Audit Test 1 Questions

An auditor uses a computerized tool to perform an aging analysis on receivables. The auditor relies on the results of this tool without performing any calculations on his or her own. Which unconscious bias is the auditor most likely exhibiting?

Availability bias.

Automation bias.

Overconfidence bias.

Anchoring bias.

Automation bias.

Which of the following statements is true concerning an auditor’s responsibilities regarding financial statements?

The adoption of sound accounting policies is an implicit part of an auditor’s responsibilities.

An auditor’s responsibilities for audited financial statements are confined to the expression of the auditor’s opinion.

Making suggestions that are adopted about an entity’s internal control environment impairs an auditor’s independence.

An auditor may not draft an entity’s financial statements based on information from management’s accounting system.

An auditor’s responsibilities for audited financial statements are confined to the expression of the auditor’s opinion.

Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded?

Occurrence.

Cutoff.

Accuracy, valuation, and allocation.

Completeness.

Completeness.

Which of the following best describes the reason an independent auditor reports on financial statements?

The company preparing the statements and the persons using the statements may have different interests.

A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.

The company preparing the statements may have poorly designed internal control.

A management fraud may exist, and it is more likely to be detected by independent auditors.

The company preparing the statements and the persons using the statements may have different interests.

Auditors who maintain independence throughout all of their attestation engagements are having which degree of responsibility imposed upon them?

Should consider.

Presumptively mandatory responsibility.

Unconditional responsibility.

Partial responsibility.

Unconditional responsibility.

A financial statement audit is designed to

Provide assurance on internal control and to identify significant deficiencies and material weaknesses.

Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.

Detect error or fraud in the financial statements, regardless of whether or not the error or fraud is material.

Obtain absolute assurance on the financial statements and express an opinion on the financial statements.

Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.

Independent auditing can best be described as

A branch of accounting.

A professional activity that measures and communicates financial and business data.

A discipline that enhances the degree of confidence that users can place in financial statements.

A regulatory function that prevents the issuance of improper financial information.

A discipline that enhances the degree of confidence that users can place in financial statements.

Which of the following statements best describes the primary purpose of Statements on Auditing Standards (SASs)?

They are generally accepted auditing standards.

They are guides intended to set forth auditing procedures applicable to a variety of situations.

They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment.

They are procedural outlines intended to narrow the areas of inconsistency and divergence of auditor opinion.

They are generally accepted auditing standards

Notes that are included with financial statements are the responsibility of the Independent auditor.

Company’s management.

Securities and Exchange Commission.

Internal auditor.

Company’s management

When a PCAOB auditing standard indicates that an auditor “could” perform a specific procedure, how should the auditor decide whether and how to perform the procedure?

By exercising professional judgment in the circumstances.

By evaluating whether the audit is likely to be subject to inspection by the PCAOB.

By soliciting input from the issuer’s audit committee.

By comparing the PCAOB standard with related AICPA auditing standards.

By exercising professional judgment in the circumstances

Which of the following statements correctly defines the term “reasonable assurance”?

A substantial level of assurance to allow an auditor to detect a material misstatement.

A significant level of assurance to allow an auditor to detect a material misstatement.

An absolute level of assurance to allow an auditor to detect a material misstatement.

A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

Users of an issuer’s financial statements demand independent audits because

Users demand assurance that fraud does not exist.

Management may not be objective in reporting.

Management relies on the auditor to improve internal control.

Users expect auditors to correct management errors.

Management may not be objective in reporting

Independent auditing can best be described as

A regulatory function that prevents the issuance of improper financial information.

A professional activity that measures and communicates financial and business data.

A branch of accounting.

A discipline that enhances the degree of confidence that users can place in financial statements.

A discipline that enhances the degree of confidence that users can place in financial statements.

An auditor finds that inventory shipped FOB shipping point before the end of Year 1 was incorrectly recorded as a sale in Year 2, when the shipped goods arrived to the customer. Which auditing assertion regarding transactions and events does this most likely relate to?

Classification.

Cutoff.

Completeness.

Accuracy.

Cutoff

In connection with the element of monitoring, a CPA firm’s system of quality control ordinarily should provide for the maintenance of

A file of minutes of staff meetings.

Documentation to demonstrate compliance with its policies and procedures.

Updated personnel files.

Documentation to demonstrate compliance with peer review directives.

Documentation to demonstrate compliance with its policies and procedures

Auditing Interpretations are issued by the Audit Issues Task Force of the Auditing Standards Board (ASB) to provide timely guidance on the application of pronouncements of the ASB. They are

Nonauthoritative opinions that are expressed without consulting the ASB.

Not auditing standards.

Equally as authoritative as Statements on Auditing Standards.

More authoritative than Statements on Auditing Standards.

Not auditing standards

Who establishes generally accepted auditing standards? 

Financial Accounting Standards Board and the Governmental Accounting Standards Board. 

Securities and Exchange Commission. 

State Boards of Accountancy. 

Auditing Standards Board and the Public Company Accounting Oversight Board.

Auditing Standards Board and the Public Company Accounting Oversight Board

Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as 

A regulatory function that prevents the issuance of improper financial information. 

An activity whose purpose is to search for fraud. 

A professional activity that measures and communicates financial and business data. 

A discipline that attests to financial information presented by management. 

A discipline that attests to financial information presented by management

Which of the following is a management assertion regarding account balances at the period end? 

Transactions and events have been recorded in the proper accounts. 

Amounts and other data related to transactions and events have been recorded appropriately. 

The entity holds or controls the rights to assets, and liabilities are obligations of the entity. 

Transactions and events that have been recorded have occurred and pertain to the entity. 

The entity holds or controls the rights to assets, and liabilities are obligations of the entity

Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit?  

Tests of details typically provide a low level of assurance.  

The use of tests of controls should be considered without regard to the level of assurance required.  

Analytical procedures are an inefficient means of obtaining assurance. 

The procedures to be applied on a particular engagement are a matter of the auditor’s professional judgment. 

The procedures to be applied on a particular engagement are a matter of the auditor’s professional judgment

The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The management of Donley engages a CPA to perform an independent audit of Donley’s financial statements. The primary objective of this audit is to provide assurance to the 

Regional stock exchange. 

Board of directors of Donley. 

Investors in Donley securities. 

Securities and Exchange Commission. 

Investors in Donley securities. 

An auditor must obtain professional experience primarily to 

Receive a favorable peer review. 

Earn a specialty designation by the AICPA. 

Exercise professional judgment. 

Receive a positive employment evaluation. 

Exercise professional judgment

Which of the following is a false statement about the relationship of financial statement assertions and audit procedures? 

The auditor should resolve any substantial doubt about any of management’s relevant financial statement assertions. 

The relationship between financial statement assertions and audit procedures should be one-to-one. 

Audit procedures should be developed in light of financial statement assertions about the financial statement components. 

Selection of tests of financial statement assertions should depend upon the understanding of internal control. 

The relationship between financial statement assertions and audit procedures should be one-to-one.

If a statement from the Statements on Standards for Attestation Engagements (SSAEs) provides that a procedure or action is one that the practitioner “should consider,” then which of the following interpretations is correct? 

Carrying out the procedure or action is required in all cases. 

The practitioner and management must agree on how the procedure will be performed. 

The SSAEs use this term for special attestation engagements when referring to unusual situations outside the scope of the typical attestation engagements. 

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not required. 

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not required. 

An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to 

Make a 100% examination of Camden’s records. 

Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions. 

Certify the correctness of Camden’s financial statements. 

Express an opinion as to the fairness of Camden’s financial statements. 

 

Express an opinion as to the fairness of Camden’s financial statements