Question 1

With a substantive audit strategy,what is an auditor likely to do?
A)Extensively tests internal controls.
B)Limit the testing of internal controls.
C)Not assess control risks.
D)Issue an adverse opinion on the financial statements.

Accepted Answer

With a substantive audit strategy, the auditor is likely to limit the testing of internal controls and focus more on substantive testing of transactions and account balances. This is because the auditor believes that the internal controls are not reliable enough to reduce substantive testing, or that substantive testing is more efficient and effective in detecting material misstatements in the financial statements. Therefore, the auditor will gather evidence from other sources, such as supporting documentation and analytical procedures, to support the balances presented in the financial statements.

Question 2

At what level does the auditor assess the risk of material misstatement?
A)The financial statement level.
B)The company level.
C)The assertion level.
D)Both A and C.
E)All of the above.

Accepted Answer

The auditor assesses the risk of material misstatement both at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures.

Question 3

Which of the following is a type of control that the PCAOB recommends the auditor to consider in evaluating whether or not the organization has sufficiently addressed fraud risk?
A)Controls over significant,unusual transactions,particularly those that result in late or unusual journal entries.
B)Controls over entries that relate to foreign sales.
C)Controls over related-party transactions.
D)Both A and C
E)All of the above.

Accepted Answer

The PCAOB recommends that auditors consider controls over significant, unusual transactions, particularly those that result in late or unusual journal entries, as well as controls over related-party transactions, in evaluating whether or not the organization has sufficiently addressed fraud risk. Controls over entries that relate to foreign sales may also be considered, but are not specifically mentioned in the question or answer choices. Therefore, choice D, which includes both controls over significant, unusual transactions and related-party transactions, is the best choice.

Question 4

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?

Accepted Answer

The answer of The auditing standards Under the clarified auditing...

Question 5

PCAOB Assertions Discuss the five management financial statement assertions identified in the PCAOB Standards.Provide examples.

Accepted Answer

The answer of PCAOB Assertions Discuss the five management financial...

Question 6

Which of the following items is not included in the engagement letter?
A)The responsibilities of the auditor.
B)The responsibilities of management.
C)The objective of the financial statements.
D)Identification of the applicable financial reporting framework for the preparation of the financial statements.

Accepted Answer

The objective of the financial statements is typically included in the financial reporting framework used for the engagement, and may not be explicitly stated in the engagement letter. However, A, B, and D are typically included in the engagement letter as they are important components for establishing the scope and nature of the engagement.

Question 7

With a dual purpose test,what is an auditor likely to do?
A)Perform a substantive procedure concurrently with a test of a control.
B)Perform a substantive procedure concurrently with a risk assessment test.
C)Perform a risk assessment test concurrently with a test of a control.
D)None of the above.

Accepted Answer

With a dual purpose test, the auditor is likely to perform a substantive procedure concurrently with a test of a control. This means that the auditor is testing both the control's effectiveness in preventing errors or fraud, as well as collecting evidence about the accuracy and completeness of the financial statements. This approach saves time and resources for the auditor, while still achieving their objectives. Option B is incorrect because risk assessment tests are not typically part of a dual purpose test. Option C is incorrect because it reverses the order of the two tests, which is not typical for a dual purpose test. Option D is incorrect because there is a clear answer for this question.

Question 8

The Standards of the PCAOB can be broken up into three categories,i.e.,general,fieldwork,and reporting.Which of the following is considered in the fieldwork standards?
A)Independence.
B)GAAP.
C)Internal control.
D)Disclosure.

Accepted Answer

The fieldwork standards include requirements related to internal control, including assessing the effectiveness of internal control over financial reporting. Independence (A) is covered by the general standards, GAAP (B) is covered by reporting standards, and disclosure (D) is covered by both fieldwork and reporting standards.

Question 9

What organization continues to set auditing standards for firms auditing private companies?
A)FASB.
B)GAO.
C)SEC.
D)AICPA.

Accepted Answer

The AICPA (American Institute of Certified Public Accountants) continues to set auditing standards for firms auditing private companies through its Audit and Attest Standards, including the Statements on Auditing Standards (SAS). FASB (Financial Accounting Standards Board) sets accounting standards, GAO (Government Accountability Office) provides auditing and evaluation services for the federal government, and SEC (Securities and Exchange Commission) sets financial reporting and disclosure requirements for public companies.

Question 10

Audit phases Identify at least five steps involved in an audit.

Accepted Answer

The answer of Audit phases Identify at least five steps...

Question 11

The Standards of the PCAOB can be broken up in to three categories,i.e.,general,fieldwork,and reporting.Which of the following standards is one of the general standards?
A)Training and proficiency.
B)Internal control.
C)Sufficient appropriate evidence.
D)Consistency.

Accepted Answer

Training and proficiency is one of the three general standards of the PCAOB, which also include independence and due professional care. Internal control and sufficient appropriate evidence are fieldwork standards, while consistency is a reporting standard.

Question 12

Which of the following factors suggest that control risk should be assessed at a low level?
A)A lack of segregation of duties.
B)A lack of approval for significant transactions.
C)A competent objective internal auditor.
D)Both A and C.

Accepted Answer

The presence of a competent objective internal auditor suggests that there are effective control procedures in place, which reduces the level of control risk. A lack of segregation of duties and a lack of approval for significant transactions both increase the level of control risk.

