External Auditing Solved
Exam Questions
Course Introduction
External Auditing focuses on the principles, procedures, and standards governing the independent examination of financial statements by external auditors. The course covers topics such as the legal and ethical responsibilities of auditors, audit planning and evidence collection, assessment of internal controls, risk evaluation, documentation, and reporting. Students will gain proficiency in understanding audit frameworks, techniques for detecting fraud and errors, and the use of technology in auditing. Additionally, the course emphasizes the role of professional skepticism and judgment, preparing students to meet industry standards and regulatory requirements in their future auditing careers.
Recommended Textbook
Auditing and Assurance Services A Systematic Approach 10th Edition by William F Messier Jr
Available Study Resources on Quizplus
21 Chapters
1523 Verified Questions
1523 Flashcards
Source URL: https://quizplus.com/study-set/3204 Page 2
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/63439
Sample Questions
Q1) Conflicts of interest often occur between absentee owners and managers. A)True
B)False Answer: True
Q2) Why do auditors generally use a sampling approach to evidence gathering?
A) Auditors are experts and do not need to look at much to know whether the financial statements are correct or not.
B) Auditors must balance the cost of the audit with the need for precision.
C) Auditors must limit their exposure to their auditee to maintain independence.
D) The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company. Answer: B
Q3) Testing all transactions that occurred during the period is cost prohibitive. A)True
B)False Answer: True
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: The Financial Statement Auditing Environment
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/63438
Sample Questions
Q1) The authoritative body designed to promulgate standards concerning a CPA's association with audited financial statements of an entity that is required to file financial statements with the SEC is the
A) Financial Accounting Standards Board.
B) General Accounting Office.
C) Public Company Accounting Oversight Board.
D) Auditing Standards Board.
Answer: C
Q2) The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of
A) The stock exchange officials.
B) The independent auditor.
C) The company's management.
D) The Securities and Exchange Commission.
Answer: C
Q3) The audit committee generally includes senior executives of the organization.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/63437
Sample Questions
Q1) Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?
A) Perform detailed testing of the individual balance sheet accounts.
B) Examining documents to detect illegal acts having a material effect on the financial statements.
C) Considering whether the client's accounting estimates are reasonable in the circumstances.
D) Determining the extent of involvement of the client's internal audit function.
Answer: D
Q2) Define the engagement letter and discuss its importance.
Answer: An engagement letter formalizes the arrangement reached between the auditor and the client.This letter serves as a contract,outlining the responsibilities of both parties and preventing misunderstandings between the two parties.
Q3) Materiality is based only on a quantitative analysis of the financial statements.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Risk Assessment
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/63436
Sample Questions
Q1) 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.
Q2) Client risk as defined in the text is
A) The auditor's risk of loss from events arising in connection with financial statements audited and reported upon.
B) The overall risk of material misstatement.
C) The risk that audit procedures will fail to detect material misstatements.
D) The risk of the entity's financial failure.
Q3) Which of the following is a source of detection risk?
A) Unstable business environment.
B) Poor client controls.
C) A nonrepresentative sample.
D) Inherent risk assessed too high.
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
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/63435
Sample Questions
Q1) The following statements were made in a discussion of audit evidence between two CPAs.Which statement is not valid concerning audit evidence?
A) "I am seldom convinced beyond all doubt with respect to all aspects of the statements being examined."
B) "I would not undertake that procedure because at best the results would only be persuasive and I'm looking for convincing evidence."
C) "I evaluate the degree of risk involved in deciding the kind of evidence I will gather."
D) "I evaluate the usefulness of the evidence I can obtain against the cost of obtaining it."
Q2) An auditor's decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by
A) Availability of data aggregated at a high level.
B) Relative effectiveness and efficiency of the tests.
C) Timing of tests performed after the balance sheet date.
D) Auditor's familiarity with industry trends.
Q3) For an auditor,how are management assertions useful?
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
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/63434
Sample Questions
Q1) A field test is a
A) Test to ensure that a numerical value in a field 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 all alphabetic characters.
Q2) Assume that an auditor estimates that 10,000 checks were issued during the accounting period.If an IT application control which performs a limit check for each check request is to be subjected to the auditor's test data approach,the sample should include
A) Approximately 1,000 test items.
B) A number of test items determined by the auditor to be sufficient under the circumstances.
C) A number of test items determined by the auditor's reference to the appropriate sampling tables.
D) One transaction.
Q3) Why might an auditor decide to test controls at an interim date?
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Auditing Internal Control Over Financial Reporting
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/63433
Sample Questions
Q1) An auditor will use the IT test data method in order to gain certain assurances with respect to the
A) Input data.
B) Machine capacity.
C) Procedures contained within the program.
D) Degree of keypunching accuracy.
Q2) S&H Associates has just performed an audit of Bob's Bikes.S&H was unable to obtain a written representation from management about internal control.Which of the following is true?
A) S&H must still assume that management has assessed the effectiveness of internal control.
B) Depending on other factors in the audit, S&H can still issue an unqualified opinion.
C) S&H should consider this situation a limitation on the scope of the audit.
D) Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.
Q3) Most public companies must follow the guidelines of AS5.
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
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/63432
Sample Questions
Q1) Which of the following best describes the distinguishing feature of statistical sampling?
A) It requires the examination of a smaller number of supporting documents.
B) It provides a means for measuring mathematically the degree of uncertainty that results from examining only part of a population.
C) It reduces the problems associated with the auditor's judgment concerning materiality.
D) It is evaluated in terms of two parameters: statistical mean and random selection.
Q2) The term precision relates to
A) the difference between confidence level and estimated error.
B) the difference between confidence level and tolerable error.
C) the difference between expected and tolerable deviation rate.
D) the difference between expected and sample deviation rate.
Q3) The larger the sample,the lower the confidence level and the lower the sampling risk.
A)True
B)False
Q4) Define sampling risk and nonsampling risk.
To view all questions and flashcards with answers, click on the resource link above. Page 10
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/63431
Sample Questions
Q1) Match each factor of sample size to (1)its relationship to sample size (A-Direct or B-Inverse)and (2)the appropriate effect on the sample size if the factor increases (C-Increase or D-Decrease).
1.Tolerable misstatement
2.Population size
3.Desired confidence level
4.Expected misstatement
Q2) For monetary-unit sampling,the number of items tested is A) always equal to sample size.
B) always greater than sample size.
C) always greater than or equal to sample size. D) always less than or equal to sample size.
Q3) The purpose of audit sampling is to draw inferences about the entire population from the results of a sample.
A)True
B)False
Q4) When auditing accounts payable using classical variables sampling,Sue finds evidence indicating that the account may be materially misstated.What are Sue's options?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Q5) What is one advantage and one disadvantage of classical variables sampling?
Chapter 10: Auditing the Revenue Process
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/63430
Sample Questions
Q1) An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about
A) valuation and allocation.
B) completeness.
C) existence.
D) rights and obligations.
Q2) An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared.This test is performed to assess the assertion of A) authorization and accuracy.
B) completeness.
C) cutoff.
D) occurrence.
Q3) Revenue must be realized (or realizable)and earned to be recognized.
A)True
B)False
Q4) According to the Association of Certified Fraud Examiners,there are eight common methods for committing financial statement fraud.List 4 of the 8 methods.
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Auditing the Purchasing Process
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/63429
Sample Questions
Q1) The authority to accept incoming goods in receiving should be based on a(an)
A) vendor's invoice.
B) materials requisition.
C) bill of lading.
D) approved purchase order.
Q2) As an in-charge auditor,you are reviewing a summary of control weaknesses in cash disbursement procedures.Which one of the following weaknesses,standing alone,should cause you the least concern?
A) Checks are signed by only one person.
B) Signed checks are distributed by the controller to approved payees.
