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 fairness of the financial statements and the effectiveness of the client's internal controls

the effectiveness of the client's operations.

Which of the following is not one of the steps used to develop audit objectives?

know the proper type of audit opinion to issue

divide the financial statements into cycles

know management assertions about the financial statements

know the specific audit objectives for classes of transactions

The auditor's best defense when material misstatements are not uncovered is to have conducted the audit

in accordance with generally accepted auditing standards.

in accordance with generally accepted accounting principles

as effectively as reasonably possible.

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

obtain an understanding of the nature and circumstances of the act.

consult with legal counsel or others knowledgeable about the illegal act.

discuss the matter with the audit committee.

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

violation of occupational safety regulation

violation of environmental regulations

The concept of reasonable assurance indicates that the auditor is

not a guarantor of the correctness of the financial statements.

not responsible for the fairness of the financial statements.

responsible only for issuing an opinion on the financial statements.

responsible for finding all misstatements.

Which of the following is the auditor least likely to do when aware of an illegal act?

contact the local law enforcement officials regarding potential criminal wrongdoing

discuss the matter with the client's legal counsel

obtain evidence about the potential effect of the illegal act on the financial statements

consider the impact of the illegal act on the relationship with the company's management

Which of the following statements is usually true?

An item is considered material if it would likely have changed or influenced the decisions of a reasonable person using the statements.

Materiality is easy to quantify.

Fraudulent financial statements are often easy for the auditor to detect, especially when there is collusion among management.

Reasonable assurance is a low level of assurance that the financial statements are free from material misstatement.

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

equally on discovering material errors and employee fraud.

more on discovering errors than employee fraud.

more on discovering employee fraud than errors.

on the senior auditor for detecting errors and on the manager for detecting employee fraud.

Which of the following statements best describes the auditor's responsibility regarding the detection of fraud?

The auditor is required to provide reasonable assurance that the financial statements are free of both material errors and fraud.

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.

The auditor is responsible for detecting material financial statement fraud, but not a material misappropriation of assets.

The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued.

Which of the following is an accurate statement about professional skepticism?

Professional skepticism involves a critical assessment of the evidence.

Professional skepticism is easy to implement in practice.

It is easy for auditors to understand that their clients may try to deceive them throughout the audit process.

Professional skepticism is only necessary for the audits of public companies.

A questioning mindset

means the auditor should approach the audit with a 'trust but verify' mental outlook.

means the auditor must prove every statement that management makes to them.

means the auditor should approach the audit with a 'do not trust anyone' mental outlook.

assures that the auditor will only accept honest clients.

Why does the auditor divide the financial statements into segments around the financial statement cycles?

The approach aids in the assignment of tasks to different members of the audit team.

Most auditors are trained to audit cycles as opposed to entire financial statements.

The cycle approach is required by auditing standards.

The cycle approach allows the auditor to detect illegal acts.

The cycle approach to auditing

ties to the way transactions are recorded in journals and then summarized in the general ledger and financial statements.

cannot combine transactions recorded in different journals with the general ledger balances that result from those transactions.

is the only way of segmenting an audit.

assumes that each account has two or more cycles associated with it.

Auditors have found that generally the most efficient and effective way to conduct audits is to

obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts.

obtain complete assurance about the correctness of each class of transactions affecting the account.

obtain assurance about the ending balance of the account only.

verify each entry that was made into an account.

Management assertions are

directly related to the financial reporting framework used by the company, usually PFRS.

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.

Management makes the following assertions about account balances:

existence or occurrence, completeness, valuation or allocation, and rights and obligations.

existence or occurrence, completeness, classification, and cutoff.

existence or occurrence, accuracy, classification, and rights and obligations.

existence or occurrence, completeness, rights and obligations, and cutoff.

Which of the following statements is true regarding the distinction between general audit objectives and specific audit objectives for each class of transactions?

The general audit objectives are applicable to every class of transactions.

The specific audit objectives are applicable to every class of transactions.

Once the specific transaction-related audit objectives are established, they can be used to develop the general transaction-related objectives.

For any given class of transactions, usually only one audit objective must be met to conclude the transactions are properly recorded.

In testing for cutoff, the objective is to determine

whether transactions are recorded in the correct accounting period.

whether all of the current period's transactions are recorded.

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?

confirmation of accounts receivable balance received from a customer

general ledger account balances

internal memo explaining the issuance of a credit memo

copy of month-end adjusting entries

Which of the following statements regarding the relevance of evidence is correct?

To be relevant, evidence must address the auditor's objective.

To be relevant, evidence must be verifiable.

To be relevant, evidence must validate multiple management assertions.

To be relevant, evidence must be derived from a system including effective system of internal controls.

Which of the following statements is not correct?

Cost is an adequate justification for not gathering an adequate sample size.

It is possible to vary the sample size from one unit to 100% of the items in the population.

The decision of how many items to test must be made by the auditor for each audit procedure.

The sample size for any given procedure is likely to vary from audit to audit.

An example of an external document that provides reliable information for the auditor is a(n)

purchase order for company purchases.

A written understanding detailing what the auditor expects from the client in performing an audit will normally be expressed in the

management letter requested by the auditor.

Auditing Quiz

Authored by HENLY PAHILAGAO

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The level of assurance provided by an audit of detecting a material misstatement is referred to as:

Absolute assurance.

High assurance.

Negative assurance.

Reasonable assurance.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The difference between what the public expects to get from the audited financial statements and what the public is actually getting is known as:

Credibility gap

Audit gap

Expectation gap

Level of assurance gap

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is responsible for an entity's financial statements?

The entity's management.

The entity's audit committee.

The entity's internal auditors.

The entity's board of directors.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which management assertion is being tested when the auditor traces receiving reports to the purchases journal to ensure all received goods are recorded?

Existence

Rights and obligations

Completeness

Accuracy

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor inspects documents whether the client has appropriate title over its reported inventories. This procedure primarily tests which assertion?

Valuation

Rights and obligations

Existence

Completeness

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following is not one of the PSA's recognized management assertions for account balances?

Completeness

Existence

Accuracy, valuation, and allocation

Understandability

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor tests whether recorded sales transactions are valid by matching invoices to shipping documents. Which assertion is being tested?

Cutoff

Occurrence

Accuracy

Presentation

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Auditing Quiz

The level of assurance provided by an audit of detecting a material misstatement is referred to as:

The difference between what the public expects to get from the audited financial statements and what the public is actually getting is known as:

Which of the following is responsible for an entity's financial statements?

Which management assertion is being tested when the auditor traces receiving reports to the purchases journal to ensure all received goods are recorded?

An auditor inspects documents whether the client has appropriate title over its reported inventories. This procedure primarily tests which assertion?

Which of the following is not one of the PSA's recognized management assertions for account balances?

An auditor tests whether recorded sales transactions are valid by matching invoices to shipping documents. Which assertion is being tested?

The objective of an audit of the financial statements is an expression of an opinion on

Which of the following is not one of the steps used to develop audit objectives?

The following officers certify the accuracy of the financial statements, except

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