Question 1

Management makes the following assertions about account balances:

Accepted Answer

A)  existence, completeness, classification and cutoff. 
B)  existence, accuracy, classification and rights and obligations. 
C)  existence, completeness, valuation and allocation, and rights and obligations. 
D)  existence, completeness, rights and obligations, and cutoff.

Question 2

The presentation and disclosure-related audit objectives are identical to the management assertions for presentation and disclosure.

Accepted Answer

A) True 
 B)False

Question 3

The audit objectives are the well-defined methodology for organizing an audit to ensure that the evidence gathered is sufficient and appropriate.

Accepted Answer

A) True 
 B)False

Question 4

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...

Question 5

When an auditor believes that an illegal act may have occurred,the auditor should first:

Accepted Answer

A)  obtain an understanding of the nature and circumstances of the act. 
B)  consult with legal counsel or others knowledgeable about the illegal act. 
C)  discuss the matter with the audit committee. 
D)  withdraw from the engagement.

Question 6

Briefly explain each management assertion related to presentation and disclosure.

Accepted Answer

The answer of Briefly explain each management assertion related to...

Question 7

Below are five audit procedures,all of which are tests of transactions associated with the audit of the acquisition and payment cycle.Also below are the six general transaction-related audit objectives and the five management assertions.For each audit procedure,indicate (1)its audit objective,and (2)the management assertion being tested.  1.Foot the purchases journal and trace the totals to the related general ledger accounts.
(1)________.
(2)________.
2.Recompute the cash discounts taken by the client.
(1)________.
(2)________.
3.Compare dates on cancelled checks with the bank cancellation date.
(1)________.
(2)________.
4.Trace from a sample of cancelled checks to the cash disbursements journal.
(1)________.
(2)________.
5.Examine supporting documentation for a sample of transactions for authorized payee and amount and to determine services or goods were received.
(1)________.
(2)________.

Accepted Answer

The answer of Below are five audit procedures,all of which...

Question 8

Which of the following assertions is described as "this assertion addresses whether all transactions that should be included in the financial statements are in fact included"?

Accepted Answer

A)  Occurrence 
B)  Completeness 
C)  Rights and obligations 
D)  Existence

Question 9

As the impact from noncompliance is further removed from affecting the financial statements,the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

After the general transaction related-audit objectives are understood,specific transaction-related audit objectives for each material class of transactions can be developed.Which of the following statements is true?

Accepted Answer

A)  There should be at least one specific objective for each relevant general objective. 
B)  There will be only one specific objective for each relevant general objective. 
C)  There will be many specific objectives developed for each relevant general objective. 
D)  There must be one specific objective for each general objective.

Question 11

The cycle approach to auditing:

Accepted Answer

A)  ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements. 
B)  cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions. 
C)  is the only way of segmenting an audit. 
D)  assumes that each account has two or more cycles associated with it.

Question 12

An audit must be performed with an attitude of professional skepticism.Professional skepticism consists of two primary components: a questioning mind and:

Accepted Answer

A)  the assumption that upper-level management is dishonest. 
B)  a critical assessment of the audit evidence. 
C)  the assumption that all employees are motivated by greed. 
D)  verification of all critical information by independent third parties.

Question 13

Misappropriation of assets:

Accepted Answer

A)  is generally committed by company management. 
B)  harms the users of the financial statements by providing them incorrect financial data for their decision making. 
C)  causes harm to stockholders because the assets are no longer available to their rightful owners. 
D)  causes the financial statements to be misstated since the misappropriation usually involves material amounts.

Question 14

Why does the auditor divide the financial statements into smaller segments?

Accepted Answer

A)  Using the cycle approach makes the audit more manageable. 
B)  Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces. 
C)  The cycle approach is used because auditing standards require it. 
D)  All of the above are correct.

Question 15

Management assertions are:

Accepted Answer

A)  directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS. 
B)  stated in the footnotes to the financial statements. 
C)  explicitly expressed representations about the financial statements. 
D)  provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

Question 16

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors,the profession has placed the responsibility:

Accepted Answer

A)  more on discovering errors than employee fraud. 
B)  more on discovering employee fraud than errors. 
C)  equally on discovering errors and employee fraud. 
D)  on the senior auditor for detecting errors and on the manager for detecting employee fraud.

Question 17

The essence of the attest function is to:

Accepted Answer

A)  assure the consistent application of correct accounting procedures. 
B)  determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework. 
C)  examine individual transactions so that the auditor may certify as to their validity. 
D)  detect collusion and fraud.

Question 18

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:

Accepted Answer

A)  plan and perform the engagement with an attitude of professional skepticism. 
B)  not rely on internal controls that are designed to prevent or detect errors or fraud. 
C)  design audit tests to detect unrecorded transactions. 
D)  extend the work to audit the majority of the recorded transactions and records of an entity.

Question 19

Describe what analytical procedures and tests of details of balances are and give an example of each.

Accepted Answer

The answer of Describe what analytical procedures and tests of...

Question 20

An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected.

Accepted Answer

A) True 
 B)False

Exam 6: Audit Responsibilities and Objectives

Management makes the following assertions about account balances:

The presentation and disclosure-related audit objectives are identical to the management assertions for presentation and disclosure.

The audit objectives are the well-defined methodology for organizing an audit to ensure that the evidence gathered is sufficient and appropriate.

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 believes that an illegal act may have occurred,the auditor should first:

Briefly explain each management assertion related to presentation and disclosure.

Which of the following assertions is described as "this assertion addresses whether all transactions that should be included in the financial statements are in fact included"?

As the impact from noncompliance is further removed from affecting the financial statements,the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

After the general transaction related-audit objectives are understood,specific transaction-related audit objectives for each material class of transactions can be developed.Which of the following statements is true?

The cycle approach to auditing:

An audit must be performed with an attitude of professional skepticism.Professional skepticism consists of two primary components: a questioning mind and:

Misappropriation of assets:

Why does the auditor divide the financial statements into smaller segments?

Management assertions are:

When comparing the auditor's responsibility for detecting employee fraud and for detecting errors,the profession has placed the responsibility:

The essence of the attest function is to:

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:

Describe what analytical procedures and tests of details of balances are and give an example of each.

An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected.