Deck 18: Auditing and Evaluating the Ais

Question 1

A clear understanding of the steps in the accounting cycle is likely to be useful in:

A)Financial audits.
B)Investigative audits.
C)Both financial audits and investigative audits.
D)Neither financial audits nor investigative audits.

Answer 1

C

Question 2

In ___, auditors examine a company's rules and procedures for conducting business.

A)A financial audit
B)An operational audit
C)A compliance audit
D)A systems audit

Answer 2

B

Question 3

A ___ determines whether the various forms of information technology in an accounting information system are producing expected results.

A)Financial audit
B)Compliance audit
C)Systems audit
D)Forensic audit

Answer 3

C

Question 4

An investigative auditor wanted to assess employees' motivation for committing fraud.Which of the following tools will be most beneficial to the auditor in that task?

A)Expectancy theory
B)Capability maturity model
C)Document analysis
D)Management audit

Question 5

The generic model of business process management discussed in the text is likely to be most useful in which type of audit?

A)Operational
B)Financial
C)Management
D)Investigative

Question 6

Generally accepted auditing standards are divided into three groups.All of the following are standards in the "general" group except:

A)Training
B)Independence
C)Professional care
D)Internal control

Question 7

The terms "adverse" and "disclaimer" are most closely associated with which generally accepted auditing standard?

A)Reporting
B)Opinion
C)Disclosure
D)Some other standard

Question 8

Which of the following organizations is most likely to be subject to a compliance audit?

A)Yellow Pages Company
B)City of Los Angeles
C)Microsoft
D)All of these are likely to be subject to a compliance audit.

Question 9

Which of the following violates the generally accepted auditing standard indicated?

A)Opinion: Auditors issued an adverse report on financial statements.
B)Consistency: An auditor explained inconsistencies between a client's application of GAAP over the last two years.
C)Evidence: An auditor used last year's report as the only evidence for the current year's report.
D)All of these violate the standards indicated.

Question 10

Which type of audit is a "basket" of the other types?

A)Financial
B)Operational
C)International
D)Management

Question 11

A government accountant suspects someone within the government is embezzling cash.Which of the following statements is most true?

A)The government would not pass a compliance audit.
B)An investigative audit will confirm the accountant's suspicion.
C)Both the government would not pass a compliance audit and an investigative audit will confirm the accountant's suspicion are true.
D)Neither the government would not pass a compliance audit nor an investigative audit will confirm the accountant's suspicion is true.

Question 12

The COSO enterprise risk management framework can be useful in:

A)Systems audits.
B)Investigative audits.
C)Both systems audits and investigative audits.
D)Neither systems audits nor investigative audits.

Question 13

The text described seven types of audits common in accounting practice.Which of the following statements about them is most true?

A)An adverse report in a financial statement audit is evidence that an investigative audit is needed.
B)Expectancy theory can be useful in many types of audits.
C)Both an adverse report in a financial statement audit is evidence that an investigative audit is needed and expectancy theory can be useful in many types of audits are true.
D)Neither an adverse report in a financial statement audit is evidence that an investigative audit is needed nor expectancy theory can be useful in many types of audits is true.

Question 14

An auditor is concerned that her company's purchasing process is not functioning as efficiently as possible.Which type of audit will best address her concern?

A)Financial
B)Operational
C)Management
D)Purchasing

Question 15

The text described seven types of audits common in accounting practice.Which of the following statements about them is most true?

A)Every audit involves some form of information technology.
B)Most audits involve some form of human judgment.
C)Both every audit involves some form of information technology and most audits involve some form of human judgment are true.
D)Neither every audit involves some form of information technology nor most audits involve some form of human judgment is true.

Question 16

Tim is the lead auditor on an engagement with WRT Corporation.Before starting the audit, Tim planned and reviewed the schedule with his audit team.Which of the following generally accepted audit standards did Tim uphold by planning?

A)Independence
B)Professional care
C)Supervision
D)Disclosure

Question 17

Which of the following generally accepted auditing standards suggests that an auditor should not have a financial interest in an audit client?

A)Professional care
B)Disclosure
C)Independence
D)Some other standard

Question 18

Generally accepted auditing standards are divided into three groups.In which group would you find "internal control?"

