Question 1

In order to be considered as external auditors with respect to government agencies,GAO auditors must be

Accepted Answer

GAO auditors must be organizationally independent to ensure their audits are unbiased and objective, which is a key requirement for external auditors.

Question 2

What is the term used to identify the risk that the client's financial statements may be materially false and misleading?

Accepted Answer

The term used to identify the risk that the client's financial statements may be materially false and misleading is information risk. This risk relates to the accuracy and completeness of financial information provided by the client, and is a significant risk that auditors must address during the audit process. Options A, C, and D are not specific to this type of risk.

Question 3

Which of the following is an underlying condition that in part creates the demand by users for reliable information?

Accepted Answer

All of the options listed contribute to the demand for reliable information. Economic transactions are complex, decisions are time sensitive, users may be separated from accounting records, and financial decisions are important to investors and users. These factors highlight the importance of accurate, timely, and reliable financial information.

Question 4

Which of the following is not a recommendation usually made following the completion of an operational audit?

Accepted Answer

Attesting to the fairness of the financial statements is typically the role of an external auditor, not an operational auditor. The other recommendations listed are commonly made by operational auditors following completion of an audit.

Question 5

The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transaction assertions?

Accepted Answer

The classification assertion states that all transactions are properly recorded in the correct accounts, which is the objective of the audit in this case. The occurrence assertion relates to ensuring that transactions actually occurred, completeness assertion involves ensuring that all transactions are recorded, and accuracy assertion involves ensuring that transactions are recorded with the correct amount.

Question 6

Which of the following best describes the main reason that independent auditors report on management's financial statements?

Accepted Answer

Independent auditors report on management's financial statements to provide assurance to the users of the statements that the information presented is reliable and accurate. The main reason for this is that there may be conflicting interests between the management that prepares the statements and the persons who use the statements, such as investors or creditors. The independent audit serves as a check on the reliability of the information presented, ensuring that misstatements are detected and corrected. Additionally, the audit may serve as a deterrent against fraudulent activity by management.

Question 7

Which of the following best describes the primary role and responsibility of the independent external auditor?

Accepted Answer

The primary role and responsibility of the independent external auditor is to express an opinion on the fairness of a company's annual financial statements and footnotes. The auditor's responsibility is to provide reasonable assurance that the financial statements are free from material misstatements due to fraud or error. They do not produce the financial statements or provide business consulting advice, although they may obtain an understanding of the internal control structure in order to assess the risk of material misstatements.

Question 8

The audit objective that all balances include all items that should be recorded in that account is related most closely to which one of the ASB balance assertions?

Accepted Answer

The completeness assertion requires that all transactions and events that should be recorded in the financial statements have been recorded. This relates directly to the audit objective of ensuring that all balances include all items that should be recorded in that account.

Question 9

Assurance services involve all of the following except

Accepted Answer

Assurance services provide reasonable assurance, not absolute assurance. The other options - A, B, and D - are all true about assurance services.

Question 10

The audit objective that all the transactions and accounts presented in the financial statements represent real assets,liabilities,revenues,and expenses is related most closely to which of the PCAOB assertions?

Accepted Answer

The objective of ensuring that all transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses relates most closely to the PCAOB assertion of existence or occurrence, which focuses on whether the reported transactions and events actually took place and relate to the entity. This assertion ensures that the transactions and accounts actually exist and have occurred during the period under audit.

Question 11

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations.When looking at the ending balance for the fixed asset account,the auditor examined all work orders,purchased materials,labor cost reports,and applied overhead that were capitalized as part of the equipment costs.Which of the following is the ASB balance assertion most closely related to the auditor's testing?

Accepted Answer

The auditor's testing of all work orders, purchased materials, labor cost reports, and applied overhead to determine the capitalized cost of the equipment is related to the valuation assertion, which ensures that the recorded value of the fixed asset is accurate and reflects its economic worth.

Question 12

Which of the following is the essential purpose of the audit function?

Accepted Answer

The essential purpose of the audit function is to determine whether the client's financial statement assertions are fairly stated. While detection of fraud is an important aspect of an audit, it is not the sole purpose. The examination of individual transactions and assurance of consistent application of correct accounting procedures are also important, but they are not the essential purpose of the audit function.

Question 13

The audit objective that footnotes in the financial statements should be clear and expressed so that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions?

Accepted Answer

The audit objective related to ensuring that footnotes are clear and easily understood aligns with the assertion of "Understandability," which focuses on the clarity and comprehensibility of the information presented.

Question 14

The audit objective of presenting all transactions and accounts in the financial statements are in fact included is related to which of the PCAOB assertions?

Accepted Answer

The assertion of completeness ensures that all transactions and accounts that should be included in the financial statements are actually included.

Question 15

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations.The auditor reviewed all work orders that were capitalized as part of the equipment costs.Which of the following is the ASB transaction assertion most closely related to the auditor's testing?

Accepted Answer

The answer of The engineering department at Omni Company built...

Question 16

The auditor's judgment concerning the overall fairness of the presentation of financial position,results of operations,and cash flows is applied within the framework of

Accepted Answer

The overall fairness of the presentation of financial position, results of operations, and cash flows is evaluated by the auditor using the applicable financial reporting framework, which in the United States would be generally accepted accounting principles (GAAP). The other options, quality control, generally accepted auditing standards (which includes the concept of materiality), and the evaluation of internal control, are all important components of the auditing process, but do not specifically relate to the auditor's judgment on the overall fairness of the financial statements.

Question 17

To be proficient as an auditor,a person must first be able to accomplish which of these tasks in a decision-making process?

Accepted Answer

To be proficient as an auditor, a person must first recognize the financial assertions made in management's financial statements and footnotes so they can understand what needs to be verified or audited. The other tasks listed are important steps in the decision-making process for an auditor but cannot be accomplished without first recognizing the financial assertions made in management's financial statements and notes.

Question 18

The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB)transaction assertions?

Accepted Answer

The audit objective of transactions being recorded in the proper period is related most closely to the Cutoff assertion, which ensures that transactions are recorded in the appropriate accounting period. The other assertions (Occurrence, Completeness, and Accuracy) do not directly relate to the timing of transaction recording.

Question 19

The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions?

Accepted Answer

The audit objective that all balances include items owned by the client is most closely related to the "Rights and obligations" assertion. This assertion concerns whether the entity has the rights to the assets listed and the obligations related to the liabilities recorded, ensuring that the entity owns or has legal rights to the assets reported on its balance sheet.

Question 20

Which of the following is not included in The American Accounting Association (AAA)definition of auditing?

Accepted Answer

The AAA definition of auditing includes systematic process, assertions about economic actions, and established criteria, but it does not specifically mention potential conflicts of interest. However, auditors are required to be independent and avoid conflicts of interest in order to maintain their professional integrity and ensure the accuracy of their work.

Quiz 1: Auditing and Assurance Services