Assurance Services
Exam Preparation Guide
Course Introduction
Assurance Services is a course designed to provide students with an in-depth understanding of the principles, methodologies, and practices related to enhancing the reliability and relevance of information used by decision-makers. The course explores various types of assurance engagements, including audits of financial statements, reviews, and other attestation services, highlighting the ethical, regulatory, and professional standards that guide assurance practitioners. Through case studies and practical exercises, students learn about risk assessment, evidence collection, reporting, and the role of technology in assurance. The course prepares students to critically evaluate assurance needs in different organizational contexts and equips them with skills fundamental to careers in public accounting, internal audit, and advisory services.
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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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 examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
A) Operational audit
B) Compliance audit
C) Financial statement audit
D) Production audit
Answer: A
Q2) In the audit of historical financial statements,what accounting criteria is most common?
A) Regulatory accounting principles
B) Applicable international accounting standards
C) Applicable U.S. accounting standards
D) B and C
E) All of the above
Answer: D
Q3) An auditor must be competent and have an independent mental attitude.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Audit Standards Setting Process
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) The SAS number identifies the order in which it was issued in relation to all other SASs.
A)True
B)False
Answer: True
Q2) Generally Accepted Auditing Standards (GAAS)and Statements on Auditing Standards (SAS)should be looked upon by practitioners as:
A) ideals to work towards, but which are not achievable.
B) maximum standards that denote excellent work.
C) minimum standards of performance that must be achieved on each audit engagement.
D) benchmarks to be used on all audits, reviews, and compilations.
Answer: C
Q3) Professional skepticism must be maintained only if the auditor suspects fraud. A)True
B)False
Answer: False
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Chapter 3: Audit Reports
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) More than one modification should be included in the audit report when:
A) the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles.
B) there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes.
C) there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern.
D) all of the above.
Answer: D
Q2) In the scope paragraph of the audit report issued for financial statements of a non-public company,the auditor expresses an opinion about the internal controls of the company.
A)True
B)False
Answer: False
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Chapter 4: Legal Liability Considerations for Auditors
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) The Securities and Exchange Commission can impose all but which of the following sanctions?
A) Suspend a CPA from auditing SEC clients.
B) Prohibit a CPA from accepting new SEC clients for a period of time.
C) Require a CPA to participate in continuing-education programs and make changes in their practice.
D) Revoke a CPA license.
Q2) Distinguish between what is meant by business failure and audit failure.
Q3) Several states have statutes that permit privileged communication between the client and auditor,allowing a CPA to refuse to testify in state and federal courts.
A)True
B)False
Q4) The laws that have been developed through court decisions are called:
A) common laws.
B) criminal laws.
C) statutory laws.
D) civil laws.
Q5) Discuss some of the steps individual practicing auditors can take to minimize their legal liability.
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Chapter 5: Ethics and the Audit Profession
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116 Verified Questions
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Sample Questions
Q1) When a member observes the profession's technical and ethical standards and strives to continually improve her competence and quality of services,she is exercising:
A) due care.
B) integrity.
C) independence.
D) objectivity.
Q2) A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child.The trust securities were not material to the CPA but were material to the child's personal net worth.Would the independence of the CPA be considered to be impaired with respect to the client?
A) Yes, because the stock is a direct financial interest
B) Yes, because the stock is an indirect financial interest that is material to the CPA's child
C) No, because the CPA does not have a direct financial interest in the client
D) No, because the CPA does not have a material indirect financial interest in the client
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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Sample Questions
Q1) General transaction-related audit objectives vary from audit to audit,depending on the nature and characteristics of the client's business and industry.
A)True
B)False
Q2) Auditing standards indicate that reasonable assurance is a moderate,but not absolute,level of assurance that the financial statements are free of material misstatement.
A)True
B)False
Q3) "The auditor should not assume that management is dishonest,but the possibility of dishonesty must be considered." This is an example of:
A) unprofessional behavior.
B) an attitude of professional skepticism.
C) due diligence.
D) a rule in the AICPA's Code of Professional Conduct.
Q4) Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.
Q5) Briefly explain each management assertion related to presentation and disclosure.
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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) A benefit obtained from using industry averages is that it provides a(n):
A) benchmark to compare the company's results.
B) indication where errors exist in the statements.
C) benchmark to be used in evaluating a client's budgets.
D) comparison of "what is" with "what should be."
Q2) Auditors use evidence to help them draw conclusions.
A)True
B)False
Q3) An audit program is the list of audit procedures for an audit area or an entire audit.
A)True
B)False
Q4) 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
Q5) All evidence must have the same level of persuasiveness.
A)True
B)False
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Chapter 8: Audit Planning
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Which of the following is a correct statement regarding analytical procedures?
A) A major strength in using industry ratios for auditing is the difference between the nature of the client's financial information and that of the firms making up the industry totals.
B) Common-size financial statements display all items as a percentage change from a base year.
C) Auditors should investigate the most significant differences between budgeted and actual results.
D) In order to look for a misstatement in the allowance for bad debts, the auditor should divide gross sales by sales returns and allowances.
Q2) Initial audit planning involves four matters.Which of the following is not one of these?
A) Develop an overall audit strategy.
B) Request that bank balances be confirmed.
C) Schedule engagement staff and audit specialists.
D) Identify the client's reason for the audit.
Q3) Define business risk.List several factors that may impact the auditor's assessment of business risk.
Q4) Discuss the essential activities involved in the initial planning of an audit.
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Page 10
Chapter 9: Considering Materiality and Audit Risk
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Sample Questions
Q1) Explain why it is necessary to allocate the preliminary judgment about materiality to individual accounts (segments)in the financial statements.Also explain why allocating to balance sheet accounts is more common than allocating to income statement accounts.
Q2) If it is probable that the judgment of a reasonable person will be changed or influenced by the omission or misstatement of information,then that information is,by definition of FASB Statement No.2:
A) material.
B) insignificant.
C) significant.
D) relevant.
Q3) Preliminary judgments about materiality are often changed during the course of the engagement.
A)True
B)False
Q4) Due to qualitative factors,certain types of misstatements are likely to be more important to users than others,even if the dollar amounts are the same.Identify two qualitative factors that might significantly affect an auditor's materiality judgment,and give an example of each.
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Chapter 10: Considering Internal Control
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116 Flashcards
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Sample Questions
Q1) If a company has an effective internal audit department:
A) the internal auditors can express an opinion on the fairness of the financial statements.
B) their work cannot be used by the external auditors per PCAOB Standard 5.
C) it can reduce external audit costs by providing direct assistance to the external auditors.
D) the internal auditors must be CPAs in order for the external auditors to rely on their work.
Q2) Significant deficiencies are matters that come to an auditor's attention and should be communicated to an entity's audit committee because they represent:
A) material frauds perpetrated by high-level management.
B) internal control deficiencies that could adversely affect a company's ability to initiate, record, process, or report external financial statements reliably.
C) flagrant violations of the entity's documented conflict-of-interest policies.
D) intentional attempts by client personnel to limit the scope of the auditor's field work.
Q3) Define the following terms: control deficiency,significant deficiency,and material weakness.
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Page 12
Chapter 11: Considering the Risk of Fraud
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Sample Questions
Q1) List and briefly describe examples of risk factors for each condition of fraud for fraudulent financial reporting.
Q2) Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?
A) Lack of controls related to the calculation and approval of accounting estimates
B) Ineffective oversight of financial reporting by the board of directors
C) Management's practice of making overly aggressive forecasts
D) High turnover of accounting, internal audit, and information technology staff
Q3) Misappropriation of assets is normally perpetrated by:
A) members of the board of directors.
B) employees at lower levels of the organization.
C) management of the company.
D) the internal auditors.
Q4) An auditor uses ________ inquiry to corroborate or contradict prior information.
A) assessment
B) declarative
C) interrogative
D) informational
Q5) List and briefly describe the three conditions for fraud.
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Chapter 12: Implications of Information Technology for the Audit Process
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106 Flashcards
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Sample Questions
Q1) In comparing (1)the adequacy of the hardware controls in the system with (2)the organization's methods of handling the errors that the computer identifies,the independent auditor is:
A) unconcerned with both (1) and (2).
B) equally concerned with (1) and (2).
C) less concerned with (1) than with (2).
D) more concerned with (1) than with (2).
Q2) Auditors:
A) link controls and deficiencies in general controls to specific transaction-related audit objectives.
B) can use a control risk matrix to help identify both manual and automated application controls and control deficiencies for each related audit objective.
C) can rely on IT-based application controls for all cycles if general controls are ineffective.
D) can use the IT staff to determine how much reliance they can place on general controls.
Q3) Output controls focus on preventing errors during processing.
A)True
B)False
Page 14
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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) Auditing standards recognize that in instances where a significant amount of audit evidence is in electronic form,it may not be possible to reduce detection risk to an acceptable level by performing only substantive tests.
A)True
B)False
Q2) Which audit tests involve physical examination and confirmation?
A) Tests of controls
B) Tests of transactions
C) Tests of balances
D) Analytical procedures
Q3) The auditor would design which of the following audit tests to detect possible monetary errors in the financial statements?
A) Control tests
B) Analytical procedures
C) Risk assessment procedures
D) Tests of operating effectiveness of controls over revenue and cash
Q4) In accumulating final evidence upon which to base an audit opinion,the auditor should perform four activities.List the activities below.
Page 15
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Chapter 14: Audit of the Sales and Collection Cycle: Tests of
Controls and Substantive Tests of Transactions
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) The document that requires adjustments to the customers subsidiary ledger account is the:
A) bill of lading.
B) sales invoice.
C) credit memo.
D) monthly statement.
Q2) An effective procedure to test the existence objective for sales is to vouch sales journal entries to copies of sales orders,shipping documents,and sales invoices.
A)True
B)False
Q3) Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders,granting credit,shipping goods,billing customers,and recording sales.
A)True
B)False
Q4) Discuss the four business functions that result in sales transactions in a typical sales and collection cycle and,for each function,state the key documents and records involved.
16
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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) Which of the following is most correct when using audit sampling for exception rates?
A) Auditor is concerned with the lowest rate.
B) Auditor is concerned with the highest rate.
C) Auditor is concerned with the average on previous audits.
D) This doesn't impact the auditor's decision.
Q2) The advantage of systematic sample selection is that:
A) it is easy to use.
B) there is limited possibility of it being biased.
C) it is unnecessary to determine if the population is arranged randomly.
D) it automatically selects items material to the financial statements.
Q3) There are three phases in both statistical and nonstatistical sampling.The first phase is to:
A) generate random numbers for the sample.
B) evaluate the results.
C) plan the sample.
D) select the sample.
Q4) One way to control sampling risk is to increase sample size.
A)True
B)False
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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) When analytical procedures in the sales and collection cycle uncover unusual fluctuations,the auditor should make additional inquiries of management.
A)True
B)False
Q2) Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable,and explain why this objective is ordinarily tested before any other objectives for accounts receivable.
Q3) For effective internal control,employees maintaining the accounts receivable subsidiary ledger should not also approve:
A) employee overtime wages.
B) credit granted to customers.
C) write-offs of customer accounts.
D) cash disbursements.
Q4) When a customer does not return an accounts receivable confirmation,it is acceptable,without performing alternative procedures,to assume the amount is 100% overstated when generalizing from the sample to the population.
A)True
B)False
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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) Monetary unit sampling is not particularly effective at detecting:
A) overstatements.
B) understatements.
C) errors in current assets.
D) errors in noncurrent assets.
Q2) If the misstatement bound exceeds tolerable misstatement,the population is considered acceptable.
A)True
B)False
Q3) Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.
Q4) In monetary unit sampling,the likelihood of high dollar items from the population being included in the sample is lower than the likelihood for small dollar items.
A)True
B)False
Q5) When using MUS,the projected misstatement is the percentage misstatement times the sampling interval.
A)True
B)False
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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
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Sample Questions
Q1) The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of:
A) accuracy.
B) existence.
C) completeness.
D) posting and summarization.
Q2) A CPA learns that his client has paid a vendor twice for the same shipment,once based upon the original invoice and once based upon the monthly statement.A control procedure that should have prevented this duplicate payment is:
A) attachment of the receiving report to the disbursement report.
B) prenumbering of disbursement vouchers.
C) use of a limit or reasonableness test.
D) prenumbering of receiving reports.
Q3) Auditing the acquisition and payment cycle often takes more time than any other cycle.
A)True
B)False
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Q4) Discuss each of the four business functions that comprise the acquisition and payment cycle.
Chapter 19: Completing the Tests in the Acquisition and Payment
Cycle: Verification of Selected Accounts
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Sample Questions
Q1) The audit procedure "foot the schedule of fixed assets acquisitions and trace the total to the general ledger" relates most closely to the completeness objective for fixed assets acquisitions.
A)True
B)False
Q2) The auditor's starting point for verifying disposals of property,plant,and equipment is the:
A) equipment account in the general ledger.
B) file of shipping documents.
C) client's schedule of recorded disposals.
D) equipment subsidiary ledger.
Q3) You are auditing Manufacturing Company and testing the audit related objective of completeness for the equipment accounts.Which of the following audit procedures is most likely to achieve your objective?
A) Examine vendor invoices and receiving reports.
B) Physically examine assets.
C) Examine vendor invoices of closely related accounts such as repairs and maintenance.
D) Trace individual acquisitions to the fixed asset master file.
Page 21
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Chapter 20: Audit of the Inventory and Warehousing Cycle
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Sample Questions
Q1) It is frequently possible to test the physical inventory prior to the balance sheet date when:
A) there are accurate perpetual inventory master files.
B) year-end sales are small.
C) the internal control system is no better at year-end than at an earlier point in time.
D) the client counts inventory at interim dates.
Q2) In valuing inventory,the auditor must consider all but which of the following factors?
A) The valuation method must be in accordance with GAAP.
B) The valuation method must be applied on a consistent basis.
