Audits - Multiple Choice Questions

1)
Various types of quality audits are:

A) product
B) process
C) management (system)
D) registration (certification)
E) All of above

2)
When the auditor is an employee of the organization being audited (auditee), the audit is classified as an
........ quality audit.

A) internal
B) external
C) compliance
D) Both A & B

3)
The most comprehensive type of audit is the ......... system audit, which examines suitability and
effectiveness of the system as a whole.

A) quantity
B) quality
C) Preliminary
D) sequential

4)
Each of the three parties involved in an audit ......................... plays a role that contributes to its success.

A) the client, the auditor, and the auditeer

B) the client, the auditor, and the audite
C) the client, the moderator, and the auditee
D) the client, the auditor, and the auditee

5)
An audit is usually conducted in three steps:

(1) A pre-examination or opening meeting with the auditee marks the beginning of the process.
(2) involves a suitability audit of the documented procedures against the selected reference standard.
(3) the auditor examines in depth the implementation of the quality system.

A) True
B) False

6)
The audit final report should include, at a minimum, the following:
(choose the one NOT required)

1. Type of audit conducted

2. Characteristics of audit
3. Identification of involved parties: auditor, auditee, and third party
4. Audit team members
5. Critical nonconformities and other observations
6. Audit standards and reference documents used
7. Determination of proper corrective action(s)
8. Duration of audit

A) 1
B) 2
C) 4
D) 8

7)
The time required and costs involved in an external audit are much higher as compared to internal
audits.

A) True
B) False

8)
Audit is a fact-finding process that compares actual results with ......................

A) specified standards and plans

B) expected results
C) premature results
D) preliminary results
9)
The ......... is also expected to provide the resources needed and select staff members to accompany the
auditors.

A) auditor
B) client
C) internal auditor
D) auditee

10)
For the benefit of the organisation, quality auditing should only report non-conformances and corrective
actions, but should not highlight areas of good practice.

A) True
B) False

Answers : 1)e, 2)a, 3) b, 4) d, 5)a, 6) b, 7)a, 8) a, 9)d, 10) b

Chapter 6 Multiple-Choice Questions 1. The objective of the ordinary audit of financial

statements is the expression of an opinion on: easy a. the fairness of the financial statements. a b.
the accuracy of the financial statements. c. the accuracy of the annual report. d. the balance sheet
and income statement.

2. easy If the auditor believes that the financial statements are not fairly stated or is unable to
reach an conclusion because of insufficient evidence, the auditor: c a. should withdraw from the
engagement. b. should request an increase in audit fees so that more resources can be used to
conduct the audit. c. has the responsibility of notifying financial statement users through the
auditor’s report. d. should notify regulators of the circumstances.

3. Auditors accumulate evidence to: easy a. defend themselves in the event of a lawsuit. d b.
justify the conclusions they have otherwise reached. c. satisfy the requirements of the Securities
Acts of 1933 and 1934. d. enable them to reach conclusions about the fairness of the financial
statements.

4. easy The responsibility for adopting sound accounting policies and maintaining adequate
internal control rests with the: b a. board of directors. b. company management. c. financial
statement auditor. d. company’s internal audit department.
 5. easy The auditor’s best defense when material misstatements are not uncovered is to have
conducted the audit: a a. in accordance with auditing standards. b. as effectively as reasonably
possible. c. in a timely manner. d. only after an adequate investigation of the management team.

6. easy If management insists on financial statement disclosures that the auditor finds
unacceptable, the auditor can: a Issue an adverse audit report Issue a qualified audit report a. b. c.
d. Yes No Yes No Yes No No Yes

7. easy If management insists on financial statement disclosures that the auditor finds
unacceptable, the auditor can do all but which of the following? b a. Issue an adverse audit
report. b. Issue a disclaimer of opinion. c. Withdraw from the engagement. d. Issue a qualified
audit report. Arens/Elder/Beasley

8. easy Which of the following is not one of the reasons that auditors provide only reasonable
assurance on the financial statements? d a. The auditor commonly examines a sample, rather than
the entire population of transactions. b. Accounting presentations contain complex estimates
which involve uncertainty. c. Fraudulently prepared financial statements are often difficult to
detect. d. Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

9. (Public) challenging In certifying their annual financial statements, the CEO and CFO of a
public company certi

Chapter 3 Multiple-Choice Questions

1. Auditing standards require that the audit report must be titled and that the title must: easy a.
include the word “independent.” a b. indicate if the auditor is a CPA. c. indicate if the auditor is a
proprietorship, partnership, or incorporated. d. indicate the type of audit opinion issued.

2. Medium a To emphasize the fact that the auditor is independent, a typical addressee of the
audit report could be: Company Controller Shareholders Board of Directors a. No Yes Yes b. No
No Yes c. Yes Yes No d. Yes No No

3. The purpose of the introductory paragraph in the standard unqualified report is: easy a. to
identify that the type of opinion issued is unqualified. b b. to identify the financial statements
audited and the dates and time periods covered by the report. c. to indicate the CPA followed
applicable audit standards. d. to indicate all the financial statements are in accordance with
GAAP.
4. The scope paragraph of the standard unqualified audit report states that the audit is designed
to: easy a. discover all errors and/or irregularities. d b. discover material errors and/or
irregularities. c. conform to generally accepted accounting principles. d. obtain reasonable
assurance whether the statements are free of material misstatement.

5. The audit report date on a standard unqualified report indicates: easy a. the last day of the
fiscal period. d b. the date on which the financial statements were filed with the Securities and
Exchange Commission. c. the last date on which users may institute a lawsuit against either
client or auditor. d. the last day of the auditor’s responsibility for the review of significant events
that occurred subsequent to the date of the financial statements.

6. easy d As a result of management’s refusal to permit the auditor to physically examine

inventory, the auditor has not accumulated sufficient appropriate evidence to conclude whether
financial statements are stated in accordance with GAAP. The auditor must depart from the
unqualified audit report because: a. the financial statements have not been prepared in
accordance with GAAP. b. the scope of the audit has been restricted by circumstances beyond
either the client’s or auditor’s control. c. the auditor has lost independence. d. the scope of the
audit has been restricted.

7. An adverse opinion is issued when the auditor believes: easy a. some parts of the financial
statements are materially misstated or misleading. d b. the financial statements would be found to
be materially misstated if an investigation were
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performed. c. the auditor is not independent. d. the overall financial statements are so materially
misstated that they do not present fairly the financial position or results of operations and cash
flows in conformity with GAAP.
Auditing CPA Exam: 10 Practice Questions
1. Which of the following acts is generally prohibited by the professional standards?

A. Witholding an audit report because fees charged to client are past due and the client has
demanded their return. .
B. Witholding an audit report due to outstanding audit issues and the client has demanded their
return.
C. Witholding an incomplete audit report requested by client.
D. Retaining client records after an engagement is terminated prior to completion and the client
has demanded their return.

1. ANSWER: D

According to Interpretation 501-1 “If an engagement is terminated prior to completion, the

member is required to return only client records.”

2. Which of the following is not a close relative of the covered member?

A. Sibling
B. Nondependent child
C. Parent
D. Dependent child.

ANSWER: D

This answer is correct because a dependent child is considered to be immediate family of the
covered member.

3. Which type of conduct would not result in an automatic expulsion from AICPA?

A. Preparation of a fraudulent tax return.

B. Felony conviction.
C. Accidentally failing to file a personal tax return.
D. Preparation of fraudulent tax return for a client.

4. According to AICPA standards, which of the following situations will compromise the
independence of the CPA performing an audit?
A. Acting as an executor of an estate that had an immaterial indirect financial interest in the
client.
B. Receving a private loan from a hedge fund manager who owns 9% of the outstanding shares
of the client company.
C. Owning 9% of a client’s outstanding shares.
D. Refinancning an automobile loan from a bank client.

ANSWER: C is correct.

According to Rule 101, a partner or professional cannot own more than 5% of the client’s
outstanding shares.

5. According to AICPA standards, which of the following situations will not compromise the
independence of the CPA performing an audit?

A. CPA’s wife works as an executive assistant for the client.

B. CPA’s nondependent son has a material financial interest in the client that the CPA is not
aware of.
C. CPA’s brother works as a stock promoter for the client.
D. CPA’s father works as the CFO for the client.

ANSWER: A

According to the exception to Rule 101, a spouse may be employed by a client if s/he was not
employed in a key position. Someone in a key position exerts significant influence over the
contents of the client’s financial statements.

6. When nonattest service are provided, the client must:

A. Assume all responsibilities of decision making.

B. Designate an individual in senior management with requisite skills and knowledge to oversee
these services.
C. Must be responsible for establishing internal controls.
D. All of the above.

ANSWER: D.

The client must oversee, evaluate and accept responsibility for results. In addition the client must
establish and maintain internal controls.

7. In performance of any professional service, a member shall

A. Maintain objectivity and integrity
B. Avoid conflicts of interest
C. Not knowingly misrepresent facts or subordinate judgment
D. All of the above
ANSWER: D

Rule 102 Integrity and Objectivity states all three requirements.

8. A customer that provides 9% of revenues for an audit client experiences a flood in their head
offices prior to completion of year-end fieldwork. The audit client believes that this event could
have a significant direct effect on the financial statements. The auditor should:

A. Withhold submission of the auditor’s report.

B. Advise management to disclose the event in notes to the financial statements.
C. Submit the auditor’s report because disclosures are only required for events that effect more
than 10% of revenues.
D. Advise management to adjust the financial statements at a point in the future when the extent
of the flood and the direct effect on the financial statements is known.

Conditions which come into existence after year-end which may have a significant direct effect
on the financial statements should be disclosed in the notes to the financial statements.

9. Which of the following is an example of an advocacy threat to member independence?

A. An engagement team member sells securities of the attest client’s company.

B. An engagement team member is the CFO of the attest client’s company.
C. An engagement team member is litigating a bill for unpaid invoices by the attest client.
D. An engagement team member’s spouse has a direct financial interest in the attest client.

ANSWER A:

An advocacy threat stems from action that promote the client’s interests. Selling securities is an
example of an activity that promotes a client’s interests.

10. The following would most likely be a violation of the profession’s ethical standards

A. CPA provides consulting services with a contingent fee based on reducing the client’s tax
burden by 5%.
B. CPA provides tax preparation service with a contingent fee based on reducing the client’s tax
burden by 5%.
C. CPA represents that consulting services will cost approximately $25,000 when the CPA knew
the services would most likely cost twice that amount.
D. CPA provides consulting services and charges less than a competitive rate in order to win the
business of the client.

10. ANSWER: C

According to Rule 102, in performance of any professional service, a member shall maintain
objectivity and integrity, avoid conflicts of interest, and not knowingly misrepresent facts. The
CPA would be knowingly misrepresenting the facts by providing a bid that was clearly off the
mark.