Deck 19: Other auditing and assurance engagements

Question 1

A concise report sent to shareholders instead of a full report consists of:

A) the directors' report.
B) a statement by the auditor.
C) a concise financial report.
D) all of the above

Answer 1

D

Question 2

Of the three types of assurance engagements, examination engagements provide a higher level of assurance than agreed-upon procedures engagements and review engagements.

Answer 2

True

Question 3

A factual conclusion with limited distribution results from:

A) an examination.
B) a compilation report.
C) a review.
D) agreed-upon procedures.

Answer 3

D

Question 4

The report issued in assurance engagements may provide positive or negative assurance to the reader.Which one of the following types of engagements would provide positive assurance?

A) a review
B) an agreed-upon procedures engagement
C) a compilation
D) an examination

Question 5

The statement that 'nothing came to our attention which would indicate that these statements are not fairly presented' expresses which of the following?

A) negative assurance
B) piecemeal opinion
C) negative confirmation
D) disclaimer of an opinion

Question 6

Discuss the primary purpose of the auditor's evaluation of internal control in (1)an external audit of historical financial statements and (2)a performance audit.

Question 7

The use of negative assurances is inappropriate in review reports.

Question 8

Assurance represents the extent to which a practitioner can attest that an assertion is correct.

Question 9

The assurance standards define three levels, or types, of engagements.State these three types of assurance engagements.

Question 10

Which of the following is an assurance engagement that results in a negative assurance conclusion?

A) review
B) compilation
C) examination
D) audit

Question 11

Which one of the following statements is NOT correct? Under ASA 800, the audit report for special purpose financial reports would:

A) contain an opinion section.
B) report the auditor's view of the appropriateness of the financial reporting framework used.
C) identify the financial reporting framework.
D) indicate that the financial report is a special purpose financial report.

Question 12

Describe how the amount of evidence collected varies between an examination, a review, and agreed-upon procedures.

Question 13

The opinion section on a special purpose financial report audit is similar to that required for audit reports on general purpose financial reports.

Question 14

The scope section on a special purpose financial report audit is similar to that required for audit reports on general purpose financial reports.

Question 15

An assurance engagement that results in a positive assurance as to whether the assertions under examination conform to the applicable criteria is called an examination.

Question 16

Which one of the following meets the definition of an examination?

A) a compilation of the financial statements
B) an audit of the financial statements
C) a review of the financial statements
D) preparing the annual tax returns

Question 17

'An engagement in which a practitioner is engaged to issue a written communication that expresses a conclusion with respect to the reliability of a written assertion that is the responsibility of another party' is the definition of:

A) an audit engagement.
B) a review engagement.
C) an assurance engagement.
D) a compilation engagement.

Question 18

What are the two primary differences between audit reports of specified components and those prepared as part of ordinary audits?

Question 19

Examination attestation engagements result in a conclusion that is in a positive form, whereas review attestation engagements result in a conclusion in the form of a negative assurance.

Question 20

A non-audit engagement in which the accountant undertakes to present, in the form of financial statements, information that is the representation of management, without undertaking to express any assurance on the statements is called a review engagement.

Question 21

Before performing a review of a nonpublic entity's financial statements, an accountant should:

A) apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.
B) obtain a sufficient level of knowledge of the accounting policies of the industry in which the entity operates.
C) inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.
D) complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarising transactions.

Question 22

Projections are:

A) more hypothetical than forecasts.
B) forecasts that have been audited.
C) more reliable than forecasts.
D) management's best estimate of the future financial position.

Question 23

Describe the five types of reports that might be issued by an auditor of a service organisation (service auditors).

Question 24

Which of the following is NOT one of the general types of prospective financial statements included in the attestation standards?

A) forecasts
B) earnings estimates
C) projections
D) all of the above

Question 25

When any assets of a superannuation fund are externally managed, the predominant controls are controls for:

A) safeguarding the assets under management.
B) the processing of transactions related to the assets under management.
C) both A and B
D) none of the above

Question 26

A review service includes:

A) tests of controls or transactions.
B) obtaining an understanding of the client's internal control.
C) inquiry and analytical procedures.
D) independent confirmation or physical examination.

Question 27

An accountant's report expressing an opinion on an entity's internal control should:

A) include an opinion concerning management's assertions about whether the cost of correcting any material weaknesses or deficiency would exceed the benefits of reducing the risk of errors and irregularities.
B) briefly explain the broad objectives and inherent limitations of internal control.
C) state that the study and evaluation of internal control was conducted in accordance with generally accepted auditing standards.
D) clearly disclaim responsibility for the establishment and maintenance of internal control.

