Auditing Practice Questions
Course Introduction
Auditing is a comprehensive course that introduces students to the theoretical foundations, principles, and practices of auditing within the context of financial reporting and assurance services. The course covers topics such as the objectives and types of audits, the ethical and legal responsibilities of auditors, audit planning and methodology, risk assessment, internal control evaluation, evidence gathering, and audit reporting. Through case studies and practical exercises, students develop critical skills in identifying audit risks, designing audit tests, and applying professional standards to ensure the accuracy and reliability of financial information. This course prepares students for entry-level positions in auditing and equips them with the foundational knowledge necessary for advanced study in accounting and assurance services.
Recommended Textbook
Auditing Assurance Services A Systematic Approach 11th Edition by William F Messier Jr
Available Study Resources on Quizplus
21 Chapters
1456 Verified Questions
1456 Flashcards
Source URL: https://quizplus.com/study-set/2400 Page 2
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/47722
Sample Questions
Q1) Which of the following is true with respect to the auditor's report?
A)The report indicates that the company's financial statements were audited in accordance with generally accepted accounting standards.
B)The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.
C)The report indicates that the company's financial statements were audited in accordance with the auditor's best judgment.
D)The report indicates that the company's financial statements were audited in accordance with statements issued by the FASB.
Answer: B
Q2) Information asymmetry seldom occurs.
A)True
B)False
Answer: False
Q3) Conflicts of interest often occur between absentee owners and managers.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Financial Statement Auditing Environment
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/47723
Sample Questions
Q1) The objectives of the Reporting section of Principles Underlying an Audit Conducted in Accordance with GAAS are to provide assurance and include all of the following except for:
A)an opinion statement of whether the financial statements present fairly.
B)an opinion statement of whether the financials are free of material misstatements.
C)an opinion statement of whether the financials are in accordance with an applicable financial reporting framework.
D)an opinion statement of whether the financial statements between periods are not materially affected by changes in accounting principles that are not disclosed.
Answer: D
Q2) Due professional care requires:
A)auditors to maintain an attitude that includes a questioning mind and a critical assessment of audit evidence.
B)the examination of all available corroborating evidence.
C)the exercise of error-free judgment.
D)a study and review of internal controls that includes tests of controls.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/47724
Sample Questions
Q1) In the context of an audit of financial statements, substantive procedures are audit procedures that:
A)may be eliminated under certain conditions.
B)are primarily designed to discover significant subsequent events.
C)may be either tests of details of transactions, tests of details of account balances, or analytical procedures.
D)will increase proportionately with an increase in the auditor's reliance on internal control.
Answer: C
Q2) An auditor who discovers that a client's employees paid small bribes to municipal officials most likely would withdraw from the engagement if:
A)the payments violated the client's policies regarding the prevention of illegal acts.
B)the client receives financial assistance from a federal government agency.
C)documentation that is necessary to prove that the bribes were paid does not exist.
D)management fails to take the appropriate remedial action.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
5
Chapter 4: Risk Assessment
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/47725
Sample Questions
Q1) You are teaching a class of new hires at your international accounting firm. Explain the audit risk model using a mathematical formula.
AR = RMM × DR
AR = Audit risk
RMM = Risk of material misstatement
DR = Detection risk
Q2) The acceptable level of detection risk is inversely related to the:
A)extent of the substantive procedures.
B)risk of misapplying auditing procedures.
C)overall materiality.
D)risk of failing to discover material misstatements.
Q3) In general, material frauds perpetrated by which of the following are most difficult to detect?
A)Internal audit function.
B)Keypunch operator.
C)Cashier.
D)Controller.
Q4) What is the difference between audit risk and engagement risk?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Evidence and Documentation
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/47726
Sample Questions
Q1) Name the three types of analytical procedures and provide a definition and example for each.
Q2) All audit documentation should have a heading, which includes:
A)name of the company under audit.
B)title of the working paper.
C)company's year-end date.
D)all of these.
Q3) The auditor gathers audit evidence to test management's assertions.
A)True
B)False
Q4) You are auditing a manufacturing company that has a large production facility. Some of the production equipment is held through lease agreements. Which of the following is the account balance assertion you would be most concerned about?
A)Existence or occurrence.
B)Completeness.
C)Rights and obligations.
D)Accuracy.
Q5) Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Internal Control in a Financial Statement Audit
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/47727
Sample Questions
Q1) The control environment component of internal control includes all of the following except:
A)Management's philosophy and operating style.
B)Access to computer programs.
C)Organizational structure.
D)Human resource policies and practices.
Q2) Internal control consists of six components.
A)True
B)False
Q3) Assessing control risk at a lower level involves all of the following except:
A)identifying specific controls to rely on.
B)concluding that controls are ineffective.
C)performing tests of controls.
D)analyzing the achieved level of control risk after performing tests of controls.
Q4) A reliance strategy is used when control risk has been set at high. A)True
B)False
Q5) What are the differences between document flowcharts, system flowcharts, and program flowcharts?
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Auditing Internal Control Over Financial Reporting
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/47728
Sample Questions
Q1) When testing a computerized accounting system, which of the following is false regarding the test data approach?
A)The test data need to consist of only those valid and invalid conditions in which the auditor is interested.
B)Only one transaction of each type needs be tested.
C)Test data are processed by the entity's computer programs under the auditor's control.
D)The test data must consist of all possible valid and invalid conditions.
Q2) Which of the following is true of generalized audit software packages?
A)They can be used only in auditing online computer systems.
B)It involves auditing while data is being processed.
C)They can be used to examine an entire population and eliminate the need for sampling.
D)They enable the auditor to perform all manual test procedures less expensively.
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
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/47729
Sample Questions
Q1) Identify the types of audit evidence that are tested using audit sampling techniques.
Q2) The computed upper deviation rate is:
A)the maximum rate of deviations that the auditor is willing to accept before deciding not to rely on the control.
B)the rate of deviations that the auditor expects to occur in the population.
C)a point estimate of the population deviation rate.
D)the sum of the sample deviation rate and an appropriate allowance for sampling risk.
Q3) Confidence level is the complement of sampling risk.
A)True
B)False
Q4) In which of the following cases would the auditor determine that statistical sampling should not be performed?
A)Tolerable deviation is large and expected population deviation is low.
B)Tolerable deviation is small and expected population deviation is high.
C)Tolerable deviation is large and expected population deviation is high.
D)Tolerable deviation is small and expected population deviation is low.
Q5) Define Type I and Type II errors.
Q6) Define sampling risk and nonsampling risk.
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/47730
Sample Questions
Q1) Confidence level is inversely related to sample size.
A)True
B)False
Q2) Monetary-unit sampling should not be used if:
A)the population includes several large items.
B)the auditor expects overstatement errors.
C)many items in the account are expected to have errors.
D)no items in the account are expected to have errors.
Q3) MUS logical unit
A)an individual dollar
B)the total of the projected misstatement plus the allowance for sampling risk
C)the difference between monetary amounts in the entity's records and amounts supported by audit evidence
D)the account or transaction that contains the selected dollar
Q4) Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary-unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if ________."
Q5) Describe two advantages and two disadvantages of monetary-unit sampling (MUS).
Q6) What is one advantage and one disadvantage of classical variables sampling? Page 11
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 10: Auditing the Revenue Process
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/47731
Sample Questions
Q1) Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?
A)The positive confirmation form must always be used to confirm all balances regardless of size.
B)A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.
C)A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.
D)The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.
Q2) Accounting standards require entities to follow a five-step approach for recognizing revenue.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 11: Auditing the Purchasing Process
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/47732
Sample Questions
Q1) Assertions about account balances at the period end include:
A)existence, completeness, and accuracy.
B)existence, completeness, and classification.
C)existence, rights and obligations, and completeness.