C) Treasurer fails to establish validity of names and addresses of check payees.
D) Cash disbursements are made directly out of cash receipts.
Q3) Which of the following control activities is not usually performed in the accounts payable department?
A) Determining the mathematical accuracy of the vendor's invoice.
B) Having an authorized person approve the voucher.
C) Controlling the mailing of the check and remittance advice.
D) Matching the receiving report with the purchase order.
Q4) 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 13
Chapter 12: Auditing the Human Resource Management Process
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/63428
Sample Questions
Q1) Which of the following activities most likely would detect whether payroll data are accurately processed?
A) Monitor authorized distribution of data control sheets.
B) Use test data to verify the accurate performance of payroll processing.
C) Examine source documents for approval by supervisors.
D) Segregate duties between approval of hardware and software specifications.
Q2) In determining the effectiveness of an entity's policies and procedures relating to the existence or occurrence assertion for payroll transactions,an auditor most likely would inquire about and
A) observe the segregation of duties concerning human resource responsibilities and payroll disbursement.
B) inspect evidence that all prenumbered payroll checks are accounted for.
C) recompute the payroll deductions for employee fringe benefits.
D) verify the preparation of the monthly payroll account bank reconciliation.
Q3) When an auditor sets control risk low,sufficient evidence can be obtained for most payroll accounts through an understanding of internal controls,substantive analytical procedures,and tests of details of transactions.However,there are several accounts in the payroll cycle that may require more attention.Name the accounts and explain why the additional testing is necessary.
Page 14
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
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/63427
Sample Questions
Q1) The physical count of inventory of a retailer was higher than shown in its perpetual records.Which of the following could explain the difference?
A) Inventory items had been counted but tags placed on the items had not been taken off the items and added to the inventory accumulation sheets.
B) Credit memos for several items returned by customers had not been prepared.
C) No journal entry had been made on the retailer's books for several items returned to its suppliers.
D) An item purchased "FOB shipping point" had not arrived at the date of the inventory count and had not been reflected in the perpetual records.
Q2) A comparison of the current year's inventory turnover ratio with previous years' may indicate the presence of obsolete inventory.
A)True
B)False
Q3) A high inventory turnover ratio normally indicates inefficient inventory policies. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
15
Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/63426
Sample Questions
Q1) To improve accountability for fixed asset retirements,management most likely would implement a system of internal control that includes
A) continuous analysis of the repairs and maintenance account.
B) periodic inquiry of plant executives by internal auditors as to whether any plant assets have been retired.
C) continuous utilization of sequentially numbered retirement work orders.
D) periodic inspection of insurance policies by the internal auditors.
Q2) Assets no longer used in operations are accounted for in essentially the same manner as those used in operations.
A)True
B)False
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) Identify the types of transactions that occur in the property management process.
Page 16
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
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/63425
Sample Questions
Q1) A control which ensures that long-term borrowing is properly initiated by appropriate individuals addresses the control assertion of A) occurrence.
B) authorization.
C) completeness.
D) valuation.
Q2) During the course of an audit,a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the long-term debt account.This observation could lead the auditor to suspect that
A) long-term debt is understated.
B) discount on bonds payable is overstated.
C) long-term debt is overstated.
D) premium on bonds payable is understated.
Q3) Valuation and allocation is most likely an issue for long-term debt if
A) bonds are sold on the open market.
B) bonds are issued at a discount or premium.
C) the loans are from banks.
D) the company has many short-term leases.
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/63424
Sample Questions
Q1) If fraud is suspected,auditors may complete all of the following procedures except: A) testing for kiting.
B) footing the bank reconciliation and the outstanding checks listing.
C) performing a proof of cash.
D) performing extended bank reconciliation procedures, including detailed examination of reconciling items.
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) Examining brokers' advices for a sample of securities purchased during the year is a test for the assertion of A) completeness. B) disclosure.
C) valuation and allocation.
D) rights and obligations.
Q4) Kiting is an audit procedure used to test the accuracy of the cash receipts.
A)True B)False
Q5) Explain how cash plays a role in all business processes.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Completing the Audit Engagement
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/63423
Sample Questions
Q1) A Type II subsequent event usually requires
A) an adjustment to the financial statements and the footnotes.
B) an adjustment to the financial statements but no special disclosure is required.
C) disclosure in the footnotes.
D) neither an adjustment to the financial statements nor disclosure in the footnotes.
Q2) The management letter is used
A) to allow management to document, in writing, oral representations to the auditor.
B) to confirm the terms of the audit engagement.
C) to list all reportable conditions with respect to internal controls.
D) to make recommendations to the entity based on observations made during the audit.
Q3) Which of the following auditing procedures is ordinarily performed last?
A) Confirming accounts payable.
B) Testing the purchasing function.
C) Reading the minutes of directors' meetings.
D) Obtaining a management representation letter.
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 19
Chapter 18: Reports on Audited Financial Statements
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/63422
Sample Questions
Q1) Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
A) Significant related party transactions are pervasive.
B) Usual trade credit from suppliers is denied.
C) Arrearages in preferred stock dividends are paid.
D) Restrictions on the disposal of principal assets are present.
Q2) What are the four key audit report enhancements for all entities,which are effective for financial periods ending after December 15,2016?
Q3) The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the
A) ability to expand operations into new product lines in the future.
B) feasibility of plans to purchase leased equipment at less than market value.
C) marketability of assets that management plans to sell.
D) committed arrangements to convert preferred stock to long-term debt.
Q4) An auditor must disclaim an opinion when the auditor lacks independence.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Professsional Conduct,Independence,and Quality Control
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/63421
Sample Questions
Q1) In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a
A) charitable organization in which an employee of the CPA serves as treasurer.
B) municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality.
C) restaurant where the CPA dines frequently.
D) company in which the CPA's private investment club owns a one-tenth interest.
Q2) According to the ethical standards of the profession,which of the following acts is generally prohibited?
A) Purchasing a product from a third party and reselling it to a client.
B) Writing a financial management newsletter promoted and sold by a publishing company.
C) Accepting a commission for recommending a product to an audit client.
D) Accepting engagements obtained through the efforts of third parties.
Q3) An indirect financial interest is defined as a financial interest that is owned or is under the control of an individual or entity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Legal Liability
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/63420
Sample Questions
Q1) 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.
Q2) What is the primary reason that Congress passed the Securities Litigation Uniform Standards Act of 1998?
A) To overturn the Private Securities Litigation Reform Act of 1995.
B) As a result of concerns that plaintiff attorneys could get around the Private Securities Litigation Reform Act of 1995 by filing class action lawsuits involving nationally traded securities in state courts.
C) To provide for joint and several liability rather than proportionate liability.
D) To ensure that all publicly-held companies receive similar audits.
Q3) An auditor can be sued by a client for negligence under common law.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Assurance,Attestation,amd Internal Auditing
Services-professional Judgement Module
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/63419
Sample Questions
Q1) Blue Co.,a privately-held entity,asked its tax accountant,Cook,a CPA in public practice,to reproduce Blue's internally-prepared interim financial statements on Cook's computer when Cook prepared Blue's quarterly tax return.Cook should not submit these financial statements to Blue unless,at a minimum,Cook complies with the provisions of A) statements on Responsibilities in Tax Practice.
B) statements on Standards for Accounting and Review Services.
C) statements on Responsibilities in Unaudited Financial Services.
D) statements on Standards for Attestation Engagements.
Q2) An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that
A) distribution of the report is restricted to the specified users involved.
B) the prospective financial statements also are examined.
C) responsibility for the adequacy of the procedures performed is taken by the accountant.
D) negative assurance is expressed on the prospective financial statements taken as a whole.
Q3) Electronic commerce is an example of a category of assurance services.
A)True
B)False
Page 23
To view all questions and flashcards with answers, click on the resource link above.