C) The inventory must be valued at the lower of cost or market.
D) LIFO must be used for work-in-process inventory.
Q3) The audit procedure "Foot the inventory listing schedules for raw materials,work-in-process,and finished goods" provides assurance mainly for the accuracy objective for inventory pricing and compilation.
A)True
B)False
Q4) What are two factors affecting the complexity of the audit of inventory?
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22
Chapter 21: Audit of the Payroll and Personnel Cycle
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Sample Questions
Q1) Which of the following is a major balance-related audit objective in testing payroll liabilities?
A) Payroll tax expense is properly recorded.
B) Transactions in the payroll and personnel cycle are recorded in the proper period.
C) Accrual of salaries is the same as the amounts paid on the payroll tax returns.
D) Time records are recorded by supervisors.
Q2) There are several key internal controls over the payment of payroll function that should be present.For example,the payroll should be distributed by someone who is not involved in the other payroll functions.Discuss other key internal controls over the payment of payroll function as it relates to the physical control over assets and records.
Q3) Imprest accounts usually carry a significant balance.
A)True
B)False
Q4) The deduction authorization form authorizes the rate of pay and the deductions for taxes,dues,etc.
A)True
B)False
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Chapter 22: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) Which of the following audit objectives is least important in the audit of capital stock and paid-in-capital in excess of par?
A) Completeness
B) Accuracy
C) Rights and obligations
D) Presentation and disclosure
Q2) The three most important balance-related audit objectives for notes payable are existence,realizable value,and accuracy.
A)True
B)False
Q3) When auditing the capital acquisition and repayment cycle,it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.
A)True
B)False
Q4) State the four most important audit objectives for capital stock and describe how the auditor typically verifies each of the four objectives.
Q5) Discuss the overall objectives of the audit of notes payable.
Page 24
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Chapter 23: Audit of Cash and Financial Instruments
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Sample Questions
Q1) Explain what is meant by a cutoff bank statement,and discuss the purpose of the cutoff bank statement in the audit of cash.
Q2) Tests for kiting are performed using only a schedule of intrabank transfers.
A)True
B)False
Q3) The majority of financial instruments are valued using:
A) cost.
B) fair value estimates.
C) lower of cost or market.
D) realizable value.
Q4) The direct receipt of a confirmation from every bank with which the client does business is:
A) required by auditing standards for every audit.
B) not necessary unless material fraud is suspected.
C) recommended but not required by auditing standards.
D) necessary for every audit except when there are an unusually large number of active accounts.
Q5) Describe each of the major types of cash accounts maintained by business entities.
Q6) Explain kiting,and discuss how it is performed.
Page 25
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Chapter 24: Audit Completion
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Sample Questions
Q1) Audit procedures related to contingent liabilities are initially focused on:
A) accuracy.
B) completeness.
C) existence.
D) occurrence.
Q2) Auditors will generally send a standard inquiry letter to:
A) only those attorneys who have devoted substantial time to client matters during the year.
B) every attorney that the client has been involved with in the current or preceding year, plus any attorney the client engages on occasion.
C) those attorneys whom the client relies on for advice related to substantial legal matters.
D) only the attorney who represents the client in proceeding where the client is defendant.
Q3) Auditors are required to communicate either orally or in writing with the audit committee about internal control weaknesses.
A)True
B)False
Q4) What are the three required conditions for a contingent liability to exist?
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Chapter 25: Other Assurance Services
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Sample Questions
Q1) Which of the following results in a conclusion that represents positive assurance?
A) Review
B) Compilation
C) Examination
D) Agreed upon procedure engagement
Q2) The two types of services provided in connection with the Statements on Standards for Accounting and Review Services are:
A) audit and examination services.
B) compilation and review services.
C) examination and review services.
D) management advisory services and compilations.
Q3) Systrust services are performed under the direction of the SSAEs.
A)True
B)False
Q4) When performing a review of interim information for a public company,the accountant ordinarily does not perform tests of the accounting records,independent confirmations,or physical examinations.
A)True
B)False
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Chapter 26: Internal and Governmental Financial Auditing and
Operational
Auditing
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Q1) Operational auditing is the review of an organization for efficiency and effectiveness.Discuss what is meant by the terms "effectiveness" and "efficiency."
Q2) Which of the following best describes an audit that emphasizes how efficiently and effectively functions interact?
A) Operational
B) Compliance
C) Financial
D) Organizational
Q3) How do the risk and materiality thresholds change in a government audit compared to a financial statement audit of a public company?
Q4) Internal auditors are responsible to:
A) the board of directors.
B) management.
C) both A and B.
D) neither A nor B.
Q5) The International Standards for the Professional Practice of Auditing list 7 performance standards.List three.
Q6) List the three purposes of a program audit.
Page 28
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