D)existence, rights and obligations, and classification.
Q2) The key inherent risk factors an auditor must consider when auditing the purchasing process are industry factors. Which two are most important and why?
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) Because of the low volume of purchase return transactions, the auditor normally does not test the controls associated with these transactions.
A)True
B)False
Q5) The purchase journal is referred to as a check register.
A)True
B)False
Q6) Describe three categories of expenses outlined in FASB Concept Statement No. 5.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 12: Auditing the Human Resource Management Process
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/47733
Sample Questions
Q1) Which of the following internal control activities could best prevent direct labor from being charged to manufacturing overhead?
A)Reconciliation of work in process inventory with cost records.
B)Comparison of daily journal entries with the factory labor summary.
C)Comparison of period costs budgets and time sheets.
D)Reconciliation of the unfinished job summary and production cost records.
Q2) Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?
A)There are significant unexplained variances between standard and actual labor cost.
B)Payroll checks are disbursed by the same employee each payday.
C)Employee time sheets are approved by individual departmental supervisors.
D)A separate payroll bank account is maintained on an imprest basis.
Q3) There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.
A)True
B)False
Q4) Explain how the human resource management process can affect the financial statements.
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Auditing the Inventory Management Process
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/47734
Sample Questions
Q1) An auditor generally tests physical security controls over inventory by:
A)test counts and cutoff procedures.
B)examination and reconciliation.
C)inspection and recomputation.
D)review and observation.
Q2) Sale of finished goods is a part of the inventory management process.
A)True B)False
Q3) The auditor's observation of inventory is a generally accepted auditing procedure.
A)True
B)False
Q4) An auditor concluded that no excessive costs for an idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure, and:
A)valuation and allocation.
B)completeness.
C)existence.
D)rights and obligations.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/47735
Sample Questions
Q1) 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.
Q2) In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding:
A)the capitalization vs. expensing policy.
B)the allocation of fixed and variable costs.
C)the need to write off equipment that has become obsolete.
D)the adequacy of depreciation expense.
Q3) The purchase of capital assets should be consistent with the authorization table used by the entity to approve such transactions. However, no such table is normally used for lease transactions.
A)True
B)False
Q4) An example of a prepaid account is prepaid interest.
A)True
B)False
Page 17
Q5) List two ways an auditor can test the existence and completeness of insurance policies.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders' Equity, and Income
Statement Accounts
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/47736
Sample Questions
Q1) Overall analysis of income statement accounts may bring to light errors, omissions, and inconsistencies not disclosed in the overall analysis of balance sheet accounts. The income statement analysis can best be accomplished by comparing:
A)income statement ratios to balance sheet ratios.
B)revenue and expense account balances to the monthly reported net income.
C)income statement ratios to published industry averages.
D)revenue and expense account totals to the corresponding figures of the preceding years.
Q2) During the course of an audit, a CPA's substantive analytical procedure provides an expected interest expense that is significantly higher than the amount recorded in the entity's accounting records. This observation would most likely lead the auditor to suspect that:
A)the entity failed to record all debt.
B)discount on Bonds is misstated.
C)interest income is overstated.
D)the entity failed to record all interest expense.
Q3) Long-term borrowing should be properly authorized. A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/47737
Sample Questions
Q1) For each assertion about cash listed below, give an example of a test of transactions for (1)cash receipts and (2)cash disbursements.
a. Classification.
b. Occurrence.
c. Authorization.
d. Completeness.
Q2) In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the entity's name, an auditor most likely gathers evidence in support of management's financial statement assertions regarding: A)existence.
B)rights and obligations.
C)completeness.
D)existence, rights and obligations, and completeness.
Q3) The cash account is affected by all of the entity's business processes.
A)True
B)False
Q4) Explain the importance of the bank reconciliation to the audit and list some of the items found on the reconciliation.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 17: Completing the Audit Engagement
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/47738
Sample Questions
Q1) A legal letter will include and evaluate all contingent liabilities of the company.
A)True
B)False
Q2) For which of the following matters should an auditor obtain written management representations?
A)Management's cost-benefit justifications for not correcting internal control weaknesses.
B)Management's knowledge of future plans that may affect the price of the entity's stock.
C)Management's addressing control deficiencies communicated to the audit committee during previous engagements.
D)Management's acknowledgment of its responsibility for employees' violations of laws.
Q3) Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.
A)True
B)False
Q4) What is the difference between a contingent liability and a commitment?
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 18: Reports on Audited Financial Statements
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/47739
Sample Questions
Q1) If the principal auditor decides to make reference to the other auditor's audit, the opinion section must specifically indicate the:
A)portion of the financial statements examined by the other auditor.
B)name of the other auditor.
C)name of the consolidated subsidiary examined by the other auditor.
D)type of opinion expressed by the other auditor.
Q2) In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:
A)issues an unqualified opinion on the consolidated financial statements.
B)learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.
C)is unable to review the other CPA's audit programs and working papers.
D)is satisfied as to the other CPA's independence and professional reputation.
Q3) A scope limitation results from an inability to obtain sufficient appropriate evidence about some component of the financial statements.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 19: Professional Conduct, Independence, and Quality Control
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/47740
Sample Questions
Q1) With respect to ethics, the utilitarian theory:
A)suggests that auditors should always verify ownership of a client's material tangible assets.
B)is primarily concerned with equity and impartiality.
C)suggests that an individual's actions should not violate the rights of any individual.
D)recognizes that decisions involve trade-offs between costs and benefits.
Q2) A violation of the profession's ethical standards would least likely have occurred when a CPA in public practice:
A)used a records-retention agency to store the CPA's working papers and client records.
B)served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff.
C)referred life insurance assignments to the CPA's spouse, who is a life insurance agent.
D)failed to file his personal tax return.
Q3) Rules of Conduct are enforceable.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 20: Legal Liability
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/47741
Sample Questions
Q1) West & Company, CPAs, was engaged by Sand Corporation to audit its financial statements. West issued an unqualified opinion on Sand's financial statements. Sand has been accused of making negligent misrepresentations in the financial statements that Reed relied upon when purchasing Sand's stock. West was not aware of the misrepresentations and was not negligent in performing the audit. If Reed sues West for damages based on Section 10(b)and Rule 10b-5 of the Securities Exchange Act of 1934, West will:
A)lose, because the statements contained negligent misrepresentations.
B)lose, because Reed relied upon the financial statements.
C)prevail, because some element of scienter must be proved.
D)prevail, because Reed was not in privity of contract with West.
Q2) Under the "Ultramares" doctrine, to which of the following parties will an accountant be liable for negligence?
A)Parties in privity and foreseen parties.
B)Parties in privity but not foreseen parties.
C)Foreseen parties but not parties in privity.
D)Neither foreseen parties nor parties in privity.
Q3) A tort is a breach of contract for which civil action may be taken.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 21: Assurance, Attestation, and Internal Auditing Services
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/47742
Sample Questions
Q1) Which of the following are prospective financial statements upon which an accountant may appropriately report for general use?
A)Pro forma financial statements.
B)Financial projections.
C)Partial presentations.
D)Financial forecasts.
Q2) A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain:
A)a statement of limitations on the use of the report.
B)an opinion about whether management's assertion is fairly stated.
C)negative assurance that control risk has not been assessed.
D)an acknowledgement of responsibility for the sufficiency of the procedures.
Q3) Accepting an engagement to compile a financial projection for a public company most likely would be inappropriate if the projection were to be distributed to:
A)a bank with which the entity is negotiating for a loan.
B)a labor union with which the entity is negotiating a contract.
C)the principal stockholder, to the exclusion of the other stockholders.
D)all stockholders of record as of the report date.
To view all questions and flashcards with answers, click on the resource link above. Page 24