Question 13

Which document is used by auditors to formally accept a new client?
A)Management representation letter.
B)Audit Report.
C)Engagement Letter.
D)Audit Contract.

Accepted Answer

The engagement letter is the document used by auditors to formally accept a new client. It outlines the terms and conditions of the audit engagement, including the scope of the audit, the responsibilities of both the auditor and the client, the fee arrangement, and other important details. The engagement letter serves as a contract between the auditor and the client, and it establishes the basis for a successful working relationship.

Question 14

Which of the following statements about the AICPA is true?
A)The AIPCA is historically self-regulated.
B)The AIPCA is regulated by the federal government.
C)The AIPCA is regulated the state governments.
D)The AIPCA is a new organization established by an act of congress in 2002.

Accepted Answer

The AICPA (American Institute of Certified Public Accountants) is historically self-regulated, meaning it is responsible for setting and enforcing standards for its members, rather than being regulated by an external governing body such as the federal or state government.

Question 15

What are the AICPA's fundamental principles?

Accepted Answer

The answer of What are the AICPA's fundamental principles?...

Question 16

Which of the following is not a planning procedure performed to develop an audit program?
A)Determination of client company risks.
B)Determination of the audit opinion that will be rendered.
C)Development of a preliminary understanding of the quality of the client's internal control.
D)Anticipation of audit adjustments that will be required.

Accepted Answer

Determination of the audit opinion that will be rendered is not a planning procedure performed to develop an audit program because the audit opinion is determined at the end of the audit based on the results of the procedures performed, rather than during the planning stage. The other options (A, C, and D) are all planning procedures performed to develop an audit program.

Question 17

The Standards of the PCAOB can be broken up into three categories,i.e.,general,fieldwork,and reporting.Which of the following concepts is considered in the reporting standards?
A)Consistency in the application of accounting principles.
B)Sufficient appropriate evidence.
C)Internal control.
D)Planning and supervision.

Accepted Answer

Consistency in the application of accounting principles is considered in the reporting standards, as it relates to the proper disclosure and consistency of financial information presented in the financial statements. Sufficient appropriate evidence and internal control are concepts considered in the fieldwork standards, while planning and supervision are concepts considered in the general standards.

Question 18

Which of the following would not affect an auditor's judgment concerning internal controls?
A)The assertion being tested.
B)The design of the control.
C)The operation of the control.
D)The level of inherent risk.

Accepted Answer

The level of inherent risk is a factor that would affect an auditor's overall assessment of the risk of material misstatement in the financial statements. It is not directly related to the auditor's judgment concerning internal controls. The assertion being tested, the design of the control, and the operation of the control are all factors that would impact an auditor's evaluation of the effectiveness of internal controls.

Question 19

Which of the following factors affect the substantive procedures performed in an audit?
A)The subjectivity of accounting process.
B)Size of the account.
C)Effectiveness of the relevant controls.
D)All of the above affect the substantive procedure that are performed.

Accepted Answer

All of the factors listed (subjectivity of accounting process, size of the account, and effectiveness of relevant controls) can affect the nature, timing, and extent of substantive procedures performed in an audit. For example, if an account is particularly large, the auditor may need to perform more substantive procedures to obtain sufficient evidence. Similarly, if the accounting process is highly subjective or if controls are not effective, the auditor may need to perform additional substantive procedures to obtain appropriate evidence.

Question 20

What does the effectiveness of internal controls influence?
A)Inherent risk.
B)Control risk.
C)Risk of material misstatement.
D)Both B and C.

Accepted Answer

The effectiveness of internal controls affects both control risk and the risk of material misstatement. In turn, these risks impact the overall assessment of inherent risk, which ultimately impacts the audit plan and procedures performed by the auditor.

Quiz 5: Professional Auditing Standards and the Audit Opinion Formulation Process

With a substantive audit strategy,what is an auditor likely to do?

At what level does the auditor assess the risk of material misstatement?

Which of the following is a type of control that the PCAOB recommends the auditor to consider in evaluating whether or not the organization has sufficiently addressed fraud risk?

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?

PCAOB Assertions Discuss the five management financial statement assertions identified in the PCAOB Standards.Provide examples.

Which of the following items is not included in the engagement letter?

With a dual purpose test,what is an auditor likely to do?

The Standards of the PCAOB can be broken up into three categories,i.e.,general,fieldwork,and reporting.Which of the following is considered in the fieldwork standards?

What organization continues to set auditing standards for firms auditing private companies?

Audit phases Identify at least five steps involved in an audit.

The Standards of the PCAOB can be broken up in to three categories,i.e.,general,fieldwork,and reporting.Which of the following standards is one of the general standards?

Which of the following factors suggest that control risk should be assessed at a low level?

Which document is used by auditors to formally accept a new client?

Which of the following statements about the AICPA is true?

What are the AICPA's fundamental principles?

Which of the following is not a planning procedure performed to develop an audit program?

The Standards of the PCAOB can be broken up into three categories,i.e.,general,fieldwork,and reporting.Which of the following concepts is considered in the reporting standards?

Which of the following would not affect an auditor's judgment concerning internal controls?

Which of the following factors affect the substantive procedures performed in an audit?

What does the effectiveness of internal controls influence?