Question 1

In an audit, the auditor has a requirement to address risk assessment with respect to:
A) The design and performance of audit procedures to respond to assessed risks
B) Whether the standards close the expectation gap
C) The role and responsibilities of the audit committee in preventing fraud
D) Ensuring that no fraud occurred for the period under audit

Accepted Answer

Risk assessment is a crucial step in the audit process, and the auditor is required to design and perform audit procedures that respond to assessed risks. This is to ensure that the audit is conducted in an effective and efficient manner and that the auditor obtains sufficient evidence to support their opinion on the financial statements. Options B and C are not directly related to risk assessment, and option D is not feasible as it is impossible to ensure that no fraud occurred during the period under audit.

Question 2

The PCAOB addresses audit results and require the:
A) Auditor's evaluation of internal controls
B) Auditor's determination of whether the auditor has obtained sufficient appropriate evidence
C) Auditor's evaluation of the applicable financial reporting framework
D) Auditor's independence

Accepted Answer

The PCAOB addresses audit results and requires the auditor's determination of whether the auditor has obtained sufficient appropriate evidence, as this is crucial in determining the accuracy of the financial statements. While the auditor's evaluation of internal controls (choice A) and evaluation of the applicable financial reporting framework (choice C) are important, they are not the primary focus when it comes to the PCAOB's oversight. Auditor's independence (choice D) is also important, but it is not directly related to addressing audit results.

Question 3

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger?
A) Confirmation
B) Overconfidence
C) Anchoring
D) Availability

Accepted Answer

The accessibility of information directly relates to the availability heuristic, which is the tendency to rely on readily available information or examples when making a judgment or decision. Therefore, the best choice is D - Availability.

Question 4

In the Medicis audit, the auditors failed to complete all of the following except:
A) Failed to issue an unqualified opinion
B) Failed to follow GAAS
C) Failed to correct control deficiencies
D) Failed to obtain adequate evidence related to management representations

Accepted Answer

Issuing an unqualified opinion is the goal of an audit when the financial statements are free of material misstatements, and it is not a step in the audit process itself. The other options (B, C, D) are failures in the audit process.

Question 5

Because of the risk of material misstatement due to improper management representations, an audit of financial statements in accordance with GAAS should be performed with:
A) Objective judgment
B) Professional skepticism
C) Internal controls
D) Due diligence

Accepted Answer

Professional skepticism is necessary in order to maintain an objective and critical mindset when assessing the validity of management representations. Internal controls and due diligence are important factors in an audit, but they do not directly address the risk of material misstatement due to improper management representations. Objective judgment is important, but it is closely related to professional skepticism and is not sufficient on its own.

Question 6

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?
A) The financial statements have followed GAAP
B) Consistency in the application of GAAP
C) Adequate disclosures exist in the statements
D) Gathering sufficient audit evidence to warrant an opinion

Accepted Answer

The three reporting standards of GAAS (Generally Accepted Auditing Standards) that guide auditors in formulating the audit opinion are: the financial statements have followed GAAP, consistency in the application of GAAP, and adequate disclosures exist in the statements. Gathering sufficient audit evidence to warrant an opinion is part of the standards of fieldwork, not the reporting standards.

Question 7

All of the following are ICFR-related audit deficiencies in PCAOB inspection reports except:
A) Inadequate testing of management review controls
B) Inadequate testing of the top-down risk-based approach
C) Inadequate qualifications of auditors
D) Inadequate identification of information technology risks

Accepted Answer

The other three choices (A, B, and D) are related to deficiencies in testing and identifying ICFR controls, while choice C is related to the qualifications of the auditors themselves, which is not a direct ICFR-related deficiency.

Question 8

Audit procedures are different than audit evidence because:
A) Audit procedures address the competency and sufficiency of audit evidence
B) Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met
C) Audit procedures are specific acts to assess whether the financial statements "present fairly"
D) Audit procedures do not have to be determined based on risk assessment

Accepted Answer

Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met. Audit evidence, on the other hand, refers to the information obtained by the auditor to support their audit opinion, which may include documentation, verification, and other procedures. Audit procedures are an essential part of the audit process as they help the auditor to obtain sufficient and appropriate evidence to support their opinion on the financial statements.

Question 9

Which of the following summarizes the essence of general responsibilities of GAAS?
A) Quality of professionals that perform an audit
B) Criteria used to judge whether the audit has met quality requirements
C) The standards that guide auditors in issuing the audit report
D) Whether the auditor obtained sufficient competent evidential matter to render an opinion

Accepted Answer

General responsibilities of GAAS (Generally Accepted Auditing Standards) focus on the quality of professionals performing the audit, ensuring they have the necessary skills, training, and independence.

Question 10

Auditors are required to communicate with the audit committee all but which of the following:
A) Going concern issues
B) Whether the auditor expects to modify the opinion
C) Any disagreements with management
D) The procedures followed to comply with generally accepted auditing standards

Accepted Answer

Auditors are not required to communicate the specific procedures followed to comply with generally accepted auditing standards, as this is assumed to be a standard part of their audit work. However, auditors are required to communicate any significant issues with the audit committee, including going concern issues, expected modifications to the opinion, and any disagreements with management.

Question 11

Audit documentation is critical to evidence gathering because:
A) It demonstrates that an audit has been conducted
B) It demonstrates professional skepticism
C) It substitutes for making audit judgments and estimates
D) All of the above

Accepted Answer

The answer of Audit documentation is critical to evidence gathering...

Question 12

Which of the following is not a consideration in determining a measure of materiality?
A) Risks of material misstatements due to fraud
B) Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues
C) Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues
D) Importance of audit committee in the organization

Accepted Answer

The importance of audit committee in the organization is not a consideration in determining materiality. A, B, and C are all relevant considerations in determining materiality.

Question 13

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:
A) Qualitative factors may cause quantitatively small misstatements to become material
B) Quantitative factors are not always useful
C) Quantitative factors cannot be accumulated to assess overall materiality
D) All are of concern to the SEC

Accepted Answer

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because qualitative factors may cause quantitatively small misstatements to become material.

Question 14

Which of the following summarizes the essence of field work standards of GAAS?
A) Quality of professionals that perform an audit
B) Criteria for judging the quality of audit work
C) Whether the auditor was independent in conducting the audit
D) Whether the auditor reviewed the client's financial statements for adherence to GAAP

Accepted Answer

GAAS (Generally Accepted Auditing Standards) provides guidelines for auditors to follow when conducting an audit. The field work standards, one of the three standards, focus on the criteria for judging the quality of the audit work performed by the auditor. These standards include the auditor's understanding of the client's internal control system, the nature, timing and extent of audit procedures, and the documentation and communication of audit findings. The quality of professionals that perform an audit, whether the auditor was independent in conducting the audit, and whether the auditor reviewed the client's financial statements for adherence to GAAP are all important considerations, but they are not necessarily the essence of the field work standards.

Question 15

Auditors are required to communicate with the audit committee for all but which of the following:
A) Significant accounting policies and practices
B) Critical accounting practices and policies
C) Significant unusual transactions
D) The procedures followed by the auditor in evaluating evidence

Accepted Answer

Auditors are not required to communicate the procedures followed by the auditor in evaluating evidence with the audit committee, as this falls under the scope of the auditor's responsibilities and does not necessarily require oversight by the committee. However, they are required to communicate significant accounting policies and practices, critical accounting practices and policies, and significant unusual transactions to ensure transparency and oversight by the audit committee.

Question 16

The objective of an engagement quality review is to:
A) Assess how an audit has been conducted and the appropriateness of the audit opinion
B) Assess the firm's own quality controls and the appropriateness of the audit opinion
C) Assess how an audit has been conducted and the firm's own quality control procedures
D) Assess whether materiality has been properly evaluated

Accepted Answer

The objective of an engagement quality review is to assess how an audit has been conducted and the firm's own quality control procedures. Therefore, choice C correctly reflects the objective of an engagement quality review. Choice A is incorrect because it only focuses on assessing how the audit has been conducted, but not the firm's quality control procedures. Choice B is incorrect because it only focuses on assessing the firm's quality controls, but not how the audit has been conducted. Choice D is incorrect because materiality is only a component of an audit, and the objective of an engagement quality review is broader than just evaluating materiality.

Question 17

The auditors' determination of whether the financial statements "present fairly" is based on:
A) Whether the users are able to assess the reliability of the financial statements
B) Whether the statements have been prepared in accordance with the same GAAP used from one year to another
C) Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly
D) Whether the accounting principles used are appropriate in the circumstances

Accepted Answer

The auditors' determination of whether the financial statements "present fairly" is based on whether the accounting principles used are appropriate in the circumstances, ensuring they comply with the applicable financial reporting framework.

Question 18

Which of the following is not correct about materiality?
A) The concept of materiality recognizes that some matters are more important for fair presentation of financial statements
B) Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments
C) Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality
D) An auditor's consideration of materiality is influenced by the auditor's perception of the needs of the readers of the financial statements

Accepted Answer

Materiality should not be predictable from audit to audit because it depends on the specific circumstances of each audit. The concept of materiality requires consideration of both quantitative and qualitative factors, and the determination of what is material can vary based on individual judgments and perceptions.

Question 19

Which of the following is NOT a common audit deficiency in PCAOB inspections?
A) Inadequate internal controls over financial reporting
B) Maintaining an independent audits
C) Lack of due care
D) Inability to exercise the appropriate level of professional skepticism

Accepted Answer

Maintaining an independent audit is not a common audit deficiency as auditors are required to maintain independence and objectivity throughout the audit process. The other options (A, C, and D) are common deficiencies found in PCAOB inspections.

Question 20

Gathering and objectively evaluating audit evidence requires the auditor to consider:
A) Whether an unmodified opinion should be issued
B) Whether a modified opinion should be issued
C) Whether the evidence is adequate to complete the audit
D) Whether the evidence is competent and sufficient enough to render an audit opinion

Accepted Answer

Objectively evaluating audit evidence requires the auditor to determine whether the evidence is competent and sufficient enough to support the audit opinion being issued. Choices A and B relate to the type of opinion to be issued, which is determined based on the evaluation of audit evidence. Choice C is also related to the sufficiency and adequacy of audit evidence, but does not encompass the competency of the evidence.

Quiz 5: Fraud in Financial Statements and Auditor Responsibilities

In an audit, the auditor has a requirement to address risk assessment with respect to:

The PCAOB addresses audit results and require the:

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger?

In the Medicis audit, the auditors failed to complete all of the following except:

Because of the risk of material misstatement due to improper management representations, an audit of financial statements in accordance with GAAS should be performed with:

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

All of the following are ICFR-related audit deficiencies in PCAOB inspection reports except:

Audit procedures are different than audit evidence because:

Which of the following summarizes the essence of general responsibilities of GAAS?

Auditors are required to communicate with the audit committee all but which of the following:

Audit documentation is critical to evidence gathering because:

Which of the following is not a consideration in determining a measure of materiality?

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:

Which of the following summarizes the essence of field work standards of GAAS?

Auditors are required to communicate with the audit committee for all but which of the following:

The objective of an engagement quality review is to:

The auditors' determination of whether the financial statements "present fairly" is based on:

Which of the following is not correct about materiality?

Which of the following is NOT a common audit deficiency in PCAOB inspections?

Gathering and objectively evaluating audit evidence requires the auditor to consider: