Financial Statement Auditing
Chapter Exam Questions
Course Introduction
Financial Statement Auditing is an in-depth course that explores the principles, standards, and procedures used in auditing corporate financial statements. Students learn about the audit process, including risk assessment, planning, evidence gathering, internal controls, and report formulation. Emphasis is placed on the roles and responsibilities of auditors, professional ethics, and the regulatory environment governing audits. Through case studies and practical exercises, students develop critical analytical skills necessary to identify potential misstatements and understand how auditors provide assurance on the fairness and reliability of financial information presented by organizations.
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) 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) For publicly-held companies,which of the following is integrated into the audit of financial statements?
A) Budgetary information audit.
B) The audit of internal controls.
C) Audit of management forecasts.
D) Audit of interim financial statements.
Answer: B
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) What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?
A) AICPA.
B) FASB.
C) GASB.
D) PCAOB.
Answer: D
Q2) The primary audit context with which an auditor is concerned is the auditee's industry or business.
A)True
B)False
Answer: True
Q3) Which is not an attribute of an external auditor?
A) Independence.
B) Auditee advocacy.
C) Objectivity.
D) Concern for the public interest.
Answer: B
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) The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
A) Methods of statistical sampling to be used in confirming accounts receivable.
B) Pending legal matters to be included in the inquiry of the client's attorney.
C) Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
D) Timing of the audit.
Answer: D
Q2) 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
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
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/63436
Sample Questions
Q1) The auditor is most likely to presume that a high risk of a fraud exists if
A) The entity is a multinational company that does business in numerous foreign countries.
B) The entity does business with several related parties.
C) Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft.
D) Inadequate employee training results in lengthy EDP exception reports each month.
Q2) Engagement risk can be eliminated by
A) Establishing policies for client acceptance and continuance.
B) Lowering audit risk.
C) Lowering materiality.
D) Engagement risk cannot be eliminated.
Q3) The components of the audit risk model include inherent risk,control risk,and detection risk.
A)True
B)False
Q4) The risk of a material misstatement includes inherent risk and sampling risk.
A)True
B)False
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) Which of the following is the least persuasive documentation in support of an auditor's opinion?
A) Schedules of details of physical inventory counts conducted by the entity.
B) Notation of auditor's inferences drawn from ratios and trends.
C) Notation of appraisers' conclusions documented in the auditor's working papers.
D) Lists of negative confirmation requests for which no response was received by the auditor.
Q2) Why is appropriateness important for audit evidence? What qualities must evidence have to be considered appropriate?
Q3) Tracing is used primarily to test which of the following assertions about classes of transactions?
A) Occurrence.
B) Completeness.
C) Cutoff.
D) Classification.
Q4) When using analytical procedures,the auditor first needs to develop an expectation with which to compare recorded results.What is meant by "precision of the expectation," and what factors affect the precision of analytical procedures?
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) Proper monitoring within an internal control framework may include all of the following except:
A) An external auditor.
B) An effective audit committee.
C) An internal audit function.
D) The internal revenue service.
Q2) Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?
A) Hash total.
B) Parity check.
C) Encryption.
D) Check digit.
Q3) Internal control consists of six components.
A)True
B)False
Q4) Internal control includes monitoring of controls.
A)True
B)False
Q5) 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. Page 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) A modification of the standard report is required for all of the following conditions except:
A) There is a restriction on the scope of the engagement.
B) There is other information contained in management's report on internal control.
C) Management has concluded that internal controls are not effective.
D) A significant subsequent event has occurred since the date being reported on.
Q2) All companies must follow the guidelines of AS5.
A)True
B)False
Q3) Discuss entity-level controls and provide examples of these types of controls.
Q4) Management documentation should include all of the following except:
A) Documentation regarding the auditor's evaluation of internal controls.
B) Documentation regarding management's testing and evaluation of the controls.
C) Documentation regarding the safeguarding of assets.
D) Documentation on the controls designed in all five components of internal control.
Q5) AS5 requires that the auditor appropriately document the processes,procedures,judgments,and results relating to the audit of internal control.Specifically,what must this documentation include?
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) The risk of incorrect acceptance relates to the A) effectiveness of the audit.
B) efficiency of the audit.
C) preliminary estimates of materiality levels.
D) tolerable misstatement.
Q2) The likelihood of assessing control risk too high is the risk that the sample selected to test controls
A) does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.
B) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes. C) contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
D) does not support the tolerable misstatement for some or all of management's assertions.
Q3) Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?
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) Monetary-unit sampling is based on attribute sampling concepts.
A)True
B)False
Q2) In examining cash disbursements,an auditor plans to choose a sample using systematic selection with a random start.The primary advantage of such a systematic selection is that population items
A) that include fraud will not be overlooked when the auditor exercises compatible reciprocal options.
B) may occur in a systematic pattern, thus making the sample more representative.
C) may occur more than once in a sample.
D) do not have to be prenumbered in order for the auditor to use the technique.
Q3) In nonstatistical sampling,describe the two methods auditors use to project sample results to the population.How does an auditor determine which method to use?
Q4) 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.
Page 11
To view all questions and flashcards with answers, click on the resource link above.
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) Identify whether the following tests are tests of controls,substantive analytical procedures,tests of details of transactions,or tests of details of account balances.
Q2) Order entry is the initial function in the revenue cycle.
A)True
B)False
Q3) All of the following are important controls over credit memos except:
A) proper segregation of duties to ensure that sales discounts taken were earned.
B) credit memos should be approved by someone other than whoever initiated it.
C) credit memos should be supported by a receiving document for returned goods.
D) proper segregation of duties between access to customer records and authorizing credit memos.
Q4) A remittance advice is used to track purchases. A)True B)False
Q5) Describe the two types of confirmations and indicate which one is more reliable and why.
Q6) Explain how revenue recognition is important to the audit of the revenue process.
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) When searching for unrecorded liabilities at year-end,the population identified for sampling would be
A) cash receipts from related parties recorded before year-end.
B) creditors whose accounts appear on a subsidiary trial balance of accounts payable.
C) cash disbursements recorded in the period subsequent to year-end.
D) invoices dated a few days before and after year-end.
Q2) The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because
A) accrued liabilities usually pertain to services of a continuing nature, while accounts payable are the result of completed transactions.
B) accrued liability balances are less material than accounts payable balances.
C) evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts payable is readily available.
D) accrued liabilities at year-end will become accounts payable during the following year.
Q3) 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.
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) The human resource function is responsible for managing the personnel needs of the organization.
A)True
B)False
Q2) Key segregations of duties in the human resource management process include all of the following except:
A) the supervision function should be separate from the payroll-processing function.
B) the disbursement function should be separate from the supervision function.
C) the human resource function should be separate from setting salaries.
D) the payroll-processing function should be separate from the general ledger function.
Q3) An auditor most likely would extend substantive tests of payroll when
A) payroll is extensively audited by the state government.
B) payroll expense is substantially higher than in the prior year due to company growth.
C) overpayments are discovered in performing tests of details.
D) employees complain to management about too much overtime.
Q4) Explain how the human resource management process can affect the financial statements.
To view all questions and flashcards with answers, click on the resource link above. Page 14
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 safeguarding of inventory most likely includes
A) comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices.
B) periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count.
C) analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence.
D) application of established overhead rates on the basis of direct labor hours or direct labor costs.
Q2) An entity's physical count of inventories was lower than the inventory quantities shown in its perpetual records.This situation could be the result of the failure to record A) sales.
B) sales returns.
C) purchases.
D) purchase discounts.
Q3) List five things an auditor should do during the observation of the physical count of inventory.
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) If the auditor has detected misstatements in prior audits,the assessment of inherent risk for the property management process will usually be set higher.
A)True
B)False
Q2) Identify the types of transactions that occur in the property management process.
Q3) Auditors will examine the insurance register primarily to A) ensure that dollar coverage amounts are adequate.
B) examine policy expiration dates to verify that prepaid insurance is properly stated.
C) ensure that insurance agents are not related parties.
D) ensure that all assets are insured.
Q4) What tests do auditors typically perform on a lead schedule for property,plant,and equipment and what assertion are they testing?
Q5) Describe the types of information that should be included in the schedule of prepaid insurance that is used by the auditor as the basis for auditing prepaid insurance.
Q6) 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. Page 16
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) An auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's
A) minutes of the board of directors' meetings.
B) transfer agent's records.
C) canceled stock certificates.
D) treasury stock certificate book.
Q2) In the audit of a medium-sized manufacturing concern,which one of the following areas can be expected to require the least amount of audit time?
A) Retained earnings.
B) Revenue.
C) Assets.
D) Liabilities.
Q3) Identify the four major assertions made regarding stockholders' equity and describe one control activity for each.
