Question 1

The primary purpose of obtaining an understanding of the company's internal controls in the financial statement audit is ________.

Accepted Answer

A

Question 2

According to IFAC, which of the following is not one of the elements of quality control?

Accepted Answer

Due professional care is a principle of auditing, not specifically an element of quality control according to IFAC.

Question 3

Which of the following statements best explains an unmodified report opinion?

Accepted Answer

An unmodified report opinion means that the auditor believes the financial statements are free from material error based on the evidence obtained during the audit.

Question 4

An assurance engagement is one in which a CPA is engaged to ________.

Accepted Answer

An assurance engagement is one in which a CPA is engaged to issue a written communication expressing a conclusion concerning a subject matter for which an accountable party is responsible. This includes engagements such as audits, reviews, and compilations. Choices B, C, and D do not fit the definition of an assurance engagement.

Question 5

Auditors try to achieve independence in appearance in order to ________.

Accepted Answer

Auditors try to achieve independence in appearance to maintain public confidence in the profession, ensuring that users of the financial statements can trust the credibility and reliability of the audit report. While auditors also strive for independence in fact (i.e., actual independence), independence in appearance is critical for public trust and perception.

Question 6

Which of the following is the first task that the auditor must accomplish to demonstrate proficiency in auditing?

Accepted Answer

Recognizing the underlying assertions made by management in the financial statements and notes is the first step in conducting an audit. The auditor cannot design an effective audit program or identify appropriate evidence without first understanding the assertions being made by management. Evaluating evidence and determining compliance with accounting principles and reality comes later in the audit process.

Question 7

All of the following are examples of assurance engagements except ________.

Accepted Answer

Tax planning is not an assurance engagement as it involves providing advice and recommendations to clients on tax-related matters, rather than providing an independent assessment of the information presented in financial statements or internal control systems. The other options listed (B, C, and D) are all examples of assurance engagements as they involve providing independent assessments of financial statements or internal control systems.

Question 8

Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. Which of the following should the auditor consider to be the most authoritative?

Accepted Answer

The CPA Canada Handbook is the most authoritative source of GAAP in Canada. It is considered the primary source for Canadian accounting standards and financial reporting requirements. CPA Canada Exposure Drafts are not considered authoritative until they are finalized and included in the Handbook. Industry practice and federal legislation may provide guidance, but they are not considered authoritative sources of GAAP.

Question 9

An external auditor is conducting an audit of the financial statements of Camden Corporation. The external auditor is expected to ________.

Accepted Answer

An external auditor's primary function is to give an opinion on whether a company's financial statements are fairly presented in all material aspects. They are not responsible for certifying the correctness of the financial statements, making a 100% examination of the records, or providing an opinion on investing purposes or legality of business decisions.

Question 10

Control risk is ________.

Accepted Answer

Control risk is the risk of a material misstatement occurring in the financial statements and not being prevented or detected by the company's internal control policies and procedures. Option B is describing detection risk, not control risk. Options C and D are not related to control risk.

Question 11

Which of the following has been established to oversee the auditors of public companies?

Accepted Answer

The Canadian Public Accountability Board (CPAB) was established in 2003 to oversee the auditors of public companies in Canada. The other options listed do not specifically oversee auditors of public companies in Canada.

Question 12

Three-Party Accountability includes all of the following parties except ________.

Accepted Answer

Three-Party Accountability typically involves accountability between users, practitioners, and management. While Audit Committees may provide oversight and guidance, they are not typically considered a primary party in this model.

Question 13

The reporting standards require that the auditor explicitly report on whether the financial statements ________.

Accepted Answer

The reporting standards require the auditor to report whether the financial statements are in accordance with generally accepted accounting principles (GAAP). Adequate disclosure, appropriate principles, and consistency with prior years are also important, but the focus of the reporting standard is on GAAP conformity.

Question 14

Key features of SOX include all of the following except ________.

Accepted Answer

SOX actually increased options of recourse for aggrieved shareholders by providing protections for whistleblowers and creating the Public Company Accounting Oversight Board (PCAOB) to oversee the work of auditors. The other choices are key features of SOX.

Question 15

Williams & Co., a large international CPA firm, will be subject to an external peer review. The peer review will most likely be performed by ________.

Accepted Answer

External peer reviews for CPA firms are typically conducted by employees and partners of another CPA firm to ensure independence and objectivity in the review process.

Question 16

A standard unmodified audit report should be dated ________.

Accepted Answer

The date on a standard unmodified audit report should not be earlier than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditor's opinion. This ensures that the report reflects the most up-to-date information and that the auditor has obtained sufficient evidence before issuing an opinion.

Question 17

In establishing a quality control system, which area should be of a secondary nature?

Accepted Answer

The answer of In establishing a quality control system, which...

Question 18

According to generally accepted auditing standards (GAAS), the overall objective of a financial statement audit is ________.

Accepted Answer

The answer of According to generally accepted auditing standards (GAAS),...

Question 19

The GAAS general standard relating to the audit of financial statements focuses on all of the following except ________.

Accepted Answer

The GAAS general standards focus on competence, independence, and due professional care. Planning is part of the standards of fieldwork, not the general standards.

Question 20

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of ________.

Accepted Answer

An auditor should approach an audit with professional skepticism, which involves maintaining a questioning mind and a critical assessment of evidence. This attitude helps the auditor to identify and address the risk of material misstatement in the financial statements. Objective judgment, independent integrity, and impartial conservatism are also desirable qualities for an auditor, but they do not capture the essence of professional skepticism.

Quiz 2: Auditors Professional Roles and Responsibilities