Professional Auditing Practices
Solved Exam Questions
Course Introduction
Professional Auditing Practices explores the principles, standards, and procedures essential to the field of auditing, both internal and external. The course covers the audit process from planning and risk assessment to evidence gathering, reporting, and follow-up. Students learn about regulatory frameworks, ethical considerations, and the application of generally accepted auditing standards (GAAS). Practical case studies and examples help illustrate audit techniques, the use of technology in audits, and approaches to detecting and preventing fraud. The course equips learners with the foundational skills and professional judgment required for effective audit engagements in public accounting and corporate settings.
Recommended Textbook
Auditing A Risk Based Approach to Conducting a Quality Audit 10th Edition by Karla Johnstone
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17 Chapters
1898 Verified Questions
1898 Flashcards
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Chapter 1: Auditing: Integral to the Economy
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) The scope of the work to be done by the auditor on the audit is described in which document?
A) Contract letter.
B) Management letter.
C) Representation letter.
D) Engagement letter.
Answer: D
Q2) The SEC and PCAOB independence rules for auditors are identical.
A)True
B)False
Answer: False
Q3) The AICPA has a peer review program that reviews and evaluates the portions of an audit firm's accounting and audit practice that are not inspected by the PCAOB.
A)True
B)False
Answer: True
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Chapter 2: The Auditors Responsibilities Regarding Fraud
and Mechanisms to Address Fraud: Regulation and Corporate Governance
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Various types of ways that fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing.
A)True
B)False
Answer: True
Q2) Which of the following frauds involved primarily asset misappropriation?
A) Enron.
B) Worldcom.
C) Dell.
D) Koss.
Answer: D
Q3) According to professional audit standards, how might an understanding of the nature of fraud that may occur in the client organization be identified by an audit firm?
A) Fraud training courses from actual corporate fraud ex-criminals.
B) Conducting a brainstorming session with the members of the audit team.
C) Circulating a survey to the client company employees for completion.
D) Discussions with other audit firms.
Answer: B
Page 4
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Chapter 3: Internal Control Over Financial Reporting:
Responsibilities of Management and the External Auditors
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) A control designed to ensure that sales transactions are generated using the company's most current prices would be considered to be which type of control?
A) An input control.
B) A processing control.
C) An output control.
D) A physical control.
Answer: B
Q2) Which of the following is not included as a components of an organization's internal control structure in the COSO framework?
A) Control risk.
B) The control environment.
C) Risk assessment.
D) Control activities.
Answer: A
Q3) A strong control environment can reduce all the financial reporting risks to zero.
A)True
B)False
Answer: False
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Chapter 4: Professional Liability, Auditor Judgment
Frameworks, and Professional Responsibilities
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88 Verified Questions
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Sample Questions
Q1) Rule 102 on integrity and objectivity only applies to covered members as defined by the AICPA.
A)True
B)False
Q2) Rule 201 - General Standards, of the AICPA Code of Professional Conduct does not include which of the following factors?
A) Due professional care.
B) Integrity and objectivity.
C) Planning and supervision.
D) Sufficient relevant data.
Q3) Confidentiality is the cornerstone of the auditing profession.
A)True
B)False
Q4) The importance of independence. Why is "independence" referred to as the cornerstone of auditing?
Q5) Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.
A)True B)False
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Chapter 5: Professional Auditing Standards and the Audit
Opinion Formulation Process
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) U.S. auditing standards recommend that a successor auditor on an initial audit obtain client permission to communicate with the predecessor auditor.
A)True
B)False
Q2) Inherent risk refers to the susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be immaterial, either individually or when aggregated with other misstatements, before consideration of any related controls.
A)True
B)False
Q3) The auditing standards.
Under the clarified auditing standards, what is the structure of each auditing standard issued by the ASB? What is the purpose of each section?
Q4) An auditor typically indicates in the engagement letter that the audit will result in an unqualified report on the financial statements.
A)True
B)False
Q5) Explain the meaning of due professional care.
Page 7
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Chapter 6: A Framework for Audit Evidence
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Which one of the following would be considered the most reliable type of audit evidence?
A) Purchase orders from vendors.
B) Customer accounts receivable files.
C) Computerized general ledger.
D) Confirmations from banks.
Q2) In evaluating cost of evidence, which of the following evidence qualities of the audit usually has the lowest cost?
A) High quality.
B) Medium quality.
C) Low quality.
D) All cost the same.
Q3) When may audit procedures be performed.
I - on the balance sheet date.
II - prior to the balance sheet date.
III - subsequent to the balance sheet date.
A) I only.
B) I and III only.
C) II only.
D) I, II, and III.
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Chapter 7: Planning the Audit: Identifying and Responding
to the Risks of Material Misstatement
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Auditors need to choose materiality amounts carefully because once a materiality judgment has been made, it cannot be revised.
A)True
B)False
Q2) Clearly trivial and not material are terms that can be used interchangeably.
A)True
B)False
Q3) The usual length of a brainstorming session is about four hours.
A)True
B)False
Q4) As detection risk increases, the amount of evidence an auditor needs to obtain decreases.
A)True
B)False
Q5) Which of the following are common brainstorming session guidelines?
A) Freedom of expression.
B) Respectful communication.
C) Suspension of criticism.
D) All of the above.
Page 9
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Chapter 8: Specialized Audit Tools: Sampling and
Generalized Audit Software
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) An attribute is defined as a characteristic of the population of interest to the auditor.
A)True
B)False
Q2) Which of the following applications are incorporated into statistical sampling?
A) Binomial and confidence intervals.
B) Random and haphazard selection.
C) Hypergeometric distribution with audit risk.
D) Probability and statistical inference with audit judgment.
Q3) When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the projected misstatement for items in lower-stratum.
A)True
B)False
Q4) Random number, systematic sampling and material value sampling are acceptable sample selection methods for statistical sampling.
A)True
B)False
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Chapter 9: Auditing the Revenue Cycle
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.
A)True
B)False
Q2) Confirmations that are sent to select customers asking them to review the current balance due the client as shown on the client's statement and return the letters directly to the auditor indicating whether they agree with the indicated balance, are known by which of the following terms?
A) Direct confirmations.
B) Indirect confirmations.
C) Positive confirmations.
D) Negative confirmations.
Q3) Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?
A) The cash is realized on the sale of the product.
B) A price is discussed based upon the customer's resale of the product.
C) The customer is given the option to return the product at any time.
D) The product is adequately delivered to the customer.
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Chapter 10: Auditing Cash and Marketable Securities
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Kiting fraudulently places the company's marketable securities in the name of the officers.
A)True
B)False
Q2) Financial Statements Assertions.
Describe the management assertions relevant to cash and other liquid assets.
Q3) The standard bank confirmation includes a designated place for the financial institution to report which of the following?
A) Loans and collateral.
B) A reconciliation of the lockbox.
C) Cash held on consignment.
D) Maturity dates for certificates of deposit.
Q4) Which of the following is not an internal control the auditor would expect to find in place for all cash processing systems?
A) Restrictive endorsement of checks.
B) Independent reconciliation.
C) Walkthrough.
D) Prenumbered cash receipt documents.
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Page 12
Chapter 11: Auditing Inventory, Goods and Services, and
Accounts Payable: the Acquisition and Payment Cycle
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The purchasing department should make sure that only authorized goods are received, the goods meet order specifications, an accurate count of the goods received is taken, and that accountability is established to assure that all receipts are recorded.
A)True
B)False
Q2) Management may intentionally misstate inventory balances by overvaluing items that are obsolete.
A)True
B)False
Q3) An auditor reviews purchase contracts to assess the conditions for the return of merchandise as a test related to which management assertion?
A) Existence
B) Completeness
C) Rights and Obligations
D) Valuation
Q4) Centralized purchasing.
List the advantages for implementing a centralized purchasing function. What are the disadvantages (if any)?
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Chapter 12: Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal
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97 Verified Questions
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Sample Questions
Q1) Gains on the sale of equipment usually indicate that the depreciation lives of the assets are too long.
A)True
B)False
Q2) If preliminary analytical procedures identify some unexpected relationships, the auditor would conclude that there may be a heightened risk of material misstatements.
A)True
B)False
Q3) A client has implemented a policy requiring the establishment and enforcement of property management training for all personnel involved in the use, stewardship, and management of equipment. Which of the following is not a test that could be used in testing the control?
A) Inquiry.
B) Observation.
C) Inspection of documentation.
D) Review financial statements.
Q4) Audit approach for leases.
Describe the substantive procedures typically used to test leases.
Page 14
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Chapter 13: Auditing Debt Obligations and Stockholders
Equity Transactions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following is not important documentation for substantive procedures for debt obligations?
A) Copies of the debt agreements.
B) The client's articles of incorporation.
C) A summary of the calculations supporting the compliance debt covenance.
D) Identification of the specific items tested.
Q2) If the auditor identifies a risk of material misstatement due to fraud related to debt obligations or stockholders' equity accounts, the auditor needs to determine the appropriate responses, potentially including changing the nature, timing, and extent of audit procedures.
A)True
B)False
Q3) As a starting point for testing capital stock and equity transactions, which of the following should the auditor perform?
A) Trace the proceeds of stock sold to the cash receipts journal.
B) Review the minutes of the board of directors meetings.
C) Examine documentation maintained by the transfer agent.
D) Review a copy of the client's articles of incorporation.
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Chapter 14: Activities Required in Completing a Quality Audit
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) Estimates are based on both subjective and objective factors.
A)True
B)False
Q2) According to the Foreign Corrupt Practices Act of 1977 (FCPA), companies that have securities listed on U.S. markets must make and keep financial records that accurately and fairly reflect the transactions of the company and design and maintain an adequate system of internal accounting controls.
A)True
B)False
Q3) If the audit team encounters difficulties in performing an audit, who should the audit team communicate these matters to?
A) The SEC.
B) The audit committee.
C) Management.
D) The PCAOB.
Q4) The engagement quality review is a risk-based review.
A)True
B)False
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Chapter 15: Audit Reports on Financial Statements
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Which one of the following is not a type of unqualified audit opinion issued by auditors?
A) Standard with three paragraphs.
B) Includes explanatory paragraph.
C) Includes modifications.
D) Does not include the opinion paragraph.
Q2) In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?
A) The client has had significant transactions with related entities that the auditor wants to emphasize.
B) The financial statements are not in conformity with FASB requirements regarding the capitalization of leases.
C) The auditor is not independent.
D) There is substantial doubt about the entity's ability to continue as a going concern.
Q3) The audit report can be a verbal presentation to the audit committee about the client.
A)True
B)False
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Chapter 16: Advanced Topics Concerning Complex
Auditing
Judgments
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132 Verified Questions
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Sample Questions
Q1) Goodwill is the excess of the purchase price over the fair market value of the acquired company's tangible assets, identifiable intangible assets, and liabilities.
A)True
B)False
Q2) When evaluating identified misstatements, the auditor only needs to consider misstatements in the current year, and not misstatements from the prior year.
A)True
B)False
Q3) Determining materiality is based solely on quantitative factors.
A)True
B)False
Q4) Independence of the internal audit function is obtained by giving the Chief Audit Executive (CAE) unrestricted access to the board and senior management. A)True
B)False
Q5) The auditor considers materiality only at the overall financial statement level. A)True
B)False
18
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Chapter 17: Other Services Provided by Audit Firms
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Sample Questions
Q1) A company issuing prospective financial statements can receive a compilation on the statements but not an examination.
A)True
B)False
Q2) Which of the following statements is false regarding responsibilities associated with agreed-upon procedures engagements?
A) The responsibility of the practitioner is to conduct the procedures and report the findings in accordance with applicable professional standards.
B) The practitioner must have adequate knowledge of the subject matter.
C) The practitioner is required to determine if there exists a difference between the agreed-upon procedures requested by the specified parties and the procedures that the practitioner would have decided to conduct if the practitioner would have been engaged to perform another form of engagement.
D) The practitioner should not agree to perform agreed-upon procedures that are overly subjective.
Q3) A special purpose framework can use a cash basis financial reporting framework.
A)True B)False
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