Introduction to Auditing Test Preparation
Course Introduction
Introduction to Auditing provides students with a comprehensive overview of auditing principles and practices, emphasizing the role of auditors in ensuring transparency and accountability in financial reporting. The course covers key concepts such as the audit process, internal controls, risk assessment, and evidence gathering. Students will explore various auditing standards and procedures, the ethical responsibilities of auditors, and the regulatory environment governing the profession. Through real-world case studies and practical exercises, participants develop analytical and critical thinking skills essential for evaluating financial statements and ensuring compliance with relevant laws and regulations.
Recommended Textbook
Auditing The Art and Science of Assurance Engagements 14th Canadian Edition by Alvin A Arens
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20 Chapters
1527 Verified Questions
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Chapter 1: The Demand for Audit and Other Assurance Services
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Sample Questions
Q1) When readers are cautioned that the financial statements may not be appropriate for their purposes,the non-assurance service is called a(n)
A)SysTrust.
B)compilation.
C)review.
D)audit.
Answer: B
Q2) It is important for the auditor to be independent because
A)otherwise the auditor would not charge a fair rate to the client.
B)otherwise the auditor might not be as knowledgeable of the subject matter and the criteria.
C)this will prevent bias in accumulating and evaluating evidence.
D)the Canadian tax authorities require that the auditor be independent.
Answer: C
Q3) Which of the following is an example of auditing rather than accounting?
A)recording purchase amounts in the expense accounts
B)posting the daily sales totals to the general ledger
C)recording cash received in the customer account files
D)evaluating whether accounts receivable are collectible
Answer: D
Page 3
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Chapter 2:The Public Accounting Profession and Audit Quality
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Sample Questions
Q1) How do practice inspections affect the ability of a PA firm to have articling students work at the firm? Practice inspectors
A)only permit students to work there if the quality controls are good.
B)review the ability of the office to provide sufficient,appropriate hours.
C)require that students work only on audit engagements,not reviews.
D)consider only work completed by qualified PAs,not students.
Answer: B
Q2) Gary West is a sole practitioner.He has conducted the audit of Reggie's Farm for the past 12 years.In the current year,Reggie's Farm expanded by acquiring two other farms,installed a new accounting system,and also started to export to the United States.Gary accepted the audit of Reggie's Farm for the upcoming year even though he has no experience with exports to the U.S.or companies the size of Reggie's Farm.Which element of quality control is compromised for Gary's firm?
A)independence
B)client acceptance or continuance
C)extent of professional development
D)general ethical requirements
Answer: B
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Chapter 3: Professional Ethics and Legal Liability
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105 Flashcards
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Sample Questions
Q1) If a PA firm provided corporate finance services to a company during the year,which of the following engagements could the PA firm accept to provide to the same company?
A)non-assurance services
B)audit of listed entity
C)audit of non-listed entity
D)an assurance engagement other than an audit
Answer: A
Q2) Which of the following situations best describes an advocacy threat? PA has been hired to
A)consult with the corporate controller and the bank manager about the conditions for financing a loan.
B)manage the accounting department for three weeks while the corporate controller is on vacation.
C)complete the personal tax returns of all executive management.
D)prepare the year end journal entries for a subsidiary company.
Answer: A
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Page 5
Chapter 4: Audit Responsibilities and Objectives
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Sample Questions
Q1) If the auditor were responsible for making certain that all the assertions of management in the statements were correct,
A)bankruptcies could no longer occur.
B)bankruptcies would be reduced to a very small number.
C)audits would be much easier to complete.
D)audits would not be economically practical.
Q2) The decision to continue doing the audit of an existing client is
A)as important as deciding whether or not to accept a new client
B)less important than deciding whether or not to accept a new client
C)more important than deciding whether or not to accept a new client
D)only to be reconsidered if the client's operations or upper management has changed
Q3) Analytical procedures are those that
A)evaluate the accuracy of the account balances.
B)evaluate financial information through analysis of plausible relationship.
C)review the effectiveness of internal controls.
D)analyze the effect of management procedures on the accounting system.
Q4) A financial statement audit typically consists of four sections that relate to risk.Identify the four sections and discuss the major activities performed by the auditor in each section.
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Chapter 5: Audit Evidence
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Sample Questions
Q1) List the various judgments and conclusions that auditors make with the help of evidence gathered in all phases of the audit process.-to accept (or continue with)the client.
-to plan the audit.
-to decide where there could be a risk of material misstatement in the financial statements.
-to develop an appropriate risk response.
-to conclude on the type of audit report to be issued.
Q2) List the purposes and types of audit procedures used by auditors in all phases of the audit process.
