Question 1: The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the:
prudent person concept
common law doctrine.
constructive care concept
vigilant person concept.
Question 2: A broad interpretation of the rights of third-party beneficiaries holds that users that the auditor should have been able to foresee as being likely users of financial statements have the same rights as those with privity of contract. This is known as the concept of:
foreseen users.
foreseeable users.
expected users.
four-party contracts.
Question 3: If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of:
contract fraud.
breach of contract.
constructive fraud.
criminal neglect.
Question 4: The preferred defense in third party suits is:
lack of duty to perform.
Non-negligent performance.
absence of causal connection.
client fraud.
Question 5: Which of the following auditor's defenses usually means nonreliance on the financial statements by the user?
Lack of duty
Nonnegligent performance
Absence of causal connections
Contributory negligence
Question 6: Laws that have been passed by the U.S. Congress and other governmental units are:
statutory laws.
judicial laws.
federal laws.
common laws.
Question 7: Which of the following would most likely be deemed a direct-effect illegal act?
Violation of federal employment laws
Violation of federal environmental regulations
Violation of federal income tax laws
Violation of civil rights laws
Question 8: Management assertions are:
directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS.
stated in the footnotes to the financial statements.
explicitly expressed representations about the financial statements.
provided to the auditor in the assertions letter, but are not disclosed on the financial statements.
Question 9: In certifying their annual financial statements, the CEO and CFO of a public company certify that the financial statements comply with the requirements of:
GAAP.
the Sarbanes-Oxley Act.
the Securities Exchange Act of 1934.
GAAS.
Question 10: In testing for cutoff, the objective is to determine:
whether all of the current period's transactions are recorded.
whether transactions are recorded in the correct accounting period.
the proper cutoff between capitalizing and expensing expenditures.
the proper cutoff between disclosing items in footnotes or in account balances.
Question 11: The objective of an audit of the financial statements is an expression of an opinion on:
the fairness of the financial statements in all material respects.
the accuracy of the financial statements.
the accuracy of the annual report.
the accuracy of the balance sheet and income statement.
Question 12: "The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered." This is an example of:
unprofessional behavior.
an attitude of professional skepticism.
due diligence.
a rule in the AICPA's Code of Professional Conduct.
Question 13: An example of a document the auditor receives from the client, but which was prepared by someone outside the client's organization, is a:
confirmation.
sales invoice.
vendor invoice.
bank reconciliation.
Question 14: Audit evidence has two primary qualities for the auditor; relevance and reliability. Given the choices below, which provides the auditor with the most reliable audit evidence?
General ledger account balances
Confirmation of accounts receivable balance received from a customer
Internal memo explaining the issuance of a credit memo
Copy of month-end adjusting entries
Question 15: When practical and reasonable, U.S. auditing standards require the confirmation of:
individual transactions between organizations, such as sales transactions.
accounts receivable.
fixed asset additions.
payroll expenses.
Question 16: The auditor must gather sufficient and appropriate evidence during the course of the audit. Sufficient evidence must:
be well documented and cross-referenced in the audit documents.
be based on sources that are external to company.
provide evidence that prove or disprove an audit objective/assertion.
be persuasive enough to enable the auditor to issue an audit report.
Question 17: Which of the following statements regarding the relevance of evidence is correct?
To be relevant, evidence must pertain to the audit objective of the evidence.
To be relevant, evidence must be persuasive.
To be relevant, evidence must relate to multiple audit objectives.
To be relevant, evidence must be derived from a system including effective internal controls.
Question 18: Which of the following generally provides the most reliable evidence?
Confirmations
Recalculation
Reperformance
Observations
Question 19: When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called:
Answer
inquiry.
vouching.
physical examination.
Question 20: The preliminary audit strategy:
is set before the auditor understands the client's reasons for the audit.
guides the development of the audit plan.
is determined after the engagement staffing is set.
is the detailed steps to be followed for the substantive audit tests.
Question 21: The two major factors affecting acceptable audit risk are:
inherent risk and the intended uses of the financial statements.
control risk and the intended uses of the financial statements.
the likely statement users and the intended uses of the statements.
the audit firm and the intended uses of the statements
Question 22: Business risk:
is the risk after considering the effectiveness of top management controls.
is the risk that the client's internal controls will fail.
can include a new technology which threatens to erode a company's competitive advantage.
cannot be mitigated by management.
Question 23: Written communication that the auditor will provide reasonable assurance for the detection of fraud is found in:
engagement letter.
representation letter.
responsibility letter.
client letter.
Question 24: Which of the following normally signs the engagement letter for an audit of a private company?
Management
Board of directors representative
Audit committee representative
Corporate treasurer
Question 25: If an auditor is requested to perform nonaudit services for a public company audit client, who is responsible for agreeing to those services with the audit firm?
Answer
The client's management
The client's chief executive officer
The client's chief financial officer
The client's audit committee