Question 1

Ming Yao reviewed the operations of a basketball academy. His objectives were to determine how effectively the academy delivered its many programs. What kind of an audit did he perform?
A) operational
B) compliance
C) financial
D) comprehensive

Accepted Answer

C

Question 2

Matt Fuller reports to the board and evaluates how the company can improve risk management practices, internal control procedures, and certain governance issues. Who is he?
A) President
B) Controller
C) Treasurer
D) Internal Auditor

Accepted Answer

C

Question 3

An operational audit is an example of a compliance audit.

Accepted Answer

An operational audit and a compliance audit are two different types of audits. An operational audit focuses on evaluating the efficiency and effectiveness of an organization's operations, while a compliance audit focuses on evaluating whether the organization is following laws and regulations. Therefore, an operational audit is not an example of a compliance audit.

Question 4

Insurance hypothesis is a means whereby the investor can guarantee the success of their investment.

Accepted Answer

The insurance hypothesis is not a means of guaranteeing the success of an investment, but rather a strategy for managing risk. It involves purchasing an insurance policy or using other hedging techniques to protect against potential losses. However, there is no guarantee that the insurance will fully protect against all losses, and it may come at a cost to the investor in the form of premiums or other fees.

Question 5

It is the auditor's responsibility to prepare the financial statements.

Accepted Answer

It is the responsibility of management to prepare the financial statements. The auditor's responsibility is to provide an opinion on the fairness and accuracy of the financial statements.

Question 6

Only current investors (not potential investors) are considered to be users of the financial statements.

Accepted Answer

Current investors are the primary users of the financial statements as they use the information to make investment decisions. However, potential investors, creditors, employees and others may also use the financial statements to make decisions.

Question 7

A compliance audit involves gathering evidence to ascertain whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform

Accepted Answer

A compliance audit is specifically designed to determine whether a person or entity has followed the rules, policies, procedures, laws, and regulations that apply to them, so the statement is true.

Question 8

All modified audit reports are qualified audit opinions.

Accepted Answer

Modified audit reports can include qualified opinions, adverse opinions, or disclaimers of opinion, not just qualified opinions.

Question 9

Vera Sobczyk spent a week at a client's wholesale operation determining whether the client's remittances to the tax authorities were in accordance with tax regulations. This is an example of a(n)
A) taxes payable mandate
B) financial audit
C) operational audit
D) none of these

Accepted Answer

The answer of Vera Sobczyk spent a week at a...

Question 10

The nature of audit procedures refers to the reliance on evidence provided by the client and its management.

Accepted Answer

Audit procedures rely on evidence provided by the client and its management to evaluate the design and effectiveness of internal controls and to obtain sufficient and appropriate evidence to support the financial statements.

Question 11

James Brown, the senior auditor at Yanzhou Coal Mining and Minerals, performed the following tasks: he used analytical procedures and he had discussions with management. These activities were a basis for a negative form of opinion. What did James Brown perform?
A) a qualified report
B) an unmodified opinion
C) a compilation
D) a review engagement

Accepted Answer

A review engagement involves limited assurance and typically includes analytical procedures and inquiries, leading to a negative form of opinion.

Question 12

The most common types of assurance engagements are financial statement audits, confirmation audits, performance audits, comprehensive audits and assurance on corporate social responsibility (CSR) disclosures.

Accepted Answer

The answer of The most common types of assurance engagements...

Question 13

Theodore Heinrich prepared a set of financial statements based on information provided to him. He checked mathematical accuracy of the data, and the client complimented him on the reasonable cost of the work he performed. Theodore performed
A) a compilation
B) a review
C) an audit
D) none of the above

Accepted Answer

In a compilation engagement, the accountant prepares financial statements based on information provided by the client. The accountant does not provide any assurance on the accuracy of the information or detect any fraud or errors. The fact that Theodore only checked mathematical accuracy and the client complimented him on the reasonable cost indicates that he performed a compilation.

Question 14

A reasonable level of assurance is the highest level of assurance that an auditor can provide.

Accepted Answer

A reasonable level of assurance is not the highest level of assurance that an auditor can provide. The highest level of assurance is provided through an audit where the auditor provides a high level of assurance that the financial statements are free from material misstatement. This level of assurance is higher than a reasonable level of assurance provided by a review engagement.

Question 15

A negative expression of opinion is only given when there is a disagreement with management and the auditor.

Accepted Answer

A negative expression of opinion can also be given when there are material misstatements in the financial statements or when sufficient evidence cannot be obtained to support the auditor's opinion. It does not necessarily require a disagreement with management.

Question 16

Matt Stairs performed work for a client in the real estate business and issued a Notice to Reader. What degree of assurance does a Notice to Reader provide to the user of the statements?
A) reasonable assurance
B) moderate assurance
C) no assurance
D) none of the above

Accepted Answer

The answer of Matt Stairs performed work for a client...

Question 17

The expectation gap is caused by unrealistic user expectations such as the auditor providing a moderate level of assurance.

Accepted Answer

The answer of The expectation gap is caused by unrealistic...

Question 18

A no assurance engagement is of little use as no assurance is given to the client.

Accepted Answer

While it is true that no assurance is given to the client in a no assurance engagement, this type of engagement can still provide value in situations where the client only needs limited or specific procedures performed, such as a compilation or preparation of financial statements. It can also provide a lower-cost option compared to an assurance engagement for clients who don't require or cannot afford the higher level of assurance provided by an audit or review.

Question 19

Mary Moras was reviewing the previous year's audited financial statements of a clothing manufacturer. Her manager explained to her that for a financial statement audit, the clothing company was the accountable party, its shareholders were the users, and the subject matter was the financial statements. What kind of audit engagement was her manager describing?
A) consulting engagement
B) assurance engagement
C) review engagement
D) compliance engagement

Accepted Answer

The description provided by Mary's manager matches that of an assurance engagement, where an independent auditor provides an opinion on the reliability of an entity's financial statements for the benefit of its users, such as shareholders. The auditor provides a reasonable assurance that the statements are free from material misstatement, but does not provide a guarantee. Consulting engagements involve providing advice or recommendations to clients, review engagements involve limited assurance on financial statements, and compliance engagements involve ensuring adherence to a specific set of rules or regulations.

Question 20

An auditor can provide a reasonable level of assurance on information other than historical financial information.

Accepted Answer

According to the International Standards on Assurance Engagements (ISAE) 3000, an auditor can provide assurance on information other than historical financial information, such as sustainability reports or internal controls. However, the level of assurance may vary depending on the nature of the information and the agreed-upon procedures.

Quiz 1: Introduction and Overview of Audit and Assurance

Ming Yao reviewed the operations of a basketball academy. His objectives were to determine how effectively the academy delivered its many programs. What kind of an audit did he perform?

Matt Fuller reports to the board and evaluates how the company can improve risk management practices, internal control procedures, and certain governance issues. Who is he?