BEBELAC UTS AUDIT

Multiple choice
1. Which of the following parties are involved in preparing and auditing financial
statements?
a. Management
b. Audit Committee
c. Internal audit function
d. External auditor
2. Those charged with governance have a responsibility to ensure that the information in
financial report is
a. True and fair
b. Relevant and reliable
c. Comparable and understandable
d. All of the above
3. Agency theory explains that audits are demanded because conflict can arise between
a. Auditors and owners
b. Owners and principals
c. Agents and managers
d. Managers and owners
4. Professional competence and due care means that members of professional bodies
must
a. Act diligently
b. Maintain their knowledge and skill at the required level
c. Keep up to date with changes in regulations
d. All of the above
5. Professional independence for auditors
a. Is only relevant to audits for new clients, not continuing clients
b. Is the ability to act with integrity, objectivity, and professional scepticism
c. Detracts from the ability of users to rely on the financial report to make their
decisions
d. Is important when the auditors acts independently, and it does not matter what
people believe about the auditor’s independence
6. A self-interest arises when
a. The client threatens to use a different auditor next year
b. The auditor encourages others to buy shares in the client
c. An assurance team member has recently been a director of the client
d. The auditors owns shares in business that is a major supplier to the client
7. If a prospective new audit client does not allow the auditor to contact its existing
auditor
a. The auditor should refuse to take on the prospective new client
b. The auditor should respect the prospective client’s right to privacy
c. The auditor should contact the existing auditor anyway because it is their duty
d. The existing auditor should contact the new auditor to tell them all about the client
8. What is the primary difference between fraud and errors in financial statement
reporting?
a. The materiality of the misstatement
b. The intent to deceive
c. The level of management involved
d. The type of transaction effected
9. Audit committee activities and responsibilities include which of the following?
a. Selecting the external audit firm
b. Approving corporate strategy
c. Reviewing management performance and determining compensation
d. All of the above
e. Non of the above
10. When determining whether an exception is highly material, the extent to which the
exception affects different parts of the financial statements must be considered. This is
referred to as
a. Materiality
b. Pervasiveness
c. Financial analysis
d. Ratio analysis
11. An auditor who is professionally skeptical will do not which of the following?
a. Critically question contradictory evidence
b. Carefully evaluate the reliability of audit evidence
c. Carefully rely the authenticity of documentation od the management
d. Reasonably question the honesty and integrity management
12. Which of the following is a reason that the auditor uses an accounting cycle approach
when performing an audit?
a. The accounting cycle approach allows the auditor to focus exclusively on either
the balance sheet or income statement
b. COSO internal control components are based on the accounting cycles
c. The accounting cycles provide a convenient way to break the audit up into
manageable pieces
d. The auditor needs to be able to provide an opinion related to each accounting
cycle
13. Which of the following accounts would not be included in the Acquisition and
Payment for Long-Lived Assets cycle?
a. Revenue
b. Depreciation expense
c. Gain on disposal
d. Equipment
14. Which of the following is not one of the management assertions?
a. Completeness
b. Existence
c. Right and obligations
d. Materiality
15. When gaining an understanding of the client at the industry level the auditor will
a. Use information about the client’s industry
b. Not consider government taxes on the industry because they are out of the client’s
control
c. Ignore bad news reports about the client firm because the client reputation in the
press is not important
d. Not consider the level of demand for the goods and services provided by other
companies in the client’s industry
16. An attitude of professional scepticism means
a. Any indicator of fraud is properly investigated
b. The auditor can rely on management assertions
c. The auditor can rely on pas experience to determine current risk of fraud
d. All of the above
17. The auditors must consider whether it is appropriate to assume that the client will
remain as a going concern
a. If there are mitigating circumstances
b. Only if the client is listed on a stock exchange
c. Because going concern means the client is facing bankruptcy
d. Because this question affects the appropriate basis for valuing assets
18. An example of an incentive or pressure that increases the risk of fraud is
a. The client operates in a stable industry
b. The client has history of making losses
c. Management remuneration mostly comprises base salary
d. All of the above
19. Assume the auditor has assessed the design of the controls and determines that the
company has an ineffective control design relater to pricing and dating of sales. This
assessment is due to an inadequate segregation of duties. Based on this information,
which of the following actions should the auditor take?
a. Resign from the audit because the entity is not auditable
b. Do not test controls ovel sales pricing and dating sales transactions
c. Expand the direct tests of related account balances by selecting recorded sales and
tracing back to shipping documents and authorized price lists
d. Answers (b) and (c) above
20. Which of the following statements is not true? The CPA firm will lose its
independence
a. If any of the partners in the office of the partner primarily responsible for the audit
b. If a manager who provides nonattest services to the client acquires stock in the
client
c. If anyone working on the audit should acquire stock in a client
d. All of the above are true
21. An example of an “indirect ownership interest in a client” would be ownership of the
client’s stock by a member’s
a. Dependent child
b. Spouse
c. Non-dependent grandfather
d. All of the above are example of indirect ownership
22. If a nonpublic company asks an accountant to perform a review engagement, and the
accountant has an immaterial direct financial interest in the company, the accountant
is
a. Independent because the financial interest is immaterial, and therefore may issue a
review report
b. Not independent, an therefore may not be associated with the financial statement
c. Not independent, and therefore may not issue a review report
d. Not independent, and therefore may issue a review report, but not issue an
auditor’s opinion
23. Auditors are not liable to their clients for
a. Errors of judgement
b. Negligence
c. Bad faith
d. Dishonesty
24. Auditors accumulate evidence to
a. Defend themselves in event of lawsuit
b. Justify the conclusions they have otherwise reached
c. Satisfy the requirement established by the regulators
d. Enable them to reach conclusions about the fairness of the financial statement and
issued an appropriate audit report
25. “The auditor should not assume that management is dishonest, but the possibility of
dishonesty must be considered.” This is example of
a. Unprofessional behaviour
b. An attitude of professional skepticism
c. Due diligence
d. Independence
26. The most important general ledger account included in and affecting several cycles is
the
a. Cash account
b. Inventory account
c. Income tac expense and liability accounts
d. Retained earnings account
27. Which of the following statements is true?
a. The auditor’s objectives follow and are closely related to management assertions
b. Management’s assertions follow and are closely related to the auditor’s objectives
c. The auditor’s primary responsibility is to find and disclose fraudulent
management assertions
d. Assertions about presentation and disclosure deal with whether the accounts have
been included in the financial statement at appropriate amounts
28. Only three management assertions are associated with transaction-related audit
objectives. Which one of the following is not?
a. Existence or occurrence
b. Completeness
c. Valuation or allocation
d. Presentation and disclosure
 29. Which of the following is not one of the four phases in the audit process?
a. Plan and design an audit approach
b. Test controls and transactions
c. Inform client of any adjustments or corrections to be made to the financial
statements
d. Complete the audit and issue of the report
30. For the most part, auditors treat each transaction cycle
a. As an interrelated unit with the other cycles throughout the entire audit
b. Separately as the audit is being performed
c. As a separate business unit with different audit teams
d. As a joint venture with other clients in the same industry
Essay
1. Describe and assess auditor independence
2. Explain the difference between assurance services and non assurance services. List
the example of assurance services and non assurance services
3. Distinguish between audit risk and audit failure
4. Discuss three reasons why auditors are responsible for “reasonable” but not
“absolute” assurance