Deck 21: Other Professional Accounting Services and Reports, including Fraud Auditing

Question 1

Which of the following statements regarding agreed-upon procedures is FALSE?

A)They amount to an audit.
B)They do not meet with generally accepted auditing standards.
C)They have a limited scope.
D)They are typically initiated by the client.

Answer 1

A

Question 2

A good reason for involving fraud auditors in the planning of a regular audit of financial statements is ________.

A)it reduces the auditor's potential legal liability
B)when the audit committee authorizes further investigation
C)it makes the client aware of how seriously the auditor takes its fraud detection responsibility
D)it improves the documentation standards of the financial statement audit

Answer 2

C

Question 3

In what form does the report of the result of the agreed-upon procedures engagement take?

A)The practitioner's opinion on the proper presentation of the financial information.
B)The auditor's opinion on the fair presentation of the financial report.
C)The practitioner's conclusion in the form of negative assurance ("nothing has come to my attention....").
D)A presentation of the factual results of the applied procedures only.

Answer 3

A presentation of the factual results of the applied procedures only.

Question 4

When independent CPAs in public practice take engagements to audit governmental units or entities that receive financial assistance from governmental units,they must follow ________.

A)GAAS only
B)GAAS and Public sector auditing standards
C)Public sector auditing standards only
D)internal auditing standards

Question 5

The objective of internal auditing is service to ________.

A)management
B)a specific department
C)the organization
D)the audit committee

Question 6

Auditors of governmental units would be presumed to be lacking in independence if they were ________.

A)free from sources of external impairment
B)organizationally independent
C)members of a political party that campaigned against the program under audit
D)auditing in a level of government other than the one to which they are normally assigned

Question 7

The most common reporting framework in Canada is the ________.

A)compliance framework
B)special purpose framework
C)prospective framework
D)fair presentation framework

Question 8

One of the key differences between a financial statement audit and a value for money (VFM)audit is ________.

A)in most cases,VFM audits have mandates established through legislation or contracts
B)in a financial statement audit,the auditor has to use his or her professional judgment to redefine the broad mandate in specific terms with specific objectives
C)in a VFM audit,standards are defined by professions and associations
D)in a financial statement audit,sufficient appropriate evidence must be obtained to afford a reasonable basis to support the content of the auditor's report

Question 9

Differences between independent auditors of financial statements and fraud examiners include of the following,EXCEPT:

A)Financial auditors assess control risk by thinking like a crook,whereas fraud examiners assess control risk in general terms.
B)Financial auditors work to a higher level of materiality than do fraud examiners.
C)Financial auditors make note of errors and omissions;fraud examiners also focus on exceptions,oddities,and patterns of conduct.
D)Financial audits are based on theories of financial accounting and auditing logic;fraud examination has theories of behavioural motive,opportunity,and integrity

Question 10

An operational audit would NOT include determining ________.

A)Whether the entity is acquiring,protecting,and using its resources effectively.
B)The effectiveness of an organization and its programs,activities,and functions.
C)The causes of inefficiencies or uneconomical practices.
D)Whether the entity has complied with laws and regulations.

Question 11

The purpose of an operational audit is to ________.

A)determine the effectiveness of internal controls
B)detect material misstatements in the company's financial statements
C)provide assurance on fair presentation of company financial statements
D)assess the economy,efficiency,and effectiveness of resources and objectives

Question 12

Before reporting on the financial statements of a Canadian entity that have been prepared in accordance with the accounting principles of another country,an auditor practising in Canada should ________.

A)understand the accounting principles that are generally accepted in the other country
B)be certified by the appropriate auditing or accountancy board of the other country
C)notify management that the auditor is required to deny an opinion on the financial statements
D)recast the financial statements according to Canadian GAAP

Question 13

In a direct reporting engagement,the assertions ________.

A)must be in written form
B)are expressed verbally
C)may only be implied
D)can be in written form or expressed verbally

Question 14

A financial ________ depends on one or more hypothetical assumptions.

A)statement
B)projection
C)plan
D)forecast

Question 15

The most effective way,in the long run,for a company to reduce fraud risk that comes from people pressures in the workplace is:

A)by paying employees at the top rates for their industry.
B)by investing heavily in monitoring equipment,like security devices.
C)by designing tight control systems
D)by instituting a management practice of caring for people.

Question 16

In 20X2,Marg Levy,CPA,performed an environmental audit of Scoop Mining.As a result of that engagement,she prepared a report which included several recommendations to improve compliance with environmental protection laws.In 20X2,Ms.Levy has been approached to perform another audit of environmental protection procedures,some of which are based on her earlier recommendations.Which of the following statements is TRUE?

A)Ms.Levy must decline the audit as it conflicts with her independence.
B)Ms.Levy must restrict herself to performing specified tests of procedures that were not in her recommendations in order to protect her independence.
C)Ms.Levy may perform the audit including work on her recommended procedures,as independence is less important in an environmental compliance audit than in a financial statement audit.
D)Ms.Levy may perform the audit including work on her recommended procedures since she cannot be associated with nonfinancial information,so the concept of independence does not apply.

Question 17

In a(n)________ engagement,the practitioner offers a conclusion on the accountable party's written assertion.

A)attest
B)direct reporting
C)forensic
D)compilation

Question 18

Economy is related to ________.

A)efficiency variance
B)volume variance
C)price variance
D)capacity variance

Question 19

Which of the following statements concerning assurance engagements is FALSE?

A)All assurance engagements consist of a three-party accountability relationship.
B)All attest engagements are assurance engagements,but not all assurance engagements are attest engagements.
C)A review of historical financials statements is a type of attest engagement.
D)A report to the public by the Auditor General on the efficient use taxpayer dollars by a government agency is an attest engagement.

Question 20

The term significance as used in the assurance standards refers to ________.

A)the concept of materiality extended to nonfinancial factors
B)an amount greater than materiality for audit purposes
C)an estimate of risk in an assurance engagement
D)the importance of a criterion for evaluation of information

Question 21

A CPA's audit client is a small charity which funds development projects in a small foreign country.Most of its donations come in the form of cash,with tax receipts issued to the donors.Included in the cash receipts are weekly donations by one person,Mr.X,whose last name is easily identifiable as coming from that foreign country.Some of these cash donations exceed $10,000.The CPA once asked about Mr.X and accepted as an answer that Mr.X was a wealthy entrepreneur but the CPA has done no other work.Which of the following statements is TRUE?

A)Assuming the CPA has performed all other necessary and appropriate procedures,he may provide a clean opinion.
B)Assuming the CPA does no further investigation of this matter,the CPA may be considered willfully blind and complicit in an illegal act.
C)The CPA may be associated with misleading information and should withdraw from the audit.
D)The CPA should try to count the cash as it comes in order to avoid issuing a scope limitation report.

Question 22

In value-for-money (VFM)audits,the focus is on the financial statements.

Question 23

An environmental audit focuses on compliance with legislation rather than the effect of compliance on the financial statements.

Question 24

The environmental audit evaluates a company's operations and performance in terms of conformity with federal,provincial,and municipal laws and regulations.

Question 25

An environmental audit based on emissions trading schemes for minimizing climate change,can be based on both direct-effect or indirect-effect emissions criteria.

Question 26

Forensic accounting can be defined as ________.

A)investigating possible fraud
B)designing internal controls and other corporate governance mechanisms
C)calculating estimates used in financial reports
D)applying accounting and auditing skills in an action under civil or criminal law

Question 27

Horizontal analysis can be used in fraud detection by ________.

A)checking the trend in earnings from year to year of persons suspected of fraud
B)looking for significant changes in financial statement amounts and ratios across several fiscal periods
C)looking for odd relations of one account to a base such as sales
D)looking for the change in net worth of a suspect from the beginning to the end of a period

Question 28

A specified procedures engagement does not require the accumulation of sufficient appropriate evidence to support an opinion.

Question 29

In the audit of financial statements,which of the following procedures would the auditor call an "extended procedure?"

A)Measure the time lag between the date that cash receipts are recorded in the accounting records and the date that the deposit is credited to the bank account.
B)Observe the client's physical inventory count and take test counts of stock in the warehouse.
C)Send positive confirmations on accounts receivable balances.
D)Interview the staff in the accounting department and document the controls over the recording of sales transactions.

Question 30

If a prospectus is issued more than 90 days beyond the balance sheet date,the auditor will need to perform procedures on interim financial statement information prior to permitting the use of their audit opinion in the prospectus.

Question 31

Federal and provincial governments and their agencies and local governments use the CPA Canada Public Sector Standards to guide their audits.

Question 32

Unlike other auditors,fraud examiners think of materiality as a cumulative amount.

Question 33

Effectiveness refers to outputs of resources maximized for the related inputs and inputs minimized for the related outputs.

Question 34

The nature of extended procedures regarding fraud auditing is limited only by an auditor's imagination.

Question 35

A value-for-money (VFM)audit will tend to use a multidisciplinary audit team with expertise in different areas such as like economics or engineering.

Question 36

A specified elements,accounts,or items report does not result in the expression of an audit opinion by the practitioner.

Question 37

Designing tight control systems is likely the best long-term solution to preventing fraud.

Question 38

Comparing the data on a fraud suspect's spending with known income is an extended procedure known as ________.

A)horizontal analysis
B)vertical analysis
C)expenditure analysis
D)surveillance

Question 39

Fraud examiners refer to people engaged specifically in the work of fraud investigation.

Question 40

Since the Management Discussion & Analysis report is not part of the financial statements,the auditor bears no responsibility for it.

Question 41

What is Management's Discussion and Analysis (MD&A)? What is the nature of the auditor's responsibility with regard to MD&A?

Question 42

Auditors should mark the evidence,identifying the location,condition,date,time,and circumstances as soon as it appears to be a signal of fraud.

Question 43

When financial auditors suspect financial reporting fraud,they should discuss their suspicions with the client to see there is an alternative explanation.

Question 44

What does "willfully blind" mean within the context of fraud?

Question 45

Briefly distinguish between a compliance audit and a value-for-money (VFM)audit.

Question 46

Explain briefly the purpose of a value-for-money (VFM)audit.

Question 47

When a practitioner is engaged to perform an examination of prospective financial statements,what three key statements must be included in the examination report?

Question 48

In engagements requiring the use of foreign standards,what are the expectations of Canadian auditors?

Question 49

What must prospective financial statements contain?

Question 50

Canada was among the first of the industrialized countries to pass legislation against the proceeds of crime,money laundering and terrorist financing.