Auditing Multiple Choice

1. An auditor obtains knowledge about a new client's business and its industry to
a. Make constructive suggestions concerning improvements to the client's internal control
b. Develop an attitude of professional skepticism concerning management's financial statements assertions
c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated
d. Understand the events and transactions that may have an effect on the client's financial statements.

2. 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.

3. In auditing the financial statements of Jamona Corp, Sherman discovered information leading Sherman to believe that Jamona's prior year's financial statements, which were audited by Dicker, require substantial revisions.  Under these circumstances, Sherman should
a. Notify Jamona's audit committee and stockholders that the prior year's financial statements cannot be relied on
b. Request Jamona arrange a meeting among the three parties to resolve the matter
c. Notify Dicker about the information and make inquiries about the integrity of Jamona's management
d. Request Jamona to reissue the prior year's financial statements with the appropriate revisions.

4. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether
a. Audit procedures performed are approved in the professional standards
b. Auditor's system of quality control has been maintained at a high level
c. Results are consistent with the conclusions to be presented in the auditor's report
d. Audit has been performed by persons having adequate technical training and proficiency as auditors.

5. An auditor should design the written audit program so that
a. All material transactions will be selected for substantive testing
b. Substantive tests prior to the balance sheet date will be minimized
c. The audit procedures selected will achieve specific audit objectives
d. Each account balance will be tested under either tests of controls or tests of transactions.


6. 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

7. Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be conducted?
a. The entity has no formal written code of conduct
b. The integrity of the entity's management is suspect
c. Procedures requiring segregation of duties are subject to management override
d. Management fails to modify prescribed controls for changes in condition.

8. 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

9. 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

10. An auditor assesses control risk because it
a. Is relevant to the auditor's understanding of the control environment
b. Provides assurances that the auditor's materiality levels are appropriate
c. Indicates to the auditor where inherent risk may be the greatest
d. Affects the level of detection risk that the auditor may accept.