Audit Final Exam Review Questions with 100% Correct Answers 2022/2023

Audit Final Exam Review Questions with 100% Correct Answers 2022/2023 An unqualified (unmodified) audit opinion is a negative opinion regarding the financial statements indicating that the financial statements are not fairly stated. True/False - Ans-False The auditor's report on internal control quality can express which of the following opinions regarding the quality of internal control? Qualified or Adverse only Unqualified, Qualified, or Adverse Unqualified or Adverse only Unqualified or Qualified only - Ans-Unqualified or Adverse only The standards of independence, proficiency and training, and due professional care are included in the: General standards Standards of independence Standards of reporting Standards of fieldwork - Ans-General standards Which of the following is NOT a type of audit documentation that auditors should include in their files? The audit program The engagement letter Copies of the client's financial statements Each of the above is a type of audit documentation that the auditor should include in the file - Ans-Each of the above is a type of audit documentation that the auditor should include in the file If the auditor fails to obtain a management representation letter, she can still issue an unqualified audit opinion without modifications if she obtains adequate evidence through other sources. T/F - Ans-False Audit partners in the U.S. can serve a particular "Public Company" client for no more than _____ years consecutively. 3 years 5 years 7 years There is no limit on the length of time an audit partner can consecutively serve an audit client as long as she is independent from the client. - Ans-5 Years Sampling risk exists when the auditor doesn't follow proscribed sampling procedures. T/F - Ans-False An audit partner of ACE Auditors who practices in the Salt Lake City, Utah office of the firm performs the audit of TCE Co. Partner B practices in the Boise, Idaho office of the firm. She is not in an oversight role in the firm, but provides around 5-7 hours of taxrelated services per year to TCE Co. Is Partner B considered a 'Covered Member' under AICPA rules? Yes, partner B is considered a covered member There is not enough information to answer this question No, partner B is not considered a covered member - Ans-No, partner B is not considered a covered member The Auditing Standards (AS's) are issued by which standard setter? Auditing Standards Board IAASB SEC PCAOB - Ans-PCAOB Audits of financial statements provide absolute assurance that the financial statements are free of material misstatements. True/False - Ans-False The Securities Exchange Act of 1934 requires that the AICPA set rigorous auditing standards. True/False - Ans-False Which of the following is true regarding the relationship of assurance, attest, and audit services? Audit and assurance services are a subset of attest services Audit and attest services are a subset of assurance services Assurance and attest services are a subset of audit services Assurance and audit services are a subset of attest services - Ans-Audit and attest services are a subset of assurance services The term 'sampling unit' refers to the items that make up a population True/False - Ans-True When issuing a modified opinion, the auditor adds an explanatory paragraph AFTER the opinion paragraph in the audit report. True/False - Ans-False The Control Environment component of internal control relates to client integrity, proper board oversight and reporting channels, commitment to hiring competent employees, and proper accountability for internal control related actions. True/False - Ans-True Which of the following describes what is meant by the term 'covered member'? Covered members are individuals or entities that are required to comply with the AICPA's independence rules Covered members are those who are covered in case of independence violations Covered members are individuals or entities who are covered by the AICPA's insurance policy Covered members are individuals or entities who are independent from the client - AnsCovered members are individuals or entities that are required to comply with the AICPA's independence rules Which of the following factors does the auditor need to evaluate before relying on the internal audit function? The internal auditor's objectivity The internal auditor's competence The internal auditor's approach to auditing All of the above are factors the external auditor should evaluate before relying on the internal audit function - Ans-All of the above are factors the external auditor should evaluate before relying on the internal audit function Which standard setter issues auditing standards for audits of non-public companies in the U.S.? None of the above PCAOB FASB ASB - Ans-ASB Which of the following is NOT one of the purposes of audit documentation? Provide support for the conclusions reached by the auditor Provide evidence that the audit was carried out in accordance with GAAS Facilitate the planning, performance, and supervision of the audit engagement Serves as the basis for review of the work performed Each of the above IS a purpose of audit documentation - Ans-Each of the above IS a purpose of audit documentation Tests of controls provide which type of audit evidence? Substantive Direct Indirect None of the above - Ans-Indirect Auditors must assess the impact of any noncompliance with laws or regulations on the client's financial statements, however they are not required to determine whether the client has complied with all laws and regulations that are relevant to the client. True/False - Ans-True The population from which the auditor draws the sample is the same for the existence assertion for receivables and the completeness assertion for receivables. True/False - Ans-False Rapelje Sporting Goods alleges to have $410,000, net of allowance for doubtful accounts, in its accounts receivable account; this balance is made up of 270 total customers. If Rapelje's true balance is $420,000 and the understated balance is due to the exclusion of a customer's balance which balance-level assertion would be violated? Completeness Valuation and Allocation Rights or Obligations Existence - Ans-Completeness According to AICPA (2008) guidance, which of the following is the most important analytical procedure step for an auditor to complete? compare the client's reported number to the auditor's expectation set an acceptable deviation generate hypotheses for significant differences None of the above - Ans-None of the above Independence in fact is absolutely essential to the audit, but independence in appearance is nice to have but not essential. True/False - Ans-False Under which of the following circumstances will the auditor properly disclose confidential client information to others outside of the firm? The disclosure is made to a peer firm that is inspecting the work of the auditor on the engagement. The disclosure is made to another client who invests in the audit client whose information is being shared. The disclosure is made to the investors through the news channels because the client is engaged in fraud. None of the above. The auditor should under no circumstances disclose confidential client information to others. - Ans-The disclosure is made to a peer firm that is inspecting the work of the auditor on the engagement. Vouching involves obtaining a sample from the source documents and working toward the financial statements whereas tracing involves obtaining a sample from the financial statements and working toward source documents. True/False - Ans-False Which of the following laws requires audited financial statements to be filed with the SEC after the initial sale of securities? Securities Act of 1933 None of the above Securities Exchange Act of 1934 Sarbanes-Oxley Act - Ans-Securities Exchange Act of 1934 Which of the following best describes what is meant by the term 'risk premium'? The highest level of risk that could be faced by an investor or creditor The best interest rate available to the company when borrowing funds The amount charged by an investor or lender that exceeds what they would have charged in the absence of risk None of the above is a definition of risk premium - Ans-The amount charged by an investor or lender that exceeds what they would have charged in the absence of risk An auditor owns 2% of a diversified mutual fund, but the mutual fund invests in one of the auditor's clients. The auditor does not control the investment decisions of the mutual fund. The auditor would not be considered independent in this scenario. True/False - Ans-False Which of the following is NOT one of the key components of internal control? Control environment Control activities Compliance Monitoring - Ans-Compliance If an auditor hires a valuation specialist to assist them in valuing a client asset, they can take the specialist's work as their own without doing any additional work. True/False - Ans-False Bookmark question for late