Auditing Theory Practice Questions

1. An incoming auditor most likely would make specific inquiries of the predecessor auditor regarding

a. The competency of the client's internal audit staff

b. Disagreements with Management as to auditing procedures

c. Specialized Accounting Principles of the client's industry

d. The uncertainty inherent in applying sampling procedures

2. Which of the following expectations can the users of the audit report reasonably expect with regards to the
audited financial statements

a. The financial statements are free from all errors

b. All given answers are reasonable expectations

c. The financial statements include all financial disclosures desired by users

d. The financial statements are presented fairly according to the substance of GAAP.

3. This assertion addresses whether all transactions that should be included in the financial statements are in
fact included.

a. Rights and Obligations

b. Occurrence

c. Existence

d. Completeness

4. The concept of reasonable assurance is provided for in which of the following engagements?

a. Compilation

b. Review

c. Agreed-upon procedures

d. Audit
5. Which of the following tests is usually the least costly to perform?

a. Test of details of balances

b. Test of Controls

c. Substantive test of transactions

d. Analytical Procedures

6. A summary of findings rather than assurance is most likely to be issued on which engagement?

a. Agreed-Upon Procedures

b. Compilation

c. Examination

d. Review

7. The responsibility for the preparation of the financial statements and the accompanying footnote belongs to:

a. Management for the statements and the auditor for the footnotes

b. The auditor

c. Both management and auditor equally

d. Management

8. Which of the following should the auditor obtain from the predecessor audits before accepting an audit
engagement?

a. Analysis of balance sheet accounts

b. All matters of continuing accounting significance

c. Facts that might bear on the integrity of the management

d. Analysis of income statement occurs

9. An audit of financial statements is conducted to determine if the

a. Auditee is following specific procedures or rules set down by some higher authority

b. Organization is operating efficiently and effectively

c. Overall financial statements are tated in accordance with the applicable financial reporting framework

d. Client's internal control is functioning as intended

10. An attitude that includes a questioning mind, being alert to conditions that may indicate possible
misstatements, and a critical assessment of audit evidence is referred to as:

a. Audit neutralism

b. Audit mindset

c. Reasonable assurance

d. Professional skepticism

11. In gaining an understanding of the internal control structure, the auditor may take several transactions
through the control process. The primary purpose of this task is to

a. Replace substantive test

b. Determine whether the controls have been placed in operation

c. Detect fraud

d. Determine the effectiveness of the controls

12. Which of the following is not a component of engagement risk?

a. Control risk

b. Inherent risk

c. Business risk

d. Detection risk
13. "Performance materiality" is the term used to indicate materiality at the:

a. Balance sheet level

b. Income statement level

c. Account balance level

d. Company-wide level

14. Which of the following is most likely to be an overall response to fraud risk identified in an audit?

a. Use only certified public accountants in the engagement

b. Supervise the member of team less closely and rely more upon judgement

c. Use less predictable audit procedures

d. Place increased emphasis on the audit of objective transactions rather than subjective transactions

15. The audit procedure that may be helpful in identifying the existence of unusual transactions or events, and
amounts, ratios and trends that may indicate matters that have financial statement and audit implications is

a. Inquiries of management

b. Analytical procedures

c. Confirmation

d. Observation and inspection

16. The most important type of protective measure for safeguarding assets and records is

a. The use of physical precautions

b. Adequate documentation

c. Proper authorization of transactions

d. Adequate separation of duties among personnel

17. This consists of checking the mathematical accuracy of documents or records.

a. Inspection

b. Reperformance

c. Recalculation

d. Confirmation

18. Engagement letter

a. May be either oral or written

b. Must be written and notarized

c. Must be written if the client is regulated by the SEC

d. Must be written

19. The risk that an auditor may express an incorrect opinion on the financial statements is called

a. Inherent Risk

b. Control Risk

c. Audit Risk

d. Business Risk

20. An auditor uses the knowledge provided by the understanding of internal control and the final assessed
level of control risk primarily to determine the nature, timing and extent of the

a. Test of Controls

b. Compliance Test

c. Substantive Test

d. Analytical Procedures