Audit questions chapter four and six

1. The objective of the ordinary audit of financial statements is the expression of an opinion on:

A. the fairness of the financial statements.

B. the accuracy of the monthly financial statements.
C. the accuracy of the annual report.
D. the balance sheet and income statement.

2. If the auditor believes that the financial statements are not fairly stated or is unable to reach an
conclusion because of insufficient evidence, the auditor:

A. should withdraw from the engagement.

B. should request an increase in audit fees so that more resources can be used to conduct the
audit.
C. has the responsibility of notifying financial statement users through the auditor’s
report.
D. should notify regulators of the circumstances.

3. Auditors accumulate evidence to:

A. defend themselves in the event of a lawsuit.

B. justify the conclusions they have otherwise reached.
C. satisfy the requirements of the Securities Acts of 1933 and 1934.
D. enable them to reach conclusions about the fairness of the financial statements.

4. Which of the following is not one of the reasons that auditors provide only reasonable

assurance on the financial statements?

A. The auditor commonly examines a sample, rather than the entire population of
transactions.
B. Accounting presentations contain complex estimates which involve uncertainty.
C. Fraudulently prepared financial statements are often difficult to detect.
D. Auditors believe that reasonable assurance is sufficient in the vast majority of cases.
5. Which of the following statements is most correct regarding errors and fraud?

A. An error is unintentional, whereas fraud is intentional.

B. a b. Frauds occur more often than errors in financial statements.
C. Errors are always fraud and frauds are always errors.
D. Auditors have more responsibility for finding fraud than errors.

6. If a short-term note payable is included in the accounts payable balance on the financial

statement, there is a violation of the:

A. completeness assertion.
B. existence assertion.
C. cutoff assertion.
D. classification and understandability assertion.

7. Tests of details of balances are specific procedures intended to:

A. test for monetary errors in the financial statements.

B. prove that the accounts with material balances are classified correctly.
C. prove that the trial balance is in balance.
D. identify the details of the internal control system.

8. The most important general ledger account included in and affecting several cycles is the:

A. cash account.
B. inventory account.
C. income tax expense and liability accounts.
D. retained earnings account.

9. Management assertions are:

A. implied or expressed representations about accounts, transactions, and disclosures

in the financial statements.
B. stated in the footnotes to the financial statements.
C. explicitly expressed representations about the financial statements.
 D. provided to the auditor in the assertions letter, but are not disclosed on the financial
statements.

10. Which of the following statements is true?

A. Audit objectives follow and are closely related to management assertions.

B. Management‟s assertions follow and are closely related to the audit objectives.
C. The auditor‟s primary responsibility is to find and disclose fraudulent management
assertions.
D. Assertions about presentation and disclosure deal with whether the accounts have been
included in the financial statements at appropriate amounts

11. Which of the following statements about the existence and completeness assertions is
not true?

A. The existence and completeness assertions emphasize different audit concerns.

B. Existence deals with overstatements and completeness deals with understatements.
C. Existence deals with understatements and completeness deals with overstatements.
D. The completeness assertion deals with unrecorded transactions.

12. The occurrence assertion applies to _______.

A. presentation and disclosure matters

B. classes of transactions and events during the period
C. account balances
D. proper classification of income statement accounts

13. Which of the following combinations is correct?

A. Existence relates to whether the amounts in accounts are understated.

B. Occurrence relates to whether balances exist.
C. Existence relates to whether amounts included exist.
D. Occurrence relates to whether the amounts in accounts occurred in the proper year.

14. If an auditor conducted an audit in accordance with auditing standards, which of the
following
would the auditor likely detect?

A. Unrecorded transactions.
B. Incorrect postings of recorded transactions.
C. Counterfeit signatures on paid checks.
D. Fraud involving collusion.

15. The essence of the attest function is to:

A. assure the consistent application of correct accounting procedures.

B. determine whether the client’s financial statements are fairly stated.
C. examine individual transactions so that the auditor may certify as to their validity.
D. detect collusion and fraud

16. A standard unqualified audit report is not required to have which of the elements set out
below?

A. A heading „Auditors Opinion‟.

B. An opinion paragraph.
C. Matters the auditor wishes to emphasize.
D. The opinion of the auditor on the financial statements.

17. Which of the following is not a modified audit opinion?

A. An unqualified opinion.
B. An adverse opinion.
C. A disclaimer of opinion.
D. A qualified opinion.

18. An auditor is most likely to issue an „adverse‟ opinion because of:

A. a significant uncertainty exists that should be brought to the reader‟s attention.

B. an extreme scope limitation.
C. a material departure from the applicable accounting standards.
D. the omission of the statement of cash flows
19. An adverse opinion is most likely to be appropriate when there is:

A. a scope limitation.
B. a misstatement confined to a specific item.
C. a disagreement with those charged with governance which is material and
pervasive.
D. inconsistent other information.

20. Which of these would not be considered a scope limitation?

A. Access to the board of directors meetings was limited to those meetings taking place
before the balance sheet date.
B. The auditor is appointed to the engagement too late to observe the client‟s counting of the
inventory.
C. The auditor is forced to call upon an outside expert to properly value antiques that
are held in the client’s vault as investments.
D. The client would not permit confirmation of receivables with their best customers for fear
of annoying the customers

21. An adverse opinion is most likely to be appropriate when there is:

A. a scope limitation.
B. a misstatement confined to a specific item.
C. a disagreement with those charged with governance which is material and
pervasive.
D. inconsistent other information.

22. Which of these would not be considered a scope limitation?

A. Access to the board of directors meetings was limited to those meetings taking place
before the balance sheet date.
B. The auditor is appointed to the engagement too late to observe the client‟s counting of the
inventory.
C. The auditor is forced to call upon an outside expert to properly value antiques that
are held in the client’s vault as investments.
 D. The client would not permit confirmation of receivables with their best customers for fear
of annoying the customers.

23. If the previous period‟s financial statements are unaudited, and sufficient appropriate
evidence is unavailable, then the current auditor‟s report will be:

A. qualified on the basis of scope limitation.

B. unqualified on the basis that the comparatives are unaudited and no opinion is expressed
on them.
C. qualified on the basis that the comparatives are unaudited and an opinion is expressed on
them.
D. qualified on the basis that the comparatives are unaudited and no opinion is
expressed on them.

24. An emphasis of matter section in an audit report is:

A. used very commonly.

B. not a qualification.
C. a qualification.
D. an adverse opinion.

25.Why is it important to obtain an understanding of the internal control system?

A. Weak internal controls may increase the risk of material misstatement.

B. To determine the level of inherent risk.
C. Because strong internal controls indicate management integrity.
D. All of the above

26. Which of these is one of the three components of audit risk?

A. Control risk.
B. Rejection risk.
C. Acceptance risk.
D. Deception risk.

27. Inherent risk is defined in terms of:

 A. the existing controls.
B. the standard controls for the client's industry.
C. a total absence of controls.
D. an ideal set of controls.

28. The assessment of inherent risk requires consideration of matters that have a pervasive effect
on the entity as a whole and matters that may affect only specific accounts. Which of the
following is an example of a “pervasive effect” matter?

A. Industry of operation.
B. Susceptibility to misappropriation.
C. Sensitivity of valuations to economic factors.
D. All of the above.

29. If inherent risk and control risk are both assessed as low, detection risk will be:

A. the same as audit risk.

B. medium.
C. high.
D. low

30. In determining the sufficiency of evidential matter, which of the following would not
normally be a factor?

A. Materiality of the account.

B. Audit risk.
C. The sampling technique used.
D. The size of the population.

31. The appropriateness of audit evidence does not refer to:

A. the quality of audit evidence.

B. the quantity of audit evidence.
C. the sufficiency of the evidence with respect to the auditor‟s objectives.
D. the relevance and reliability of the audit evidence.

32. Use of the auditing procedure „confirmation‟ would normally involve all of the following
except:

A. auditor control of the mailing.

B. written request and an oral response.
 C. a high degree of reliability.
D. direct evidence being obtained from outsiders.

33. The statement that is most accurate about the procedures that can be performed by computer-
assisted audit techniques is:

A. they can physically check the quantity of inventory on hand.

B. they can check for the existence of non-current assets.
C. they can observe the operation of control procedures throughout the period under audit.
D. they can re-perform a variety of calculations and perform calculations and
comparisons used for analytical procedures.

34. The subject of the auditing procedure „observation‟ is least likely to be:

A. procedures.
B. inventory taking.
C. physical assets.
D. processes.

35. What is the purpose of tests of control?

A. To obtain an understanding of the control over assets.

B. To provide evidence as to the fairness of management‟s financial statement assertions.
C. To provide evidence about the effectiveness of the internal control structure,
policies and procedures.
D. None of the above.

36. Which of these is not a substantive procedure?

A. Tests of controls.
B. Analytical procedures.
C. Tests of details of transactions.
D. All are substantive procedures.