Question 1

The requirement for an attitude of skepticism means that the auditor should

Accepted Answer

A)  not be blind to evidence that suggests the documents, books, or records have been altered or are incorrect. 
B)  plan and conduct the audit with an attitude of distrust in management. 
C)  perform additional tests of controls to increase the probability of discovering fraud or errors. 
D)  not consider management's explanation as evidence on any subject. 
A)  not be blind to evidence that suggests the documents, books, or records have been altered or are incorrect. 
B)  plan and conduct the audit with an attitude of distrust in management. 
C)  perform additional tests of controls to increase the probability of discovering fraud or errors. 
D)  not consider management's explanation as evidence on any subject.

Question 2

If the purchase of a long-term note receivable is included as cost of goods sold, there is a violation of the

Accepted Answer

A)  existence objective. 
B)  completeness objective. 
C)  classification objective. 
D)  timing objective. 
A)  existence objective. 
B)  completeness objective. 
C)  classification objective. 
D)  timing objective.

Question 3

There is agreement within the auditing profession and the courts that the auditor is

Accepted Answer

A)  not a guarantor or insurer of financial statements. 
B)  a guarantor but not an insurer of financial statements. 
C)  an insurer but not a guarantor of financial statements. 
D)  both a guarantor and an insurer of financial statements. 
A)  not a guarantor or insurer of financial statements. 
B)  a guarantor but not an insurer of financial statements. 
C)  an insurer but not a guarantor of financial statements. 
D)  both a guarantor and an insurer of financial statements.

Question 4

Jane's employer purchased a new calculator this month. When Jane added up the sales for the day, she was a bit confused with the new calculator and made numerous adding errors. The daily sales total for the next week were incorrectly posted to the general ledger. The general balance-related audit objective affected by this activity is

Accepted Answer

A)  cutoff. 
B)  accuracy (of allocation). 
C)  classification. 
D)  existence. 
A)  cutoff. 
B)  accuracy (of allocation). 
C)  classification. 
D)  existence.

Question 5

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates. Unfortunately, there was an error in the software, and income tax was calculated incorrectly. The general transaction-related audit objective affected by this error is

Accepted Answer

A)  occurrence. 
B)  completeness. 
C)  accuracy. 
D)  posting and summarization. 
A)  occurrence. 
B)  completeness. 
C)  accuracy. 
D)  posting and summarization.

Question 6

Heavy Manufacturing Company is in the business of making steel plates, forming heavy metal slabs, and drilling and scoring metals. The company recently upgraded many of its forming machines. Fortunately, it was able to sell its old equipment at a reasonable price. The effect was that sales for the quarter are substantially improved over the same period in the prior year. The general transaction-related audit objective affected by this activity is

Accepted Answer

A)  timing. 
B)  accuracy. 
C)  occurrence. 
D)  classification. 
A)  timing. 
B)  accuracy. 
C)  occurrence. 
D)  classification.

Question 7

There are three phases in the risk response category of the audit process (design further audit procedures, tests of control, substantive tests). When will the auditor conduct tests of controls?

Accepted Answer

A)  when there are poor internal controls 
B)  if the auditor plans to rely upon them 
C)  when a substantive audit approach is selected 
D)  when there are low risks of material error 
A)  when there are poor internal controls 
B)  if the auditor plans to rely upon them 
C)  when a substantive audit approach is selected 
D)  when there are low risks of material error

Question 8

Often, numerous classes of transactions affect the ending balance of a particular general ledger account. This is handled during the audit engagement by

Accepted Answer

A)  ensuring that tests are conducted for each class of transactions. 
B)  obtaining a high level of assurance for at least one of the transaction types. 
C)  using a combination of assurance for each class of transactions and for the ending balance. 
D)  testing only the ending balance, as this is the significant amount on the financial statements. 
A)  ensuring that tests are conducted for each class of transactions. 
B)  obtaining a high level of assurance for at least one of the transaction types. 
C)  using a combination of assurance for each class of transactions and for the ending balance. 
D)  testing only the ending balance, as this is the significant amount on the financial statements.

