Question 1

Since financial decision makers usually obtain accounting information from companies wanting loans or selling stock,this creates a potential ________.

Accepted Answer

A) agency problem 
B) conflict of interest 
C) harmonization problem 
D) expectations gap 
A) agency problem 
B) conflict of interest 
C) harmonization problem 
D) expectations gap B

Question 2

Discuss the conflict between the need for an audit firm to perform quality services and its desire to make a profit in the context of the investor's need for reliable information.

Accepted Answer

An audit firm needs to be able to pay its staff in line with their abilities.Otherwise,more qualified staff will seek opportunities elsewhere.If they leave,only less qualified people will remain,thus reducing the quality of audit possible.With less qualified people,the audit firm may be unable to express the correct opinion on the fairness of the financial statements.This would tend to increase investors' information risk.One way to have more money to pay staff appropriately is to reduce the amount of time spent on each assignment.More assignments each with less time spent would permit more profit on each assignment.However,reducing the amount of time spent on each audit engagement would also increase the risk that a material error would be missed in the audit.This increases the information risk to investors,which decreases the value of the audit to them and increases the likelihood that they will sue the auditors to recover any investment losses.
A constant demand by investors for reduction in information risk means that except in the short term,an auditor cannot reduce the quality of its services.By the same token,there is an equilibrium level of profit for audit firms,and compensation for its staff and partners that investors are willing to provide in exchange for their desired reduction in information risk.

Question 3

Professional judgment is a widely used concept in accounting and auditing.How is it defined in the audit standards?

Accepted Answer

A) There is no definition of professional judgment in the auditing standards. 
B) Professional judgment includes consideration of key principles and concepts of disciplines underlying the professional standards,such as economics,psychology,law,finance,statistics and philosophy. 
C) Professional judgment means reaching a complex decision by incorporating auditing standards,accounting standards,and rules of professional ethics in a coherent manner. 
D) Professional judgment involves specialized concepts and language integrating several disciplines in order to provide appropriate justification for audit decisions. 
A) There is no definition of professional judgment in the auditing standards. 
B) Professional judgment includes consideration of key principles and concepts of disciplines underlying the professional standards,such as economics,psychology,law,finance,statistics and philosophy. 
C) Professional judgment means reaching a complex decision by incorporating auditing standards,accounting standards,and rules of professional ethics in a coherent manner. 
D) Professional judgment involves specialized concepts and language integrating several disciplines in order to provide appropriate justification for audit decisions. C

Question 4

In addition to the audit of financial statements,comprehensive governmental auditing may also include audits of efficiency,effectiveness,and ________.

Accepted Answer

A) stewardship 
B) accuracy 
C) economy 
D) adequacy 
A) stewardship 
B) accuracy 
C) economy 
D) adequacy

Question 5

What is information risk?

Accepted Answer

Information risk is the risk t

Question 6

Reducing information risk means the same as ________.

Accepted Answer

A) serving the public interest 
B) monitoring economic activities 
C) improving the credibility of information 
D) ensuring generally accepted accounting principles are used to measure profit 
A) serving the public interest 
B) monitoring economic activities 
C) improving the credibility of information 
D) ensuring generally accepted accounting principles are used to measure profit

Question 7

Auditors on staff in the Office of the Auditor General of Canada (OAG)are considered to be external auditors with respect to the government agencies they audit because the OAG is ________.

Accepted Answer

A) organizationally independent 
B) the accounting and auditing agency of the Canadian Senate 
C) funded by private investors 
D) guided by standards similar to GAAS 
A) organizationally independent 
B) the accounting and auditing agency of the Canadian Senate 
C) funded by private investors 
D) guided by standards similar to GAAS

Question 8

In an audit engagement,the three-party accountability relationship involves all but which of entities?

Accepted Answer

A) society 
B) the users 
C) the auditor 
D) the accountable party 
A) society 
B) the users 
C) the auditor 
D) the accountable party

Question 9

The agency problem can be mitigated by ________.

Accepted Answer

A) greater transparency 
B) a higher degree of independence 
C) design of contracts 
D) internal auditing 
A) greater transparency 
B) a higher degree of independence 
C) design of contracts 
D) internal auditing

Question 10

Value-for-money (VFM)audits include testing of compliance with laws and regulations.

Accepted Answer

A) True 
 B)False

Question 11

The three underlying conditions affecting users' demand for accounting information are complexity,reliability,and completeness.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the nature of value-for-money (VFM)audits and give three examples of its application.

Accepted Answer

Value-for-money audits involve studies o

Question 13

What is the primary role and responsibility of independent external auditors?

Accepted Answer

A) to prepare a company's annual financial statements and notes. 
B) to perform an audit and provide an opinion on the financial statements of a company. 
C) to provide business consulting advice to audit clients. 
D) to obtain an understanding of a client's internal control system and prepare a report for management about control weaknesses. 
A) to prepare a company's annual financial statements and notes. 
B) to perform an audit and provide an opinion on the financial statements of a company. 
C) to provide business consulting advice to audit clients. 
D) to obtain an understanding of a client's internal control system and prepare a report for management about control weaknesses.

Question 14

The difference between what the public expects of auditors and what auditors can actually deliver is known as ________.

Accepted Answer

A) forensics 
B) an expectations gap 
C) a business risk 
D) an information risk 
A) forensics 
B) an expectations gap 
C) a business risk 
D) an information risk

Question 15

The concept of three-party accountability means that the auditor is expected to act in the interests of the party paying the audit fee.

Accepted Answer

A) True 
 B)False

Question 16

What is International Harmonization and what is motivating the accounting profession towards it?

Accepted Answer

It is the international convergence of n

Question 17

In operational auditing,the auditor studies business operations and makes recommendations about all of the following EXCEPT ________.

Accepted Answer

A) economic and efficient use of resources 
B) effective achievement of business objectives 
C) the fairness of the financial statements 
D) compliance with company policies 
A) economic and efficient use of resources 
B) effective achievement of business objectives 
C) the fairness of the financial statements 
D) compliance with company policies

Question 18

the convergence of accounting and audit standards across multiple countries is known as ________.

Accepted Answer

A) international harmonization 
B) Generally accepted auditing standards 
C) independence 
D) Public accountability 
A) international harmonization 
B) Generally accepted auditing standards 
C) independence 
D) Public accountability

Question 19

The role of the auditor is to satisfy users' demand for reliable information.

Accepted Answer

A) True 
 B)False

Question 20

Accounting risk is the part of information risk that is due to incorrectly predicting future events.

Accepted Answer

A) True 
 B)False

Exam 1: Introduction to Auditing

Since financial decision makers usually obtain accounting information from companies wanting loans or selling stock,this creates a potential ________.

Discuss the conflict between the need for an audit firm to perform quality services and its desire to make a profit in the context of the investor's need for reliable information.

Professional judgment is a widely used concept in accounting and auditing.How is it defined in the audit standards?

In addition to the audit of financial statements,comprehensive governmental auditing may also include audits of efficiency,effectiveness,and ________.

What is information risk?

Reducing information risk means the same as ________.

Auditors on staff in the Office of the Auditor General of Canada (OAG)are considered to be external auditors with respect to the government agencies they audit because the OAG is ________.

In an audit engagement,the three-party accountability relationship involves all but which of entities?

The agency problem can be mitigated by ________.

Value-for-money (VFM)audits include testing of compliance with laws and regulations.

The three underlying conditions affecting users' demand for accounting information are complexity,reliability,and completeness.

Discuss the nature of value-for-money (VFM)audits and give three examples of its application.

What is the primary role and responsibility of independent external auditors?

The difference between what the public expects of auditors and what auditors can actually deliver is known as ________.

The concept of three-party accountability means that the auditor is expected to act in the interests of the party paying the audit fee.

What is International Harmonization and what is motivating the accounting profession towards it?

In operational auditing,the auditor studies business operations and makes recommendations about all of the following EXCEPT ________.

the convergence of accounting and audit standards across multiple countries is known as ________.

The role of the auditor is to satisfy users' demand for reliable information.

Accounting risk is the part of information risk that is due to incorrectly predicting future events.

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, receivables, and Receipts Process and Cash Account Balance

The Purchases, payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

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