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Audit Quiz 3 Questions with All Correct Answers

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Audit Quiz 3 Questions with All Correct Answers Which of the following procedures most likely could assist an auditor in identifying related party transactions? A. Performing tests of controls concerning the segregation of duties. B. Evaluating the reasonableness of management's accounting esti...

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  • September 13, 2024
  • 8
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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Audit Quiz 3 Questions with All Correct
Answers
Which of the following procedures most likely could assist an auditor in identifying
related party transactions?
A. Performing tests of controls concerning the segregation of duties.
B. Evaluating the reasonableness of management's accounting estimates.
C. Reviewing confirmations of compensating balance arrangements.
D. Scanning the accounting records for recurring transactions. - Answer ✔ C

An auditor who uses the work of an auditor's external specialist may refer to the
specialist in the auditor's report if the:

A. Specialist's findings provide the auditor greater assurance of reliability about
management's representations.
B. Reference is needed for an understanding of a modification of the opinion.
C. Auditor's use of the specialist's findings is different from that of prior years.
D. The specialist's findings fully corroborate management's financial statement
assertions. - Answer ✔ B

In which of the following instances would it be appropriate for the auditor to refer to the
work of an appraiser in the auditor's report?

A. An unmodified opinion is expressed and no additional paragraph is added, but the
auditor wishes to disclose the use of an auditor's specialist.
B. A qualified opinion is expressed because of a matter unrelated to the work of the
auditor's external specialist.
C. An adverse opinion is expressed based on a difference of opinion between the client
and the auditor's external specialist about the value of certain assets.
D. A disclaimer of opinion is expressed owing to a scope limitation imposed on the
auditor by the auditor's external specialist. - Answer ✔ C

Which of the following statements is true about the use of the work of an auditor's
specialist?

A. The specialist need not agree to the auditor's use of the specialist's findings.
B. The auditor is required to perform substantive procedures to verify the specialist's
assumptions and findings.
C. The auditor must keep client information confidential, but the specialist is not
obligated to do so.
D. The auditor should obtain an understanding of the methods and assumptions used
by the specialist. - Answer ✔ D

, A management's specialist most likely is useful to:

A. Assist the auditor in collecting sufficient appropriate audit evidence.
B. Provide the auditor advice on technical accounting issues.
C. Add credibility to the financial statements.
D. Assist the client in preparing the financial statements. - Answer ✔ D

An auditor is required to establish an understanding in writing with a client regarding the
services to be performed for each engagement. This understanding generally includes:

A. Management's responsibility for errors and the illegal activities of employees that
may cause material misstatement.
B. The auditor's responsibility for ensuring that the audit committee is aware of any
significant deficiencies or material weaknesses in control that come to the auditor's
attention.
C. Management's responsibility for providing the auditor with an assessment of the risk
of material misstatement due to fraud.
D. The auditor's responsibility for determining preliminary judgments about materiality
and audit risk factors. - Answer ✔ B

An auditor most likely modifies the opinion if the entity's financial statements include a
note on related party transactions:

A. Disclosing loans to related parties at interest rates significantly below prevailing
market rates.
B. Describing an exchange of real estate for similar property in a non-monetary related
party transaction.
C. Stating without substantiation that a particular related party transaction occurred on
terms equivalent to those that would have prevailed in an arm's-length transaction.
D. Presenting the dollar volume of related party transactions and the effects of any
change from prior periods in the method of establishing terms. - Answer ✔ C

Which of the following auditing procedures most likely would assist an auditor in
identifying related party transactions?

A. Retesting ineffective internal control procedures previously reported to the audit
committee.
B. Sending second requests for unanswered positive confirmations of accounts
receivable.
C. Reviewing accounting records for nonrecurring transactions recognized near the
balance sheet date.
D. Inspecting communications with law firms for evidence of unreported contingent
liabilities. - Answer ✔ C

An auditor would be most likely to consider modifying an otherwise unmodified opinion if
the client's financial statements include a note on related party transactions:

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