Q4) Identify the three major types of transactions that occur in stockholders' equity.
Q5) You have been assigned the duty of auditing long-term debt and retained earnings for Keys,Inc.Describe the tests you would use to support management's assertions regarding disclosure for these accounts.
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) The auditor's use of analytical procedures for auditing cash is limited.
A)True
B)False
Q2) To satisfy the valuation assertion when auditing an investment accounted for by the equity method,an auditor most likely would
A) inspect the stock certificates evidencing the investment.
B) examine the audited financial statements of the investee company.
C) review the broker's advice or canceled check for the investment's acquisition.
D) obtain market quotations from financial newspapers or periodicals.
Q3) The least crucial element of internal control over cash is
A) separation of cash record-keeping from custody of cash.
B) preparation of the monthly bank reconciliation.
C) batch processing of checks.
D) separation of cash receipts from cash disbursements.
Q4) The general cash account is normally the principal account used to disburse payroll.
A)True B)False
Q5) Explain how cash plays a role in all business processes.
Page 18
To view all questions and flashcards with answers, click on the resource link above.
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) After fieldwork audit procedures are completed,a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the working papers.This second review usually focuses on
A) the audit report, financial statements, and footnotes for consistency.
B) irregularities involving the entity's management and its employees.
C) the materiality of the adjusting entries proposed by the audit staff.
D) the communication of internal control weaknesses to those charged with governance.
Q2) After issuance of the auditor's report,the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless
A) a final resolution of a contingency that had resulted in a qualification of the auditor's report is made.
B) a development occurs that may affect the entity's ability to continue as a going concern.
C) an investigation of the auditor's practice by a peer review committee ensues. D) new information is discovered concerning undisclosed related party transactions of the previously audited period.
Q3) 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) A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements.The disclaimer should
A) clearly state the specific reasons for lack of independence.
B) not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards.
C) not describe the reason for lack of independence but should state specifically that the CPA is not independent.
D) include a middle paragraph clearly describing the CPA's association with the entity and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.
Q2) When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence,the auditor should issue a(n)
A) "subject to" qualified opinion.
B) disclaimer of opinion.
C) adverse opinion.
D) unqualified opinion with a separate explanatory/emphasis-of-matter paragraph.
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) The independence standards issued by the PCAOB do not prohibit the provision of tax services to an attest client.
A)True
B)False
Q2) If an auditor is not independent of the client,it is unlikely that a user of financial statements will place much reliance on the CPA's work.
A)True
B)False
Q3) When can a CPA disclose confidential information without the client's consent?
Q4) Within the context of quality control,the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
A) technical training that ensures proficiency as an auditor.
B) opportunities for career advancement outside the accounting firm.
C) knowledge required to fulfill assigned responsibilities.
D) knowledge required to perform a peer review.
Q5) Principles are stated at a conceptual level,not a detailed level.
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) Gold,CPA,rendered an unqualified opinion on the financial statements of Eastern Power Company.Egan purchased Eastern bonds in a public offering subject to the Securities Act of 1933.The registration statement filed with the SEC included the audited financial statements.Gold is being sued by Egan under Section 11 of the Securities Act of 1933 for the misstatements contained in the financial statements.To prevail,Egan must prove
A) neither scienter nor reliance.
B) reliance but not scienter.
C) scienter but not reliance.
D) both scienter and reliance.
Q2) The Foreign Corrupt Practices Act requires that
A) auditors engaged to examine the financial statements of public companies report all illegal payments to the SEC.
B) public companies establish independent audit committees to monitor the effectiveness of their system of internal control.
C) U.S. firms doing business abroad report sizable payments to non-U.S. citizens to the Justice Department.
D) public companies devise and maintain an adequate system of internal control.
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) For an auditor to examine management's assertions about the effectiveness of internal control in an attestation engagement,three conditions are necessary.Briefly explain them.
Q2) Explain each of the three PrimePlus Services typically offered by practitioners.
Q3) Reasonable assurance is provided in
A) an audit engagement.
B) a compilation engagement.
C) a review engagement.
D) none of the items listed.
Q4) IIA Standards include
A) practice advisories.
B) code of Ethics.
C) interpretations.
D) both practice advisories and the Code of Ethics.
Q5) Examples of attest engagements include examination,review,and agreed-upon procedures engagements.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 23
Q6) How has the advancement in technology led to the creation of the Trust Services?