Question 28

When making a review of interim financial information, the auditor's work consists primarily of:

A) confirming and verifying account balances at the interim date.
B) making inquiries and performing analytical procedures concerning significant accounting matters.
C) studying and evaluating limited amounts of documentation supporting the interim financial information.
D) scanning and reviewing client-prepared, internal financial statements.

Question 29

Which of the following is the most difficult part of auditing a forecast?

A) ensuring adequacy of disclosure
B) evaluating the reasonableness of the assumptions used in its preparation
C) establishing the likelihood of future events occurring
D) establishing the real purpose of the forecast

Question 30

Compilations provide a higher level of assurance than reviews but a lower level of assurance than audits.

Question 31

A financial statement review emphasises four broad areas.State the four areas which are emphasised.

Question 32

A financial statement review includes obtaining an understanding of internal control.

Question 33

When the auditor is engaged to report on the internal controls, the auditor forms an opinion about management's assertion regarding the:

A) efficiency of internal control.
B) effectiveness of internal control.
C) completeness of internal control.
D) completeness of transactions.

Question 34

When performing review services, the accountant is not required to obtain an understanding of the client's internal control.

Question 35

When the auditor is engaged to report on the internal controls, five steps similar to those for a regular audit engagement are followed.Describe them.

Question 36

When performing a review of interim information for a public company, the accountant ordinarily does not perform tests of the accounting records, independent confirmations, or physical examinations.

Question 37

When the auditor is engaged to report on the internal controls:

A) only those areas that the auditor has time to report on will be included in the study.
B) all areas of the structure will be included in the study.
C) all areas of the structure will be included in the study unless specifically excluded by agreement.
D) only those areas where control risk is low will be included in the study.

Question 38

An auditor may be asked to report on the client's internal controls.Which one of the following is NOT a reason why the auditor would be asked to prepare this?

A) It is part of the financial report audit.
B) It is required by contractual obligation on the client.
C) It is required by regulatory obligation on the client.
D) It is required by statutory obligation on the client.

Question 39

Which of the following is true when the auditor is engaged to report on internal control?

A) All areas of internal control will be included unless specifically excluded by agreement.
B) The time period covered must coincide with the financial period of the annual audit.
C) Certain areas are not examined if reduced control risk in those areas is not planned.
D) all of the above

Question 40

Which one of the following would be done as part of a review engagement?

A) tests of details of balances
B) analytical procedures
C) an evaluation of internal control
D) all of the above

Question 41

To maximize its effectiveness, to whom should the internal audit department report?

A) chief financial officer
B) board of directors
C) external auditor
D) shareholders

Question 42

Hickory Company, whose financial statements are unaudited, has engaged an auditor to make a special review and report on Hickory's internal accounting control.In general, to which of the following will this report be LEAST useful?

A) the independent auditor of Hickory's parent company
B) a regulatory agency having jurisdiction over Hickory
C) Hickory's management
D) present and prospective customers

Question 43

Effectiveness is concerned with whether defined goals are achieved, whereas efficiency is concerned with whether the goals are achieved with a minimum use of resources.

Question 44

Which one of the following statements regarding types of performance audits is False?

A) The emphasis in an organisational audit is on how efficiently and effectively functions interact.
B) Special operational auditing assignments arise at the request of management.
C) An advantage of functional auditing is its ability to evaluate interrelated functions.
D) A functional audit has the advantage of permitting specialisation by auditors.

Question 45

Efficiency refers to the degree to which costs are reduced without reducing effectiveness.

Question 46

Effectiveness refers to the degree to which costs are reduced without reducing efficiency.

Question 47

Before a performance audit for effectiveness can be performed, there must be:

A) a review performed by either an independent or an internal auditor.
B) a financial audit by an internal auditor.
C) a financial audit by an independent auditor.
D) specific criteria developed to define effectiveness.

Question 48

Which of the following groups would NOT be involved in a performance audit?

A) public accounting firms
B) government auditors
C) internal auditors
D) none of the above

Question 49

Which one of the following is NOT one of the broad categories of performance audits?

A) organisational audits
B) special assignment audits
C) single audit act audits
D) functional audits

Question 50

An audit designed to evaluate the efficiency and effectiveness of an organisation or some part thereof would NOT come under the title of:

A) compliance audit.
B) operational audit.
C) management audit.
D) performance audit.

Question 51

Which of the following is NOT an example of an inefficiency that could be uncovered in a performance audit?

A) The administration work could be completed effectively with fewer employees.
B) Bids for purchases of materials are not required.
C) The assembly line shut down, as necessary materials were not ordered.
D) Purchases of inventory must be from approved suppliers.

Question 52

When audit firms do an audit of historical financial statements, part of the audit usually consists of identifying operational problems and making recommendations that may benefit the audit client.The recommendations can be made orally, but they are typically made by use of:

A) a letter of representation.
B) an engagement letter.
C) a client letter.
D) a management letter.

Question 53

Performance auditing is the review of an organisation for efficiency and effectiveness.Discuss what is meant by the terms (1)'effectiveness' and (2)'efficiency'.

Question 54

An assurance report in a prospectus is traditionally called:

A) a statutory review report.
B) a special purpose report.
C) an independent accountant's report.
D) an investigating accountant's report.

Question 55

A typical objective of a performance audit is to determine whether an entity's:

A) financial statements fairly present the results of operations.
B) operational information is in accordance with generally accepted government auditing standards.
C) specific operating units are functioning efficiently and effectively.
D) internal control is adequately operating as designed.

Question 56

Performance audits are often categorised as functional, organisational, or special assignments.

Question 57

Which of the following is NOT one of the major differences between financial and performance auditing?

A) The financial audit is oriented to the past, whereas a performance audit concerns performance for the future.
B) Financial audits deal with the information in the financial statements, whereas performance audits are concerned with the information in the ledgers.
C) The financial audit is distributed to many readers, whereas the performance audit report goes to a few managers.
D) Financial audits are limited to matters that directly affect the financial statements, whereas performance audits cover any aspect of efficiency and effectiveness.

Question 58

Performance audit reports are submitted to shareholders, investors, and analysts.

Question 59

Discuss three major differences between performance auditing and financial auditing.

Question 60

For financial auditing, the audit report typically goes to many users of financial statements, whereas performance audit reports are intended primarily for management.

Question 61

The Institute of Internal Auditors Practice Standards regarding attributes include four categories of guidance that encompass both financial and operational auditing.List these categories of the Attribute Standards.

Question 62

A major difficulty in performance auditing is deciding on specific criteria for evaluating whether efficiency and effectiveness have occurred.Discuss two other sources of criteria that the operational auditor can use.

Question 63

Which one of the following is NOT one of the three phases in a performance audit?

A) planning
B) training and supervising employees
C) evidence accumulation and evaluation
D) reporting and follow-up

Question 64

To help them remain independent of the operations they audit, internal auditors should report directly to the chairman or the board of directors.

Question 65

Comparable performance is one source of evaluation criteria for completing a performance audit.

Question 66

The two most important qualities for an internal auditor to possess are independence and competence.

Question 67

The key issues for an external auditor evaluating a client's internal audit function are the:

A) competence and professionalism of internal audit staff.
B) timing and scope of the internal audit's work.
C) size of the internal audit function and its reporting independence.
D) quality of internal audit work and the independence of the internal audit function.

Question 68

The objectives of internal auditors are similar to the objectives of external auditors.

Question 69

Which of the following are the two most important qualities for a performance auditor?

A) independence and competence
B) competence and technical training
C) academic background and sufficient experience
D) personality and appearance

Question 70

Discuss each of the three broad categories (types)of performance audits.

Question 71

Discuss each of the three phases of a performance audit.

Question 72

The Institute of Internal Auditors Professional Practice Standards require that internal auditors should be independent of:

A) their employer.
B) the controller's function within their organisation.
C) the line function within their organisation.
D) the activities they audit.

Question 73

Which of the following would NOT be a source that the performance auditor can utilise in developing specific evaluation criteria?

A) discussion and agreement between the management of the entity to be audited, the operational auditor, and the entity or persons to whom the findings will be reported
B) generally accepted accounting principles
C) benchmarking, such as the data of comparable entities
D) historical performance, such as results from prior periods

Question 74

One disadvantage of functional auditing is the failure to evaluate interrelated functions.

Question 75

If internal auditors are effective, then the external auditor is justified in reducing the assessed level of control risk.

Question 76

Which one of the following statements is NOT correct?

A) Internal auditors should be independent of the activities they audit.
B) Objectivity requires that internal auditors have an independent mental attitude.
C) The internal auditor should not be responsible for correcting deficiencies when ineffective or inefficient operations are found.
D) It is acceptable for internal auditors to recommend changes in operations and to install and implement the operating systems, as long as they do not have the responsibility for operating them throughout the year.

Question 77

Confirmation and re-performance are used less extensively for most performance audits than for financial audits.

Question 78

Discussion and agreement is one source of evaluation criteria for completing a performance audit.

Question 79

Independence of internal auditors is enhanced appropriately by having the internal audit department report to the:

A) controller.
B) board of directors.
C) external auditor.
D) treasurer.

Question 80

Current professional auditing standards prohibit external auditors from using internal auditors for direct assistance on external audits.