Audit Review Quiz Bowl 2013

7/27/2019 Audit Review Quiz Bowl 2013

1/52

AUDITING THEORY

ARRIANE P. NISPEROS, CPA

NOTRE DAME OF DADIANGAS UNIVERSITY

JULY 12, 2013


2/52

Which of the following models expresses the general relationship of

risks associated with the auditor's evaluation of internal control (CR),

study of the business and application of analytical procedures (IR), and

overall audit risk (AR), that would lead the auditor to conclude that

additional substantive tests of details of an account balance are not

necessary?

IR CR AR

a. 20% 40% 10%

b. 20% 60% 5%

c. 10% 70% 4.5%d. 30% 40% 5.5%

Answer: A


3/52

Answer: B

An independent auditor asked a client's internal auditor to assist in

preparing a standard financial institution confirmation request for a

payroll account that had been closed during the year under audit.

After the internal auditor prepared the form, the controller signed itand mailed it to the bank. What was the major flaw in this

procedure?

a. The internal auditor did not sign the form.

b. The form was mailed by the controller.c. The form was prepared by the internal auditor.

d. The account was closed, so the balance was zero.


4/52

What type of Evidence(s) is being tested.

Inquired of corporate treasurer as toreason(s) for acquiring marketable securities

Answer: Hearsay Evidence


5/52

Answer: B

In testing plant and equipment balances, an auditor may

inspect new additions listed on the analysis of plant and

equipment. This procedure is designed to obtain evidence

concerning management's assertions of:

Existence Presentation and occurrence disclosure

a. Yes Yes

b. Yes No

c. No Yesd. No No


6/52

What type of assertion(s) is being tested.

Obtained letter from clients outside legalcounsel regarding pending litigation

Answer: Presentation and Disclosure


7/52

Answer: A

An auditor suspects that a clients cashier is misappropriating cash

receipts for personal use by lapping customer checks received in the mail.

In attempting to uncover this embezzlement scheme, the auditor most

likely would compare the

a. Dates checks are deposited per bank statements with dates

remittance credits are recorded.

b. Daily cash summaries with the sums of the cash receipts journal

entries.

c. Individual bank deposit slips with the details of the monthly bankstatements.

d. Dates uncollectible accounts are authorized to be written off with the

dates the write-offs are actually recorded.


8/52


Confirmed customer accounts receivable

Answer: Existence or Occurrence/

Presentation and Disclosure


9/52

Answer: B

In assessing audit risk, the CPA needs to do all of the following

except

a. Gather audit evidence in support of recorded transactions.

b. Obtain an understanding of the client's system of internalcontrol.

c. Understand the economic substance of significant

transactions completed by the client.

d. Understand the entity and the industry in which it operates.


10/52


Obtained replies directly from customersconcerning the correctness of clients

recorded year-end accounts receivable

balances

Answer: Confirmatory Evidence


11/52

Answer: c

Which of the following tasks should be performed prior

to the final audit?

a. Determining the fairness of property, plant, and

equipment.

b. Confirming accounts receivable.

c. Testing internal control.

d. Collecting and evaluating evidence supporting thefairness of inventory values.


12/52


Vouched property additions to underlyingdocumentation consisting of vendors

invoices and work orders

Answer: Existence or Occurrence/

Valuation and Allocation


13/52

Which of the following may be considered to be a primary

objective of the auditor in the examination of accounts

receivable?

a. Establish validity and collectability of receivables

b. Determine approximate time of collectability of

receivables

c. Determine the relationship of receivables to salesd. Determine the reasonableness of the sales figure

Answer: A


14/52

Answer: Document

In satisfying the requirements of PSA 82,

the auditor must assess the risk ofmaterial misstatement due to fraud,

develop an appropriate audit response,

and ___________ the response.


15/52

Aside from completeness what other type of

assertion(s) is being tested.

Examined vendors invoices recorded after

year-end to determine whether any of these

invoices represent liabilities of the client asof year-end

Answer: Rights and obligation


16/52

Answer: D

An aged trial balance of accounts receivable is

usually used by the auditor to

a. Verify the validity of recorded receivables

b. Evaluate the results of compliance tests

c. Ensure that all accounts are prompted creditedd. Evaluate the provision for bad debt expense


17/52


Selected a sample of bills of ladingrepresenting shipments to customers and

traced to sales invoices to determine that all

shipments have been billed to customers

Answer: Completeness


18/52

The reporting standards relate to

the function.

Answer: Attest


19/52

Answer: C

To determine whether internal control relative to the revenue

cycle of a wholesaling entity is

operating effectively in minimizing the failure to prepare sales

invoices, an auditor most likelywould select a sample of transactions from the population

represented by the:

a. Sales order file.

b. Customer order file.c. Shipping document file.

d. Sales invoice file.


20/52

Answer: Decrease

A preliminary expectation of few errors,

followed by subsequent discovery ofnumerous errors should lead to a

in the aggregate materiality threshold.


21/52

Client outsourcing of certain accounting

functions, such as internal auditing, to the

national accounting firms may causefinancial statement users to question

___________ _______________.

Answer: Auditors Independence


22/52

Which of the following statements is not true regarding the

competence of audit evidence?

a. Relevance is enhanced by an effective information

system.b. To be competent, evidence must be both valid and

relevant.

c. Validity is related to the quality of the clients information

system.d. Relevance must always relate to audit objectives.

Answer: A


23/52

The field work standards are

concerned with the__________process.

Answer: Audit


24/52

The scope and nature of an auditor's

contractual obligation to a client is ordinarily set

forth in the

a. Scope paragraph of the auditors report.

b. Opinion paragraph of the auditors report.

c. Management letter.

d. Engagement letter.

Answer: D


25/52

The generally accepted auditing standards,

as promulgated by the American Institute of

Certified Public Accountants, define the______________ of independent auditing.

Answer: Quality


26/52

Competence as a certified public accountant includes all of

the following except

a. Having the technical qualifications to perform an

engagement.b. Possessing the ability to supervise and evaluate the

quality of staff work.

c. Warranting the infallibility of the work performed. d.

Consulting others if additional technical information isneeded.

Answer: C


27/52

Which of the following is mandatory if the auditor is to

comply with generally accepted auditing standards?

a. Possession by the auditor of adequate technical training.

b. Use of analytical review on audit engagements.c. Use of statistical sampling whenever feasible on an

audit engagement.

d. Confirmation by the auditor of material accounts

receivable balances.

Answer: A


28/52

As a guidance for measuring the quality of the performance

of an auditor, the auditor should refer to

a. Statements of the Financial Accounting Standards

Board.b. Generally Accepted Auditing Standards.

c. Interpretations of the Statements on Auditing

Standards.

d. Statements on Quality Control Standards.

Answer: B


29/52

The general standards relate to

the and of theauditor.

Answer: Character, Competence


30/52

The standard ofdue audit care requires the auditor to

a. Apply judgment in a conscientious manner, carefully

weighing the relevant factors before reaching a decision.

b. Ensure that the financial statements are free fromerror.

c. Make perfect judgment decisions in all cases.

d. Possess skills clearly above the average for the

profession.

Answer: A


31/52

A CPA who has never audited a commercial bank

a. May not accept such an engagement.

b. May accept the engagement only if the accounting

firm specializes in the audit of commercial banks.c. May accept the engagement after attaining a suitable

level of understanding of the transactions and

accounting practices unique to commercial banking.

d. May accept the engagement because training as a

CPA transcends unique industry characteristics.

Answer: C


32/52

The first general standard requires that a person or

persons have adequate technical training and proficiency as

an auditor. This standard is met by

a. An understanding of the field of business andfinance.

b. Education and experience in the field of auditing.

c. Continuing professional education.

d. A thorough knowledge of the Statements on Auditing

Standards.

Answer: B


33/52

In determining estimates of fees, an auditor may

take into account each of the following, except the

a. Value of the service to the client.

b. Degree of responsibility assumed by

undertaking the engagement.

c. Skills required to perform the service.

d. Attainment of specific findings.

Answer: D


34/52


Calculated year-end interest accrual andcompared with general ledger balance

Answer: Mathematical Evidence


35/52

The audit trail consists of that stream of evidence

that enables the auditor to trace a transaction or

event forward from its inception to the appropriate

ledger account, or conversely, vouch a transaction

backward from the ledger account to the inception

of the transaction or event. For the audit trail to

exist, transactions must be .

Answer: Documented


36/52

Evidence consisting of everything that can

be counted, examined, observed, or

inspected is referred to as_____________ evidence.

Answer: Physical Evidence


37/52

Which of the following does not describe one of the

functions of audit work papers?

a. Facilitates third-party reviews.

b. Aids in the planning, performance, and review of

audits.

c. Provides the principal evidential support for the

auditor's report.d. Aids in the professional development of the

operating staff.

Answer: D


38/52


Examined securities purportedly owned bythe client and held by local brokers

Answer: Physical Evidence


39/52

Which of the following is generally included or shown in the auditor's

working papers?

a. The procedures used by the auditor to verify the personal financial

status of members of the client's management team.

b. Analyses that are designed to be a part of, or a substitute for,the client's accounting records.

c. Excerpts from authoritative pronouncements that support the

underlying generally accepted accounting principles used in

preparing the financial statements.

d. The manner in which exceptions and unusual matters disclosedby the auditor's procedures were resolved or treated.

Answer: D


40/52


Obtained letter from clients outside legalcounsel regarding pending litigation

Answer: Confirmation Evidence


41/52

During an audit of the accounts receivable function, you

found that the accounts receivable turnover rate had fallen

from 7.3 to 4.3 over the last three years. What is the

most likely cause of the decrease in the turnover rate?a. An increase in the discount offered for early payment.

b. A more liberal credit policy.

c. A change from net 30 to net 25.

d. Greater cash sales.

Answer: B


42/52

An auditor who gathers increased quantities

of evidence for larger account balances is

observing the standard relating to ofaudit evidence.

Answer: Suficiency


43/52

Sales commissions as a percentage of sales declined

significantly during the year under audit. Of the following

possible causes, the most likely is

a. Sales increased during the year.b. The sales force was reduced at the end of the year.

c. Sales commission rates were increased at the

beginning of the year.

d. Fictitious sales were recorded at year-end to inflate

earnings. Commissions were not recorded on these

sales.

Answer: D


44/52


Inquired of corporate treasurer as to reasonsfor buying and holding securities

Answer: Presentation and Disclosure


45/52

The two factors that contribute to the

probability that unaudited financial

statements contain material errors or fraudare and .

Answer: IR and CR


46/52

When a CPA is approached to perform an audit for the first time, the

CPA should make inquiries of the predecessor auditor. This is a

necessary procedure because the predecessor may be able to provide

the successor with information that will assist the successor in

determininga. Whether the predecessor's work should be utilized.

b. Whether the company follows the policy of rotating its auditors

c. Whether, in the predecessor's opinion, internal control of the

company has been satisfactory.

d. Whether the engagement should be accepted.

Answer: D


47/52

In a recurring audit, the best source of

business and industry information may

be found in the.

Answer: Permanent File


48/52

Warning signs that cause the auditor to question management integrity

must be taken seriously and pursued vigorously. Which of the following

may lead the auditor to suspect management dishonesty?

a. The president and chief executive officer of the client corporation has

held numerous meetings with the controller for the purpose ofdiscussing accounting practices that will maximize reported profits.

b. The client has been named as a defendant in a product liability suit.

c. The client has experienced a decrease in revenue from increased

import competition.

d. A new federal regulation making customer licenses more difficult toobtain may adversely affect the client's operations.

Answer: A


49/52

The financial statement impact of a

single error is referred to as ________

__ materiality, whereas the totaleffect of a series of errors is termed

materiality.

Answer: Individual Item, Aggregate


50/52

Which of the following statements best describes the auditor's

responsibility regarding the detection of fraud?

a. The auditor is responsible for the failure to detect fraud only when

such failure clearly results from nonperformance of audit procedures

specifically described in the engagement letter.b. The auditor should design audit procedures that will provide

reasonable assurance that the financial statements are free from

material misstatement due to errors and/or fraud.

c. The auditor must extend auditing procedures to actively search for

evidence of fraud where the examination indicates that fraud mayexist.

d. The auditor is responsible for the failure to detect fraud only when

an unqualified opinion is issued.

Answer: B


51/52

Inherent risk is defined as the susceptibility of an account balance or

class of transactions to error that could be material assuming that there

were no related internal controls. Of the following conditions, which one

does not increase inherent risk?

a. The client has entered into numerous related party transactionsduring the year under audit.

b. Internal control over shipping, billing, and recording of sales revenue

is weak.

c. The client has lost a major customer accounting for approximately

30% of annual revenue.d. The board of directors approved a substantial bonus for the president

and chief executive officer, and also approved an attractive stock option

plan for themselves.

Answer: B


52/52

Which of the following statements concerning materiality thresholds is

incorrect?

a. Aggregate materiality thresholds are a function of the auditor's

preliminary judgments concerning audit risk.

b. In general, the more misstatements the auditor expects, thehigher should be the aggregate materiality threshold.

c. The smallest aggregate level of errors or fraud that could be

considered material to any one of the financial statements is

referred to as a "materiality threshold."

d. Materiality thresholds may change between the planning andreview stages of the audit. These changes may be due to

quantitative and/or qualitative factors.

Documents

Audit Review Quiz Bowl 2013