Question 1

Which of the following conditions or events would be considered a mitigating factor in a going concern assessment?

Accepted Answer

A) Disposal of land held for redevelopment that was no longer required. 
B) Obtaining a loan from a new financial institution. 
C) Reducing the current year's dividend from the previous year's amount. 
D) All of the given answers are correct. 
A) Disposal of land held for redevelopment that was no longer required. 
B) Obtaining a loan from a new financial institution. 
C) Reducing the current year's dividend from the previous year's amount. 
D) All of the given answers are correct.

Question 2

The auditor's report covers the solvency statement in the:

Accepted Answer

A) directors' declaration. 
B) chairperson's review. 
C) directors' report. 
D) None of the given answers are correct. 
A) directors' declaration. 
B) chairperson's review. 
C) directors' report. 
D) None of the given answers are correct.

Question 3

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Accepted Answer

A) Internal auditor. 
B) Keypunch operator. 
C) Cashier. 
D) Financial controller. 
A) Internal auditor. 
B) Keypunch operator. 
C) Cashier. 
D) Financial controller.

Question 4

Which of the following inventory items is likely to have high inherent risk?

Accepted Answer

A) Internet computer software. 
B) Steel. 
C) Refrigerators. 
D) Office furniture. 
A) Internet computer software. 
B) Steel. 
C) Refrigerators. 
D) Office furniture.

Question 5

Which of the following situations does not represent an opportunity to commit fraud?

Accepted Answer

A) Significant related-party transactions exist. 
B) The auditor's relationship with management is strained. 
C) Management is dominated by a single person. 
D) The financial report includes highly subjective estimates. 
A) Significant related-party transactions exist. 
B) The auditor's relationship with management is strained. 
C) Management is dominated by a single person. 
D) The financial report includes highly subjective estimates.

Question 6

ASA 240 (ISA 240) provides that the primary day-to-day responsibility for prevention of fraud rests with:

Accepted Answer

A) the internal auditor. 
B) management. 
C) the external auditor. 
D) the audit committee. 
A) the internal auditor. 
B) management. 
C) the external auditor. 
D) the audit committee.

Question 7

When the auditor concludes, based on information obtained and, if necessary, consultation with legal advisers, that an illegal act has or is likely to have occurred, the auditor should:

Accepted Answer

A) express a qualified or adverse opinion, depending on materiality. 
B) notify appropriate law enforcement agencies. 
C) withdraw from the engagement. 
D) consider the effect on the financial report as well as the implications for other aspects of the audit. 
A) express a qualified or adverse opinion, depending on materiality. 
B) notify appropriate law enforcement agencies. 
C) withdraw from the engagement. 
D) consider the effect on the financial report as well as the implications for other aspects of the audit.

Question 8

If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?

Accepted Answer

A) Consult with the client's legal counsel and with the auditor's legal counsel to determine how the suspected illegal acts will be communicated to the shareholders. 
B) Extend normal auditing procedures to ascertain whether the suspected illegal acts may have a material effect on the financial report. 
C) Inquire of the client's management and consult with the client's legal counsel and/or other specialists, as necessary, to obtain an understanding of the nature of the acts and their possible effects on the financial report. 
D) Notify the audit committee about the nature of the acts and request that they give guidance with respect to the approach to be taken by the auditor. 
A) Consult with the client's legal counsel and with the auditor's legal counsel to determine how the suspected illegal acts will be communicated to the shareholders. 
B) Extend normal auditing procedures to ascertain whether the suspected illegal acts may have a material effect on the financial report. 
C) Inquire of the client's management and consult with the client's legal counsel and/or other specialists, as necessary, to obtain an understanding of the nature of the acts and their possible effects on the financial report. 
D) Notify the audit committee about the nature of the acts and request that they give guidance with respect to the approach to be taken by the auditor.

Question 9

The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:

Accepted Answer

A) design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial report. 
B) plan the audit to search for errors or fraud that could be material to the financial report. 
C) perform the audit on the basis that errors or fraud are likely to cause a material misstatement of the financial report. 
D) apply substantive tests to detect material misstatements except those perpetrated by means of forgery or collusion. 
A) design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial report. 
B) plan the audit to search for errors or fraud that could be material to the financial report. 
C) perform the audit on the basis that errors or fraud are likely to cause a material misstatement of the financial report. 
D) apply substantive tests to detect material misstatements except those perpetrated by means of forgery or collusion.

Question 10

If the auditor considers an illegal act to be sufficiently serious to warrant withdrawing from the engagement, the auditor should:

Accepted Answer

A) notify all parties who may rely upon the company's illegal act. 
B) consult with legal counsel as to what other action, if any, should be taken. 
C) return all incriminating evidence and working papers to the client's audit committee for follow-up. 
D) contact the successor auditor to make the successor aware of the possible consequences of relying on management's representations. 
A) notify all parties who may rely upon the company's illegal act. 
B) consult with legal counsel as to what other action, if any, should be taken. 
C) return all incriminating evidence and working papers to the client's audit committee for follow-up. 
D) contact the successor auditor to make the successor aware of the possible consequences of relying on management's representations.