Question 9

The following table lists common audit objectives for accounts payable or purchases. For each procedure, list the management assertion and the related general audit objective. State whether the audit objective is transaction-related or balance-related.

Accepted Answer

The answer of The following table lists common audit objectives...

Question 10

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility

Accepted Answer

A)  more on discovering errors than employee fraud. 
B)  more on discovering employee fraud than errors. 
C)  equally on discovering either one. 
D)  on the senior auditor for detecting errors and on the manager for detecting employee fraud. 
A)  more on discovering errors than employee fraud. 
B)  more on discovering employee fraud than errors. 
C)  equally on discovering either one. 
D)  on the senior auditor for detecting errors and on the manager for detecting employee fraud.

Question 11

XYZ Brick Company decided to inflate sales by recording fictitious sales. Several non-existent clients were created and the sales were added into the sales journal throughout the year. The general transaction-related audit objective affected by these actions is

Accepted Answer

A)  occurrence. 
B)  completeness. 
C)  accuracy. 
D)  posting and summarization. 
A)  occurrence. 
B)  completeness. 
C)  accuracy. 
D)  posting and summarization.

Question 12

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

Accepted Answer

A)  be an insurer of the fairness in the statements. 
B)  be a guarantor of the fairness in the statements. 
C)  be equally responsible with management for the preparation of the financial statements. 
D)  provide reasonable assurance that material misstatements will be detected. 
A)  be an insurer of the fairness in the statements. 
B)  be a guarantor of the fairness in the statements. 
C)  be equally responsible with management for the preparation of the financial statements. 
D)  provide reasonable assurance that material misstatements will be detected.

Question 13

Prior to looking at the specific cycles, the auditor will first

Accepted Answer

A)  enquire about and document corporate governance systems. 
B)  perform tests of controls on significant cycles. 
C)  perform analytical review of specific accounts. 
D)  perform a risk assessment for the audit of the organization. 
A)  enquire about and document corporate governance systems. 
B)  perform tests of controls on significant cycles. 
C)  perform analytical review of specific accounts. 
D)  perform a risk assessment for the audit of the organization.

Question 14

Balance-related audit objectives are applied to which types of general ledger accounts?

Accepted Answer

A)  balance sheet accounts only 
B)  income statement accounts only 
C)  balance sheet accounts and some income statement accounts 
D)  accounts that affect the cash flow statement 
A)  balance sheet accounts only 
B)  income statement accounts only 
C)  balance sheet accounts and some income statement accounts 
D)  accounts that affect the cash flow statement

Question 15

The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with it when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead

Accepted Answer

A)  a prudent user. 
B)  management. 
C)  the reader. 
D)  investors. 
A)  a prudent user. 
B)  management. 
C)  the reader. 
D)  investors.

Question 16

The Big Insurance Company implemented a new computer system to track and record insurance premiums receivable. The program automatically prints invoices and sends them to customers when premiums are due. Due to a program error, a whole series of invoices were included in sales but not in accounts receivable. The general balance-related audit objective affected by this activity is

Accepted Answer

A)  completeness. 
B)  accuracy. 
C)  classification. 
D)  existence. 
A)  completeness. 
B)  accuracy. 
C)  classification. 
D)  existence.

Question 17

Sean Clem has done a review engagement and prepared the tax return for your web design business for the last five years. The books and records have always been well organized, although year-end adjusting entries have been required. You do some of the accounting yourself and the rest of the accounting records are handled by your spouse, who is also an employee of the business.
This year, you would like to expand your business to provide ISP (internet service provider) services to your clients. This would entail you purchasing additional computer equipment and software. You are also considering hiring an additional employee (you currently have three), and you are looking at obtaining a loan for $100 000 from the bank. The bank says that you should have your records audited, but you are not sure what this will mean.
Required:
Identify the issues that Sean needs to consider during the planning of the audit.

