Question 1

Which factors would likely increase an auditor's concern pertaining to risk of fraudulent financial reporting?

Accepted Answer

A) Excessive amount of liquid assets that could easily be converted to cash. 
B) Low profitability/growth with respect to competitors in the same industry. 
C) Management participation in selection of accounting methods and principles. 
D) An extremely confusing and overly complex institutional structure, with blurred lines of authority. 
A) Excessive amount of liquid assets that could easily be converted to cash. 
B) Low profitability/growth with respect to competitors in the same industry. 
C) Management participation in selection of accounting methods and principles. 
D) An extremely confusing and overly complex institutional structure, with blurred lines of authority.

Question 2

You are auditing Toy Time, a private company located in Nashville, TN.Toy Time does not have a board of directors, nor an audit committee.Explain with whom the auditors should communicate.Research and reference the appropriate AU-C standard that identifies this.

Accepted Answer

Some private companies may not have an a

Question 3

During an audit of Chien Products, you note that all new accounting employees are set up with a temporary password of "abc123".You also noted that employees are not required to change their passwords when they first set up their accounts, nor is there a requirement to change passwords regularly.Write a paragraph describing the implications of these IT risks.

Accepted Answer

Student answers will vary but should gen

Question 4

Non-executive directors should ideally be _________.

Accepted Answer

A) objective and knowledgeable about the industry 
B) employed by the client firm 
C) from an unrelated industry, to ensure maximum objectiveness 
D) expected to have the same level of knowledge about the company as executive directors 
A) objective and knowledgeable about the industry 
B) employed by the client firm 
C) from an unrelated industry, to ensure maximum objectiveness 
D) expected to have the same level of knowledge about the company as executive directors

Question 5

The ultimate responsibility for the financial reporting process rests with the _______, but the efficiency of achieving this goal is improved by the _______.

Accepted Answer

A) full board; audit committee 
B) audit committee; executive directors 
C) non-executive directors; audit committee 
D) executive directors; full board 
A) full board; audit committee 
B) audit committee; executive directors 
C) non-executive directors; audit committee 
D) executive directors; full board

Question 6

Generally speaking, the existence of related party transactions ________.

Accepted Answer

A) increases inherent risk and should be investigated further 
B) decreases inherent risk and should be investigated further 
C) is illegal and should be reported to the Securities and Exchange Commission 
D) is not worth of further investigation 
A) increases inherent risk and should be investigated further 
B) decreases inherent risk and should be investigated further 
C) is illegal and should be reported to the Securities and Exchange Commission 
D) is not worth of further investigation

Question 7

With respect to Key Performance Indicators, auditors should ________.

Accepted Answer

A) disregard them as they would be unrelated to the audit 
B) ask management to provide a detailed explanation of which KPIs are of the most importance to them so that related audit procedures can be planned 
C) assign the task of investigation to the internal audit function 
D) assign new KPIs to the client as a result of the audit process 
A) disregard them as they would be unrelated to the audit 
B) ask management to provide a detailed explanation of which KPIs are of the most importance to them so that related audit procedures can be planned 
C) assign the task of investigation to the internal audit function 
D) assign new KPIs to the client as a result of the audit process

Question 8

The audit partner will meet with members of the board once the audit is concluded, and not before its conclusion.

Accepted Answer

A) True 
 B)False

Question 9

A member of a company board is _________.

Accepted Answer

A) either an executive or non-executive director 
B) always an executive director 
C) always a non-executive director 
D) none of these answer choices are correct 
A) either an executive or non-executive director 
B) always an executive director 
C) always a non-executive director 
D) none of these answer choices are correct

Question 10

An auditor is concerned about short-term interest payment obligations due to a recent major bond issue of the client.A ratio the auditor should consider determining is _________.

Accepted Answer

A) debt-equity ratio 
B) quick (acid test) ratio 
C) times interest earned ratio 
D) short term payment ratio 
A) debt-equity ratio 
B) quick (acid test) ratio 
C) times interest earned ratio 
D) short term payment ratio

Question 11

Audit committee composition should always consist of the most competent and independent directors, irrespective of whether they are employed by the client company:

Accepted Answer

A) True 
 B)False

Question 12

Explain why it is important for the board of directors to have a mixture of executive and non-executive members.

Accepted Answer

It is important that the board of direct

Question 13

If an auditor was interested in determining a client firm's ability to generate income from its investments, the best ratio to calculate would be _________.

Accepted Answer

A) the times interest earned 
B) debt to assets ratio 
C) return on assets 
D) return on equity 
A) the times interest earned 
B) debt to assets ratio 
C) return on assets 
D) return on equity

Question 14

The audit committee is responsible for the ________ of the auditors.

Accepted Answer

A) oversight and appointment 
B) appointment and compensation 
C) oversight and compensation 
D) all of the above 
A) oversight and appointment 
B) appointment and compensation 
C) oversight and compensation 
D) all of the above

Question 15

A comparison of account balances over time constitutes _______ analysis.

Accepted Answer

A) trend 
B) common-size 
C) ratio 
D) time series 
A) trend 
B) common-size 
C) ratio 
D) time series

Question 16

To be meaningful, the cash flow from operations amount should be adjusted for any one-time influences on cash flow from operations to determine _______ cash flow from operations.

Accepted Answer

A) sustainable 
B) unexpected 
C) seasonal 
D) one-time 
A) sustainable 
B) unexpected 
C) seasonal 
D) one-time

Question 17

Which of the following choices would indicate an appropriate change in the auditor's approach to the audit, when an increased level of risk is present in a certain area?

Accepted Answer

A) Assignment of personnel with specialized skills for the area of increased risk 
B) Assigning less audit staff to the engagement 
C) Withdraw from the audit 
D) Obtain management assurances in writing pertaining to the increased area of risk 
A) Assignment of personnel with specialized skills for the area of increased risk 
B) Assigning less audit staff to the engagement 
C) Withdraw from the audit 
D) Obtain management assurances in writing pertaining to the increased area of risk

Question 18

During the risk assessment phase, the audit team should gain an understanding of the client's procedures for __________.

Accepted Answer

A) identifying related parties and authorizing transactions with related parties. 
B) authorizing transactions with related parties and disclosing the relationships and transactions in the financial statements. 
C) authorizing transactions with related parties. 
D) All of the above are correct. 
A) identifying related parties and authorizing transactions with related parties. 
B) authorizing transactions with related parties and disclosing the relationships and transactions in the financial statements. 
C) authorizing transactions with related parties. 
D) All of the above are correct.

Question 19

The concept of inherent risk is most closely tied to the idea of _________.

Accepted Answer

A) global risk 
B) audit risk 
C) underlying business risks 
D) currency risk 
A) global risk 
B) audit risk 
C) underlying business risks 
D) currency risk

Question 20

Sustainable cash flow from operations - capital expenditures = ________.

Accepted Answer

sustainabl

Which factors would likely increase an auditor's concern pertaining to risk of fraudulent financial reporting?

You are auditing Toy Time, a private company located in Nashville, TN.Toy Time does not have a board of directors, nor an audit committee.Explain with whom the auditors should communicate.Research and reference the appropriate AU-C standard that identifies this.

Non-executive directors should ideally be _________.

The ultimate responsibility for the financial reporting process rests with the _, but the efficiency of achieving this goal is improved by the _.

Generally speaking, the existence of related party transactions ________.

With respect to Key Performance Indicators, auditors should ________.

The audit partner will meet with members of the board once the audit is concluded, and not before its conclusion.

A member of a company board is _________.

An auditor is concerned about short-term interest payment obligations due to a recent major bond issue of the client.A ratio the auditor should consider determining is _________.

Audit committee composition should always consist of the most competent and independent directors, irrespective of whether they are employed by the client company:

Explain why it is important for the board of directors to have a mixture of executive and non-executive members.

If an auditor was interested in determining a client firm's ability to generate income from its investments, the best ratio to calculate would be _________.

The audit committee is responsible for the ________ of the auditors.

A comparison of account balances over time constitutes _______ analysis.

To be meaningful, the cash flow from operations amount should be adjusted for any one-time influences on cash flow from operations to determine _______ cash flow from operations.

Which of the following choices would indicate an appropriate change in the auditor's approach to the audit, when an increased level of risk is present in a certain area?

During the risk assessment phase, the audit team should gain an understanding of the client's procedures for __________.

The concept of inherent risk is most closely tied to the idea of _________.

Sustainable cash flow from operations - capital expenditures = ________.

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

Exam 4: Risk Assessment Part Iiunderstanding the Client

Which factors would likely increase an auditor's concern pertaining to risk of fraudulent financial reporting?

You are auditing Toy Time, a private company located in Nashville, TN.Toy Time does not have a board of directors, nor an audit committee.Explain with whom the auditors should communicate.Research and reference the appropriate AU-C standard that identifies this.

Non-executive directors should ideally be _________.

The ultimate responsibility for the financial reporting process rests with the _______, but the efficiency of achieving this goal is improved by the _______.

Generally speaking, the existence of related party transactions ________.

With respect to Key Performance Indicators, auditors should ________.

The audit partner will meet with members of the board once the audit is concluded, and not before its conclusion.

A member of a company board is _________.

An auditor is concerned about short-term interest payment obligations due to a recent major bond issue of the client.A ratio the auditor should consider determining is _________.

Audit committee composition should always consist of the most competent and independent directors, irrespective of whether they are employed by the client company:

Explain why it is important for the board of directors to have a mixture of executive and non-executive members.

If an auditor was interested in determining a client firm's ability to generate income from its investments, the best ratio to calculate would be _________.

The audit committee is responsible for the ________ of the auditors.

A comparison of account balances over time constitutes _______ analysis.

To be meaningful, the cash flow from operations amount should be adjusted for any one-time influences on cash flow from operations to determine _______ cash flow from operations.

Which of the following choices would indicate an appropriate change in the auditor's approach to the audit, when an increased level of risk is present in a certain area?

During the risk assessment phase, the audit team should gain an understanding of the client's procedures for __________.

The concept of inherent risk is most closely tied to the idea of _________.

Sustainable cash flow from operations - capital expenditures = ________.

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Revenue Cycle

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

The ultimate responsibility for the financial reporting process rests with the _, but the efficiency of achieving this goal is improved by the _.