Question 11

Which of the following is not a characteristic of whistleblowing?

Accepted Answer

A) The disclosure is made in good faith. 
B) The disclosure is made in the public interest. 
C) The disclosure is made to earn a reward. 
D) The whistleblower holds a reasonable belief that disclosure will allow stakeholders to determine that there has been misconduct. 
A) The disclosure is made in good faith. 
B) The disclosure is made in the public interest. 
C) The disclosure is made to earn a reward. 
D) The whistleblower holds a reasonable belief that disclosure will allow stakeholders to determine that there has been misconduct.

Question 12

Which of the following factors would most likely increase an auditor's concern about the risk of fraudulent financial reporting?

Accepted Answer

A) Inability to generate cash flows from operations while reporting substantial earnings growth. 
B) Management's lack of interest in increasing the entity's earnings trend. 
C) Large amounts of liquid assets that are easily converted into cash. 
D) Inability to borrow necessary capital without granting debt covenants. 
A) Inability to generate cash flows from operations while reporting substantial earnings growth. 
B) Management's lack of interest in increasing the entity's earnings trend. 
C) Large amounts of liquid assets that are easily converted into cash. 
D) Inability to borrow necessary capital without granting debt covenants.

Question 13

An example of a transaction that may be indicative of the existence of related parties is:

Accepted Answer

A) borrowing or lending at a rate of interest that equals the current market rate. 
B) selling real estate at a price that is comparable to its appraised value. 
C) making large loans with specified terms as to when or how the funds will be repaid. 
D) exchanging property for similar property in a non-monetary transaction. 
A) borrowing or lending at a rate of interest that equals the current market rate. 
B) selling real estate at a price that is comparable to its appraised value. 
C) making large loans with specified terms as to when or how the funds will be repaid. 
D) exchanging property for similar property in a non-monetary transaction.

Question 14

Which of the following approaches should be part of an auditor's planning of the audit engagement?

Accepted Answer

A) Plan to search for fraud or errors that would have a material or immaterial effect on the financial report. 
B) Plan to search for fraud or errors that would have a material effect on the financial report. 
C) Plan to discover fraud or errors that are material. 
D) Plan to discover fraud or errors that are either material or immaterial. 
A) Plan to search for fraud or errors that would have a material or immaterial effect on the financial report. 
B) Plan to search for fraud or errors that would have a material effect on the financial report. 
C) Plan to discover fraud or errors that are material. 
D) Plan to discover fraud or errors that are either material or immaterial.

Question 15

The auditor can respond to an increased risk of fraud by taking all of the following actions except:

Accepted Answer

A) increasing professional scepticism. 
B) assigning more experienced personnel to the audit. 
C) increasing acceptable audit risk. 
D) taking steps to obtain more reliable evidence. 
A) increasing professional scepticism. 
B) assigning more experienced personnel to the audit. 
C) increasing acceptable audit risk. 
D) taking steps to obtain more reliable evidence.

Which of the following conditions or events would be considered a mitigating factor in a going concern assessment?

The auditor's report covers the solvency statement in the:

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Which of the following inventory items is likely to have high inherent risk?

Which of the following situations does not represent an opportunity to commit fraud?

ASA 240 (ISA 240) provides that the primary day-to-day responsibility for prevention of fraud rests with:

When the auditor concludes, based on information obtained and, if necessary, consultation with legal advisers, that an illegal act has or is likely to have occurred, the auditor should:

If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?

The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:

If the auditor considers an illegal act to be sufficiently serious to warrant withdrawing from the engagement, the auditor should:

Which of the following is not a characteristic of whistleblowing?

Which of the following factors would most likely increase an auditor's concern about the risk of fraudulent financial reporting?

An example of a transaction that may be indicative of the existence of related parties is:

Which of the following approaches should be part of an auditor's planning of the audit engagement?

The auditor can respond to an increased risk of fraud by taking all of the following actions except:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Assessing Business Risk

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters

Exam 6: Assessing Inherent Risk, and Other Specific Business Risks

Which of the following conditions or events would be considered a mitigating factor in a going concern assessment?

The auditor's report covers the solvency statement in the:

In general, material frauds perpetrated by which of the following people are most difficult to detect?

Which of the following inventory items is likely to have high inherent risk?

Which of the following situations does not represent an opportunity to commit fraud?

ASA 240 (ISA 240) provides that the primary day-to-day responsibility for prevention of fraud rests with:

When the auditor concludes, based on information obtained and, if necessary, consultation with legal advisers, that an illegal act has or is likely to have occurred, the auditor should:

If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?

The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:

If the auditor considers an illegal act to be sufficiently serious to warrant withdrawing from the engagement, the auditor should:

Which of the following is not a characteristic of whistleblowing?

Which of the following factors would most likely increase an auditor's concern about the risk of fraudulent financial reporting?

An example of a transaction that may be indicative of the existence of related parties is:

Which of the following approaches should be part of an auditor's planning of the audit engagement?

The auditor can respond to an increased risk of fraud by taking all of the following actions except:

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

Planning, Understanding the Entity and Assessing Business Risk

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters