Question 1

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

Accepted Answer

False

Question 2

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

Accepted Answer

Both current and potential investors are considered users of financial statements, as they use the information to make decisions about buying, holding, or selling equity or debt instruments.

Question 3

Michael Stiller performed work for a client in the real estate business and issued a Notice to Reader. What degree of assurance doa 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

A Notice to Reader provides no assurance to the user of the statements. It only includes basic financial information presented in the form of financial statements, without any assurance being provided as to whether the information presented is accurate or complete.

Question 4

A compliance audit involvgathering 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 conducted to gather evidence and determine if a person or entity has complied with the set rules, policies, laws, and regulations.

Question 5

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

Accepted Answer

The nature of audit procedure does involve reliance on evidence provided by the client and its management. However, it also involves the auditor's independent evaluation of the evidence and the use of professional judgement. Therefore, the answer is A.

Question 6

Vera Sobczyk spent a week at a client's wholesale operation determining whether the client's remittancto the tax authoritiwere 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 7

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 assists in the preparation of financial statements based on information provided by the client without providing any assurance on the accuracy or completeness of the information. The accountant also does not need to perform any additional procedures to verify the information provided by the client, but must ensure that the financial statements are presented in a proper format and that math errors have been corrected. This scenario describes a compilation engagement because Theodore checked the math accuracy of the data and prepared financial statements based on information provided by the client. The client also complimented him on the reasonable cost, which suggests that no additional assurance was provided beyond the compilation. A review or audit engagement would involve more extensive procedures to analyze the financial statements and provide a higher level of assurance on their accuracy.

Question 8

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

Accepted Answer

It is the responsibility of the management of the company to prepare the financial statements, while the auditor's job is to review and give an opinion on the accuracy and reliability of those financial statements.

Question 9

Mary Logan was careful to undertake her audits in a most responsible manner. Her audit manager complimented her on her diligence and how well she documented her work at the different stagof the audit process. Which element of responsibility did she display?
A) due care
B) professional judgment
C) professional scepticism
D) none of these

Accepted Answer

Mary displayed due care by being diligent and documenting her work at different stages of the audit process, showing responsibility for the quality of her work. Professional judgment and professional scepticism are also important elements of responsibility in auditing, but they are not specifically demonstrated in this scenario.

Question 10

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 11

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

Accepted Answer

While a no assurance engagement doesn't provide a formal assurance to the client, it can still be useful for providing limited procedures or other agreed-upon services that can help the client achieve their objectives or identify areas where improvements can be made.

Question 12

An operational audit is an example of a compliance audit.

Accepted Answer

An operational audit focuses on efficiency and effectiveness of operations, while a compliance audit assesses adherence to laws, regulations, and policies.

Question 13

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

Accepted Answer

A review engagement involves performing analytical procedures and having discussions with management, leading to a conclusion that provides limited assurance, often expressed in a negative form.

Question 14

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 the auditor discovers material misstatements in the financial statements, lack of adequate disclosure, or violation of accounting standards and principles. It is not solely based on disagreement with management.

Question 15

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

Accepted Answer

The insurance hypothesis suggests that investors can use options and other derivatives to hedge or limit their potential losses, but it does not guarantee success. Investment always carries some level of risk and uncertainty, and insurance strategies can only minimize risk and not eliminate it completely.

Question 16

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 17

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

Accepted Answer

An auditor can provide a reasonable level of assurance on information other than historical financial information, such as sustainability reports or compliance with laws and regulations. However, the level of assurance provided may differ and is dependent on the nature and scope of the information being audited.

Question 18

Martha Minnati 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 given by Martha's manager corresponds to an assurance engagement, which is the type of engagement where the auditor provides a level of assurance regarding the subject matter, which in this case are the financial statements of the clothing manufacturer.

Question 19

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

Accepted Answer

The answer of A reasonable level of assurance is the...

Question 20

Maggie Oh performed an audit of a client that had undergone flooding to its operations in St-Jean Sur Richelieu. The client was insured and was able to keep operating. However, there was material damage to the client's warehouse and Maggie felt it would be appropriate to inform the users of the financial statements of this fact in the audit report. This form of audit report is called:
A) an adverse opinion
B) unmodified opinion - emphasis of matter
C) modified opinion
D) disclaimer of opinion

Accepted Answer

An unmodified opinion with emphasis of matter is the appropriate choice. This type of report is used when the auditor wants to bring attention to a particular matter (in this case, the material damage to the warehouse due to flooding) but does not believe it affects the overall fairness of the financial statements.

Quiz 1: Introduction and Review of Audit and Assurance