Q3) The audit evidence gathering technique of recalculation refers to
A)sending bank confirmation to validate bank balances.
B)rechecking prices as per price list.
C)counting inventory.
D)checking the calculation of amortization expense.
Q4) To improve the appropriateness of audit evidence,the auditor should
A)be sure to select a larger sample size for the items being tested.
B)add additional population items into the sample to improve sample variety.
C)select audit procedures that improve the reliability of the evidence.
D)select a smaller sample size that is statistically valid.
Page 7
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Chapter 6: Client Acceptance,Planning,and Materiality
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Sample Questions
Q1) If the auditor sets a low dollar amount as materiality,
A)more evidence is required than for a high amount.
B)less evidence is required than for a high amount.
C)the same amount of evidence is required as for a high dollar amount.
D)it has no effect on the amount of evidence required.
Q2) There are many types of analytical procedures that the auditor can conduct during the planning stage of the financial statement audit.What is the purpose of comparing prepaid expenses and related expense accounts with those of prior years?
A)to understand the client's industry and business
B)to assess going concern
C)to identify possible misstatements
D)to reduce tests of controls
Q3) Knowledge of the client's industry and external environment can be obtained in different ways.Discuss some of the ways that this knowledge can be obtained.
Q4) An important reason for adequately planning the audit engagement is to
A)help decide whether the engagement should be accepted.
B)enable the auditor to obtain sufficient appropriate audit evidence.
C)properly design the contents of the engagement letter.
D)keep audit risk as low as possible.
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Chapter 7: Assessing the Risk of Material Misstatement
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Sample Questions
Q1) An inherent risk (IR)of 40% and a control risk (CR)of 60% affect detection risk and planned evidence differently than an
A)IR of 60% and CR of 40%.
B)IR of 100% and CR of 24%.
C)IR of 80% and CR of 30%.
D)IR of 70% and CR of 30%.
Q2) What is the role of internal controls during the assessment of inherent risk?
A)Internal controls are considered separately,so they are ignored during the assessment of inherent risk.
B)As the quality of internal controls increases,inherent risk decreases.
C)As the quality of internal controls improves,inherent risk increases.
D)There is a direct relationship between the quality of internal controls and inherent risk.
Q3) Auditors' responsibility relating to fraud risk is
A)detecting any type of fraud that occurred during the reporting period.
B)detecting fraud only if it is above the planning materiality level.
C)not an issue because the auditor is not responsible for detecting fraud.
D)making inquiries of management about fraud and considering fraud risks.
Q4) What are the components of risk of material misstatement at the assertion level?
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Chapter 8: Internal Control and COSO Framework
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Sample Questions
Q1) Which of the following duties would indicate a weakness in internal controls?
A)The accounting function is under the controller.
B)The custodianship of cash is the responsibility of the treasurer's function.
C)The internal auditor reports to the board of directors.
D)The custodianship of buildings and equipment is the responsibility of the controller's function.
Q2) A firewall allows the organization to
A)monitor network hot spots for signs of intruders.
B)prevent known spyware and malware from entering the system.
C)support identity management initiatives.
D)prevent unauthorized communication both into and out of the network.
Q3) Bravo Design had IMB consulting provide them with a service center to record the job costs and sales in progress.What process did Bravo Design follow?
A)in-house development
B)systems acquisition
C)outsourcing
D)turnkey software development
Q4) Define a system of internal control.How does risk affect a system of internal control?
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Chapter 9: Assessing Control Risk and Designing Test of Controls
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Sample Questions
Q1) What are the two types of reports service auditors issue?
Q2) When the auditor identifies opportunities for the client to make operational improvements in the internal control system,it will be communicated to the client's audit committee in the
A)management letter.
B)reportable conditions letter.
C)engagement letter.
D)audit report.
Q3) Each key control that the auditor intends to rely on must be supported by sufficient A)tests of details of balances.
B)tests of controls.
C)analytical review procedures.
D)reperformance procedures.
Q4) List and explain the methods of documenting the auditor's understanding of internal controls.
Q5) Describe the three types of tests that need to be performed by the auditor when auditing a client's data conversion process.
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Chapter 10: Develop Risk Response: Audit Strategy and Audit Program
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) Materiality is used to help decide the scope of testing,determine the sample size,and
A)develop the audit report.
B)decide which analytical review calculations to use.
C)evaluate the results of testing.
D)conduct understanding of business tests.
Q2) Control risk has been assessed at 100% for your client.What audit approach will you follow?
A)a combined approach
B)a substantive approach
C)reliance on analytical review and tests of controls
D)reliance on tests of controls and tests of details
Q3) When auditors perform audit procedures relating to contingent liabilities and subsequent events,what evidence do the auditors gather for the financial statements as a whole?
A)perform preliminary analytical procedures
B)evidence from test of controls
C)evidence from substantive testing
D)obtain client representation letter
Q4) Describe a dual-purpose test.
12
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Chapter 11: Audit Sampling Concepts
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Sample Questions
Q1) One of the ways to eliminate nonsampling risk is through
A)proper supervision and instruction of the client's employees.
B)proper supervision and instruction of the audit team.
C)the use of attribute sampling rather than variables sampling.
D)controls that ensure the sample drawn is random and representative.
Q2) A sample in which the characteristics of the sample are the same as those of the population is a(n)
A)random sample.
B)variables sample.
C)attribute sample.
D)representative sample.
Q3) During the audit of the fixed asset section,the auditor decided to inspect source documents supporting all fixed asset additions exceeding $3000.This type of audit procedure is called a
A)census of the strata over $3000.
B)analytical review.
C)attribute sample.
D)monetary unit sample.
Q4) What are the three phases that are similar in both statistical and nonstatistical sampling?
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Chapter 12: Audit of the Revenue Cycle
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Sample Questions
Q1) A)State the five specific transaction-related audit objectives for sales and describe one common test of controls for each objective.B)Describe three tests of controls commonly used to test the accuracy objective for sales.
Q2) Your audit client has many different types of accounts receivable: Canadian,American,and other international accounts;and short- and long-term accounts.There are also some sales on consignment.The company has used forward exchange contracts to reduce its exposure due to foreign exchange fluctuations.How will this affect the audit engagement?
A)control risk will increase
B)inherent risks of error will decrease
C)risk of material misstatement increases
D)audit risk will be increased
Q3) Analytical procedures are substantive tests and if the results of the analytical procedures are favorable they will reduce
A)the extent of tests of details of balances.
B)the extent of tests of controls.
C)the analytical procedures.
D)all of the other tests.
Q4) Describe skimming.
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Chapter 13: Audit of the Acquisition and Payment Cycle
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Sample Questions
Q1) Discuss the key internal controls related to the disposal of manufacturing equipment.
Q2) What are the important controls relating to cash disbursements?
Q3) In determining that the accounts payable cutoff is correct,it is essential that the cutoff tests be coordinated with the
A)confirmation of accounts payable.
B)tests on long-term liabilities.
C)observation of inventory.
D)cash count.
Q4) Which of the following controls help to ensure that the receipt of raw materials for inventory is recorded in the correct period?
A)Vendor details are automatically retrieved from the vendor master file.
B)Receiving staff write down the date goods are received on the bill of lading.
C)Accounting staff record the date that goods are received in the accounting systems.
D)The transaction date entered must be the same as the system date.
Q5) Describe the two objectives that are most important in auditing accumulated amortization.Explain why these objectives are important.
Q6) What are the common key controls relating to acquisitions?
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Chapter 14: Audit of the Inventory and Distribution Cycle
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Q1) The existence of an adequate storeroom with a competent custodian in charge results in the orderly storage of inventory and can protect inventory from theft and misuse.How would an auditor assess these controls?
A)observation during the audit and inquiry of the accounting staff
B)inquiry of the accounting staff and inspection of theft statistics
C)observation during the inventory count and inquiry of inventory personnel
D)inspection of inventory damage statistics and inquiry of inventory personnel
Q2) CAS for audit procedures for inventory indicate that the auditor
A)must count the inventory.
B)must be present at the inventory count and must receive adequate documentation from the client regarding the effectiveness of inventory-taking.
C)must be present at the inventory count and evaluate the methods followed in the determination of quantities and values.
D)need not be present at the count but must review the methods followed in the determination of quantities and values.
Q3) A)Discuss the key control procedures relating to the client's physical count of inventory.B)State the primary determinants of the amount of time needed to perform the physical observation of inventory.
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Chapter 15: Audit of the Human Resources and Payroll Cycle
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Sample
Questions
Q1) Which of the following is not a major risk in the payroll cycle?
A)paying fictitious employees
B)incorrect accounting of costs and expenses
C)overpayment for time and production
D)paying employees more than the market rate
Q2) The human resources department would likely provide which of the following internal controls for the human resources and payroll cycle?
A)recalculation of net pay for every pay
B)independent verification of wage rate
C)account for the continuity of employee numbers
D)account for the continuity of payroll check numbers
Q3) "Recorded payroll transactions are for the amount of time actually worked and at the proper pay rate;withholdings are properly calculated" relates to which control objective?
