PRINCIPLES OF AUDITING AND OTHER
ASSURANCE SERVICES 2026 FINAL
ASSESSMENT EXAM
◉ D. Answer: When planning the audit, which of the following is
least likely a purpose of the auditor's inquiries of management?
A. To obtain an understanding of management's assessment of the
risk that the financial statements may be materially misstated as a
result of fraud.
B. To obtain knowledge of management's understanding regarding
the accounting and internal control systems in place to prevent and
detect error.
C. To determine whether management has discovered any material
errors.
D. To determine ext
◉ C. Answer: When an auditor becomes aware of a possible illegal
act by a client, the auditor should obtain an understanding of the
nature of the act to:
A. Increase the assessed level of control risk.
B. Recommend remedial actions to the audit committee.
C. Evaluate the effect on the financial statements.
D. Determine the reliability of management's representations.
,◉ D. Answer: (12) What is expected of an auditor in determining
noncompliance by an entity to existing laws and regulations?
A. Whether an act constitutes noncompliance is a legal
determination that is ordinarily within the auditor's professional
competence.
B. The auditor's training, experience and understanding of the entity
and its industry cannot provide a basis for recognition that some
acts coming to the auditor's attention may constitute noncompliance
with laws and regulations.
C. The determination as
◉ B. Answer: Examples of the type of information that may come to
the auditor's attention that may indicate that noncompliance with
laws or regulations has occurred least likely include:
A. Investigation by government departments or payment of fines or
penalties.
B. Sales commissions or agent's fees that appear reasonable in
relation to those ordinarily paid by the entity or in its industry or to
the services actually received.
C. Unusual transactions with companies registered in tax havens.
D. Media comment
◉ B. Answer: Which of the following circumstances most likely
indicate the possibility of fraud or error?
,A. Management engages in frank communication with appropriate
third parties, such as regulators and bankers.
B. Evidence of an unduly lavish lifestyle by officers or employees.
C. Conservative application of accounting principles.
D. Minimal differences from expectations disclosed by analytical
procedures.
◉ D. Answer: Examples of fraud risk factors relating to susceptibility
of assets to misappropriation include the following, EXCEPT:
A. Large amounts of cash on hand or processed.
B. Inventory characteristics, such as small size combined with high
value and high demand.
C. Easily convertible assets, such as bearer bonds, diamonds or
computer chips.
D. Lack of appropriate management oversight.
◉ A. Answer: Which of the following is most likely an example of
fraud risk factor relating to management's characteristics and
influence over the control environment?
A. There is a strained relationship between management and the
current or predecessor auditor.
B. Inability to generate cash flows from operations while reporting
earnings and earnings growth.
, C. Significant related party transactions which are not in the
ordinary course of business.
D. Significant, unusual or highly complex transactions (espe
◉ B. Answer: Which of the following best describes what is meant by
the term "fraud risk factor"?
A. Factors whose presence indicates that the risk of fraud is high.
B. Factors whose presence often has been observed in circumstances
where frauds have occurred.
C. Factors whose presence requires modifications of planned audit
procedures.
D. Reportable conditions identified during an audit.
◉ A. Answer: The following are examples of fraud risk factors
relating to industry conditions, EXCEPT:
A. There is a high turnover of management, counsel or board
members.
B. A high degree of competition or market saturation, accompanied
by declining margins.
C. A declining industry with increasing business failures and
significant declines in customer demand.
D. Rapid changes in the industry, such as high vulnerability to
rapidly changing technology or rapid product obsolescence.
ASSURANCE SERVICES 2026 FINAL
ASSESSMENT EXAM
◉ D. Answer: When planning the audit, which of the following is
least likely a purpose of the auditor's inquiries of management?
A. To obtain an understanding of management's assessment of the
risk that the financial statements may be materially misstated as a
result of fraud.
B. To obtain knowledge of management's understanding regarding
the accounting and internal control systems in place to prevent and
detect error.
C. To determine whether management has discovered any material
errors.
D. To determine ext
◉ C. Answer: When an auditor becomes aware of a possible illegal
act by a client, the auditor should obtain an understanding of the
nature of the act to:
A. Increase the assessed level of control risk.
B. Recommend remedial actions to the audit committee.
C. Evaluate the effect on the financial statements.
D. Determine the reliability of management's representations.
,◉ D. Answer: (12) What is expected of an auditor in determining
noncompliance by an entity to existing laws and regulations?
A. Whether an act constitutes noncompliance is a legal
determination that is ordinarily within the auditor's professional
competence.
B. The auditor's training, experience and understanding of the entity
and its industry cannot provide a basis for recognition that some
acts coming to the auditor's attention may constitute noncompliance
with laws and regulations.
C. The determination as
◉ B. Answer: Examples of the type of information that may come to
the auditor's attention that may indicate that noncompliance with
laws or regulations has occurred least likely include:
A. Investigation by government departments or payment of fines or
penalties.
B. Sales commissions or agent's fees that appear reasonable in
relation to those ordinarily paid by the entity or in its industry or to
the services actually received.
C. Unusual transactions with companies registered in tax havens.
D. Media comment
◉ B. Answer: Which of the following circumstances most likely
indicate the possibility of fraud or error?
,A. Management engages in frank communication with appropriate
third parties, such as regulators and bankers.
B. Evidence of an unduly lavish lifestyle by officers or employees.
C. Conservative application of accounting principles.
D. Minimal differences from expectations disclosed by analytical
procedures.
◉ D. Answer: Examples of fraud risk factors relating to susceptibility
of assets to misappropriation include the following, EXCEPT:
A. Large amounts of cash on hand or processed.
B. Inventory characteristics, such as small size combined with high
value and high demand.
C. Easily convertible assets, such as bearer bonds, diamonds or
computer chips.
D. Lack of appropriate management oversight.
◉ A. Answer: Which of the following is most likely an example of
fraud risk factor relating to management's characteristics and
influence over the control environment?
A. There is a strained relationship between management and the
current or predecessor auditor.
B. Inability to generate cash flows from operations while reporting
earnings and earnings growth.
, C. Significant related party transactions which are not in the
ordinary course of business.
D. Significant, unusual or highly complex transactions (espe
◉ B. Answer: Which of the following best describes what is meant by
the term "fraud risk factor"?
A. Factors whose presence indicates that the risk of fraud is high.
B. Factors whose presence often has been observed in circumstances
where frauds have occurred.
C. Factors whose presence requires modifications of planned audit
procedures.
D. Reportable conditions identified during an audit.
◉ A. Answer: The following are examples of fraud risk factors
relating to industry conditions, EXCEPT:
A. There is a high turnover of management, counsel or board
members.
B. A high degree of competition or market saturation, accompanied
by declining margins.
C. A declining industry with increasing business failures and
significant declines in customer demand.
D. Rapid changes in the industry, such as high vulnerability to
rapidly changing technology or rapid product obsolescence.
