WALLAGGAA UNIVERSITY

CoBE; Department of Accounting and Finance

Auditing principles & Practice II; Course Number: AcFn4062; May/2023;
Regular: Accounting – 4th Year; # Mid-exam, 30% by: Maraba. At.
Name _________________________________________ ID No. ___________________

PART ONE: WRITE TRUE FOR THE CORRECT STATEMENTS; OTHERWISE FALSE
1. Financial decision makers demand reliable information that is provided by accountants
A. True
2. The ASB balance audit objective related to valuation or accuracy is to determine whether proper values have been
assigned to assets, liabilities, equities, revenues, and expenses
A. True
3. Independent auditors are employees of the client
A. False
4. Evidential matter consists of assertions about economic actions and events
A. False
5. The purpose of obtaining and evaluating evidence is to ascertain the degree of correspondence between the assertions
and established criteria
A. True
6. One objective of internal auditing is to ultimately assist members of an organization to perform their work more
effectively and efficiently
A. True
7. Internal auditors perform only operational audits
A. False
8. The concept of "professional skepticism" requires that auditors assume that management is honest and should be
trusted.
A. False
9. An employee in a supermarket takes home bags of fresh fruit each day without paying for them is called larceny.
True
10. The Arrangements regarding fees and billing a matter that does an auditor usually include in the engagement letter.
True

PART II: CHOOSE THE CORRECT ANSWER FROM THE GIVEN ALTERNATIVE.

1. The audit objective that all transactions and accounts that should be presented in the financial statements are in
fact included is related to which of the Public Company Accounting Oversight Board ( (PCAOB) assertions?
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation
2. Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the
subsequent year provide assurance about management's assertion of
A. Presentation and disclosure
B. Completeness
C. Rights and obligations
D. Existence
3. During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions
on retained earnings resulting from loans, agreements or state law. This audit procedure more likely is intended to
verify management's assertion of
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 A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Presentation and disclosure
4. The confirmation of an account payable balance selected from the general ledger provides primary evidence
regarding which management assertion?
A. Completeness
B. Valuation
C. Allocation
D. Existence
5. What type of evidence would provide the highest level of assurance in an attestation engagement?
A. Evidence secured solely from within the entity
B. Evidence obtained from independent sources
C. Evidence obtained indirectly
D. Evidence obtained from multiple internal inquiries
6. Which of the following management assertions is an auditor most likely testing if the audit objective states that all
inventory on hand is reflected in the ending inventory balance?
A. The entity has rights to the inventory
B. Inventory is properly valued
C. Inventory is properly presented in the financial statements
D. Inventory is complete
7. An auditor traces the serial number on equipment to a non-issuer's sub-ledger. Which of the following
management assertions is supported by this test?
A. Valuation and allocation
B. Completeness
C. Rights and obligations
D. Presentation and disclosure
8. Which of the following is not related to ethical requirements of auditors?
A. Due care
B. Professional judgment
C. Independence in appearance
D. Independence in fact
9. Which of the following best demonstrates the concept of professional skepticism?
A. Focusing on items that have a more significant quantitative effect on the entity's financial statements
B. Relying more extensively on external evidence rather than internal evidence
C. Evaluating potential financial interests held by auditors in the client
D. Critically assessing verbal evidence received from the entity's management
10. Which of the following would be considered an assurance engagement?
A. Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the past
B. Giving an opinion on the conformity of the financial statements of a university with generally accepted
accounting principles
C. Giving an opinion on the fair presentation of a newspaper's circulation data
D. Giving assurance about the average drive length achieved by golfers with a client's golf balls
E. All of the above
11. It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the
assumption that
A. Financial statements and financial data verifiable

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 B. The professional status of the independent auditor imposes commensurate professional obligations
C. A potential conflict of interest always exists between the auditor and the management of the enterprise
under audit
D. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor
12. In an attestation engagement, a CPA practitioner is engaged to
A. Give expert testimony in court on particular facts in a corporate income tax controversy
B. Prepare a written report containing a conclusion about the reliability of a management assertion
C. Compile a company's financial forecast based on management's assumptions without expressing any form of
assurance
D. Prepare a tax return using information the CPA has not audited or reviewed
13. The primary difference between operational auditing and financial auditing is that in operational auditing
A. The operational auditor starts with the financial statements of an activity being audited and works backward to the
basic processes involved in producing them
B. The operational auditor is seeking to help management use resources in the most effective manner possible
C. The operational auditor can use analytical skills and tools that are net necessary in financial auditing
D. The operational auditor is not concerned with whether the audited activity is generating information in
compliance with financial accounting standards.
14. According to the AICPA, the purpose of an audit of financial statements is to
A. Express an opinion on the fairness with which they present financial position, results of operations, and
cash flows in conformity with accounting standards promulgated by the FASB.
B. Enhance the degree of confidence that intended users can place in the financial statements
C. Express an opinion on the fairness with which they present financial position, results of operations, and cash
flows in conformity with accounting standards promulgated by the US SEC
D. Obtain systematic and objective evidence about financial assertions and report the results to interested users
15. According to the American Accounting Association (AAA), the definition of auditing includes the following
statement
A. A process of reducing to a socially acceptable level the information risk to users of financial statements
B. An independent appraisal function established within an organization to examine and evaluate its activities
C. A systematic process of objectivity obtaining and evaluating evidence regarding assertions about economic
actions and events.
D. An expression of opinion on the fairness of financial statements
16. Which of the following is not a major element of assurance services?
A. Improving profitability of the client
B. Improving the quality of the client
C. Independence
D. Improving the context of information
17. An audit of the financial statements of Elgibor Corporation is being conducted by external auditors. The external
auditors are expected to:_____.
A. Certify the correctness of Elgibor’s financial statements
B. Make a complete examination of Elgibor’s records and verify all of Camden's transactions
C. Give an opinion on the fair presentation of Elgibor’s financial statements in conformity with the applicable
financial reporting framework.
D. Give an opinion on the attractiveness of Elgibor for investment purposes and critique the wisdom and legality of
its business decisions.
18. The probability that material misstatements have occurred in transactions entering the accounting system
is:_____________.
A. Detection risk

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 B. Control risk
C. Inherent risk
D. Audit risk
19. The probability that an auditor will give an inappropriate opinion on financial statements
A. Detection risk
B. Control risk
C. Inherent risk
D. Audit risk
20. The probability that the client's internal control policies and procedures will fail to detect material misstatements
if they have entered the accounting system
A. Detection risk
B. Control risk
C. Inherent risk
D. Audit risk
21. The probability that audit procedures will fail to produce evidence of material misstatements
A. Detection risk
B. Control risk
C. Inherent risk
D. Audit risk
22. A type of fraud involving employees or non -employees wrongfully taking money or property entrusted to their
care
A. Management fraud
B. Embezzlement or defalcation
C. White-collar crime
D. Larceny
23. The controller changed the journal entry for estimating bad debt expense to a smaller number to hide the poor
results from extending credit to high risk customers. This made income materially higher than it otherwise would
have been.
A. Management fraud
B. Embezzlement or defalcation
C. White-collar crime
D. Larceny
24. A bookkeeper inadvertently recorded depreciation by transposing numbers in a journal entry
A. Management fraud
B. Embezzlement or defalcation
C. White-collar crime
D. Errors
25. Misdeeds done by people who steal with a pencil or computer
A. Management fraud
B. Embezzlement or defalcation
C. White-collar crime
D. Larceny

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