A)General
B)Field work
C)Reporting
D)None of these

Question 19

Generally accepted auditing standards are divided into three groups.Which of the following is a standard in the "reporting" group?

A)Training
B)Supervision
C)Evidence
D)Disclosure

Question 20

All of the following terms are associated with financial audit reports except:

A)Unmodified.
B)Adverse.
C)Truthful.
D)Disclaimer.

Question 21

Critical thinking is important in:

A)The design of accounting information systems.
B)The implementation of accounting information systems.
C)Auditing.
D)All of these.

Question 22

Following the model presented in the text, the second generic step in a financial statement audit is:

A)Assess management's integrity.
B)Evaluate management's credentials.
C)Review the internal control system.
D)Uphold generally accepted auditing standards.

Question 23

Internal controls:

A)Have four broad purposes.
B)Are key elements of the third step in a financial statement audit.
C)Both have four broad purposes and are key elements of the third step in a financial statement audit.
D)Neither have four broad purposes nor are key elements of the third step in a financial statement audit.

Question 24

Joe was a recent graduate of Big State University's accounting program.He was assigned to an audit team managed by Pam, a licensed CPA.Based on those two statements alone, which of the following is most true?

A)At least one of the "general" GAAS is upheld.
B)At least one of the "field work" GAAS is upheld.
C)Both at least one of the "general" GAAS is upheld and at least one of the "field work" GAAS is upheld are true.
D)Neither at least one of the "general" GAAS is upheld nor at least one of the "field work" GAAS is upheld is true.

Question 25

In the first generic step of financial statement audits, the auditor should assess:

A)The internal control system.
B)Management's integrity.
C)Both the internal control system and management's integrity.
D)Neither the internal control system nor management's integrity.

Question 26

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which corporation will require the least amount of compliance testing?

A)CPQ
B)OBP
C)Either TNL or DKM
D)Cannot be determined from the information given

Question 27

The last generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A)General
B)Field work
C)Reporting
D)Documentation

Question 28

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which corporation is most likely to receive an unmodified report on its financial statements?

A)TNL
B)DKM
C)Either CPQ or OBP
D)Cannot be determined from the information given

Question 29

Which of the following generic steps in a financial statement audit should occur last?

A)Issue the audit report.
B)Perform compliance testing.
C)Review the internal control system.
D)Evaluate management's credentials.

Question 30

The third generic step in a financial statement audit could benefit from:

A)Interviews.
B)Flowcharts.
C)Both interviews and flowcharts.
D)Neither interviews nor flowcharts.

Question 31

Which of the following upholds at least one generally accepted auditing field work standard?

A)Using the COSO framework to evaluate internal controls.
B)Allowing members of an audit team to choose their supervisor independently.
C)Both using the COSO framework to evaluate internal controls and allowing members of an audit team to choose their supervisor independently.
D)Neither using the COSO framework to evaluate internal controls nor allowing members of an audit team to choose their supervisor independently.

Question 32

In which generic step of a financial statement audit is the auditor most likely to verify the frequency of bank reconciliations?

A)First
B)Second
C)Third
D)Fifth

Question 33

A systems flowchart could be helpful in fulfilling which generally accepted auditing standards?

A)Internal control
B)Evidence
C)Both internal control and evidence
D)Neither internal control nor evidence

Question 34

An inexperienced auditor verified the computation of depreciation on a machine, but did not actually see the machine.The auditor's actions led to a weakness in the ___ generic step of a financial statement audit.

A)Second
B)Third
C)Fourth
D)Fifth

Question 35

A company's business processes were at the managed level of the capability maturity model in 2011 and at the optimized level of the capability maturity model in 2012.Which of the following statements is most true?

A)Based on the generally accepted auditing standard of consistency, the auditors must disclose the change.
B)The auditors must issue an unmodified report since the organization's processes are not chaotic.
C)Both based on the generally accepted auditing standard of consistency, the auditors must disclose the change and the auditors must issue an unmodified report since the organization's processes are not chaotic are true.
D)Neither based on the generally accepted auditing standard of consistency, the auditors must disclose the change nor the auditors must issue an unmodified report since the organization's processes are not chaotic is true.

Question 36

Verifying the frequency of bank reconciliations and reconciling the latest bank statement are examples of actions an auditor might take in which generic steps of the financial statement audit process?

A)First and second
B)Second and third
C)Third and fourth
D)Second and fourth

Question 37

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which statements relate to the third generic step in a financial statement audit?

A)TNL and DKM
B)TNL and CPQ
C)DKM and CPQ
D)TNL, DKM and CPQ

Question 38

The third generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A)General
B)Field work
C)Reporting
D)Environmental

Question 39

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant.• OBP Corporation's internal audit manager is a certified fraud examiner.• CPQ Corporation maintains a set of systems flowcharts that describe current business processes.• DKM Corporation encrypts all data transmitted over its wireless network.Which statements relate to the second generic step in a financial statement audit?

A)TNL and OBP
B)TNL and CPQ
C)OBP and CPQ
D)TNL, OBP and CPQ

Question 40

Pam is a licensed CPA; her husband, Greg, is a major shareholder in a corporation audited by Pam's firm.If Pam is involved in the audit of that firm:

A)She will likely be in violation of at least one of the "general" GAAS.
B)She will likely be in violation of at least one of the "field work" GAAS.
C)She will likely be in violation of at least one of the "reporting" GAAS.
D)Its stock price will change due to the related party transaction.

Question 41

As specified by the Audit Clarity Project, the introductory paragraph of an audit report must identify: (i) the organization, (ii) the financial statements audited, (iii) related information.

A)I and II only
B)I and III only
C)II and III only
D)I, II and III

Question 42

As a processing tool in the AIS, general ledger software can be useful in:

A)A management audit.
B)An investigative audit.
C)Both a management audit and an investigative audit.
D)Neither a management audit nor an investigative audit.

Question 43

According to the Audit Clarity Project, the auditor's report must explain management's responsibilities for:

A)the board of directors and other parties.
B)ensuring that the financial statements are fairly presented.
C)financial statements and internal controls.
D)paying the auditor when the engagement is finished.

Question 44

The principles of normalization can be useful in:

A)Designing an accounting information system.
B)Completing a systems audit.
C)Both designing an accounting information system and completing a systems audit.
D)Neither designing an accounting information system nor completing a systems audit.

Question 45

A systems flowchart:

A)Can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit.
B)Can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit.
C)Both can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit and can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit.
D)Neither can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit nor can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit.

Question 46

As a tool for understanding human behavior, expectancy theory can be useful in:

A)Accounting information systems.
B)Auditing.
C)Both accounting information systems and auditing.
D)Neither accounting information systems nor auditing.

Question 47

The generic steps associated with business process management can be useful in:

A)Strengthening internal controls in an accounting information system.
B)An operational audit.
C)Both strengthening internal controls in an accounting information system and an operational audit.
D)Neither strengthening internal controls in an accounting information system nor an operational audit.

Question 48

Which of the following link accounting information systems with auditing?

A)Business processes
B)Information technology skills
C)Both business processes and information technology skills
D)Neither business processes nor information technology skills

Question 49

Information technology skills can link auditing to accounting information systems.Which of the following tasks can be completed using only information technology?

A)All five generic steps of a financial statement audit.
B)All ten steps in the accounting cycle.
C)Both all five generic steps of a financial statement audit and all ten steps in the accounting cycle.
D)Neither all five generic steps of a financial statement audit nor all ten steps in the accounting cycle.

Question 50

How does the FASB Conceptual Framework link accounting information systems with auditing?

A)Auditors must discuss whether the outputs of the AIS fulfill each of the qualitative characteristics in detail.
B)Auditors prepare a report on some of the outputs of the AIS; those outputs contain the elements of financial statements from the conceptual framework.
C)The purpose of accounting as stated in the conceptual framework is the same as the purpose of an AIS and the purpose of auditing.
D)The conceptual framework does not link AIS with auditing.

Question 51

The Audit Clarity Project's objectives include:

A)making auditing standards easier to read.
B)converging US auditing standards with international auditing standards.
C)Both making auditing standards easier to read and converging US auditing standards with international auditing standards.
D)Neither making auditing standards easier to read nor converging US auditing standards with international auditing standards.

Question 52

In the Audit Clarity Project, the ___ explains when the standard applies in an audit engagement.

A)requirements section
B)guidance and explanatory material
C)introduction
D)definitions

Question 53

As specified by the Audit Clarity Project, which element of the auditor's report must include the phrase "independent auditor's report?"

A)introductory paragraph
B)auditor's opinion
C)title
D)some other section

Question 54

In the Audit Clarity Project, requirements:

A)explain what the auditor needs to do to ensure an unmodified report is issued.
B)can serve as a guide for designing specific financial statement audit procedures.
C)Both explain what the auditor needs to do to ensure an unmodified report is issued and can serve as a guide for designing specific financial statement audit procedures.
D)Neither explain what the auditor needs to do to ensure an unmodified report is issued nor can serve as a guide for designing specific financial statement audit procedures.

Question 55

As specified by the Audit Clarity Project, when an audit wants to call attention to something in the financial statements, the report must include:

A)an emphasis-of-matter paragraph.
B)an audit assertions paragraph.
C)the relevant GAAS.
D)references to appropriate professional codes of ethics.

Question 56

In the Audit Clarity Project, which section specifies what the auditor is trying to achieve in the audit with respect to a specific school of ethical thought?

A)introduction
B)definitions
C)objective
D)none of these

Question 57

As an input to the accounting information system, a properly completed sales invoice can help an auditor with which of the following financial statement assertions?

A)Existence or occurrence
B)Completeness
C)Both existence or occurrence and completeness
D)Neither existence or occurrence nor completeness

Question 58

Understanding business processes can link auditing to accounting information systems.Which of the following can facilitate an understanding of business processes?

A)Flowcharts
B)The capability maturity model
C)Both flowcharts and the capability maturity model
D)Neither flowcharts nor the capability maturity model

Question 59

As the term is used in the Audit Clarity Project, "applicable financial reporting framework" can mean: (i) IFRS, (ii) COSO, (iii) US GAAP.

A)I and II only
B)I and III only
C)II and III only
D)I, II and III

Question 60

All of the following are changes associated with the Audit Clarity Project except:

A)the audit report.
B)terminology.
C)format.
D)ensuring that US standards are adopted worldwide.

Question 61

Consider the statements presented below.Choose those that would happen as part of a financial statement audit, then put them in the proper order based on the steps presented in the text.
a.Check access to sensitive information and other assets.
b.Consult GAO standards.
c.Convert financial statements to XBRL.
d.Evaluate the organization's control environment.
e.Interview the CFO as a corroborative witness.
f.Make recommendations for improving business processes.
g.Prepare an unmodified report.
h.Review management's resumes.
i.Translate financial statements from German to English.
j.Verify the existence of inventory and plant assets.

Question 62

The chapter described five generic steps in a financial statement audit; it also discussed six other types of audits you may encounter in your professional career.Consider the operational audit.Based on its broad purpose and objectives, explain how you would modify the five generic financial statement audit steps for the audit type you choose.

Question 63

Each numbered item below indicates one action an auditor might take as part of a financial statement audit.Which of the two lettered alternatives would be the immediate next step based on the five generic financial statement audit steps presented in the text?
1) Ask employees about the ethical tone management sets in the organization.
a.Prepare a risk/control matrix.
b.Examine the CEO's resume.2) Discuss the educational background of each member of the upper management team.
a.Outline the client's risk exposures.
b.Verify balances in accounts receivable.3) Determine if adequate separation of duties exists.
a.Prepare a systems flowchart of the sales/collection process.
b.Compute depreciation on plant assets.4) Choose transactions to verify as part of the audit.
a.Question management about their knowledge of COSO models.
b.Issue an audit report.5) Examine a systems flowchart to determine who reconciles the bank statement.
a.Verify that business processes are adequately documented.
b.Reconcile the latest bank statement.

Question 64

Analyze each statement below about the relationships between AIS and auditing.Indicate whether each statement is: (a) always true, (b) sometimes true or (c) never true.1) Flowcharts are the most useful form of systems documentation in a financial statement audit.2) Strong information technology skills are essential in every type of audit.3) A management audit requires more critical thinking skills than an investigative audit.4) Knowledge of internal controls can be important in many different types of audits.5) Because compliance audits are devoid of judgment, auditors do not need to understand the organizational environment in a government organization.

Question 65

Revise each statement below so that it more clearly upholds the indicated generally accepted auditing standard.1) Training: Alexis completed an online course on professional etiquette.2) Evidence: Allison checked the employment references of an audit client's CEO as part of evaluating the CEO's credentials.3) Report: Ann used her own words to express a report on the truth of an audit client's financial statements.4) Independence: Blaine accepted an audit engagement with a firm owned by his mother-in-law.5) Professional care: Brent randomly selected auditors in his firm as part of developing an audit team.6) Internal control: Crystal used expectancy theory to assess internal control as part of an audit.7) Supervision: Lindsay, the manager of an audit team, scrutinized the work of all auditors on her team equally, regardless of their experience or the tasks they were completing.8) Consistency: Louis explained a change between the applications of GAAP in 2008 and 2011.9) Disclosure: Nicole personally prepared the footnotes for an audit client's financial statements to ensure all disclosures were properly done.10) GAAP: Ralph determined that a client's financial statements were truthfully and accurately presented in accordance with generally accepted auditing standards.

Question 66

The text identified four areas that link AIS with auditing: critical thinking, internal control, business processes and information technology.Consider topics you have studied this term other than those four; choose one, and explain how it connects AIS with auditing.

Question 67

Match each description on the left with the appropriate type of audit on the right.

Question 68

The chapter identified seven types of audits you are likely to encounter in your career.Identify and discuss two similarities and two differences between investigative audits and financial audits.

Question 69

Consider the independent statements below.Organize them in three groups based on the generally accepted auditing standards discussed in the text; also indicate the name of each group based on the standards.1) Bradley completed a continuing education program on auditing mortgage companies.2) Cameron completed a risk/control matrix as part of an audit.3) Elijah determined that a client's financial statements were fairly presented in accordance with GAAP.4) Elizabeth noted that footnotes to the financial statements needed some improvement.5) Jessica reviewed the background and experience of auditors in her firm as part of developing an audit team.6) Luke refused to accept an audit engagement because his friend was CEO of the company.7) Milton e-mailed an audit client's vendors to help determine the client's accounts payable balances.8) Owen, the manager of an audit team, reviewed the work of inexperienced auditors closely.9) Ryan prepared a disclaimer of report on an audit client's financial statements.10) Sandra explained a change between the applications of GAAP in two successive years.

Question 70

List five kinds of audits you are likely to encounter in your professional career.

Question 71

The chapter identified four links between AIS and auditing.Which link is indicated by each independent description below?
1) Alex prepared a bond discount amortization schedule using Excel.2) Amy verified an audit client's process for validating XBRL taxonomy extensions.3) Joan reviewed the previous year's risk/control matrix when starting an audit.4) Josef estimated the useful life of equipment for calculating depreciation.5) Mark debated which systems development methodology to use in developing an AIS.6) Members of an audit team discussed a client's business processes in terms of the capability maturity model.7) Nancy used relational database software to sample transactions for an audit.8) Omar prepared a PowerPoint presentation summarizing the results of an audit.9) Paul asked employees of an audit client about management's attitude on various topics.10) Will explained the five-part COSO framework to an audit client.

Question 72

In your own words, explain the ten generally accepted auditing standards discussed in the text.

Question 73

Consider the audit descriptions and types paired below.Indicate with an X in the appropriate column whether the audit described is paired with the appropriate type.

Question 74

Which generally accepted auditing standard is indicated by each independent item below? Use each standard exactly one time.1) Charlie, the manager of an audit team, reviewed the work of inexperienced auditors closely.2) Jill refused to accept an audit engagement because her friend was CEO of the company.3) Leigh completed a risk/control matrix as part of an audit.4) Leo prepared a disclaimer of report on an audit client's financial statements.5) Marsha reviewed the background and experience of auditors in her firm as part of developing an audit team.6) Nolan determined that a client's financial statements were fairly presented in accordance with GAAP.7) Patricia noted that footnotes to the financial statements needed some improvement.8) Renee explained a change between the applications of GAAP in two successive years.9) Rich e-mailed an audit client's vendors to help determine the client's accounts payable balances.10) Sally completed a continuing education program on auditing mortgage companies.