Question 1

Why does the auditor divide the financial statements into segments around the financial statement cycles?

Accepted Answer

A) Most auditors are trained to audit cycles as opposed to entire financial statements. 
B) The approach aids in the assignment of tasks to different members of the audit team. 
C) The cycle approach is required by auditing standards. 
D) The cycle approach allows the auditor to detect illegal acts. 
A) Most auditors are trained to audit cycles as opposed to entire financial statements. 
B) The approach aids in the assignment of tasks to different members of the audit team. 
C) The cycle approach is required by auditing standards. 
D) The cycle approach allows the auditor to detect illegal acts.

Question 2

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:

Accepted Answer

A) the auditor. 
B) management. 
C) both management and the auditor equally. 
D) management for the statements and the auditor for the notes. 
A) the auditor. 
B) management. 
C) both management and the auditor equally. 
D) management for the statements and the auditor for the notes.

Question 3

Briefly explain each management assertion related to classes of transactions and events for the period under audit.

Accepted Answer

•Occurrence.Transactions and events that

Question 4

The audit objectives are the well-defined methodology for organizing an audit to ensure that the evidence gathered is sufficient and appropriate.

Accepted Answer

A) True 
 B)False

Question 5

When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:

Accepted Answer

A) include audit procedures which have a strong probability of detecting illegal acts. 
B) still include some audit procedures designed specifically to uncover illegalities. 
C) ignore the issue. 
D) make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities. 
A) include audit procedures which have a strong probability of detecting illegal acts. 
B) still include some audit procedures designed specifically to uncover illegalities. 
C) ignore the issue. 
D) make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.

Question 6

Match between columns
                        Premises: Implied or expressed representations made by the client about classes of transactions account balances and disclosures in the financial statements.
Audit procedures testing for monetary misstatements to determine whether the balance-related audit objectives have been satisfied for each significant account balance.
An intentional misstatement of the financial statements.
Audit procedures designed to test the effectiveness of control policies and procedures.
A set of nine audit objectives the auditor must meet including completeness detail tie-in and rights and obligations.
Use of comparisons and relationships to assess whether account balances or other data appears reasonable.
A set of six audit objectives the auditor must meet including timing posting and summarization and accuracy.

Accepted Answer

The Answer of Tests of details of balances and Management is...

Question 7

The cycle approach to auditing:

Accepted Answer

A) ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements. 
B) cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions. 
C) is the only way of segmenting an audit. 
D) assumes that each account has two or more cycles associated with it. 
A) ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements. 
B) cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions. 
C) is the only way of segmenting an audit. 
D) assumes that each account has two or more cycles associated with it.

Question 8

A questioning mindset:

Accepted Answer

A) means the auditor must prove every statement that management makes to them. 
B) means the auditor should approach the audit with a "do not trust anyone" mental outlook. 
C) assures that the auditor will only accept honest clients. 
D) means the auditor should approach the audit with a "trust but verify" mental outlook. 
A) means the auditor must prove every statement that management makes to them. 
B) means the auditor should approach the audit with a "do not trust anyone" mental outlook. 
C) assures that the auditor will only accept honest clients. 
D) means the auditor should approach the audit with a "trust but verify" mental outlook.

Question 9

Determining that the footnote disclosures related to long-term debt are accurate is an example of the ________ audit objective.

Accepted Answer

A) occurrence 
B) completeness 
C) presentation and disclosure 
D) classification and understandability 
A) occurrence 
B) completeness 
C) presentation and disclosure 
D) classification and understandability

Question 10

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

Accepted Answer

A) should withdraw from the engagement. 
B) should request an increase in audit fees so that more resources can be used to conduct the audit. 
C) has the responsibility of notifying financial statement users through the auditor's report. 
D) should notify regulators of the circumstances. 
A) should withdraw from the engagement. 
B) should request an increase in audit fees so that more resources can be used to conduct the audit. 
C) has the responsibility of notifying financial statement users through the auditor's report. 
D) should notify regulators of the circumstances.

Question 11

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Accepted Answer

A) True 
 B)False

Question 12

Balance-related audit objectives are usually applied to the ending balance in income statement accounts; transaction-related audit objectives are usually applied to transactions reflected in balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 13

Below are five audit procedures, all of which are tests of transactions associated with the audit of the sales and collection cycle.Also below are the six general transaction-related audit objectives and the five management assertions.For each audit procedure, indicate (1)its audit objective, and (2)the management assertion being tested.
   
1.Vouch recorded sales from the sales journal to the file of bills of lading.
(1)________.
(2)________.
2.Compare dates on the bill of lading, sales invoices, and sales journal to test for delays in recording sales transactions.
(1)________.
(2)________.
3.Account for the sequence of prenumbered bills of lading and sales invoices.
(1)________.
(2)________.
4.Trace from a sample of prelistings of cash receipts to the cash receipts journal, testing for names, amounts, and dates.
(1)________.
(2)________.
5.Examine customer order forms for credit approval by the credit manager.
(1)________.
(2)________.

Accepted Answer

1.(1)A (2)V
2.(1)F (

Question 14

Which of the following statements is usually true?

Accepted Answer

A) Materiality is easy to quantify. 
B) Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management. 
C) Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement. 
D) An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements. 
A) Materiality is easy to quantify. 
B) Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management. 
C) Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement. 
D) An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements.

Question 15

When an auditor has reduced assessed control risk based on tests of controls, he or she may then reduce the extent to which the accuracy of the financial statement information directly related to those controls must be supported through the accumulation of evidence using substantive tests.

Accepted Answer

A) True 
 B)False

Question 16

Fraudulent financial reporting is most likely to be committed by whom?

Accepted Answer

A) Line employees of the company 
B) Outside members of the company's board of directors 
C) Company management 
D) The company's auditors 
A) Line employees of the company 
B) Outside members of the company's board of directors 
C) Company management 
D) The company's auditors

Question 17

Which of the following statements is the most correct regarding errors and fraud?

Accepted Answer

A) An error is unintentional, whereas fraud is intentional. 
B) Frauds occur more often than errors in financial statements. 
C) Errors are always fraud and frauds are always errors. 
D) Auditors have more responsibility for finding fraud than errors. 
A) An error is unintentional, whereas fraud is intentional. 
B) Frauds occur more often than errors in financial statements. 
C) Errors are always fraud and frauds are always errors. 
D) Auditors have more responsibility for finding fraud than errors.

Question 18

Which of the following management assertions is not associated with classes of transactions and events?

Accepted Answer

A) Occurrence 
B) Classification 
C) Accuracy 
D) Rights and obligations 
A) Occurrence 
B) Classification 
C) Accuracy 
D) Rights and obligations

Question 19

When an auditor believes that an illegal act may have occurred, the auditor should first:

Accepted Answer

A) obtain an understanding of the nature and circumstances of the act. 
B) consult with legal counsel or others knowledgeable about the illegal act. 
C) discuss the matter with the audit committee. 
D) withdraw from the engagement. 
A) obtain an understanding of the nature and circumstances of the act. 
B) consult with legal counsel or others knowledgeable about the illegal act. 
C) discuss the matter with the audit committee. 
D) withdraw from the engagement.

Question 20

The essence of the attest function is to:

Accepted Answer

A) assure the consistent application of correct accounting procedures. 
B) determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework. 
C) examine individual transactions so that the auditor may certify as to their validity. 
D) detect collusion and fraud. 
A) assure the consistent application of correct accounting procedures. 
B) determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework. 
C) examine individual transactions so that the auditor may certify as to their validity. 
D) detect collusion and fraud.

Exam 6: Audit Responsibilities and Objectives

Why does the auditor divide the financial statements into segments around the financial statement cycles?

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:

Briefly explain each management assertion related to classes of transactions and events for the period under audit.

The audit objectives are the well-defined methodology for organizing an audit to ensure that the evidence gathered is sufficient and appropriate.

When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should:

The cycle approach to auditing:

A questioning mindset:

Determining that the footnote disclosures related to long-term debt are accurate is an example of the ________ audit objective.

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Balance-related audit objectives are usually applied to the ending balance in income statement accounts; transaction-related audit objectives are usually applied to transactions reflected in balance sheet accounts.

Which of the following statements is usually true?

When an auditor has reduced assessed control risk based on tests of controls, he or she may then reduce the extent to which the accuracy of the financial statement information directly related to those controls must be supported through the accumulation of evidence using substantive tests.

Fraudulent financial reporting is most likely to be committed by whom?

Which of the following statements is the most correct regarding errors and fraud?

Which of the following management assertions is not associated with classes of transactions and events?

When an auditor believes that an illegal act may have occurred, the auditor should first:

The essence of the attest function is to:

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters