Question 1

It is possible that an audit performed in accordance with generally accepted auditing standards may fail to detect a material misstatement in the financial statements.

Accepted Answer

A) True 
 B)False

Question 2

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the

Accepted Answer

A)  board of directors. 
B)  company management. 
C)  financial statement auditor. 
D)  company's internal audit department.

Question 3

When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor

Accepted Answer

A)  should inquire of management about whether the entity is in compliance with such laws and regulations. 
B)  has no responsibility to determine if any violations of these laws has occurred. 
C)  must report all violations, including inconsequential violations, to the audit committee. 
D)  should perform the same procedures as for violations having a direct effect on the financial statements.

Question 4

The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.

Accepted Answer

A) True 
 B)False

Question 5

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.

Accepted Answer

A) True 
 B)False

Question 6

The Sarbanes-Oxley Act provides for criminal penalties.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would most likely be deemed a direct effect illegal act?

Accepted Answer

A)  violation of federal employment laws 
B)  violation of federal environmental regulations 
C)  violation of federal income tax laws 
D)  violation of civil rights laws

Question 8

One of the paragraphs of the auditor's report includes a paragraph addressing the auditor's responsibility for not detecting material misstatements in the financial statements, as this is management's responsibility, not the auditors.

Accepted Answer

A) True 
 B)False

Question 9

Discuss the differences between errors, frauds, and illegal acts. Give an example of each.

Accepted Answer

The answer of Discuss the differences between errors, frauds, and...

Question 10

The preparation of the financial statements by management contain complex estimates; therefore, the auditor has to rely upon evidence which is convincing, not just persuasive.

Accepted Answer

A) True 
 B)False

Question 11

Auditors should be alert for potential judgment tendencies, traps, and biases that may impact their decision-making process. Identify and define four of these judgment tendencies. Then, for each judgment tendency, suggest a way to avoid or mitigate the tendency.

Accepted Answer

The answer of Auditors should be alert for potential judgment...

Question 12

If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct,

Accepted Answer

A)  bankruptcies could no longer occur. 
B)  bankruptcies would be reduced to a very small number. 
C)  audits would be much easier to complete. 
D)  audits would not be economically practical.

Question 13

Which of the following is not a step in the professional judgment process?

Accepted Answer

A)  make the decision 
B)  perform the analysis 
C)  determine the type of audit opinion 
D)  review and document the rationale for the conclusion

Question 14

In order to mitigate confirmation, the auditor should make the opposing case and consider alternative explanations, potentially disconfirming or conflicting information.

Accepted Answer

A) True 
 B)False

Question 15

Auditing standards make ________ distinction(s) between the auditor's responsibilities for searching for errors and fraud.

Accepted Answer

A)  little 
B)  a significant 
C)  no 
D)  various

Question 16

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities, including but not limited to, law enforcement and the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 17

Two overriding considerations affect the many ways an auditor can accumulate evidence: 1. Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility.
2) Cost of accumulating evidence should be minimized.
In evaluating these considerations

Accepted Answer

A)  the first is more important than the second. 
B)  the second is more important than the first. 
C)  they are equally important. 
D)  it is impossible to prioritize them.

Question 18

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.

Question 19

An important balance-related audit objective is realizable value. Describe the purpose of this audit objective, what it is concerned with, and give an example.

Accepted Answer

The answer of An important balance-related audit objective is realizable...

Question 20

When an auditor knows that an illegal act has occurred, he or she must

Accepted Answer

A)  report it to the proper governmental authorities. 
B)  consider the effects on the financial statements, including the adequacy of disclosure. 
C)  withdraw from the engagement. 
D)  issue an adverse opinion.

Exam 6: Audit Responsibilities and Objectives

It is possible that an audit performed in accordance with generally accepted auditing standards may fail to detect a material misstatement in the financial statements.

The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the

When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor

The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.

Although auditors need to consider the interrelationships between cycles, they typically treat cycles independently to the extent practical to manage complex audits effectively.

The Sarbanes-Oxley Act provides for criminal penalties.

Which of the following would most likely be deemed a direct effect illegal act?

One of the paragraphs of the auditor's report includes a paragraph addressing the auditor's responsibility for not detecting material misstatements in the financial statements, as this is management's responsibility, not the auditors.

Discuss the differences between errors, frauds, and illegal acts. Give an example of each.

The preparation of the financial statements by management contain complex estimates; therefore, the auditor has to rely upon evidence which is convincing, not just persuasive.

Auditors should be alert for potential judgment tendencies, traps, and biases that may impact their decision-making process. Identify and define four of these judgment tendencies. Then, for each judgment tendency, suggest a way to avoid or mitigate the tendency.

If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct,

Which of the following is not a step in the professional judgment process?

In order to mitigate confirmation, the auditor should make the opposing case and consider alternative explanations, potentially disconfirming or conflicting information.

Auditing standards make ________ distinction(s) between the auditor's responsibilities for searching for errors and fraud.

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities, including but not limited to, law enforcement and the Securities and Exchange Commission.

Two overriding considerations affect the many ways an auditor can accumulate evidence: 1. Sufficient appropriate evidence must be accumulated to meet the auditor's professional responsibility. 2) Cost of accumulating evidence should be minimized. In evaluating these considerations

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

An important balance-related audit objective is realizable value. Describe the purpose of this audit objective, what it is concerned with, and give an example.

When an auditor knows that an illegal act has occurred, he or she must