Auditing - Multiple Choice

1. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
a. Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence.
b. An auditor may draft an entity's financial statements based on information from management's accounting system.
c. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor's responsibility.
d. An auditor's responsibilities for audited financial statements are not confined to the expression of the auditor's opinion.

2. One of a CPA firm's basic objectives is to provide professional services that conform with professional standards.  Reasonable assurance of achieving thing basic objective is provided through
a. A system of quality control
b. A system of peer review
c. Continuing professional education
d. Compliance with generally accepted reporting standards

3. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
a. Enable the CPA firm to attest to the reliability of the client
b. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients
c. Minimize the likelihood of association with clients whose management lacks integrity
d. Anticipate before performing any field work whether an unqualified opinion can be expressed.




Planning
4. An auditor's engagement letter most likely would include
a. Management's acknowledgment of its responsibility for maintaining effective internal control
b. The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting
c. A reminder that management is responsible for illegal acts committed by employees
d. A request for permission to contact the client's lawyer for assistance in identifying litigation, claims, and assertions




5. Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?
a. Obtain an understanding of the entity's risk assessment process
b. Identify specific internal control activities designed to prevent fraud
c. Evaluate the reasonableness of the entity's accounting  estimates
d. Perform cutoff tests of the entity's sales and purchases.

6. A successor auditor most likely would make specific inquiries of the predecessor auditor regarding
a. Specialized accounting principles of the client's industry
b. The competency of the client's internal audit staff
c. The uncertainty inherent in applying sampling procedures
d. Disagreements with management as to auditing procedures



7. Which of the following statements is not correct about materiality?
a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in accordance with GAAP, while other matters are not important
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements
c. An auditor's consideration of materiality is influences by the auditor's perception of the needs of a reasonable person who will rely on the financial statements
d. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.



8. Which of the following statements reflects and auditor's responsibility for detecting errors and fraud?
a. An auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraud involving employee collusion or management override
b. An auditor should plan the audit to detect errors and fraud that is caused by departures from GAAP
c. An auditor is not responsible for detecting errors and fraud unless the application of GAAS would result in such detection
d. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that is material to the financial statements.


Internal Controls - General

9. When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes that
a. Internal control policies and procedures may be ineffective due to mistakes in judgment and personal carelessness
b. Adequate safeguards over access to assets and records should permit an entity to maintain proper accountability
c. Establishing and maintaining internal control is an important responsibility of management
d. The cost of an entity's internal control should not exceed the benefits expected to be derived


10. Which of the following is a management control method that most likely could improve management's ability to supervise company activities effectively?
a. Monitoring compliance with internal control requirements imposed by regulatory bodies.
b. Limiting direct access to assets by physical segregation and protective devices
c. Establishing budgets and forecasts to identify variances from expectations
d. Supporting employees with the resources necessary to discharge their responsibilities.

11. Which of the following is not a component of an entity's internal control?
a. Control risk
b. Control activities
c. The information and communication
d. The control environment

12. An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the
a. Tests of controls
b. Compliance tests
c. Attribute tests
d. Substantive tests