Question 1

Agency theory can be described as the theory of:

Accepted Answer

A)  hiring an agency to review the work of the management, in this case it is the auditor. 
B)  when the finance function is outsourced to an outside party, and the auditor is required to audit the outside party's work. 
C)  the relationship between the owner and the management of the business when the owner is not the manager of the business. 
D)  none of the above. 
A)  hiring an agency to review the work of the management, in this case it is the auditor. 
B)  when the finance function is outsourced to an outside party, and the auditor is required to audit the outside party's work. 
C)  the relationship between the owner and the management of the business when the owner is not the manager of the business. 
D)  none of the above.

Question 2

A no assurance engagement is of little use as no assurance is given to the client.

Accepted Answer

A) True 
 B)False

Question 3

Jeff Carboy owns St. Lawrence Vineyards, a successful winery in the Thousand Islands region. Annual salare $3,500,000 and he has a $1,200,000 loan with a local bank. Salare split between wine sal(88%) and wine tasting and catering (12%). Jeff has excellent personal relationships with his suppliers and has been provided with special contractual terms which allow him delays of up to 120 days to make invoice payments. These arrangements run out this year and he will have 30 days to pay after being invoiced. The bank has made the $1,200,000 loan to St. Lawrence Vineyards based on an understanding that the company will undergo audits of its financial statements. Jeff is an astute entrepreneur and has set up an advisory board which consists of his bank manager, another wine grower in the region, his old high school ethics instructor and track coach, himself, and his accountant. The board has discussed certain issuincluding the following: 
• The need for assurance service providers to audit his financial statements so that users can be provided with assurance that his statements are relevant and reliable. 
• Non-audit servicthat would provide advice on special projects he may be considering in the future. 
• A proper accounting firm to conduct an audit mandate. Required:
a) What is the objective of a financial statement audit and how does it relate to St. Lawrence Vineyards?
b) Jeff Carboy's financial statements must be relevant and reliable. What do these two terms mean in the context of this case?
c) What three characteristics should St. Lawrence Vineyards' auditors possess when conducting an audit? Explain them briefly.
d) What are non-audit services? Can you describe possible non-audit services that St. Lawrence Vineyards might employ?

Accepted Answer

a) A financial statement audit provides

Question 4

An auditor can provide a reasonable level of assurance on information other than historical financial information.

Accepted Answer

A) True 
 B)False

Question 5

As users of the financial statements, suppliers would least consider which of the following aspects of the financial statements:

Accepted Answer

A)  solvency of the entity 
B)  profitability of the entity 
C)  return on investment of the entity 
D)  corporate social responsibility of the entity 
A)  solvency of the entity 
B)  profitability of the entity 
C)  return on investment of the entity 
D)  corporate social responsibility of the entity

Question 6

Only current investors (not potential investors) are considered to be users of the financial statements.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT true in relation to comparability:

Accepted Answer

A)  able to identify trends, that may influence their perception of how well the entity is doing. 
B)  able to assess performance of the entity over time and with other entities 
C)  able to evaluate 
D)  all of the above are correct. 
A)  able to identify trends, that may influence their perception of how well the entity is doing. 
B)  able to assess performance of the entity over time and with other entities 
C)  able to evaluate 
D)  all of the above are correct.

Question 8

Professional scepticism donot involve:

Accepted Answer

A)  the professional requirement that all management representations be substantiated with supporting documentation. 
B)  seeking independent evidence to corroborate information provided by their client 
C)  being suspicious when evidence contradicts documents held by their client or enquiries made of client personnel 
D)  none of the above. 
A)  the professional requirement that all management representations be substantiated with supporting documentation. 
B)  seeking independent evidence to corroborate information provided by their client 
C)  being suspicious when evidence contradicts documents held by their client or enquiries made of client personnel 
D)  none of the above.

Question 9

Mary Logan was careful to undertake her audits in a most responsible manner. Her audit manager complimented her on her diligence and how well she documented her work at the different stagof the audit process. Which element of responsibility did she display?

Accepted Answer

A)  due care 
B)  professional judgment 
C)  professional scepticism 
D)  none of these 
A)  due care 
B)  professional judgment 
C)  professional scepticism 
D)  none of these

Question 10

The expectation gap is caused by:

Accepted Answer

A)  realistic auditor expectations 
B)  unrealistic user expectations 
C)  realistic user expectations 
D)  unrealistic auditor expectations 
A)  realistic auditor expectations 
B)  unrealistic user expectations 
C)  realistic user expectations 
D)  unrealistic auditor expectations

Question 11

A compliance audit involvgathering evidence to ascertain whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform

Accepted Answer

A) True 
 B)False

Question 12

All modified audit reports are qualified audit opinions.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is incorrect? A government can be considered to be a user of the general purpose financial statements because:

Accepted Answer

A)  it is the basis for the calculation of taxes owed to the government 
B)  it can determine whether certain regulations have been complied with 
C)  to gain a better understanding of the entity's activities 
D)  governments need to assess the entity so that they can provide the entity with grants that will benefit society. 
A)  it is the basis for the calculation of taxes owed to the government 
B)  it can determine whether certain regulations have been complied with 
C)  to gain a better understanding of the entity's activities 
D)  governments need to assess the entity so that they can provide the entity with grants that will benefit society.

Question 14

The nature of audit procedurrefers to the reliance on evidence provided by the client and its management.

Accepted Answer

A) True 
 B)False

Question 15

How is the expectation gap caused and how can the effects on the expectation gap be reduced?

Accepted Answer

In particular, the gap is caused by unre

Question 16

The expectation gap is caused by unrealistic user expectations such as the auditor providing a moderate level of assurance.

Accepted Answer

A) True 
 B)False

Question 17

It is the auditor's responsibility to prepare the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

The wording of a negative expression of opinion generally statthat:

Accepted Answer

A)  there is nothing wrong with the subject matter. 
B)  there is something wrong with the subject matter. 
C)  there is nothing that has come to the attention of the auditors that would lead them to believe that the information being assured is not true and fair. 
D)  there is something that has come to the attention of the auditors that would lead them to believe that the information being assured is not true and fair. 
A)  there is nothing wrong with the subject matter. 
B)  there is something wrong with the subject matter. 
C)  there is nothing that has come to the attention of the auditors that would lead them to believe that the information being assured is not true and fair. 
D)  there is something that has come to the attention of the auditors that would lead them to believe that the information being assured is not true and fair.

Question 19

Insurance hypothesis tells us that:

Accepted Answer

A)  investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail. 
B)  investors can insure themselves against loss by investing in a diverse investment portfolio should an individual investment fail. 
C)  investors cannot insure themselves against loss when investing in an entity. 
D)  the entity can take out insurance to protect itself from such risks as employee or management fraud which can lead to material misstatements in the financial statements. 
A)  investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail. 
B)  investors can insure themselves against loss by investing in a diverse investment portfolio should an individual investment fail. 
C)  investors cannot insure themselves against loss when investing in an entity. 
D)  the entity can take out insurance to protect itself from such risks as employee or management fraud which can lead to material misstatements in the financial statements.

Question 20

The following can be said about an emphasis of matter:

Accepted Answer

A)  it is included when the auditor's opinion has changed and the auditor wants to bring the users' attention to a particular matter. 
B)  it is only used in unqualified audit opinions. 
C)  it is included when the auditor's opinion has not changed and the auditor wants to bring the users' attention to a particular matter. 
D)  it can not be used when expressing audit opinion that has pervasive misstatements. 
A)  it is included when the auditor's opinion has changed and the auditor wants to bring the users' attention to a particular matter. 
B)  it is only used in unqualified audit opinions. 
C)  it is included when the auditor's opinion has not changed and the auditor wants to bring the users' attention to a particular matter. 
D)  it can not be used when expressing audit opinion that has pervasive misstatements.

Agency theory can be described as the theory of:

A no assurance engagement is of little use as no assurance is given to the client.

An auditor can provide a reasonable level of assurance on information other than historical financial information.

As users of the financial statements, suppliers would least consider which of the following aspects of the financial statements:

Only current investors (not potential investors) are considered to be users of the financial statements.

Which of the following is NOT true in relation to comparability:

Professional scepticism donot involve:

Mary Logan was careful to undertake her audits in a most responsible manner. Her audit manager complimented her on her diligence and how well she documented her work at the different stagof the audit process. Which element of responsibility did she display?

The expectation gap is caused by:

A compliance audit involvgathering evidence to ascertain whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform

All modified audit reports are qualified audit opinions.

Which of the following is incorrect? A government can be considered to be a user of the general purpose financial statements because:

The nature of audit procedurrefers to the reliance on evidence provided by the client and its management.

How is the expectation gap caused and how can the effects on the expectation gap be reduced?

The expectation gap is caused by unrealistic user expectations such as the auditor providing a moderate level of assurance.

It is the auditor's responsibility to prepare the financial statements.

The wording of a negative expression of opinion generally statthat:

Insurance hypothesis tells us that:

The following can be said about an emphasis of matter:

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Understanding and Testing the Clients System of Internal Controls

Execution of the Audit Performing Substantive Procedur

Auditing Saland Receivabl

Auditing Purchases, Payabland Payroll

Auditing Inventoriand PPE

Auditing Cash and Investments

Completing and Reporting on the Audit

Filters

Exam 1: Introduction and Review of Audit and Assurance

Agency theory can be described as the theory of:

A no assurance engagement is of little use as no assurance is given to the client.

An auditor can provide a reasonable level of assurance on information other than historical financial information.

As users of the financial statements, suppliers would least consider which of the following aspects of the financial statements:

Only current investors (not potential investors) are considered to be users of the financial statements.

Which of the following is NOT true in relation to comparability:

Professional scepticism donot involve:

Mary Logan was careful to undertake her audits in a most responsible manner. Her audit manager complimented her on her diligence and how well she documented her work at the different stagof the audit process. Which element of responsibility did she display?

The expectation gap is caused by:

A compliance audit involvgathering evidence to ascertain whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform

All modified audit reports are qualified audit opinions.

Which of the following is incorrect? A government can be considered to be a user of the general purpose financial statements because:

The nature of audit procedurrefers to the reliance on evidence provided by the client and its management.

How is the expectation gap caused and how can the effects on the expectation gap be reduced?

The expectation gap is caused by unrealistic user expectations such as the auditor providing a moderate level of assurance.

It is the auditor's responsibility to prepare the financial statements.

The wording of a negative expression of opinion generally statthat:

Insurance hypothesis tells us that:

The following can be said about an emphasis of matter:

Ethics, Legal Liability and Client Acceptance

Audit Planning I

Audit Planning II

Audit Evidence

Sampling and Overview of the Risk Response Phase of the Audit

Understanding and Testing the Clients System of Internal Controls

Execution of the Audit Performing Substantive Procedur

Auditing Saland Receivabl

Auditing Purchases, Payabland Payroll

Auditing Inventoriand PPE

Auditing Cash and Investments

Completing and Reporting on the Audit

Filters