Audit Midterm Exam Questions and Revised Answers All Correct
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Course
Audit
Institution
Audit
Audit Midterm Exam Questions and Revised Answers All Correct
An auditor's primary consideration regarding an entity's internal controls is whether the policies and procedures
A. Affect the financial statement assertions.
B. Prevent management override.
C. Relate to the control environmen...
Audit Midterm Exam Questions and
Revised Answers All Correct
An auditor's primary consideration regarding an entity's internal controls is whether the
policies and procedures
A. Affect the financial statement assertions.
B. Prevent management override.
C. Relate to the control environment.
D. Reflect management's philosophy and operating style. - Answer ✔ A
A flowchart is most frequently used by an auditor in connection with the
A. Review of the entity's internal controls.
B. Use of statistical sampling in performing an audit.
C. Preparation of generalized computer audit programs.
D. Performance of analytical procedures of account balances. - Answer ✔ A
The auditor's communication of material weaknesses in internal control for a nonpublic
company is
A. Required to enable the auditor to state that the examination has been made in
accordance with generally accepted auditing standards.
B. Required to be included as part of the audit opinion.
C. The principle reason for studying and evaluating the system of internal controls.
D. Incidental to the auditor's objective of forming an opinion as to the fair presentation of
the financial statements. - Answer ✔ D
Audit evidence concerning proper segregation of duties ordinarily is best obtained by
A. Preparation of a flowchart of duties performed by available personnel.
B. Direct personal observation of the employees who apply the control activities.
C. Reviewing job descriptions prepared by the Personnel Department.
D. Inquiring whether control activities operated consistently throughout the period. -
Answer ✔ B
Proper monitoring within an internal control framework may include all of the following
except:
A. The internal revenue service.
B. An external auditor.
C. An effective audit committee.
D. An internal audit function. - Answer ✔ A
In obtaining an understanding of an entity's internal control in a financial statement audit
of a nonpublic company, an auditor is not obligated to
A. Perform procedures to understand the design of the internal control policies.
B. Determine whether the control activities have been placed in operation.
,C. Search for significant deficiencies in the operation of the internal control.
D. Document the understanding of the entity's internal control components. - Answer ✔
C
An example of an analytical procedure is the comparison of
A. Results of a statistical sample with the expected characteristics of the actual
population.
B. EDP generated data with similar data generated by a manual accounting system.
C. Recorded amounts of major disbursements with appropriate invoices.
D. Financial information with similar information regarding the industry in which the
entity operates. - Answer ✔ D
Analytical procedures used in planning an audit should focus on identifying
A. The various assertions that are embodied in the financial statements.
B. Material weaknesses in internal control.
C. The predictability of financial data from individual transactions.
D. Areas that may represent specific risks relevant to the audit. - Answer ✔ D
Analytical procedures are
A. Required for planning and overall review of the financial statements.
B. Required during planning only.
C. Required for planning, substantive testing, and overall review of the financial
statements.
D. Never required. - Answer ✔ A
The auditor should consider all of the following when deciding whether substantive
procedures will be performed at an interim date except:
A. The level of control risk.
B. Whether business conditions will change after the interim date.
C. Scheduling conflicts in the audit firm that make interim testing more convenient.
D. The ability to examine the remaining period - Answer ✔ C
An organizational structure is important for all of the following reasons except:
A. Defining areas of authority.
B. Ensuring proper accountability.
C. Ensuring a proper commitment to controls.
D. Creating clear lines of reporting. - Answer ✔ C
A not-for-profit organization published a monthly magazine that had 15,000 subscribers
on January 1, 2013. The number of subscribers increased steadily throughout the year
and at December 31, 2013, there were 16,200 subscribers. The annual magazine
subscription cost was $10 on January 1, 2013 and was increased to $12 for new
members on April 1, 2013. Subscriptions are paid in full at the beginning of the member
term. An auditor should expect that the revenue from subscriptions for the year ended
December 31, 2013, would be approximately - Answer ✔ $163,800.
, Before applying substantive procedures to the details of asset and liability accounts at
an interim date, the auditor should
A. Consider the compliance tests that must be applied at the balance sheet date to
extend the audit conclusions reached at the interim date.
B. Investigate significant fluctuations that have occurred in the asset and liability
accounts since the previous balance sheet date.
C. Assess the difficulty in controlling achieved audit risk for the remainder of the period.
D. Select only those accounts which can effectively be sampled during year-end audit
work. - Answer ✔ C
Which of the following best describes the fundamental, underlying reason for why there
is demand for an independent auditor to report on financial statements?
A. A management fraud may exist and it is more likely to be detected by auditors if they
are independent.
B. A misstatement of account balances may exist and it is the independent auditor's
responsibility to ensure that financial statements are not misstated.
C. A poorly designed internal control system may be in place.
D. Different interests may exist between the company preparing the statements and the
parties using the statements. - Answer ✔ D
An investor is reading the financial statements of the Stankey Corporation and observes
that the statements are accompanied by an auditor's unqualified report. From this, the
investor may conclude that
A. Any disputes over significant accounting issues have been settled to the auditor's
satisfaction.
B. The auditor is satisfied that Stankey will be highly profitable in the future.
C. The auditor has determined that Stankey's management is not qualified to lead the
company.
D. The auditor is certain that Stankey's financial statements have been prepared
accurately and that all account balances are precisely correct. - Answer ✔ A
Which of the following is not a concept that is included in the scope paragraph of the
auditor's report?
A. The audit was conducted in accordance with applicable auditing standards.
B. An audit involves examining items on a test (i.e. sampling) basis.
C. The audit was planned and performed to obtain reasonable, rather than absolute,
assurance.
D. The conformance of the financial statements with generally accepted accounting
principles. - Answer ✔ D
Which one of the following statements best describes the concept of materiality?
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