AUDITING – MIDTERM QUESTIONS
AND VERIFIED SOLUTIONS
The auditor has considerable responsibility for notifying users whether the financial statements are
fairly stated. This imposes upon the auditor a duty to
A) be a guarantor of the fairness in the statements.
B) be an insurer of the fairness in the statements.
C) be equally responsible with management for the preparation of the financial statements.
D) provide reasonable assurance that material misstatements will be detected. ANSW✅✅D
Balance-related audit objectives are applied to which types of general ledger accounts?
A) income statement accounts only
B) balance sheet accounts and some income statement accounts
C) accounts that affect the cash flow statement
D) balance sheet accounts only ANSW✅✅B
What is the auditor's role in the detection of computer fraud?
A) use test data to make sure that the computer programs are functioning as described by the client
B) investigate unusual relationships or patterns, conduct the audit properly, and report to
management
C) use computer-assisted audit techniques to make sure that the computer programs do not have
any unauthorized processing
D) only detect fraud if it has been ongoing for a long period of time and leaves many different types
of evidence ANSW✅✅B
Georgina was working as the part-time accountant for three small businesses. Whenever she could,
she pocketed cash and neglected to record the sale in the sales system. The general transaction-
related audit objective affected by her actions is
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization. ANSW✅✅B
,Analytical procedures are those that
A) review the effectiveness of internal controls.
B) analyze the effect of management procedures on the accounting system.
C) evaluate the accuracy of the account balances.
D) assess the overall reasonableness of account balances or other data. ANSW✅✅D
CAS 200 explains that the purpose of the financial statement audit is to express an opinion on the
financial statements. This opinion is an assessment of whether the financial statements are
presented fairly using
A) an applicable financial reporting framework.
B) rules of professional conduct.
C) management's assertions.
D) Canadian generally accepted accounting principles (GAAP) only. ANSW✅✅A
There are three phases in the risk response category of the audit process (design further audit
procedures, tests of control, substantive tests). When will the auditor conduct tests of controls?
A) when there are low risks of material error
B) when there are poor internal controls
C) if the auditor plans to rely upon them
D) when a substantive audit approach is selected ANSW✅✅C
Formamould Inc. sells plastic moulds to a variety of companies. Some moulds are custom made and
cost thousands of dollars. To help customers finance these purchases, Formamould uses a variety of
methods, such as payment terms stretched over three years, delayed payment, and pay-as-you-
produce models tailored to individual customer needs. The outstanding balance is included in
current accounts receivable. The general balance-related audit objective affected by this activity is
A) allocation to accounts.
B) accuracy.
C) existence.
D) completeness. ANSW✅✅A
, After the auditor has completed all the procedures, it is necessary to combine the information
obtained to reach an overall conclusion as to whether the financial statements are fairly presented.
This is a highly subjective process that relies heavily on
A) generally accepted auditing standards.
B) generally accepted accounting principles.
C) the auditor's professional judgment.
D) the provincial institutes' Rules of Professional Conduct. ANSW✅✅C
The Big Insurance Company implemented a new computer system to track and record insurance
premiums receivable. The program automatically prints invoices and sends them to customers when
premiums are due. Due to a program error, a whole series of invoices were included in sales but not
in accounts receivable. The general balance-related audit objective affected by this activity is
A) accuracy.
B) existence.
C) completeness.
D) classification. ANSW✅✅C
Your PA firm has just obtained a new client and you have been assigned the task of preparing the
knowledge of business section of the file. Which of the following best describes the process of
gathering the knowledge of business for a client?
A) gathering information about the industry and regulatory environment
B) discussing processes and business objectives with company employees
C) understanding the client's business, industry, and regulatory environment
D) examining the legal expenses file for possible regulatory infractions ANSW✅✅C
When considering each material type (or class) of transaction during the audit, which general
transaction-related audit objectives are assessed during the audit?
