Question 1

Audit quality is driven,in part,by the audit firm's culture.

Accepted Answer

The culture of the audit firm can affect the behavior and decision-making of auditors, ultimately impacting the quality of their work. Factors such as ethical values, focus on independence and objectivity, and emphasis on professional development can influence the overall culture of the firm, which can in turn impact audit quality.

Question 2

The purpose of auditing is to improve the quality of the information provided.

Accepted Answer

Auditing is a process of examining and verifying financial and non-financial information to ensure that it is accurate and reliable. The ultimate goal of auditing is to improve the quality of the information provided. Auditing helps to detect errors, fraud, and non-compliance with laws and regulations, and provides recommendations for improvement.

Question 3

Which one of the following is not a key attribute needed to perform an audit?

Accepted Answer

While accounting skills are valuable in conducting an audit, they are not a key attribute needed to perform an audit. The other key attributes that are necessary for conducting an audit include subject matter knowledge, independence, and established criteria or standards.

Question 4

What should internal controls be design to do?

Accepted Answer

Internal controls should be designed to both detect and prevent errors. This includes identifying and correcting mistakes that have already occurred as well as implementing measures to reduce the likelihood of future errors. While eliminating the possibility of fraud is a desirable outcome, it may not always be feasible or practical.

Question 5

Who are the users of the financial statements?

Accepted Answer

The primary users of financial statements are management and taxing authorities. Management uses the financial statements to make informed decisions about the company's operations and future plans, while taxing authorities need the information to ensure compliance with tax regulations. Auditors also use financial statements to provide an independent opinion on the accuracy and fairness of the information presented.

Question 6

What is the first phase in an audit?

Accepted Answer

The first phase in an audit is client acceptance or client continuance. This phase involves the auditor evaluating whether to accept a new client or continue working with an existing client. The auditor considers factors such as the client's reputation, integrity, and financial stability before accepting or continuing the engagement.

Question 7

The Sarbanes-Oxley Act sought to improve audit quality by removing the auditor independence requirements.

Accepted Answer

The Sarbanes-Oxley Act actually sought to strengthen auditor independence requirements, in response to issues related to conflicts of interest and unethical behavior by auditors in the Enron and Worldcom scandals. This was done through provisions such as the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee auditors of public companies, and the establishment of rules prohibiting certain non-audit services to audit clients by auditors.

Question 8

Which the following is not a reason for a public company to receive an audit?

Accepted Answer

Closeness between a user and the organization is not a reason for a public company to receive an audit. The other choices are valid reasons for a public company to receive an audit. Potential bias in providing information may exist, and an audit can provide an objective assessment of the company's financial reporting. Complexity of processing systems can increase the risk of errors or fraud and an audit can help identify and address these issues. Remoteness between a user and the organization can make it difficult for users to obtain accurate and reliable information about the company's financial performance, and an audit can provide assurance on the reliability of this information.

Question 9

What is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users?

Accepted Answer

The answer of What is the term used to describe...

Question 10

A quality audit is one performed "in accordance with generally accepted auditing standards (GAAS)to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with generally accepted accounting principles (GAAP)and (2)are not materially misstated whether due to errors or fraud."

Accepted Answer

The statement accurately describes a quality audit, as defined by GAAS.

Question 11

Which one of the following is a potential problem with management's communication of financial information that causes third parties to desire the independent auditor's assessment of the financial statement presentation?

Accepted Answer

Complexity of transactions and remoteness of the user from the organization are both reasons why third parties seek independent audits to ensure accurate financial statement presentation.

Question 12

An Integrated Audit Report provides opinion(s)on which of the following?

Accepted Answer

An Integrated Audit Report provides opinion(s) on both financial statements and internal controls. It involves assessing the effectiveness of internal controls over financial reporting in order to provide more meaningful assurance on the financial statements.

Question 13

What can users can reasonably expect from the audited financial statements?

Accepted Answer

Users can reasonably expect audited financial statements to be complete and contain all important financial disclosures, be free from material misstatements, and be presented fairly according to GAAP. While statement C also includes accuracy, it is not a term typically used in describing audited financial statements. Statement D goes beyond expectations, as it includes being free from all misstatements and presented according to the substance of GAAP, which is a higher standard than presenting fairly according to GAAP.

Question 14

Audit staff performing audit work must be appropriately supervised by partners and managers.

Accepted Answer

This is because audit staff require proper guidance and direction to ensure that the audit work is performed in accordance with professional standards and requirements. Supervision helps to identify any deficiencies, errors or omissions in the work performed and ensures that the audit is conducted effectively, efficiently and in a timely manner.

Question 15

To conduct an audit,what must an auditor do?

Accepted Answer

While an auditor should aim to exercise sound judgment and obtain sufficient evidence to provide reasonable assurance, it is not possible to achieve perfect judgment or absolute assurance. Therefore, the most important requirement for an auditor is to comply with relevant ethical standards.

Question 16

Which one of the following is not a management expectation for independent auditors?

Accepted Answer

Independent auditors are not expected to participate in management decision making as it would compromise their objectivity and independence. Their role is to provide an objective opinion on the financial statements and the effectiveness of the company's internal control over financial reporting.

Question 17

What can users of the audit report reasonably expect from the audited financial statements?

Accepted Answer

Users of the audit report can expect that the audited financial statements are presented fairly according to the substance of GAAP. However, they cannot expect that the financial statements are complete, as auditors may not verify every transaction or event, or that the financial statements are free from all errors, as there may still be some level of risk and uncertainty inherent in financial reporting.

Question 18

An "integrated audit" includes an audit of what?

Accepted Answer

An integrated audit includes both an audit of the company's internal controls and an audit of the company's financial statements. This type of audit is designed to evaluate and assess the effectiveness of a company's internal controls over financial reporting and to determine whether the financial statements are materially accurate and in compliance with generally accepted accounting principles. It is a comprehensive audit that combines elements of both a financial statement audit and an audit of internal controls.

Question 19

Which one of the following is not an example of an independence violation?

Accepted Answer

Accepting money for conducting an audit is a clear violation of independence and goes against the principles of objectivity and integrity. A, C, and D are examples of independence violations, as they involve personal or financial relationships with the client that could compromise the auditor's independence.

Question 20

Who does the public expect the auditor will recognize as the primary users of the audited financial statements?

Accepted Answer

The public expects the auditor to recognize third-party users, such as investors, creditors, and other stakeholders, as the primary users of the audited financial statements. This is because these users rely on the financial statements to make informed decisions about the company. While the auditor's clients (choice A) may also use the financial statements, they are not the primary users. The Public Company Accounting Oversight Board (choice B) is a regulatory body that oversees accounting firms, but they are not users of the financial statements. Members of management (choice C) may also use the financial statements, but they are not the primary users that the public expects the auditor to recognize.

Quiz 1: Auditing: Integral to the Economy