A)authorization
B)completeness
C)existence
D)accuracy
Q4) List the common key controls for the human resources and payroll cycle.
Q5) What are the risks of error or fraud in the human resources and payroll cycle?
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Chapter 16: Audit of the Capital Acquisition and Repayment Cycle
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Sample Questions
Q1) In the audit of the transactions and amounts in the capital acquisitions and repayments cycle,the auditor must ensure that significant legal requirements affecting the financial statements have been properly fulfilled and A)any violations are reported to the relevant provincial securities commissions. B)any departures from the agreements are made with management's knowledge and consent.
C)are adequately disclosed in the financial statements.
D)must issue a disclaimer if they haven't been fulfilled.
Q2) Explain why the auditor's verification of owners' equity is more complex for publicly-held corporations than closely-held corporations.
Q3) Describe the audit procedures and related audit assertions for the audit of dividends.
Q4) The exclusion of a single transaction of the capital acquisition and repayment cycle could be material in itself.This means that the following audit assertion is a major audit concern:
A)completeness.
B)existence.
C)accuracy.
D)rights and obligations.
Page 18
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Chapter 17: Audit of Cash Balances
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Sample Questions
Q1) The most important internal control for petty cash is
A)the use of an imprest fund that is the responsibility of one individual.
B)keeping it in a safe or locked drawer.
C)keeping the amount of cash to a minimum.
D)accessibility so that cheques won't have to be written for small amounts.
Q2) The auditor has examined the financial statements,particularly the cash flow statement,and the notes to the financial statements to determine that all relevant information is presented clearly.Which audit assertion is associated with this audit test?
A)classification
B)allocation
C)understandability
D)valuation
Q3) The starting point for the verification of the balance in the general bank account is to obtain
A)the client's December bank statement and reconcile it.
B)a bank reconciliation from the client.
C)a cutoff bank statement directly from the bank.
D)the client's cash account balance from the general ledger.
Q4) What audit procedures are used to uncover a fraud in the cash receipts area?
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Chapter 18: Completing the Audit
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Sample Questions
Q1) The auditor has a responsibility to review transactions and activities occurring after the year-end to determine whether anything occurred that might affect the valuation or disclosure of the statements being audited.The auditing procedures required to verify these transactions are commonly referred to as the review for
A)contingent liabilities.
B)subsequent year's transactions.
C)late unusual occurrences.
D)subsequent events.
Q2) One of the purposes of a client representation letter is to
A)reduce the amount of audit procedures performed by the auditor.
B)document the responses from management to inquiries about various aspects of the audit.
C)serve as audit evidence for the accuracy of the contingent liabilities.
D)reduce the detection risk.
Q3) What audit approach is used to search for unknown commitments?
A)include as part of the search for subsequent events
B)conduct with substantive tests associated with the cutoff assertion
C)perform as part of the audit of each cycle or audit area
D)include with the legal letter sent to lawyers
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Page 20
Chapter 19: Audit Reports on Financial Statements
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Sample Questions
Q1) Analyze the "Responsibilities for the Audit of Financial Statements" section of the unmodified Independent Auditors' Report.Explain the intended purpose of the sentences in this section.
Q2) The most common type of audit report contains
A)an adverse opinion.
B)a disclaimer of opinion.
C)a modified opinion.
D)an unmodified opinion.
Q3) List the sections of an unmodified auditors' report.
Q4) The auditor's report of the Samcorp Company indicates that the auditor is unable to form an opinion on whether the financial statements of the company are fairly presented due to scope restrictions and unavailable and incomplete records.The auditor's report
A)is unmodified.
B)is qualified.
C)is adverse.
D)is a disclaimer of opinion.
Q5) Give examples of circumstances in which an Other Matters paragraph in an audit report may be considered by an auditor.
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Chapter 20: Other Assurance and Nonassurance Services
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Sample Questions
Q1) An engagement for applying specified auditing procedures to financial information other than financial statements provides no assurance.This results in
A)a report that can be readily tailored to any type of engagement.
B)a broad set of audit procedures being conducted for specific information.
C)frequent disagreement between auditor and client with respect to results.
D)distribution of the report normally being restricted.
Q2) The accountant is working on an engagement with respect to the client's financial statements.Which of the following engagements would omit an assessment of the client's accounting policies' compliance with GAAP?
A)review
B)compilation
C)audit
D)attestation
Q3) Define "direct reporting engagements."
Q4) When conducting a review engagement,how is materiality calculated?
A)materiality is not calculated as a lower level of assurance is being provided
B)the concept of significance is used,rather than the concept of materiality
C)always as a percentage of net income before income taxes
D)in the same manner as an audit engagement
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