rely to reduce assessed control risk,he or she must
A)design one or more tests of controls to verify effectiveness.
B)report all weaknesses in the management letter.
C)quantitatively determine the effect on sampling error.
D)ensure that the test applies to several different transaction audit objectives.
Q4) What are the criteria the auditor should take into account in order for substantive analytical procedures to provide the necessary assurance?
Q5) Describe skimming.
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Chapter 13: Audit of the Acquisition and Payment Cycle
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Sample Questions
Q1) When an acquisition is on an FOB (freight on board)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 prior to the balance sheet date.
C)both shipped and received prior to the balance sheet date.
D)paid for.
Q2) One of the ways to prevent the use of fictitious vendors to steal company funds is to A)have adequate network access controls to prevent unauthorized access to transaction files.
B)ensure that accounts payable programs are available only in source code.
C)establish controls to establish only approved vendors.
D)reconcile the accounts payable trial balance to the general ledger.
Q3) Discuss the key internal controls related to the disposal of manufacturing equipment.
Q4) Of these two documents - vendor invoice or vendor statements - which document is better to:
a)verify the correct balance in accounts payable?
b)test the acquisitions in tests of control?
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Chapter 14: Audit of the Inventory and Distribution Cycle
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Q1) The auditor has determined that the inventory procedures are highly automated with limited use of a paper or physical trail.Rather than having people count inventory (since all inventory has RFID tags attached),inventory is being read using the wireless mesh network.To provide assurance with respect to ending inventory,the auditor should A)bring in additional audit staff and conduct a high level of test counts,matching these counts to the automated systems.
B)use dollar-unit sampling to identify all high-dollar inventory items and ask the client to physically count these items using count teams.
C)test the quality of the controls over the programs in use and over tagging inventory items.
D)request that the client implement manual rotating counts to test the quality of the automated systems.
Q2) The audit of the inventory and distribution cycle consists of five parts.State the five parts and,for each part,identify the cycle in which that part is tested by the auditor.
Q3) Identify three analytical procedures commonly used when auditing accounts in the inventory and distribution cycle.
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Chapter 15: Audit of the Human Resources and Payroll Cycle
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Sample Questions
Q1) You have been working on the audit of Big Insurance Company for several years now.There are about 5000 employees working at the company in various positions. Your audit partner has indicated that this year,the firm will be implementing computer-assisted audit techniques (CAATs),using generalized audit software.The information systems audit specialist will be assisting the audit team with the implementation of these tests.She wants you to provide a draft list of CAATs that could assist with the coming year's audit of payroll.
The company uses mainframe computing systems.Assume that the typical payroll information is available on computer files (i.e. ,employee number,employee name,social insurance number,department code,payment type code (salaried or hourly),time worked,wage rate,gross pay,deductions (by type),net pay,and cheque number).
Required:
Prepare a list of potential computer-assisted audit techniques that could be prepared for the payroll audit.Identify the audit objective to which they relate and indicate if any manual procedures are required to supplement the suggested CAAT.
Q2) Discuss the two most common ways in which employees can defraud a company in the payroll area.
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Chapter 16: Audit of the Capital Acquisition and Repayment Cycle
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Q1) Discuss the four key controls over notes payable.
Q2) Identify the possible misstatements that could occur for notes payable.
Q3) Control risk for notes payable is usually assessed as low.This occurs because internal controls are normally good for notes payable and
A)creditors would complain if the notes are not paid.
B)interest expense can easily be distinguished from bank service charges.
C)there are a small number of large transactions for this type of transaction.
D)inclusion in the accounts payable listing helps track the notes.
Q4) Comparison of individual notes payable outstanding with the prior year could detect what type of possible misstatement?
A)misstatement of interest expense or accrued interest,or omission of a note payable
B)omission or misstatement of a note payable
C)misclassification of a note payable as long-term rather than current
D)misstatement of notes payable,interest expense,or accrued interest
Q5) Describe the audit procedures and related audit assertions for the audit of dividends.
Q6) State the four audit concerns for capital stock and describe how the auditor typically verifies each of these areas.
Page 18
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Chapter 17: Audit of Cash Balances
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Q1) The auditor uses a proof of cash to determine whether
A)internal controls over cash have been functioning effectively in the period under audit.
B)all recorded cash receipts were deposited and whether all recorded cash disbursements were paid by the bank.
C)accounts receivable was properly recorded and whether cash receipts transactions were properly recorded.
D)accounts payable was properly recorded and whether cash disbursement transactions were properly recorded.
Q2) A four-column proof of cash can be performed for A)one or more interim months.
B)the entire year.
C)the last month of the year.
D)any specified time period for which bank statements are available and which the auditor chooses to designate.
Q3) A)Explain what is meant by kiting and discuss how it is performed.B)Discuss how an auditor can test for kiting.
Q4) What audit procedures are used to uncover a fraud in the cash receipts area?
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Chapter 18: Completing the Audit
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Sample Questions
Q1) Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?
A)sale of long-term debt or capital stock
B)loss of a plant as a result of a flood
C)major purchase of a business that is expected to double the sales volume
D)settlement of litigation in excess of the recorded liability
Q2) One of the purposes of a client representation letter is to
A)reduce the amount of audit procedures performed by the auditor.
B)document the responses from management to inquiries about various aspects of the audit.
C)serve as audit evidence for the accuracy of the contingent liabilities.
D)reduce the detection risk.
Q3) IFRS uses specific terminology to refer to the likelihood of the occurrence of an organizational event.Which of the following would require note disclosure only?
A)likely to occur and the amount can be estimated
B)possible that an outflow of resources is not required
C)likelihood is remote
D)amount is yet to be confirmed
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Chapter 19: Audit Reports on Financial Statements
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Q1) The independent auditor's opinion explains how much evidence the auditor collects during the independent audit.How much evidence is collected?
A)sufficient and appropriate evidence to provide a basis for the audit opinion
B)sufficient evidence to state that there are no material errors in the financial statements
C)appropriate evidence to be able to evaluate the exact accuracy of the accounting estimates
D)sufficient and appropriate evidence to conclude the financial statements present a true and fair view of the economic events of the organization
Q2) CAS 700 is the overarching standard for auditing reporting.Outline the relevant standards that come under it.
Q3) The "unmodified report with Emphasis of Matter paragraph" or the "unmodified report with an Other Matter paragraph"
A)arise as a result of an incomplete audit.
B)arise when the financial statements are not quite "presented fairly."
C)meet the criteria of a complete audit with satisfactory results but further explanation is required.
D)meet the criteria of a complete audit but with unsatisfactory results.
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Chapter 20: Other Assurance and Nonassurance Services
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Q1) Criteria are the benchmarks against which nonfinancial information will be evaluated while applying professional judgment during assurance engagements.According to the umbrella standards,suitable criteria should have which features?
Q2) Which of the following engagements would most likely be a compilation engagement?
A)An engagement with respect to financial statements attached to a personal tax return.
B)An engagement with respect to financial statements for a large public company.
C)An engagement with respect to financial statements for a company that has a large bank loan.
D)An engagement with respect to financial statements that accompany future-oriented information to obtain financing.
Q3) A review engagement includes
A)obtaining an understanding of the internal controls.
B)tests of controls or transactions.
C)inquiry,analytical procedures,and discussion.
D)independent confirmation or physical examination.
Q4) Define "assurance engagements."
Q5) Define "direct reporting engagements."
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