Accepted Answer

•This is a first audit engagement, so ad

Question 18

In testing for cutoff, the objective is to determine

Accepted Answer

A)  whether all of the current period's transactions are recorded. 
B)  that no transactions from the prior period are included in the current period's balances. 
C)  that no transactions of the current period have been delayed and recorded in a future period. 
D)  whether transactions are recorded in the proper period. 
A)  whether all of the current period's transactions are recorded. 
B)  that no transactions from the prior period are included in the current period's balances. 
C)  that no transactions of the current period have been delayed and recorded in a future period. 
D)  whether transactions are recorded in the proper period.

Question 19

If the auditor were responsible for making certain that all the assertions of management in the statements were correct,

Accepted Answer

A)  bankruptcies could no longer occur. 
B)  bankruptcies would be reduced to a very small number. 
C)  audits would be much easier to complete. 
D)  audits would not be economically practical. 
A)  bankruptcies could no longer occur. 
B)  bankruptcies would be reduced to a very small number. 
C)  audits would be much easier to complete. 
D)  audits would not be economically practical.

Question 20

Transaction cycles begin and end at

Accepted Answer

A)  the beginning and end of the fiscal period. 
B)  the balance sheet date. 
C)  January 1 and December 31. 
D)  the origin and final disposition of the company. 
A)  the beginning and end of the fiscal period. 
B)  the balance sheet date. 
C)  January 1 and December 31. 
D)  the origin and final disposition of the company.

The requirement for an attitude of skepticism means that the auditor should

If the purchase of a long-term note receivable is included as cost of goods sold, there is a violation of the

There is agreement within the auditing profession and the courts that the auditor is

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates. Unfortunately, there was an error in the software, and income tax was calculated incorrectly. The general transaction-related audit objective affected by this error is

There are three phases in the risk response category of the audit process (design further audit procedures, tests of control, substantive tests). When will the auditor conduct tests of controls?

Often, numerous classes of transactions affect the ending balance of a particular general ledger account. This is handled during the audit engagement by

The following table lists common audit objectives for accounts payable or purchases. For each procedure, list the management assertion and the related general audit objective. State whether the audit objective is transaction-related or balance-related.

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility

XYZ Brick Company decided to inflate sales by recording fictitious sales. Several non-existent clients were created and the sales were added into the sales journal throughout the year. The general transaction-related audit objective affected by these actions is

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

Prior to looking at the specific cycles, the auditor will first

Balance-related audit objectives are applied to which types of general ledger accounts?

The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with it when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead

In testing for cutoff, the objective is to determine

If the auditor were responsible for making certain that all the assertions of management in the statements were correct,

Transaction cycles begin and end at

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 5: Audit Responsibilities and Objectives

The requirement for an attitude of skepticism means that the auditor should

If the purchase of a long-term note receivable is included as cost of goods sold, there is a violation of the

There is agreement within the auditing profession and the courts that the auditor is

Flagpole Company Limited recently upgraded its accounting software due to changes in the payroll income tax rates. Unfortunately, there was an error in the software, and income tax was calculated incorrectly. The general transaction-related audit objective affected by this error is

There are three phases in the risk response category of the audit process (design further audit procedures, tests of control, substantive tests). When will the auditor conduct tests of controls?

Often, numerous classes of transactions affect the ending balance of a particular general ledger account. This is handled during the audit engagement by

The following table lists common audit objectives for accounts payable or purchases. For each procedure, list the management assertion and the related general audit objective. State whether the audit objective is transaction-related or balance-related.

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility

XYZ Brick Company decided to inflate sales by recording fictitious sales. Several non-existent clients were created and the sales were added into the sales journal throughout the year. The general transaction-related audit objective affected by these actions is

The auditor has considerable responsibility for notifying users whether the financial statements are fairly stated. This imposes upon the auditor a duty to

Prior to looking at the specific cycles, the auditor will first

Balance-related audit objectives are applied to which types of general ledger accounts?

The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with it when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead

In testing for cutoff, the objective is to determine

If the auditor were responsible for making certain that all the assertions of management in the statements were correct,

Transaction cycles begin and end at

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters