Chapters 1-7 Flashcards
1-17 Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company’s financial position, operations, and cash flows without the expertise of an independent auditor.
b. It is management’s responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.
c. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
d. It is a customary courtesy that all shareholders of a company receive an independent report on management’s stewardship of the affairs of the business.
c)
1-17 Independent auditing can best be described as:
a. A branch of accounting.
b. A discipline that attests to the results of accounting and other functional operations and data.
c. A professional activity that measures and communicates financial and business data.
d. A regulatory function that prevents the issuance of improper financial information
b)
1-17 Which of the following professional services is an attestation engagement?
a. A consulting service engagement to provide computer-processing advice to a client.
b. An engagement to report on compliance with statutory requirements.
c. An income tax engagement to prepare federal and provincial tax returns.
d. The preparation of financial statements from a client’s financial records.
b)
1-17 Which of the following attributes is likely to be unique to the audit work of public accountants as compared to the work performed by practitioners of other professions?
a. Independence.
b. Competence.
c. Due professional care.
d. Complex body of knowledge.
a)
1-18 Which of the following best describes the operational audit?
a. It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company.
b. It concentrates on implementing financial and accounting control in a newly organized company.
c. It attempts and is designed to verify the fair presentation of a company’s results of operations.
d. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.
d)
1-18 Compliance auditing often extends beyond audits, leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and:
a. Accuracy.
b. Adherence to specific rules or procedures.
c. Evaluation.
d. Internal control.
b)
2-17 You have been engaged to audit the financial statements of a Canadian public company. Which of the following statements is correct?
a. Your firm must be registered with the CPAB.
b. Your firm will be subject to auditing and quality control standards issued by the provincial securities commission.
c. Your firm must be either a national or Big Four CPA firm.
d. You will be engaged to audit both the quarterly and annual financial statements of your client.
a)
2-18 Which of the following best describes what is meant by “Canadian Auditing Standards”?
a. Acts to be performed by the auditor.
b. Measures of the quality of the auditor’s performance.
c. Procedures to be used to gather evidence to support financial statements.
d. Audit objectives generally determined on audit engagements.
b)
2-18 The Responsibilities principle underlying Canadian Auditing Standards includes a requirement that:
a. The audit be adequately planned and supervised.
b. The auditor’s report states whether or not the financial statements conform to generally accepted accounting standards.
c. Professional judgment be exercised by the auditor.
d. Informative disclosures in the financial statements be reasonable adequate
c)
2-18 What is the general character of the responsibilities characterized by the Performance principles?
a. The competence, independence, and professional care of persons performing the audit.
b. Criteria for the content of the auditor’s report on financial statements and related footnote disclosures.
c. The criteria of audit planning and evidence gathering.
d. The need to maintain independence in mental attitude in all matters pertaining to the audit
c)
2-19 The nature and extent of a public accounting firm’s quality control policies and procedures depend on:
The PA Firm’s Size (Y/N),
The Nature of the PA Firm’s Practice (Y/N), Cost–Benefit Considerations (Y/N)
(1) Yes Yes Yes
(2) Yes Yes No
(3) Yes No Yes
(4) No Yes Yes
(1)
2-19 Which of the following are elements of a PA firm’s quality control that should be considered in establishing its quality control policies and procedures?
Human Resources (Y/N) Monitoring (Y/N) Engagement Performance (Y/N)
(1) Yes Yes No
(2) Yes Yes Yes
(3) No Yes Yes
(4) Yes No Yes
(2)
2-19 One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:
a. Enable the PA firm to attest to the reliability of the client.
b. Satisfy the PA firm’s duty to the public concerning the acceptance of new clients.
c. Provide reasonable assurance that the integrity of the client is considered.
d. Anticipate before performing any field work whether an unqualified opinion can be issued.
c)
3-14 An auditor strives to achieve independence in appearance to:
a. Comply with the auditing standards of fieldwork.
b. Become independent in fact.
c. Maintain public confidence in the profession.
d. Maintain an unbiased mental attitude.
d)
3-15 In which one of the following situations would a Chartered Professional Accountant be in violation of the Code of Professional Conduct in determining the audit fee?
a. A fee is based on whether the CPA’s report on the client’s financial statements results in the approval of a bank loan.
b. A fee is based on the outcome of a bankruptcy proceeding.
c. A fee is based on the nature of the service rendered and the Chartered Professional Accountant’s expertise instead of the actual time spent on the engagement.
d. A fee is based on the fee charged by the prior auditor.
a)
3-16 A single-partner Chartered Professional Accountant firm took on a new client in the uranium mining industry. Most of the firm’s clients operate in the retail service sector and the firm had until then never dealt with any business operating in the uranium sector. The audit fees for the new client are significant and the partner has indicated that “the staff assigned to the audit should be quickly able to learn the ins and outs of uranium and be able to perform a quality audit.”
Which Rule of Professional Conduct has most likely been violated in the following situation?
a. Association with false and misleading information.
b. Contingent fees.
c. Advertising and solicitation.
d. Competence
d)
3-17 Which of the following is not a safeguard to independence?
a. A qualified, independent audit committee.
b. Firm policies that limit direct communication between junior staff and the client’s senior executives.
c. Tone at the top encouraging high-quality auditing and professional skepticism.
d. Periodic rotation of senior members on the engagement.
b)
3-18 Which of the following best defines the “expectations gap”?
a. The difference between auditors and shareholders in their understanding of the financial statements of a specific company.
b. The difference between what the company’s directors know about the current affairs and future plans of the company and what information is shared with the auditors.
c. The difference between what the company reports to the public and what the auditors state in their report.
d. The difference between what the public believes the auditors performed as part of the audit and what actual work was conducted following the auditing standards.
d)
4-20 Which of the following best describes the reason why an independent auditor reports on financial statements?
a. A misappropriation of assets may exist, and it is more likely to be detected by independent auditors.
b. Different interests may exist between the company preparing the statements and the persons using the statements.
c. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.
d. Poorly designed internal controls may be in existence.
b)
4-20 Because of the risk of material misstatement, an audit should be planned and performed with an attitude of:
a. Objective judgment.
b. Independent integrity.
c. Professional skepticism.
d. Impartial conservatism.
c)
4-21 What assurance does the auditor provide that errors and fraud that are material to the financial statements will be detected?
Errors Fraud
(1) Limited Negative
(2) Reasonable Reasonable
(3) Limited Limited
(4) Reasonable Limited
2)
4-22 An auditor will most likely review an entity’s periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management’s assertion about classes of transactions of:
a. Occurrence.
b. Completeness.
c. Accuracy.
d. Classification.
b)
4-22 In the audit of accounts payable, an auditor’s procedures will most likely focus primarily on management’s assertion about account balances of:
a. Existence.
b. Completeness.
c. Valuation and allocation.
d. Classification and understandability.
b)
5-18 Which of the following types of documentary evidence should the auditor consider to be the most reliable?
a. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker.
b. Confirmation of an account payable balance mailed by and returned directly to the auditor.
c. A cheque, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditor.
d. An audit schedule prepared by the client’s controller and reviewed by the client’s treasurer.
b)