A) those transaction-related audit objectives where there is the highest risk of error
B) those transaction-related audit objectives where there are poor internal controls
C) all five transaction-related audit objectives
D) primarily completeness, occurrence, and accuracy, since they typically have most errors
ANSW✅✅C
AND VERIFIED SOLUTIONS
The auditor has considerable responsibility for notifying users whether the financial statements are
fairly stated. This imposes upon the auditor a duty to
A) be a guarantor of the fairness in the statements.
B) be an insurer of the fairness in the statements.
C) be equally responsible with management for the preparation of the financial statements.
D) provide reasonable assurance that material misstatements will be detected. ANSW✅✅D
Balance-related audit objectives are applied to which types of general ledger accounts?
A) income statement accounts only
B) balance sheet accounts and some income statement accounts
C) accounts that affect the cash flow statement
D) balance sheet accounts only ANSW✅✅B
What is the auditor's role in the detection of computer fraud?
A) use test data to make sure that the computer programs are functioning as described by the client
B) investigate unusual relationships or patterns, conduct the audit properly, and report to
management
C) use computer-assisted audit techniques to make sure that the computer programs do not have
any unauthorized processing
D) only detect fraud if it has been ongoing for a long period of time and leaves many different types
of evidence ANSW✅✅B
Georgina was working as the part-time accountant for three small businesses. Whenever she could,
she pocketed cash and neglected to record the sale in the sales system. The general transaction-
related audit objective affected by her actions is
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization. ANSW✅✅B
,Analytical procedures are those that
A) review the effectiveness of internal controls.
B) analyze the effect of management procedures on the accounting system.
C) evaluate the accuracy of the account balances.
D) assess the overall reasonableness of account balances or other data. ANSW✅✅D
CAS 200 explains that the purpose of the financial statement audit is to express an opinion on the
financial statements. This opinion is an assessment of whether the financial statements are
presented fairly using
A) an applicable financial reporting framework.
B) rules of professional conduct.
C) management's assertions.
D) Canadian generally accepted accounting principles (GAAP) only. ANSW✅✅A
There are three phases in the risk response category of the audit process (design further audit
procedures, tests of control, substantive tests). When will the auditor conduct tests of controls?
A) when there are low risks of material error
B) when there are poor internal controls
C) if the auditor plans to rely upon them
D) when a substantive audit approach is selected ANSW✅✅C
Formamould Inc. sells plastic moulds to a variety of companies. Some moulds are custom made and
cost thousands of dollars. To help customers finance these purchases, Formamould uses a variety of
methods, such as payment terms stretched over three years, delayed payment, and pay-as-you-
produce models tailored to individual customer needs. The outstanding balance is included in
current accounts receivable. The general balance-related audit objective affected by this activity is
A) allocation to accounts.
B) accuracy.
C) existence.
D) completeness. ANSW✅✅A
, After the auditor has completed all the procedures, it is necessary to combine the information
obtained to reach an overall conclusion as to whether the financial statements are fairly presented.
This is a highly subjective process that relies heavily on
A) generally accepted auditing standards.
B) generally accepted accounting principles.
C) the auditor's professional judgment.
D) the provincial institutes' Rules of Professional Conduct. ANSW✅✅C
The Big Insurance Company implemented a new computer system to track and record insurance
premiums receivable. The program automatically prints invoices and sends them to customers when
premiums are due. Due to a program error, a whole series of invoices were included in sales but not
in accounts receivable. The general balance-related audit objective affected by this activity is
A) accuracy.
B) existence.
C) completeness.
D) classification. ANSW✅✅C
Your PA firm has just obtained a new client and you have been assigned the task of preparing the
knowledge of business section of the file. Which of the following best describes the process of
gathering the knowledge of business for a client?
A) gathering information about the industry and regulatory environment
B) discussing processes and business objectives with company employees
C) understanding the client's business, industry, and regulatory environment
D) examining the legal expenses file for possible regulatory infractions ANSW✅✅C
When considering each material type (or class) of transaction during the audit, which general
transaction-related audit objectives are assessed during the audit?
A) those transaction-related audit objectives where there is the highest risk of error
B) those transaction-related audit objectives where there are poor internal controls
C) all five transaction-related audit objectives
D) primarily completeness, occurrence, and accuracy, since they typically have most errors
ANSW✅✅C
